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Vornado JV Obtains 99-year Leasehold of Farley Post Office

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Vornado Realty Trust (VNO - Free Report) recently disclosed that its 50% joint venture with Related Companies has acquired a 99-year leasehold of Farley Post Office. The lease was struck with Empire State Development for the commercial space at this historic building. The move will enhance Vornado’s 9 million square foot Penn Plaza holdings.

Specifically, 850,000 square feet of commercial space would be developed by the joint venture. It would include around 730,000 square feet of office space and focus on creative class tenants. The development would also involve approximately 120,000 square feet of retail space.

A $230-million upfront contribution has already been made by the joint venture for the construction of the Moynihan Train Hall. Also, a $271-million loan facility, with an initial advance of $202 million, was completed by it. In addition, the joint venture has struck a development agreement with ESD and a design-build contract with Skanska Moynihan Train Hall Builders.

Such a transaction is a positive for Vornado’s joint venture. However, the company itself has been struggling hard in recent times. In May, it reported lower-than-expected first-quarter 2017 funds from operations (“FFO”) per share, indicating a fall in occupancy in the Washington DC portfolio. Additionally, as part of portfolio-repositioning efforts, the company is aggressively disposing its assets, which has earnings dilutive effect. Further, stiff competition and hike in interest rates remain its concerns.   

Also, currently, Vornado carries a Zacks Rank #4 (Sell). Moreover, over the past three months, shares of Vornado fell 8.0% and underperformed the Zacks categorized REIT and Equity Trust – Other industry’s gain of 5.5%.



Stocks to Consider

Better-ranked stocks in the REIT space include Prologis, Inc. (PLD - Free Report) , PS Business Parks, Inc. and Whitestone REIT (WSR - Free Report) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Prologis’ estimates for second-quarter 2017 FFO per share moved north 4.0% to 78 cents, over the past 30 days.

PS Business Parks has a long-term growth rate of 5.0%.

Whitestone REIT’s FFO per share estimates for 2017 inched up 1.9% to $1.05, over the past 30 days.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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