The new company will operate as a REIT and its holdings will be predominately located located in the Northeast in states such as New Jersey (we don’t need to mention New Yorker’s opinion of that state). In total, the spinco will own 85 properties with ~16.1m of square footage. In 2013, the company generated ~$187m of EBITDA and is estimated to deliver NOI of ~$200m in 2014. According to Vornado, the ‘SpinCo’s demographics are among the highest of its peers having average population within 3 miles of 149,000 and average household income of $71,000. SpinCo’s average base rent is $18.75 per square foot as compared to the peer median of $15.66 per square foot.’ I am not sure who is in their peer group, but that seems like a positive. Interestingly, Vornado will separately dispose of its remaining non-street retail assets which did not ‘fit’ with the spinco.
The WSJ actually highlighted a possible Vornado shakeup back in March, however, it noted that a spinoff to shareholders was only one of the options under consideration. Apparently, Vornado had been pursuing a Reverse Morris Trust spinoff (a spinoff merged into a new entity) with Retail Opportunity Investment Corp (ROIC) after a sale to Acadia Realty Trust fell through the year before. A spinoff or reverse morris trust appears to be the desired approach for the disposal due to tax considerations.
The company has been simplifying its operations over the past few years and Vornado CEO & Chairman Stephen Roth noted that ‘these businesses have been together for legacy reasons, but have no real operating synergies.’ As a result of the transaction, VNO will be more of a ‘pure play’ investment, an idea supported by analysts such as Sandler O’Neill’s Alex Goldfarb. CoStar previously noted this growing ‘pure play’ trend and also pointed to improving leverage ratios as another rationale for these transactions. Vornado is hardly alone in this thinking and a quick glance at our ‘Upcoming’ and ‘Recent’ spinoff tables reveals a host of other real estate companies that are breaking up in order to focus on ‘core’ areas.
The spinco has already selected its new management team and the company will be helmed by Jeffrey Olson, Equity One Inc’s (EQY) current CEO. Robert Minutoli, EVP of Vornado’s Retail Segment, will become COO and Mr. Roth will join the Board of Directors. For additional information on the spinoff, check out this company presentation. The spinoff is expected to be completed in Q4, but the initial Form 10 filing is expected to be released sometime this quarter so be on the lookout for additional information.
Disclosure: Author holds no position in any stock mentioned.