Vornado Realty Closes 1740 Broadway Sale, Gains $605M - Analyst Blog

Vornado Realty Trust (VNO) has finally accomplished the sale of 1740 Broadway for $605 million. The move comes as part of the company’s effort to reposition its portfolio. The company had announced this disposition move early last month.

The sale of this 601,000 square foot office building in Manhattan at the rate of  $1,000 per square foot would result in a financial statement gain of $439 million for the company that would be recognized in the fourth quarter. However, there would be a deferral of the tax gain of around $484 million, thanks to a similar-kind exchange as part of the company’s previously disclosed buyout of the St. Regis Fifth Avenue retail.  

Notably, in the fourth quarter, Vornado closed the buyout of the retail condominium of the St. Regis Hotel and the nearby retail townhouse for about $700 million. This property enjoys 100 feet of frontage on Fifth Avenue that is home to world’s luxury retailers. Vornado also enjoys ownership of 689 Fifth Avenue on the same block.

Moreover, Vornado is spinning off its shopping center business into a publicly traded REIT. The spin-off unit, which would comprise 79 shopping centers, 3 malls and a warehouse park encompassing a total of 14.9 million square feet, would be named Urban Edge Properties. The properties are concentrated over Northeastern U.S.

The spin-off comes as part of Vornado’s decision to separate two businesses that have been together for legacy reasons but with no real operating synergies. Following this, Vornado can entirely focus on its office towers and retail shops in Washington and Manhattan. Going forward, we believe that such strategic sell-outs would offer the company the dry powder to invest in opportunistic acquisitions, which go a long way in enhancing its profitability.

Vornado currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider better-ranked stocks like Host Hotels & Resorts, Inc. (HST), Public Storage (PSA) and RLJ Lodging Trust (RLJ). All these stocks carry a Zacks Rank #2 (Buy).

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