Monday, April 14, 2014

Vornado to spin off Montehiedra and Las Catalinas

Vornado Realty Trust has approved a plan to spin off its shopping center business consisting of 81 strip shopping centers and four malls into a new publicly traded REIT named "SpinCo". The strip shopping centers are primarily located in the United States' northeast. The malls include The Outlets at Montehiedra (542,000 square feet) and Las Catalina's Mall (494,000 square feet) in Puerto Rico. The 85 retail properties total approximately 16.1 million square feet and had average occupancy of 95.5% at December 31, 2013. SpinCo's 2014 net operating income is estimated to be approximately $200 million.

Jeffrey S. Olson, currently Chief Executive Officer of Equity One Inc., will be SpinCo's Chairman of the Board and Chief Executive Officer. Robert Minutoli, Executive Vice President of Vornado's existing Retail Segment, will remain with SpinCo as its Chief Operating Officer. Vornado's retail management team and personnel will also remain with SpinCo. Steven Roth, Chairman of the Board and Chief Executive Officer of Vornado, will serve on the Board of Directors of SpinCo.

Vornado believes that SpinCo's portfolio will be well positioned to deliver both internal growth through active asset management and redevelopments and external growth through acquisitions and selective new developments. 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.

Vornado will retain, for disposition in the near term, 20 small retail assets which do not fit SpinCo's strategy, valued at approximately $100 million. Further, Vornado will retain Beverly Connection and Springfield Town Center, both of which are under contract for disposition. Vornado's business after these dispositions and the spin-off will be highly concentrated in New York City and Washington, DC, and be comprised of its high quality office portfolios and the largest, most valuable portfolio of Manhattan street retail assets.

The distribution of SpinCo's shares to Vornado common shareholders and Vornado Realty L.P. common unitholders is intended to be treated as a tax-free spin-off for U.S. federal income tax purposes. Vornado anticipates that its current annualized dividend of $2.92 per share will be maintained through the combination of Vornado's and SpinCo's dividends.

The spinoff is expected to be completed in the fourth quarter of 2014.


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