NEW YORK CITY—Vornado Realty Trust said late Friday afternoon that it planned to spin off its shopping center business into a separate, publicly traded REIT. Currently known as SpinCo, the new REIT will be led by Jeffrey S. Olson, who announced in March that he was stepping down as CEO of Miami-based Equity One Inc.
Expected for some time, the move advances VNO’s objective of streamlining its operations and concentrating on its office portfolio. Spinning off the shopping-center properties will not mean that VNO is exiting the sector altogether: its Manhattan street retail comprised 19% of its 2013 EBITDA, according to an SEC filing.
SpinCo’s portfolio will run to 16.1 million square feet across 85 properties in 11 states and Puerto Rico, including four malls. Its concentration will be mainly in the Northeast and Mid-Atlantic, although it also includes five Northern California properties totaling 170,000 square feet.
Largest of the new REIT’s holdings will be the 1.5-million-square-foot Monmouth Mall in Eatontown, NJ and the 951,000-square-foot Bergen Town Center in Paramus, NJ. In all, 37 of the 85 properties are located in the Garden State.
Average occupancy at the properties was 95.5% as of Dec. 31, 2013, according to VNO. SpinCo’s 2014 NOI is estimated to be approximately $200 million.
Not included in the SpinCo portfolio are two shopping-center properties that VNO has already agreed to sell. They’re Springfield Town Center in Springfield, VA, which will trade to Pennsylvania Real Estate Investment Trust for $465 million once renovations are completed; and Beverly Connection in Beverly Hills, CA, which Ashkenazy Acquisition Corp. said last month it had agreed to buy for $260 million. VNO will also retain 20 smaller retail assets, which it intends to sell.
Olson said in March that he would not renew his contract as CEO of Equity One, where Green Street Advisors noted in March that he transformed the focus from “sleepy, grocery-anchored strip centers to a more urban, high-quality portfolio.” He’ll lead the as-yet-unnamed REIT as chairman of the board and CEO, while Robert Minutoli, EVP of Vornado’s existing retail segment, will remain with SpinCo as its COO. VNO founder and CEO Steven Roth will serve on SpinCo’s board. Goldman Sachs and Morgan Stanley are advising VNO on the spinoff.
Vornado says 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.” The new REIT’s demographics will be “among the highest of its peers having average population within three miles of 149,000 and average household income of $71,000.” Average base rent is $18.75 per square foot, compared to the peer median of $15.66 per square foot.
Roth first spelled out a strategy of simplification in an April 2008 letter to shareholders. He reiterated that intention two years ago, and since then VNO has sold most of its Merchandise Mart showroom operations, while hanging on to the 3.7 million-square-foot Merchandise Mart complex in Chicago. The company has also sold a trio of New York City-area malls: Kings Plaza in Brooklyn and Green Acres Mall in Valley Stream, NY, which traded to the Macerich Co. in late 2012 and early 2013 for a combined $1.25 billion; and more recently Broadway Mall in Hicksville, NY, which is trading to a partnership of KKR and Broadway Mall Pacific for $94 million.