This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Vornado Needs a Spinoff Strategy That Makes Sense (and Money)

That $250 million Penney's hit translated to a 40% loss in Vornado's original investment in the retailer. But in April 2013 Vornado reaped around $241 million in net proceeds from the sale of LNR Property, in which Vornado owned a 26.2% stake.

Other recent sales include the Green Acres Mall in Valley Stream, N.Y. ($500 million); The Plant in San Jose, Calif. ($203 million); 866 United Nations Plaza in Manhattan ($200 million) and 1800 Park Avenue in Manhattan ($66 million).

The Last Piece of the Puzzle

If the company goes through with the spinoff and liquidating its position in Toys "R" Us, Vornado will be a much more streamlined REIT. Vornado, with Bain Capital and KKR, had purchased Toys "R" Us back in 2005 for $6.6 billion.

By teaming up with an established retail REIT, I would not be surprised to see Vornado shares become more valuable and investors less confused. Also, I would not be surprised to see Kimco Realty (KIM), Brixmor (BRX) or DDR Corporation (DDR) emerge as buyers/partners for the Vornado assets.

Kimco appears to be a logical buyer/partner given the company's more recent strategy of trimming non-core assets and creating a focused approach on retail centers. However, DDR has also made great strides in cleaning up its balance sheet and being prepared for a large portfolio transaction.

Vornado's dividend yield is 2.98%, and although that's weaker compared to other retail REITs, the majority of the company's assets are in New York and that's the cost of doing business in the Big Apple. Other New York-based office REITs, notably S.L. Green (SLG), at 2.01%, and Empire State Realty Trust (ESRT), at 2.26%, have lower yields.

I'm not a buyer at Vornado's current share price (the company's price to funds from operations multiple is 20.7x). However, I believe Vornado is making some good decisions to simplify its business plan.

I believe the spinoff strategy is a good idea. By sticking to its knitting, Vornado is likely to improve its balance sheet and take advantage of its deep-rooted experience in office investments.







At the time of publication the author is long ARCP.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

For more information on REIT investing, check out my newsletter HERE.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
VNO $110.04 0.00%
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs