Vornado Realty Trust VNO recently sold a 47% stake in 7 West 34th Street, which is a 477,000 square feet Manhattan office building, to sovereign wealth fund, Korea Post at a value of $561 million. The company also completed a $300 million recourse financing of the property.
As a result of the move, the company is set to experience a financial statement gain of $203 million, of which $160 million is to be recognized in second-quarter 2016, the company said in a press release on Jun 2.
However, shares of Vornado fell 0.33% in Friday’s regular trading session on the NYSE.
Notably, the remaining 53% stake of the Manhattan office building would continue to be under Vornado’s ownership and the company would carry on managing and leasing the asset. On the other hand, the 10-year interest only loan would mature in Jun 2026 with a fixed rate of 3.65%.
While the $160 million in financial statement gain is to be recorded in the second quarter, the remaining $43 million will be deferred until the property level debt is paid back. Finally, the company would experience a tax gain of around $90 million.
Strategic acquisitions and divestitures including spin-offs and a diversified tenant base are expected to keep the growth momentum alive. Yet, earnings-dilutive effects of dispositions, intense competition from developers, owners and operators, and any further hike in interest rate remain concerns for the company.
Vornado currently has a Zacks Rank #3 (Hold). However, investors interested in the REIT industry may consider stocks like Mack-Cali Realty Corp. CLI, PS Business Parks Inc. PSB and Whitestone REIT WSR. Each of these stocks carries a Zacks Rank #2 (Buy).
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