Vornado Realty Trust ( VNO ), a leading real estate investment trust (REIT), recently bought a 58.75% interest in Independence Plaza, a 1,328-unit residential complex in Tribeca submarket of Manhattan. The property which comprises 54,500 square feet of retail space and 550 parking spaces is valued at $844.8 million.
As a matter of fact, only last year, Vornado initiated its efforts to get a majority stake in Independence Plaza. It purchased a 51% interest in Independence Plaza's subordinated debt for $45 million as well as a warrant to buy 25% of the equity for $1 million.
For the recent transaction, Vornado bought 33.75% interest for $160 million from one of the equity partners and exercised its warrant for 25%. Further, the company contributed the appreciated value of its interest in the subordinated debt as preferred equity.
Owing to the deal, Vornado will gain a net amount of $100 million in the fourth quarter, which stems from contributing the debt for preferred equity and exercising its warrant.
The property is burdened by a $329.2 million mortgage. However, in the first quarter of 2013, Vornado and Stellar Management, the other equity partner, plan to refinance the mortgage, significantly reducing their cash investment. The retail space at the property is being managed by Vornado while the residential is being managed by Stellar Management.
New York-based Vornado Realty, acquires, owns and leases office properties, retail space and temperature-controlled logistics and refrigerated warehouses. In addition, the company has investments in other REITs, industrial buildings and Toys 'R' Us.
Vornado Realty has a strong asset portfolio in two of the best long-term office markets in the U.S. - New York City and Washington DC. This gives the company a competitive advantage to continually increase rents.
This increase in stake in Independence Plaza further enhances its portfolio and will likely be accretive to its financials going forward. Alongside, it has a healthy balance sheet and adequate liquidity.
Vornado Realty currently has a Zacks #2 Rank that translates into a short-term Buy recommendation. However, one of its competitors, Boston Properties Inc. ( BXP ) has a Zacks #4 Rank, implying a short-term Sell recommendation.
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