Vornado Realty Trust, which owns a diverse portfolio of office and retail space as well as stakes in such retail companies as Toys “R” Us and J. C. Penney, has hit a bit of a rough patch in the economic downturn. Revenues have yet to climb back to pre-recession levels, and as company chairman Steven Roth stated in Vornado’s 2011 annual letter to shareholders, its shares are trading at a discount to spot NAV (net asset value). What Roth also goes on to say in his letter is a bit of refreshing honesty: Basically, the head honchos at Vornado see the writing on the wall and are planning some big changes.
Analysts like the REIT’s core portfolio of office space, which is primarily located in New York City and Washington, DC. Apparently, and for good reason, Vornado also likes its core holdings: Its plans for the future focus on holding on to those assets. It’s easy to see why, with those markets performing more strongly than any other markets in the country. As for the rest of its holdings, the company is weighing several courses of action including a share buyback, splitting itself up, and spinning off noncore operations.
One segment on the chopping block is the company’s portfolio of enclosed shopping malls. (Vornado owns 134 retail properties, including strip centers, malls, and single-tenant assets.) Other than the Springfield Mall under development in Virginia, Vornado hopes to find buyers for its enclosed malls. It will also seek buyers for strip centers that aren’t located in its core markets. Competing with pure-play retail specialists hasn’t come easy for the REIT, and this could be a good time to exit the business.
Also up for grabs is the company’s 33% stake in Toys “R” Us. Vornado has invested in that and other retailers primarily for the real estate they hold. However, the REIT’s earnings on these investments really boil down to the retailers’ operations and not their property assets. Not enough bang for the buck and again, a noncore asset. (Interestingly, Vornado plans to hold on to its stake in J. C. Penney to take advantage of its transformation under new CEO Ron Johnson. Probably a wise decision.)
Vornado has already tried to sell its Merchandise Mart business, which owns a handful of showroom properties including Chicago’s Merchandise Mart and L.A. Mart, as a single unit, but failed to find a buyer. The REIT now plans to unload the properties one-by-one, with the exception of the massive Chicago Merchandise Mart.
So far, the news that Vornado is seeking to reinvent itself has made investors happier: The company’s share prices have climbed from less than $80 to more than $83 in the past couple of days.