Vornado Realty Trust has transferred a 45.4 percent common equity interest in its portfolio of flagship high street retail assets on Upper Fifth Avenue and Times Square in Manhattan, which are among the scarcest and most valuable in the world, to a group of institutional investors advised by Crown Acquisitions.
The transaction values the portfolio at $5.556 billion. Vornado continues to own 51 percent of the retail portfolio.
Net cash proceeds to Vornado from the transaction will be approximately $1.198 billion, after deductions for the repayment of a $390 million mortgage loan on 666 Fifth Ave. and a $140 million mortgage loan on 655 Fifth Ave., anticipated proceeds from a new $500 million mortgage loan on 640 Fifth Ave., $26 million used to purchase minority investors' interests and $56 million of estimated transaction costs.
As a result of the transaction, Vornado will have a tax gain of approximately $735 million. There will be a financial statement gain of approximately $2.6 billion in the second quarter of 2019. The tax gain and the financial statement gain are estimates and are subject to change.
In conjunction with the transaction, Vornado retained preferred equity interests in certain of the properties in an aggregate amount of $1.828 billion. The preferred equity has an annual coupon of 4.25 percent for the first five years, increasing to 4.75 percent for the next five years and thereafter at a formulaic rate. It can be redeemed under certain conditions on a tax-deferred basis.
The joint venture assumed a $450 million mortgage loan on 697–703 Fifth Ave. The new $500 million mortgage loan on 640 Fifth Ave. is anticipated to be completed in the near future, is expected to be for five years at an interest rate of LIBOR plus 101 basis points, and will be guaranteed by Vornado. Until the new mortgage closes, Vornado will retain $500 million of preferred equity interests in addition to the $1.828 billion referenced above. After completion of all these transactions, the joint venture's right-hand side of the balance sheet that equals its $5.556 billion market value assets will comprise $950 million of mortgage debt, $1.828 billion of preferred equity (100 percent held by Vornado), and $2.778 billion of common equity (51 percent held by Vornado).
The properties, which are located at 640 Fifth Ave., 655 Fifth Ave., 666 Fifth Ave., 689 Fifth Ave., 697–703 Fifth Ave., 1535 Broadway and 1540 Broadway, include approximately 489,000 square feet of retail, approximately 327,000 square feet of office, signage at 1540 Broadway and 1535 Broadway, the parking garage at 1540 Broadway and the theater at 1535 Broadway.
