Another Spin Off for Vornado

The transaction is highly complementary in terms of the two companies' disparate needs. Vornado had been eager to spin off its Washington DC area assets, noting numerous times that they were under performing despite the area's strong fundamentals.

Many of the local properties — namely the Skyline portfolio — were dragging down Vornado's share price and overall returns.

Also, Vornado has been steadily paring down its portfolio to its core of New York-centric office and high street retail REIT. “In January of last year, we spun-off to shareholders our shopping center business, Urban Edge Properties. Led by Jeff Olson, Urban Edge's total shareholder return since the spin has outperformed the RMS index by 14%. Today we announced the creation of JBG SMITH…”Vornado CEO Steven Roth said in a prepared statement.

JBG's New Development Opportunities

JBG Cos., for its part, had been seeking a way to enter the public markets. It thought it had an entree with New York REIT but that deal collapsed following shareholder push back.

Once folded into JBG Smith Properties, it will trade on the New York Stock Exchange under the ticker “JBGS.”

But beyond its aspirations to go public, this deal holds significant opportunity for JBG to strengthen its already dominant position in the local market. First, though, it will have to wring out more value than Vornado has unlocked to date. Skyline, of course, has seemingly become lost cause, with its various loans moving into delinquency, which is probably why the portfolio is not included in this deal.

On the much brighter side though there is, just for starters, that 20 million square foot development pipeline for JBG to play with.

Earlier this year, for example, Vornado announced plans to develop more than 2,600 units in Pentagon City and another another 3,000 units in Crystal City in addition to the ones it already has.

Then there is The Bartlett, Vornado's local pride and joy. It is a 699-unit apartment complex in Pentagon City that the REIT delivered a few months ago and whose business and building model — to say nothing of its rapid lease up rate — it expects to replicate. Indeed it is already moving to develop another 577 units next to Bartlett having secured Arlington County Board approval for the site plan. Ground will break early next year.

“The success of Bartlett validates our plan to emphasize residential new builds on our nearby vacant land inventory and on select sites created by teardowns of older office buildings in Crystal City,” Roth said during an earnings call earlier this year.

These and other projects will be well capitalized under the new combined company, the companies say.

Executive Line Up

Vornado shareholders will own approximately 74% of the combined company, while JBG's partners will own approximately 20%. JBG's management will receive 6%.

The new company will be led by JBG Managing Partner W. Matt Kelly with Roth serving as the chairman. JBG Managing Partner Rob Stewart will be Executive Vice Chairman of the Board, which will also have seven independent trustees including Alan Forman of the Yale University Investments Office, JBG's largest investor.

Other board members will be JBG Managing Partner Michael Glosserman and Mitchell Schear, president of Vornado/Charles E. Smith.

JBG's David Paul will be president and COO, James Iker will be the chief investment officer, and Brian Coulter and Kai Reynolds will be co-chief development officers.

Vornado's Patrick Tyrrell will be chief administrative officer, Jim Creedon will be executive vice president responsible for Office Leasing, and Laurie Kramer, executive vice president, will be in charge of the integration.

Vornado and JBG are searching for CFO for the new company.

One final bit of housekeeping regarding the new combined company: JBG and Vornado report that they expect to achieve $35 million in savings from the deal.

WASHINGTON, DC–The rumors proved to be correct.

Vornado Realty Trust is selling its portfolio of Washington DC area assets to JBG Cos. Specifically, the deal will be structured as a tax-free, publicly-traded REIT spin off and the new company will merge with the closely-held JBG, according to the announcement the two companies made on Monday afternoon.

The combined company, which will be called JBG Smith Properties, will have a value of $8.4 billion including debt.

It will also have a formidable portfolio — the largest, in fact, in the area — consisting of 50 offices totaling some 11.8 million square feet, 18 multifamily properties with 4,451 residential units, and 11 other properties, located in Downtown DC, Crystal City and Pentagon City, the Rosslyn-Ballston Corridor, Reston, and Bethesda. It will also have a strong development pipeline, the companies say, that could add over 20 million square feet to the portfolio.

Another Spin Off for Vornado

The transaction is highly complementary in terms of the two companies' disparate needs. Vornado had been eager to spin off its Washington DC area assets, noting numerous times that they were under performing despite the area's strong fundamentals.

Many of the local properties — namely the Skyline portfolio — were dragging down Vornado's share price and overall returns.

Also, Vornado has been steadily paring down its portfolio to its core of New York-centric office and high street retail REIT. “In January of last year, we spun-off to shareholders our shopping center business, Urban Edge Properties. Led by Jeff Olson, Urban Edge's total shareholder return since the spin has outperformed the RMS index by 14%. Today we announced the creation of JBG SMITH…”Vornado CEO Steven Roth said in a prepared statement.

JBG's New Development Opportunities

JBG Cos., for its part, had been seeking a way to enter the public markets. It thought it had an entree with New York REIT but that deal collapsed following shareholder push back.

Once folded into JBG Smith Properties, it will trade on the New York Stock Exchange under the ticker “JBGS.”

But beyond its aspirations to go public, this deal holds significant opportunity for JBG to strengthen its already dominant position in the local market. First, though, it will have to wring out more value than Vornado has unlocked to date. Skyline, of course, has seemingly become lost cause, with its various loans moving into delinquency, which is probably why the portfolio is not included in this deal.

On the much brighter side though there is, just for starters, that 20 million square foot development pipeline for JBG to play with.

Earlier this year, for example, Vornado announced plans to develop more than 2,600 units in Pentagon City and another another 3,000 units in Crystal City in addition to the ones it already has.

Then there is The Bartlett, Vornado's local pride and joy. It is a 699-unit apartment complex in Pentagon City that the REIT delivered a few months ago and whose business and building model — to say nothing of its rapid lease up rate — it expects to replicate. Indeed it is already moving to develop another 577 units next to Bartlett having secured Arlington County Board approval for the site plan. Ground will break early next year.

“The success of Bartlett validates our plan to emphasize residential new builds on our nearby vacant land inventory and on select sites created by teardowns of older office buildings in Crystal City,” Roth said during an earnings call earlier this year.

These and other projects will be well capitalized under the new combined company, the companies say.

Executive Line Up

Vornado shareholders will own approximately 74% of the combined company, while JBG's partners will own approximately 20%. JBG's management will receive 6%.

The new company will be led by JBG Managing Partner W. Matt Kelly with Roth serving as the chairman. JBG Managing Partner Rob Stewart will be Executive Vice Chairman of the Board, which will also have seven independent trustees including Alan Forman of the Yale University Investments Office, JBG's largest investor.

Other board members will be JBG Managing Partner Michael Glosserman and Mitchell Schear, president of Vornado/Charles E. Smith.

JBG's David Paul will be president and COO, James Iker will be the chief investment officer, and Brian Coulter and Kai Reynolds will be co-chief development officers.

Vornado's Patrick Tyrrell will be chief administrative officer, Jim Creedon will be executive vice president responsible for Office Leasing, and Laurie Kramer, executive vice president, will be in charge of the integration.

Vornado and JBG are searching for CFO for the new company.

One final bit of housekeeping regarding the new combined company: JBG and Vornado report that they expect to achieve $35 million in savings from the deal.