06/22/2011

Vornado Marketing Large Portfolio of Stores

Vornado Realty is shopping a 2.4 million-square-foot portfolio of retail assets, mostly big-box stores and supermarkets, that could fetch $270 million.

The package encompasses 48 stores in 18 states, with the heaviest concentration — more than a third of the portfolio — in California. The buildings and underlying land are for sale at 25 of the properties, totaling about 1.3 million sf. Eleven stores, with 483,000 sf, are subject to ground leases. The remaining 12 assets consist of long-term master leases on buildings, totaling 670,000 sf, that are subleased to retailers.

At the estimated value, a buyer’s initial annual yield would be about 8%. But there is room for improvement, because many of the properties have below-market rents that can be increased upon rollover. In addition, most leases contain significant rent bumps that will boost revenue over time.

CB Richard Ellis is advising the New York REIT, which prefers to sell the portfolio intact, but will accept bids on individual properties.

The portfolio’s projected net operating income for 2012 is $21.6 million. The properties have 28 tenants, more than half of which have investment-grade credit ratings, providing a stable cashflow. The average remaining lease term is 8.3 years.

The biggest tenant is Best Buy, which has 12 stores that account for 38% of the portfolio’s net operating income. Stater Bros. Markets (10 stores) and PetSmart (nine stores) each generate 9% of the net operating income. Other tenants include Home Depot, Kohl’s, Nordstrom Rack, BJ’s Wholesale Club and JC Penney.

After California, which has 17 properties that account for 40% of the net operating income, the portfolio’s heaviest concentrations are five properties in New York (13% of the income) and three in Massachusetts (12%). The other properties are in Florida, Illinois, Iowa, Kentucky, Maryland, Michigan, New Hampshire, New Jersey, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and Wisconsin.

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