WASHINGTON, D.C. AND NEW YORK — The board of trustees at Vornado Realty Trust (NYSE: VNO) has approved the tax-free spinoff of its Washington, D.C., portfolio and has agreed to the subsequent merger of the new entity with JBG Cos. The transaction is valued at $8.4 billion.
The company, known as JBG Smith Properties, will be structured as a real estate investment trust (REIT). Vornado shareholders are expected to own roughly 74 percent of the new company, JBG’s limited partners are expected to own approximately 20 percent and JBG management is expected to own the remaining 6 percent.
JBG’s senior management team will lead JBG Smith, which will have a portfolio totaling 50 office properties spanning 11.8 million square feet, 18 multifamily properties totaling 4,451 residential units and 11 other properties totaling about 700,000 square feet. The new company will be the largest landlord to the U.S. government in Washington, D.C.
The portfolio is situated in Washington, D.C., as well as the suburban Maryland markets of Columbia and Bethesda and Crystal City, Pentagon City, Rosslyn, Arlington and Reston in Virginia. Additionally, JBG Smith will have a pipeline of projects under construction and land for future development that could span more than 20 million square feet.
JBG Smith will continue to manage the JBG funds’ assets that are not part of the merger, and the company will not raise new investment funds. JBG has obtained approvals from its investment funds for the merger.
JBG Smith’s board of trustees will consist of 12 members who Vornado and JBG will designate. Steven Roth, chairman and CEO of Vornado, will be the chairman of the board; Matt Kelly, managing partner of JBG, will be the CEO of JBG Smith and a member of the board; and Rob Stewart, managing partner of JBG, will be the board’s executive vice chairman. The remaining board members are independent trustees. JBG Smith will search for a chief financial officer, who is expected to be in place prior to the close of the transaction.
Goldman, Sachs & Co. and Morgan Stanley & Co. LLC were Vornado’s financial advisors, and BofA Merrill Lynch were JBG’s financial advisors in connection with the merger agreement. Legal advisors included Sullivan & Cromwell LLP and Roberts and Holland for Vornado and Hogan Lovells US LLP for JBG.
Vornado Realty Trust is a REIT based in New York City, and following the merger, the company’s portfolio will be heavily concentrated in Manhattan, with 18.7 million square feet of Class A office space in the borough, as well as 3.1 million square feet of high-street retail space in 72 Manhattan properties. The REIT also owns the 1.8 million-square-foot 555 California Street in San Francisco and the 3.7 million-square-foot theMART in Chicago.
Vornado’s stock price closed on Monday, Oct. 31 at $92.78 per share, down from $99.90 per share at this time last year.
JBG Cos. invests, owns, develops and manages real estate in the Washington, D.C., metropolitan area, with a focus on investing in urban-infill, transit-oriented mixed-use projects. The portfolio controlled by JBG encompasses more than 22 million rentable square feet.
— John Nelson