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DC's new REIT power house: Vornado spins off district biz in $8.5 billion deal

JBG Smith is a powerful new name in Washington real estate. Vornado Realty Trust will spin off its Washington, DC business, currently known as Vornado/Charles E. Smith, and merge it with the operating company and certain select assets of The Washington, DC -based JBG Companies.

 

The combined company will be named JBG SMITH Properties. It will be the largest, market-leading, best-in-class, pure-play Washington, DC real estate company.

 

The combined company's portfolio will consist of 50 office properties totaling approximately 11.8 million square feet, 18 multifamily properties with 4,451 residential units, and 11 other properties totaling approximately 0.7 million square feet. These assets are located in premier submarkets within the Washington, DC metropolitan area, concentrated in Downtown District of Columbia, Crystal City and Pentagon City, the Rosslyn-Ballston Corridor, Reston, and Bethesda.

 

This transaction represents the third REIT to spin off from Vornado, including Vornado itself (RemainCo), Urban Edge Properties, and now, JBG SMITH.

 

Vornado shareholders are expected to own approximately 74% of the combined company, JBG limited partners are expected to own approximately 20%, and JBG management is expected to own approximately 6% (all percentages subject to closing adjustments).

 

JBG SMITH will be led by JBG's senior management team which has a proven track record of superior execution in the Washington, DC market over the long term and through numerous cycles. The combination is expected to result in approximately $35 million of synergies producing an overhead structure in line with best-in-class peers.

 

JBG SMITH will be the largest landlord to the U.S. Government in the nation's capital.

 

Following the spin-off, Vornado will be a New York-centric office and high street retail REIT that will own 18.7 million square feet of Class A Manhattan office properties in the best submarkets; the largest, highest-quality and unique Manhattan high street retail portfolio, encompassing 3.1 million square feet in 72 properties; and prime franchise assets in San Francisco (the 1.8 million square foot 555 California Street) and Chicago (the 3.7 million square foot theMART).

 

Steven Roth, Chairman and Chief Executive Officer of Vornado, said, "In addition to our irreplaceable portfolio in New York City, Vornado has a fortress balance sheet, significant dividend growth potential driven by recently signed leases, and a unique value creation opportunity from our Penn Plaza holdings."

 

Mr. Roth added, "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, which will be the market-leading Washington, DC powerhouse, with a portfolio of premium office and residential, urban-infill, transit-oriented assets that have substantial embedded growth. The pipeline of projects under construction and land for future development will create enormous value. We are very optimistic about the future of JBG SMITH under the leadership of Matt Kelly and his outstanding team."

 

JBG Smith will hold, directly or indirectly, (i) 72 operating assets aggregating approximately 21.4 million square feet, comprised of 52 office assets aggregating over 14.8 million square feet, 16 multifamily assets aggregating 6,432 units and four other assets aggregating approximately 785,000 square feet; (ii) four wholly owned office and multifamily assets under construction totaling approximately 821,000 square feet; (iii) nine near-term development office and multifamily assets totaling over 2.1 million estimated square feet; and (iv) 47 future development assets totaling approximately 23.5 million square feet of estimated potential development density.

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