Macerich Co. agreed to buy two New York-area malls from Vornado Realty Trust and its Alexander’s Inc. affiliate for $1.25 billion as it expands in the market.
Macerich will buy the Kings Plaza center in Brooklyn from Alexander’s for $751 million, the Santa Monica, California-based real estate investment trust said today in a statement. The company also said it will purchase the Green Acres Mall in Valley Stream, New York, from Vornado for $500 million.
The transactions are scheduled to be completed by the end of March. Macerich, which already owns the Queens Center mall in Elmhurst, New York, said it plans to reduce vacancies at the properties and attract retailers prepared to pay higher rents.
“They like the New York metro market,” said Alexander Goldfarb, a REIT analyst for Sandler O’Neill & Partners LP. “They were the logical buyer of Kings Plaza. Through the Queens Center, they had dominance in Queens, they now get the dominant mall in Brooklyn.”
Green Acres, on Long Island, is less attractive because it competes with Simon Property Group Inc.’s Roosevelt Field mall in nearby Garden City, said Goldfarb, who has hold ratings on both Macerich and Vornado. Macerich’s properties include the Shops at Atlas Park in the Glendale section of Queens; the Cross County Shopping Center in Yonkers, New York; Freehold Raceway Mall in Freehold, New Jersey; and Danbury Fair in Danbury, Connecticut, according to the company’s website. All are within 55 miles of Manhattan.
“These transactions are consistent with our investment strategy of acquiring assets in the major markets where we have our best assets and selling non-core assets and recycling capital,” Chief Executive Officer Arthur Coppola said in the statement.
Vornado, a New York-based REIT that gets most of its earnings from office buildings in Manhattan and the Washington area, is seeking to simplify its operations in response to shareholder complaints that it has too many disparate businesses. The company planned to sell some of its malls and strip shopping centers considered “non-core” assets, Chairman Steven Roth said in his annual letter to investors in April.
Vornado owns about 32 percent of Paramus, New Jersey-based Alexander’s, which is led by Roth.
Vornado expects about $185 million in net proceeds from the Green Acres Mall sale, while Alexander’s will have net proceeds of $481 million from its deal, the companies said today in separate statements.
Kings Plaza is a 1.2 million-square-foot (111,500-square-meter) enclosed mall, anchored by Macy’s, Lowe’s and Sears. The 1.8-million-square-foot Green Acres Mall includes Macy’s, Sears, Kohl’s, J.C. Penney and Walmart.
Selling those properties is less important to Vornado’s simplification effort than it is a way of “recycling capital,” said Goldfarb. The proceeds from the Green Acres sale will probably be used to defray the cost of retail space it agreed to buy in July for $707 million at Manhattan’s 666 Fifth Ave., along one of the world’s most expensive shopping corridors, he said.
“It enhances the street-retail platform of Vornado in a tax-efficient way.” he said.
Vornado controlled 46 New York retail properties totaling 2.1 million square feet as of June 30, according to its second-quarter report to the U.S. Securities and Exchange Commission.
Most critical to streamlining the company would be sales of its stakes in Toys “R” Us Inc., the world’s largest toy merchant, and J.C. Penney Co., the 110-year-old department-store chain that has been undergoing a makeover to make it more competitive, Goldfarb said.
“This transaction doesn’t do anything to simplify Vornado from a 30,000-foot view,” Goldfarb said. “The real decisions that will do that will be the divestiture of Toys, the divestiture of J.C. Penney, and other investments that are really a small part of the Vornado story, but attract a disproportionate amount of attention.”
Macerich fell 2.5 percent to $57.45 and Vornado declined 0.2 percent to $81.15 at 12:45 p.m. in New York. Alexander’s rose 5 percent to $440.56.