Vornado mulls splitting itself up, again

More than a year after spinning off its Washington, D.C., business, Vornado Realty Trust is once again toying with the idea of splitting itself into separate companies.

Steven Roth, CEO of the firm, said it’s possible Vornado will spin off a development company from its income-producing real estate. The rationale: Vornado has several expensive development projects in planning around Penn Station, and REIT investors tend to dislike the uncertainty associated with development.

“Development is not a business that can be measured quarter to quarter,” Roth said. If the stock price continues to trade below asset values because investors don’t like the development risk, Roth said, it “doesn’t make intellectual sense” to not try to change that. He declined to say how exactly the company could be split up, saying these are “glimmers of value creation ideas.”

Forest City Realty Trust, another public REIT, has been grappling with the same problem and responded by shrinking its development business. The former CEO of its New York division, MaryAnne Gilmartin, recently left the firm to found a new development firm, L&L MAG.

Roth also said Vornado is considering another split: spinning off its retail business.

“The softness of retail is what’s hurting our stock the most,” he said, adding that he is “dying to find out what retail would trade at as an isolated business.”

Vornado spun off its D.C. properties in October 2016, creating the new public company JBG Smith.

In his annual letter to investors last month, Roth wrote that Vornado is considering tearing down 2 Penn Plaza and replacing it with a new tower. But during Tuesday’s call, he said that the development probably won’t happen after all because the company is having a hard time landing public subsidies to fund it.

“It does not appear that that plan is going to go forward and is feasible,” Roth said. Instead, the company will renovate the tower, give it a new facade and add 300,000 square feet near the base.