Vornado Speeds Up JBG Smith Spin-Off

By Gail Kalinoski

Eight months after it announced it was spinning off its Washington, D.C.-area metro portfolio and merging it with assets owned by The JBG Cos., Vornado Realty Trust has set July 7 as the official day for the debut of its subsidiary JBG Smith Properties.

Rendering of Crystal City, Va.

However, common shares of the new REIT—which will trade on the New York Stock Exchange under the symbol JBGS—won’t be available until July 18, the day after the distribution of JBG Smith common shares and common limited partnerships to Vornado’s common shareholders. Following the distribution and combination, JBG Smith will be the largest publicly traded REIT focusing on the Washington, D.C., metro area.

The spinoff day, officially known as the “record date,” is coming a week after the end of the second quarter. Vornado’s original goal, when it announced the spinoff in the fall, was to have had it completed during the second quarter of 2017. But the two firms have been busy in recent months announcing the new team and at least some plans for properties in the region.

Management Team

Matt Kelly, a former JBG managing partner, is the JBG Smith CEO and a trustee on the board of directors. Vornado CEO Steven Roth will be chairman of the board of JBG Smith and Robert Stewart, a longtime managing partner at JBG Cos., will be executive chairman. In mid-February, Stephen Theriot, then chief financial officer of Vornado, was named as CFO of the spinoff. Other top officials are David Paul, president & chief operating officer, and James Iker, chief investment officer.

Formed from Vornado’s DC-area holdings, which were known as Vornado/Charles E. Smith, and most of JBG’s assets, JBG Smith will be a fully integrated pure-play REIT that owns, manages and develops high-quality, mixed-use real estate located in urban, infill locations. The portfolio will total over 16 million square feet of office and residential assets in prime DC metro locations with a “significant pipeline under construction and a robust collection of future development opportunities,” according to the new firm’s website.

Holdings

The portfolio includes 50 office assets totaling 12.1 million square feet and 14 multifamily assets with 4,232 units and another 13 percent of its portfolio listed as under construction or near term. The future development pipeline has about 18.3 million square feet of space in estimated development density.

Vornado’s holdings had included several office assets in the Crystal City submarket in northern Virginia, which had seen significant occupancy decreases due to government cutbacks. Kelly noted in a conference call late last year about the spinoff that JBG Cos.’ track record in delivering mixed-use value creation would be particularly helpful in future plans to revitalize the Crystal City portfolio.

In a June Investors Presentation, JBG Smith outlined what it calls the “transformative repositioning of Crystal City” over four phases. The first phase, estimated to cost $350 million, will include converting the former 1750 Crystal Drive office building into a residential and retail asset and renaming it 1770 Crystal Drive. The plan calls for 650 or more new multifamily units and 120,000 square feet in new retail at 1770 Crystal Dive, 1800 South Bell and 2121 Crystal Drive. Another 3,300 or more residential units would be added over the next three phases in Crystal City, along with 110,000 square feet of retail space.

Plans are already moving forward on the repositioning of 1770 Crystal Drive. The Washington Business Journal reported last week that Alamo Drafthouse Cinema has signed on as an anchor of the project and that the firm was close to signing a deal with a specialty grocer.

JBG Smith Properties will be based in Chevy Chase, Md.

Goldman, Sachs & Co. and Morgan Stanley are Vornado’s exclusive financial advisors and Sullivan & Cromwell LLP is legal advisor to Vornado in connection with the spinoff. BofA Merrill Lynch is acting as JBG’s exclusive financial advisor and Hogan Lovells US LLP is its legal advisor. The Advisory and Consulting Group of Green Street Advisors acted as a strategic advisor to JBG.

Image courtesy of JBG Smith Properties