Philadelphia-Based REIT To Secure Ownership Following Vornado Redevelopment, Plans Long-Term Development Of Its Own
Philadelphia-based Pennsylvania Real Estate Investment Trust (PREIT) agreed in principle to purchase the Springfield Town Center in Springfield, VA from New York-based Vornado Realty Trust for $340 million in cash and $125 million of PREIT operating partnership units for an aggregate sum of $465 million.
Springfield Town Center is a 1.35 million-square-foot regional shopping center constructed in 1973 within the Springfield/Burke submarket of Washington, D.C.
The former Springfield Mall site will transfer upon completion of Vornado's redevelopment and the achievement of 75% occupancy of 703,000 square feet of non-anchor space and the opening of Dick's Sporting Goods and Regal Cinema, or March 31, 2015, whichever comes first.
The redevelopment, which kicked off in 2012 and is expected to wrap up in October 2014, includes a renovation of the interior retail areas, a new internal layout to reduce and realign the retail corridors, a consolidation of two movie theaters and a unified design for the disjointed food options.
Several tenants have already signed lease agreements in anticipation of the redevelopment's completion, including Michael Kors, H&M, Chico's, Pandora, Francesca's Collection, Yard House Restaurant, Wood Ranch BBQ, the Mid-Atlantic region's only Topshop, and the aforementioned Dick's Sporting Goods and Regal Cinema. In all, the non-anchor space is 30% leased.
The mall is anchored by Macy's, Target and JCPenney, which will all remain operational while the mall is closed for construction.
Following a longer-term development plan to be carried out by PREIT over the next 10 to 15 years, the site will serve as not only an urban-style retail destination but will also be home to a hotel, 2,200 residences and 1.1 million square feet of office space.
BofA Merrill Lynch and Wachtell, Lipton, Rosen & Katz acted in advisory roles to PREIT in this transaction, which will be treated as a tax-free exchange.
Vornado will record a non-cash impairment loss of approximately $20 million in the first quarter of 2014, but will be entitled to additional consideration equal to 50% of the value over the initial consideration calculated three years after closing, when the project is expected to be stabilized, utilizing a 5.5% capitalization rate.
As a result of this transaction, Vornado will be a passive investor in PREIT and will be subject to an equity ownership limit of 9.9% and a standstill agreement.
PREIT and Vornado will jointly lease the property through closing, effective immediately.