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Vornado to Acquire Rest of Charles E. Smith

Vornado will issue 15.7M shares with a preliminary value of $599 million and assume $985 million in debt as part of the deal.
October 19, 2001
Vornado Realty Trust (NYSE: VNO) announced that it will acquire the two-thirds of Charles E. Smith Commercial Realty it does not already own for a total transaction value of $1,584,000,000 adding 12.4 million square feet of office space in Washington, DC and its northern Virginia suburbs to its portfolio.

Vornado said the acquisition of Charles E. Smith will make Vornado the fourth biggest REIT in terms of total market capitalization, based on its October 18th share prices. The $1.584 billion acquisition works out to about $197 per square foot for Smith's 12.4 million square feet.

In a filing with the SEC Vornado disclosed it will issue 15.7 million partnership units at $38.15 per unit to the seller and assume $985 million in debt. Upon closing, expected in the first quarter of 2002, Vornado will add two seats to its Board of Trustees for Charles E. Smith's co-chief executives, Robert H. Smith and Robert P. Kogod. Smith will be given the title of Chairman of Charles E. Smith Commercial Realty, a division of Vornado Realty Trust.

The majority of Smith's office assets are located in the Crystal City section of Arlington County next to Washington Reagan International Airport and just south of the Pentagon. Smith also manages an additional 5.8 million square feet of office and other commercial properties on behalf of other property owners in the Washington D.C. area.

Given its close proximity to the Pentagon and downtown Washington, Crystal City has been a favored office location for federal government agencies, including the U.S. Navy and the Patent and Trademark office. However, over the past few years, the General Services Administration, which arranges most federal office leases, has worked to consolidate many of the agencies into lower-cost areas. As a result, more than three million square feet of office space in Crystal City has been or is scheduled to be vacated by government agencies in the near future.

In addition, Smith recently lost the leasing and portfolio management contract for Bank of America's mid-Atlantic territory to Trammell Crow when the bank consolidated its real estate outsourcing contracts from five firms to just two.

But Smith's fortunes changed almost overnight on September 11. The substantial damage sustained by the Pentagon from the terrorist attack prompted an immediate need for interim office space for the military. And given the expected additional defense spending and expansion expected in the aftermath, demand for office space located close to the Pentagon and downtown Washington will likely increase significantly.

The sale of the Smith's remaining office portion to Vornado completes the total disposition of the company which was founded by Charles E. Smith Washington, DC, in 1946. In May, Smith announced the sale of its publicly traded Charles E. Smith Residential Realty (NYSE: SRW) to Archtone Communities (NYSE: ASN).
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