Publishing giant Scholastic has agreed to sell its New York headquarters to Empire State Realty Trust for $386 million as the U.S. “Harry Potter” publisher attempts to cut costs and shore up its bottom line.
Scholastic is selling its headquarters at 555-557 Broadway between Spring and Prince streets in SoHo to the parent of the iconic Empire State Building in a sale-leaseback transaction, Scholastic said Tuesday in a statement.
The move capped off a process that began after Scholastic said in June it hired Newmark to explore selling all or part of its headquarters property and distribution facilities in Jefferson City, Missouri. The publisher, also behind the "Hunger Games” books, said it’s selling the Missouri buildings to Fortress Investment Group for gross proceeds of $95 million in cash. The warehouses are at 6336 Algoa Road, 29I 31 E. McCarty St. and 3030 Robinson Road, a Scholastic spokesperson previously told CoStar News.
Scholastic, which also publishes the “Clifford the Big Red Dog” series, said it’s leasing back the Manhattan property in a 15-year deal with two 10-year extension options “while substantially reducing its footprint.” Empire State Realty will assume responsibility for maintenance and capital investments tied to the property. In Jefferson City, Scholastic has inked a 20-year triple net lease with two 10-year extensions.
Scholastic said proceeds of the sales will go toward items including paying down debt and share buybacks as part of its long-term plan to “monetize its significant non-operating assets to improve the efficiency of its balance sheet and create shareholder value.”
Owners who occupy their buildings typically use sale-leaseback transactions to create an influx of cash without having to increase their debt load or take on the expenses of relocating.
Scholastic in September reported a wider fiscal first-quarter loss, hurt in part by a 28% slide in sales from its school curriculum arm. The company said schools and school districts have cut back on purchasing supplemental materials this year amid increased funding uncertainty tied to the federal government. The entertainment division’s sales also declined, Scholastic said, due to film and television production delays.
"Today's announcement reflects meaningful momentum for Scholastic as we unlock the value of our owned real estate and focus on accelerating long-term, profitable growth and shareholder value creation," Peter Warwick, president and CEO of Scholastic, said in a statement.
The building at 555-557 Broadway, built in 1900, comprises 368,000 square feet of office space and 28,000 square feet of prime retail, Empire State Realty said, adding that the property is 70% leased. With Scholastic’s new lease spanning 222,000 square feet, the landlord plans to market a three-floor block of available office space totaling more than 110,000 square feet.
For the record
Newmark served as exclusive adviser to Scholastic on both sale-leaseback transactions, with Adam Spies, Josh King and Avery Silverstein of Newmark representing the seller in the Manhattan headquarters transaction. Hogan Lovells served as legal counsel, and Gagnier Communications served as a strategic communications advisor to Scholastic on the transactions.