Vornado Realty Trust's (NYSE: VNO) partial divestment of its investment in J.C. Penney is a credit positive, according to Fitch Ratings. We believe the willingness to dispose of the shares and crystalize a sizable loss is more meaningful than the impact on metrics itself; it is indicative of a true commitment to strategy simplification.
In June 2012, we noted that a more streamlined VNO is a credit positive longer term; however, the disposition or monetization process for some of the larger, noncore investments may be protracted. As such, when coupled with the previously announced disposition of VNO's stake in LNR Property LLC, the sale of J.C. Penney stock represents progress exceeding our expectations for noncore investments. The repurposing of capital away from equity investments in speculative-rated retailers and into core New York City and Washington, D.C. office and retail assets would improve the asset quality of Vornado's balance sheet, all things being equal. Equity REITs, like most other corporates, are disinclined to recognize and/or realize losses and said losses are traditionally foretelling. However, it is a credit positive in this instance since it represents a demonstrable commitment to the re-prioritization of the company's focus.
Quantitatively, VNO's metrics should improve at the margin as J.C. Penney did not contribute to recurring operating EBITDA (we exclude realized and unrealized gains, and the dividend was suspended in 2012). Therefore, fixed-charge coverage and leverage would improve should net proceeds be used to pay down amounts outstanding on the line of credit or be re-invested into consolidated operating properties.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Britton Costa, +1 212 908-0524
Associate Director, REITs
Kellie Geressy-Nilsen, +1 212 908-9123
One State Street Plaza
New York, NY 10004
Brian Bertsch, New York, +1 212-908-0549
|Fitch Affirms Vornado Realty Trust's IDR at 'BBB'; Outlook Stable (2013/5/31)|
|PULSE: J.C. Penney drops after Vornado confirms sale (2013/3/6)|
|PULSE: J.C. Penney drops on Vornado stake-sale reports (2013/3/5)|
|J.C. Penney to grab spotlight on CEO exit (2013/4/9)|
|North American HR Leaders Rank Talent Acquisition and Compensation and Benefits as Top Priorities, Indicating Optimism Regarding Economic Recovery (2013/3/18)|
|Start Premium Trial||Register For Free|
|P||F||Fund Financial Data (13,000+ funds)|
|P||F||Stock Financial Data (7,000+ stocks)|
|P||F||Stock and Fund Screeners (basic)|
|P||F||Investing Articles and Market Commentary|
|P||F||Articles Archive (>30 days)|
|P||F||Discuss (dozens of stock, fund, bond, and general bulletin boards)|
|P||F||Portfolio Manager (basic)|
|P||F||Morningstar Investment Classroom|
|P||F||Morningstar Investing Classroom Rewards (earn as you learn and redeem for Morningstar merchandise)|
|P||Morningstar Fund Analyst Reports (full research on 2,000 funds and ETFs)|
|P||Morningstar Stock Analyst Reports (full research on 2,000 stocks)|
|P||Morningstar Stock and Fund Stewardship Grades|
|P||Portfolio Manager (advanced with 10 x-ray analyses, including guidance)|
|P||Portfolio Monitor (monthly and on-demand personalized portfolio statements)|
|P||Morningstar Proprietary Stock Information (stock star ratings, buy/sell prices, economic moat ratings, and more)|
|P||Morningstar Stock and Fund Favorites & Red Flags eNewsletters|
|P||Premium Stock and Fund Screeners (advanced with nearly infinite ways to find the best securities for you)|
|P||Discounts on Morningstar newsletters, books, seminars, and more|
Access these features and more when you sign up for Free Membership.
Join Morningstar today. It's Free.
Access these features and more when you sign up for Premium Membership.
Start your free 14-day trial today online
Your subscription may be tax deductible. Please contact your tax advisor.