Properties Held for Sale

3 Months Ended

Mar. 31, 2019

On April 18, 2019 ("Closing Date"), we entered into a transaction agreement (the "Transaction Agreement") with a group of institutional investors (the "Investors"). The Transaction Agreement provides for a series of transactions (collectively, the "Transaction") pursuant to which (i) prior to the Closing Date, the Operating Partnership contributed its interests in properties located at 640 Fifth Avenue, 655 Fifth Avenue, 666 Fifth Avenue, 689 Fifth Avenue, 697-703 Fifth Avenue, 1535 Broadway and 1540 Broadway (collectively, the “Properties”) to subsidiaries of a newly formed joint venture ("Fifth Avenue and Times Square JV") and (ii) on the Closing Date, transferred a 48.5% common interest in Fifth Avenue and Times Square JV to the Investors. The 48.5% common interest in the joint venture represents an effective 47.2% interest in the Properties. The Properties include approximately 489,000 square feet of retail space, 327,000 square feet of office space, signage associated with 1535 and 1540 Broadway, the parking garage at 1540 Broadway and the theatre at 1535 Broadway.

We retained the remaining 51.5% common interest in Fifth Avenue and Times Square JV which represents an effective 51.0% interest in the Properties and an aggregate $1.828 billion of preferred equity interests in certain of the properties. The preferred equity has an annual coupon of 4.25% for the first five years, increasing to 4.75% for the next five years and thereafter at a formulaic rate. It can be redeemed under certain conditions on a tax deferred basis.

Net cash proceeds to us from the Transaction are approximately $1.198 billion, after (i) deductions for the repayment of a $390,000,000 mortgage loan on 666 Fifth Avenue and a $140,000,000 mortgage loan on 655 Fifth Avenue, (ii) anticipated proceeds from a new $500,000,000 mortgage loan on 640 Fifth Avenue, (iii) approximately $26,000,000 used to purchase noncontrolling investors' interests and (iv) approximately $56,000,000 of estimated transaction costs. Until the new mortgage closes, Vornado will retain $500 million of preferred equity interests in addition to the $1.828 billion referenced above.

The Transaction values the Properties at $5.556 billion resulting in a financial statement net gain of approximately $2.6 billion from the Transaction and the related step-up in our basis of the assets to fair value. The net gain will be recognized in our consolidated statements of income for the three months ended June 30, 2019. Our tax gain is approximately $735,000,000. We continue to manage the Properties and share control over major decisions of the joint venture. Accordingly, the Properties will be deconsolidated and the joint venture will be accounted for under the equity method from the date of transfer.

The table below summarizes our effective ownership interests in the Properties transferred to Fifth Avenue and Times Square JV and our preferred equity interests following the Transaction and the anticipated closing of the mortgage loan on 640 Fifth Avenue.



(Amounts in thousands)	Vornado's Effective Ownership Interest Percentage		Vornado's Preferred Equity Interests
Properties transferred to Fifth Avenue and Times Square JV:
640 Fifth Avenue	52.0	%	$	—
655 Fifth Avenue	50.0	%	140,000
666 Fifth Avenue	52.0	%	390,000
689 Fifth Avenue	52.0	%	130,000
697-703 Fifth Avenue	44.8	%	—
1535 Broadway	52.0	%	628,875
1540 Broadway	52.0	%	538,875
			$	1,827,750


9.	Properties Held for Sale - continued

The following table summarizes the assets and liabilities associated with the Properties classified as held for sale:



(Amounts in thousands)	Balance as of March 31, 2019
	Balance as of March 31, 2019
Assets held for sale:
Real estate, net	$	2,656,509
Right-of-use asset	49,134
Restricted cash	8,828
Receivable arising from the straight-lining of rents	167,612
Deferred leasing costs, net	70,511
Identified intangible assets, net	74,464
	$	3,027,058

Liabilities related to assets held for sale:
Mortgages payable, net	$	971,618
Lease liability	41,235
Deferred revenue	84,497
	$	1,097,350