By Eliot Brown

Landlord Vornado Realty Trust is cleaving off its giant portfolio of Washington, D.C., office buildings and apartments, spinning them into a new company that would be merged with JBG Cos., a closely held Washington landlord, the companies announced Monday.

The deal, slated for completion by the second quarter of 2017, would create a landlord with a massive presence in the Washington area, complete with 11.8 million square feet of office space -- the equivalent of four Empire State Buildings -- and more than 4,400 apartments.

The companies estimate the value of the new entity, called JBG Smith Properties, at $8.4 billion including debt.

The move marks the latest effort by Vornado to win back investors. In 2007 Vornado's stock price jumped above $130 a share. But in the past half decade the stock has been lethargic, hovering around $100 even as Vornado has made one move after another to strip away extraneous holdings.

Vornado CEO Steven Roth has repeatedly bemoaned the company's performance on Wall Street, once saying of the sluggish share price "I take it personally."

Now, after nearly five years of trying to get the company focused on New York City office and retail, that day appears near.

Washington made up 22% of the company's $1.2 billion in net income in the first nine months of the year, Vornado reported Monday, and New York accounted for 70%.

The deal also underscores the sluggishness of the Washington market. Ever since government cost-cutting kicked into high gear halfa decade ago, office landlords throughout the region have suffered. After multiple departures by government agencies, Vornado's holdings there are just 81% full, well below the almost 96% in New York.

Mr. Roth has long considered a Washington spinoff, and JBG has long been looking for a way to get into the public markets, making the two a match anticipated by many. JBG, the most active private developer in Washington, earlier this year tried to merge with New York REIT, a Manhattan landlord, but the deal fell apart.

The Vornado deal calls for JBG to contribute an array of office buildings and apartments in the region, which would give that company and its investors a 26% stake in the new entity. Numerous other properties owned by JBG and its partners -- totaling about $3.3 billion worth of condos, office buildings and other assets -- are excluded from the deal.

The new company will be led by JBG Managing Partner W. Matt Kelly.The board would have six seats each from Vornado and JBG. Mr. Roth is to be its chairman.

Write to Eliot Brown at eliot.brown@wsj.com

(END) Dow Jones Newswires

October 31, 2016 18:10 ET (22:10 GMT)

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