Real estate investment trust (REIT) -
Vornado Realty Trust
) - disclosed that its fourth-quarter 2013 results will bear the
impact of non-cash impairment of $162.2 million or 82 cents per
share from its investment in Toys "R" Us.
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The company had earlier (in Dec 2013) announced the inclusion of
a net loss of $130.85 million or 66 cents per share in its
fourth-quarter 2013 financial results. This reflects the
company's 32.6% share of Toys' third-quarter 2013 net loss.
The total loss would come at around $293.1 million or $1.42 per
share. As a result, Vornado's Toys "R" Us investment's carrying
amount gets lowered to its estimated fair value of $80.1 million
as of Dec 31, 2013. The company's share of Toys' negative FFO
(funds from operations) is estimated to amount to $282.0 million.
Notably, third-party valuation of Toys was considered by Vornado
to determine the fair value of its investment in the former. The
Toys 'R' Us business is extremely seasonal by nature. Its
previous performance revealed that the company's fourth quarter
accounts for over 80% of its fiscal net income owing to the
strong holiday sales.
Vornado is slated to release its fourth-quarter 2013 earnings
release on Feb 24, 2014, after the market close. The Zacks
Consensus Estimate is currently pegged at $1.11 per share for the
fourth quarter, reflecting a year-over-year decrease of 8.69%.
Despite the impact of the negative FFO in Vornado Realty's
fourth-quarter results from its share in Toys 'R' Us, we believe
that its ample portfolio diversification would help reduce the
impact on the whole. However, Vornado's Washington DC portfolio
is anticipated to remain stressed with the lower pace of leasing
activity. Moreover, the company faces stiff competition from
commercial property developers.
Vornado currently has a Zacks Rank #4 (Sell). However, some
better-ranked REIT Equity Trust - Other stocks include
PS Business Parks Inc.
SL Green Realty Corp.
). All these stocks carry a Zacks Rank #2 (Buy).
FFO, a widely used metric to gauge the performance of REITs,
is obtained after adding depreciation and amortization and other
non-cash expenses to net income.