Vornado Realty Trust
), a leading real estate investment trust (REIT), disclosed its
share of the first-quarter 2013 financial results of Toys 'R' Us
- a global retailer of dedicated toys and baby products. Vornado
currently owns about 32.6% of Toys 'R' Us.
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Vornado's second-quarter 2013 results will include a loss of
$36.9 million or 19 cents per share on account of Toys 'R' Us,
comparatively wider than the loss of $19.2 million or 10 cents
per share reported in the year-ago quarter.
As a result, Vornado will record negative FFO (funds from
operations) after income taxes of $25.1 million or 13 cents per
share, compared with negative FFO after income tax of $7.7
million or 4 cents per share in the year-ago quarter.
We note that the Toys 'R' Us business is extremely seasonal. Its
previous performance has revealed that the company's fourth
quarter accounts for over 80% of its fiscal net income owing to
the strong holiday sales.
N.Y.-based Vornado Realty, acquires, owns and leases office
properties, retail space and warehouses. In addition to its
properties, the company has investments in other REITs,
industrial buildings and Toys 'R' Us.
In May, Vornado reported first-quarter 2013 adjusted FFO per
share of $1.14, missing the Zacks Consensus Estimate of $1.85.
However, the FFO exceeded the year-ago number of 98 cents by
16.3%. The year-over-year increase was attributable to the
successful execution of the company's strategic initiatives.
Vornado has a strong asset portfolio and its repositioning moves
have strengthened its foothold in 2 of the best long-term office
markets in the U.S. Moreover, the company's healthy balance sheet
and liquidity position facilitate it to take advantage of
distressed selling as asset values of office and retail
properties continue to drop in the aftermath of the recession.
Despite the impact of the negative FFO in Vornado Realty's
second-quarter results from its share in Toys 'R' Us, we believe
that its ample portfolio diversification would help it mitigate
such an impact on the whole.
However, we anticipate continued volatility in the office sector
with job cuts and a decline in market fundamentals, which in turn
are likely to limit Vornado's growth prospects.
Vornado currently has a Zacks Rank #4 (Sell). However, other
better performing REITs include
Extra Space Storage Inc.
Sunstone Hotel Investors Inc.
). All these stocks carry a Zacks Rank #1 (Strong 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.