Vornado Realty Trust
), a leading real estate investment trust (REIT), last Friday
announced its share of the third quarter 2012 financial results
of Toys 'R' Us - a global retailer of dedicated toys and baby
products. Vornado Realty currently owns about 32.5% of Toys 'R'
Us. It will record its share when it reports its fourth quarter
results for the quarter ending December 31, 2012.
Vornado Realty's fourth quarter 2012 results will include a loss
of $33.8 million or 17 cents per share on account of Toys 'R' Us,
comparatively wider than the loss of $32.3 million or 16 cents
per share reported in the year-ago quarter.
Based on the third quarter results of Toys 'R' Us, Vornado Realty
will also record negative FFO (funds from operations) before
income tax of $49.2 million or 25 cents per share, compared with
negative FFO before income tax of $45.3 million or 22 cents per
share in the year-ago quarter.
We note that the business of Toys 'R' Us is extremely seasonal.
Based on its previous performance, it has been found that the
company's fourth quarter accounts for over 80% of its fiscal net
income owing to the strong holiday sales. Notably, for the
quarter ended October 27, 2012, Toys 'R' Us reported net sales of
$2.61 billion compared with $2.70 billion in the year-ago
New York-based Vornado Realty, acquires, owns and leases office
properties, retail space and temperature-controlled logistics and
refrigerated warehouses. In addition to its properties, the
company has investments in other REITs, industrial buildings and
Toys 'R' Us.
Vornado Realty has a strong asset portfolio in two of the best
long-term office markets in the U.S. - New York City and
Washington DC. This provides the company with a competitive
advantage to continually increase rents. Alongside, it has a
healthy balance sheet and adequate liquidity.
Therefore, the negative FFO in Vornado Realty's fourth quarter
results from its share in Toys 'R' Us notwithstanding, we believe
the ample portfolio diversification would help it mitigate such
an impact on the whole.
Also, with the fourth quarter being a historically strong one for
Toys 'R' Us, we remain optimistic regarding Vornado's performance
in the forthcoming quarter, when the impact would be recorded.
We maintain our long-term Neutral rating on Vornado Realty, which
currently has a Zacks #2 Rank that translates into a short-term
Buy recommendation. However, one of its competitors,
Boston Properties Inc.
) has a Zacks #3 Rank.
FFO, a widely used metric to gauge the performance of REITs,
are obtained after adding depreciation and amortization and other
non-cash expenses to net income.
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VORNADO RLTY TR (VNO): Free Stock Analysis
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