Vornado's 4Q Share of Toys 'R' Us - Analyst Blog

Vornado Realty Trust ( VNO ), a leading real estate investment trust (REIT), has recently announced its share of third quarter 2011 financial results of Toys 'R' Us - a leading global retailer of dedicated toys and baby products. Vornado Realty, which currently owns about 32.7% of Toys 'R' Us, will record its share when it reports its results for the fourth quarter ending December 31, 2011.

Vornado Realty's fourth quarter 2011 will include a loss of $32.3 million or 16 cents per share on account of Toys 'R' Us compared to a loss of $30.7 million or 15 cents per share in the year-earlier quarter.

The business of Toys 'R' Us is highly seasonal with the fourth quarter accounting for over 80% of the fiscal net income, primarily on strong holiday sales. For the quarter ended October 29, 2011, Toys 'R' Us reported net sales of $2.70 billion compared to $2.72 billion in the year-ago quarter. Same-store sales for the reported quarter dipped 2.2% in the U.S. and 3.9% internationally.

By product categories, the Learning and Core Toy division generated strong performance with net sales rising 3.8% and 2.7%, respectively, while that of the Entertainment division, which includes videogame hardware and software, slid 14.5%. Gross margin for the reported quarter increased marginally to 36.5% from 36.3% in the year-ago period.

In accordance with the third quarter results of Toys 'R' Us, Vornado Realty will record a negative FFO (fund from operations) before income taxes of $45.3 million or 22 cents per share during fourth quarter 2011 compared to a negative FFO of $57.3 million or 28 cents in the year-ago quarter. Fund from operations, 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.

New York-based Vornado Realty is engaged in acquiring, owning and leasing office properties, retail space and temperature-controlled logistics and refrigerated warehouses. Besides its properties, the company also 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 a competitive advantage to continually increase rents. The company also has a healthy balance sheet and adequate liquidity.

We maintain our long-term 'Neutral' rating on Vornado Realty, which currently has a Zacks #3 Rank that translates into a short-term 'Hold' recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1-3 months. We also have a 'Neutral' recommendation and a Zacks #3 Rank for Boston Properties Inc. ( BXP ), a competitor of Vornado Realty.

BOSTON PPTYS ( BXP ): Free Stock Analysis Report

VORNADO RLTY TR ( VNO ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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