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Vornado's Q1 Share of Toys 'R' Us

Zacks Equity Research

Vornado Realty Trust (VNO), a leading real estate investment trust (:REIT), disclosed its share of the first-quarter 2014 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.

Vornado's second-quarter 2014 results will include a loss of $57.6 million or 29 cents per share on account of Toys 'R' Us, comparatively wider than the loss of $36.9 million or 19 cents per share reported in the year-ago quarter. Consequently, Vornado will record negative funds from operations (:FFO) after income taxes of $51.9 million or 26 cents per share, compared with negative FFO after income tax of $25.1 million or 13 cents per share in the year-ago quarter.

As a matter of fact, the Toys 'R' Us business is extremely seasonal. 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 scheduled to release its second-quarter 2014 results on Aug 4, after the market closes. The Zacks Consensus Estimate for FFO per share for the quarter is pegged at $1.14 per share, reflecting a year-over-year decrease of 8.80%.

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 strategic portfolio repositioning activities and leasing efforts would help reduce the overall impact. Further, the company’s decision to spin off the shopping center is expected to aid its focus exclusively on the office assets in the New York City and Washington, DC region and the Manhattan street retail properties.

Vornado currently carries a Zacks Rank #3 (Hold). Investors interested in REITs may consider stocks like Chatham Lodging Trust (CLDT), The GEO Group, Inc. (GEO) and Terreno Realty Corp. (TRNO). All these stocks hold a Zacks Rank #1 (Strong Buy).

Note: 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.

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