Vornado Buys 37 Toys Stores for $171M

PARAMUS, NJ-Vornado Realty Trust has completed the acquisition of 37 former Toys "R" Us stores for a total of $171 million. The deal completes the first phase of a plan, announced in September, for the REIT to buy a total of 44 closed Toys units for up to $190 million.

"Vornado expects to purchase six of the remaining stores by the end of the first quarter of 2007, subject to landlords' consent, where applicable, and customary closing conditions," according to a statement issue by the REIT. "The seventh store Vornado had agreed to purchase from Toys "R" Us was sold to a third party."

The 37 stores totaling 1.5 million sf are located mainly on the East Coast and in California and Texas. Of the total, 18 are owned in fee, eight are ground-leased and 11 are space-leased. Twenty-five of them are either leased or subleased to other retailers and a dozen of them are currently vacant.

All of them are part of a store-closing program announced by Toys "R" Us in January, as reported by GlobeSt.com. That program involved a total of 87 stores, with 75 of them closed outright and 12 converted to the Babies "R" Us format. Toys "R" Us took a $155 million pre-tax write-down, including a $45 million charge for inventory liquidation.

As the result of a three-way deal that occurred in early 2005, Vornado owns a 32.9% interest in Toys "R" Us. Partners Bain Capital and Kohlberg Kravis Roberts & Co. own the rest. The acquisition of the 37 stores will be reflected as an adjustment to Vornado's basis in its 32.9% share of Toys "R" Us and will not be recorded as income, according to company officials.

In September, when the acquisition program was announced, Vornado also revealed the Q2 results of its share in Toys "R" Us. Those results showed a net loss of just more than $36.4 million, or $.21 per diluted share, and negative funds from operations (FFO) of just less than $30.2 million, or $.18 per diluted share.