Vornado Realty JV Interest Files For Bankruptcy Protection

Toys R Us, in which Vornado Realty Trust (NYSE:VNO) has 32.5% interest through a joint venture, recently announced that it has filed for chapter 11 bankruptcy protection. Filing for bankruptcy will allow Toys R Us to restructure its long-term debt of $4.9 million, $400 million of which has interest payments in 2018 and $1.7 billion due in 2019.

A bankruptcy will enable the company to reorganize its balance sheet, which has been made complex due to its leveraged buyout in 2005. This New Jersey-based toy retailer was acquired by Kohlberg Kravis Roberts, Bain Capital Partners and Vornado Realty for $6.6 billion.

Toys R Us is yet to discharge the remaining debt from its $6.6-million deal. In addition, the company is witnessing low sales amid a rapid shift in customers’ shopping preferences, with e-commerce grabbing majority of the market share.

The bankruptcy filing will simplify the company’s capital structure and provide financial flexibility to improve its financial condition. Moreover, it will make efforts to enhance its website and shift focus to products like cribs instead of diapers, where online competition is less likely. These efforts, collectively, can help the company stage a turnaround and make the business viable for the long term.

Also, acknowledging its financial obligations provides an insight to the major vendors about the company’s long-term sustainability and ensures inventory built-up throughout the holiday season.

Vornado has been criticized for making non-traditional investments, many of which have not been profitable. Further, the bankruptcy of Toys R Us underlines the formidable competition that store retailers face from online giants.

Amid these, Vornado has been actively disposing its assets in a bid to streamline the business. The company earlier spun-off its shopping center business, creating Urban Edge Properties — a publicly-traded real estate investment trust (REIT). In July, it separated the Washington, D.C.-based JBG SMITH Properties and combined it with selected assets of The JBG Companies (“JBG”).

Shares of this Zacks Rank #3 (Hold) company have underperformed its industry year to date, plunging 28.6%, as against 6.1% growth recorded by the industry.



Key Picks

Better-ranked stocks in the REIT space include Getty Realty Corporation (NYSE:GTY) , Seritage Growth Properties (NYSE:SRG) and Communications Sales & Leasing, Inc. (NASDAQ:UNIT) . While Getty Realty and Seritage flaunt a Zacks Rank #1 (Strong Buy), Communications Sales & Leasing carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Getty Realty’s funds from operation (FFO) per share estimates for the current year moved 3.1% upward to $2 in a month’s time.

Over the last 60 days, Seritage’s FFO per share estimates for full-year 2017 inched up 0.5% to $2.01.

Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 during the same time frame.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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Vornado Realty Trust (VNO): Free Stock Analysis Report

Getty Realty Corporation (GTY): Free Stock Analysis Report

Seritage Growth Properties (SRG): Free Stock Analysis Report

Communications Sales & Leasing,Inc. (UNIT): Free Stock Analysis Report

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