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Vornado Discloses Q4 Impairments from Toys "R" Us

VNO VTR PSB SLG

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Real estate investment trust (REIT) – Vornado Realty Trust (VNO - Analyst Report) – disclosed that its fourth-quarter 2013 results will bear the impact of non-cash impairment of $162.2 million or 82 cents per share from its investment in Toys "R" Us.

The company had earlier (in Dec 2013) announced the inclusion of a net loss of $130.85 million or 66 cents per share in its fourth-quarter 2013 financial results. This reflects the company’s 32.6% share of Toys' third-quarter 2013 net loss.

The total loss would come at around $293.1 million or $1.42 per share. As a result, Vornado's Toys "R" Us investment’s carrying amount gets lowered to its estimated fair value of $80.1 million as of Dec 31, 2013. The company’s share of Toys’ negative FFO (funds from operations) is estimated to amount to $282.0 million.

Notably, third-party valuation of Toys was considered by Vornado to determine the fair value of its investment in the former. The Toys 'R' Us business is extremely seasonal by nature. 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 slated to release its fourth-quarter 2013 earnings release on Feb 24, 2014, after the market close. The Zacks Consensus Estimate is currently pegged at $1.11 per share for the fourth quarter, reflecting a year-over-year decrease of 8.69%.

Despite the impact of the negative FFO in Vornado Realty's fourth-quarter results from its share in Toys 'R' Us, we believe that its ample portfolio diversification would help reduce the impact on the whole. However, Vornado’s Washington DC portfolio is anticipated to remain stressed with the lower pace of leasing activity. Moreover, the company faces stiff competition from commercial property developers.

Vornado currently has a Zacks Rank #4 (Sell). However, some better-ranked REIT Equity Trust – Other stocks include PS Business Parks Inc. (PSB - Analyst Report), Ventas, Inc. (VTR - Analyst Report) and SL Green Realty Corp. (SLG - Snapshot Report). All these stocks carry a Zacks Rank #2 (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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