Jason Young, managing editor of Real Estate Forum, contributed to this article.
NEW YORK CITY-Vornado Realty Trust's involvement in the acquisition of Toys 'R' Us was a real estate play for the company, confirmed Steven Roth, the REIT's chairman and CEO, at a REIT consortium hosted by New York University at the Waldorf-Astoria hotel yesterday. As GlobeSt.com reported yesterday, Vornado, Bain Capital and Kohlberg, Kravis, Roberts & Co. are buying the specialty toy company for $6.6 billion.
"Vornado has its roots, basically, in mining for real estate in the stock market, and we've done that many, many times," he said. "We did it very recently with a large investment in Sears, and we became interested in Toys principally because it had lots and lots of pretty terrific real estate in the US and abroad."
In November, Vornado bought a 4.3% stake in Sears, Roebuck & Co., just two months before its $11-billion merger with Kmart was announced. Earlier in the year, the REIT paid $65 million for interests in 25 Southern California Stater Brothers supermarkets. In the early 1990s, the company bought the bankrupt Alexander's department store chain for its real estate.
The Toys 'R' Us deal was surprising because the retailer decided to throw in its 218-store Babies 'R' Us chain, which it was expected to keep. The Toys 'R' Us mix of properties also includes 681 domestic toy stores and 601 stores abroad.
The three-partner venture will acquire all of the outstanding equity of Toys 'R' Us in three equal shares for $26.75 per share in cash. The deal is still contingent on regulatory review and approval by the shareholders of the company but is expected to be finalized by July. Toys 'R' Us stock closed trading at $26 per share yesterday. "It's really easy to buy something," Roth said. "You just pay more than everybody else, and we did."
Toys 'R' Us has been suffering from stiff competition from the likes of Wal-Mart and other discounters in recent years. In the critical 2004 holiday sales season, total net sales for the company decreased 0.9% to $4.29 billion for the nine-week period ended Jan. 1, 2005, compared to $4.33 billion for the nine-week period ended Jan. 3, 2004. Comparable US toy-store sales for the nine-week period ended Jan. 1 decreased by 2.2% compared to the same period a year before. Numbers for the company's fiscal fourth quarter (ended Jan. 29) have not been released yet.
New Jersey-based Vornado owns or manages about 87 million sf of real estate, including office and retail properties, with a large concentration in the New York metro area and in greater Washington, DC. Bain Capital, headquartered in Boston, has about $24 billion in assets under management, including investments in Staples, Domino's Pizza and Burger King. New York-based KKR has invested in the retail sector in North America and Europe to the tune of over $17 billion of aggregate value, including stakes in supermarkets, consumer drugstores, and specialty retail.
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