Toys ‘R’ Us, the leading global retailer of dedicated toys and baby products, intends to file for an initial public offering (IPO) in the imminent future. Insiders familiar with the proceedings expect to raise about $1 billion from the IPO. 

The strategic move is the latest ploy by the string of private equity firms that own Toys “R” Us, to capitalize on their investments by selling their holdings and benefit from the rise in the stock markets this year. Toys ‘R’ Us was acquired in 2005 by KKR Financial Holdings LLC (KFN), Bain Capital and Vornado Realty Trust (VNO) for $6.6 billion. 

New York-based Vornado Realty is one of the largest real estate investment trust (REIT) in the U.S., engaged in acquiring, owning and leasing office properties, retail space, and temperature-controlled logistics and refrigerated warehouses. Besides its properties, the company also has investments in other REITs, industrial buildings and Toys ‘R’ Us. Vornado Realty currently owns about 32.7% of Toys ‘R’ Us. 

Vornado Realty has a strong asset portfolio in two of the best long-term office markets in the U.S. – the New York City and Washington DC. This provides the company a competitive advantage to continually increase rents. The company also has a healthy balance sheet and adequate liquidity. Consequently, Vornado Realty is better placed than most of its peers to withstand the economic challenges. 

Our long-term recommendation for the company is Neutral as we anticipate it to perform in line with the broader market.
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