Toys R Us plans $650M offering; sales off in Q3

Third quarter same-store sales slip on weak video game biz, 'Big Book' delay

By Staff -- Gifts and Dec, November 9, 2009

WAYNE, N.J.—Toys R Us Inc. announced today that one of its indirect wholly-owned subsidiaries, Giraffe Properties, intends to offer privately $650 million in senior secured notes due in 2017.

Giraffe Properties, which will be renamed Toys “R” Us Property Company II, intends to use the cash proceeds from the offering of the notes, together with cash on hand, to repay an existing $600 million senior secured real estate loan and security agreement and related mezzanine loans. In addition, in connection with the offering and the related transactions, MPO Properties, another indirect wholly-owned subsidiary of Toys R Us Inc., will repay its $200 million senior secured real estate loan and security agreement and related mezzanine loans.

The notes will be secured by first priority security interests in all of the real estate properties of the issuer. The notes are solely the obligation of the issuer and are not guaranteed by Toys R Us Inc. or Toys R Us - Delaware Inc., the operating entity for all of the retailer’s North American businesses.

The newly named Toys R Us Property Company II owns fee and leasehold interests in 129 properties in the United States which it will lease on a long term basis to Toys R Us – Delaware, pursuant to an amended and restated master lease. The amendment and restatement of the master lease will increase the rent and extend the term from the previous master leases.

In an SEC filing tied to the announcement, Toys R Us said that comparable store sales for the third quarter of its fiscal 2009 were off 7.2 percent, with the retailer’s video game focused entertainment product category having accounted “for more than one-third of the decline.” Additionally, comparable store net sales in the final week of the third quarter were adversely impacted by the shift of TRU’s holiday Big Book promotional event from the last week of the third quarter in fiscal 2008 to the first week of the fourth quarter in fiscal 2009.As a result, Toys-Delaware currently estimates that total comparable store net sales in the third quarter of fiscal 2009 were down approximately 9 percent, with the entertainment product category accounting for slightly less than half of the decline.

Despite the negative comparable store net sales in the third quarter of fiscal 2009, Toys-Delaware believes that results for the quarter will show gross margin rate improvement and expense reductions in sufficient amounts to more than offset the impact of the net sales decline on the operating results for the quarter.

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