UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________

FORM 10-Q

_________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 28, 2012

Commission file number 333-164018

_________________________________

Toys “R” Us Property Company I, LLC

(Exact name of registrant as specified in its charter)

_________________________________



Delaware		04-3829291
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

One Geoffrey Way Wayne, New Jersey		07470
(Address of principal executive offices)		(Zip code)

(973) 617-3500

(Registrant’s telephone number, including area code)

_________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of September 11, 2012, all of our outstanding membership interests were privately held by our sole member, Wayne Real Estate Holding Company, LLC.

Table of Contents

TOYS “R” US PROPERTY COMPANY I, LLC

TABLE OF CONTENTS



	PAGE
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Operations	2
Condensed Consolidated Statements of Cash Flows	3
Condensed Consolidated Statements of Changes in Member’s Capital	4
Notes to the Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3. Quantitative and Qualitative Disclosures About Market Risk	12
Item 4. Controls and Procedures	12
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	13
Item 1A. Risk Factors	13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3. Defaults Upon Senior Securities	13
Item 4. Mine Safety Disclosures	13
Item 5. Other Information	13
Item 6. Exhibits	13
SIGNATURE	14
INDEX TO EXHIBITS	15

Table of Contents

PART 1 – FINANCIAL INFORMATION


Item 1.	Financial Statements

TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



(In thousands)	July 28, 2012		January 28, 2012
ASSETS
Current Assets:
Cash	$	57,402	$	72,111
Due from affiliate, net	10,240		9,882
Lease allowance receivable	4,240		—
Prepaid expenses	1,475		2,202
Net properties held for sale	3,267		—
Total current assets	76,624		84,195
Real Estate, Net:
Land	274,228		277,001
Buildings, net	483,903		493,883
Property and leasehold improvements, net	101,254		109,683
Total real estate, net	859,385		880,567
Straight-line rent receivable from affiliate	147,071		129,411
Debt issuance costs	14,542		16,007
Other assets	275		283
Total Assets	$	1,097,897	$	1,110,463

LIABILITIES AND MEMBER’S CAPITAL
Current Liabilities:
Accrued interest	$	3,885	$	3,928
Real estate taxes payable	14,584		11,075
Deferred third party rent liabilities	1,883		1,175
Deferred related party revenue	1,365		1,365
Other current liabilities	1,126		1,422
Total current liabilities	22,843		18,965
Long-term debt	934,821		933,516
Deferred third party rent liabilities	114,596		110,159
Other non-current liabilities	1,487		1,537
Member's capital	24,150		46,286
Total Liabilities and Member's Capital	$	1,097,897	$	1,110,463

See accompanying notes to the Condensed Consolidated Financial Statements.

TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	13 Weeks Ended					26 Weeks Ended
(In thousands)	July 28, 2012			July 30, 2011		July 28, 2012		July 30, 2011
Rental revenues:
Base rents	$	60,576		$	60,219	$	121,835	$	121,526
Tenant reimbursements	9,771			10,255		19,767		20,617
Total revenues	70,347			70,474		141,602		142,143
Depreciation	8,885			8,232		17,370		16,459
Rental expense	11,484			12,182		23,618		24,275
Common area maintenance expenses	9,771			10,255		19,767		20,617
Other operating expenses	1,331			1,359		2,521		2,721
Total operating expenses	31,471			32,028		63,276		64,072
Operating earnings	38,876			38,446		78,326		78,071
Interest expense	26,961			26,922		53,960		53,913
Earnings from continuing operations	11,915			11,524		24,366		24,158
(Loss) earnings from discontinued operations	(219		)	2,319		1,964		5,113
Net earnings	$	11,696		$	13,843	$	26,330	$	29,271

See accompanying notes to the Condensed Consolidated Financial Statements.

TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	26 Weeks Ended
(In thousands)	July 28, 2012			July 30, 2011
Cash Flows from Operating Activities:
Net earnings	$	26,330		$	29,271
Adjustments to reconcile Net earnings to net cash provided by operating activities:
Depreciation	17,915			16,976
Amortization of debt issuance costs	1,465			1,465
Amortization of original issue discount	1,305			1,176
Gain on sale of real estate	—			(392		)
Other non-cash charges	(50		)	64
Changes in operating assets and liabilities:
Due from affiliate, net and Lease allowance receivable	(5,039		)	(3,817		)
Prepaid expenses	727			113
Straight-line rent receivable from affiliate, Other assets and Deferred third party rent liabilities	(12,066		)	(10,563		)
Accrued interest, Real estate taxes payable and Other current liabilities	3,170			4,397
Deferred related party revenue	—			(466		)
Net cash provided by operating activities	33,757			38,224
Cash Flows from Investing Activities:
Proceeds from the sale of real estate	—			7,883
Capital expenditures	—			(525		)
Net cash provided by investing activities	—			7,358
Cash Flows from Financing Activities:
Distributions	(48,466		)	(42,151		)
Long-term debt borrowings	—			525
Net cash used in financing activities	(48,466		)	(41,626		)
Cash:
Net (decrease) increase during period	(14,709		)	3,956
Cash at beginning of period	72,111			39,708
Cash at end of period	$	57,402		$	43,664

See accompanying notes to the Condensed Consolidated Financial Statements.

TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S CAPITAL

(Unaudited)



(In thousands)	Member's Capital
Balance, January 29, 2011	$	43,085
Net earnings	29,271
Distributions	(42,151		)
Balance, July 30, 2011	$	30,205

Balance, January 28, 2012	$	46,286
Net earnings	26,330
Distributions	(48,466		)
Balance, July 28, 2012	$	24,150

See accompanying notes to the Condensed Consolidated Financial Statements.

Table of Contents

TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of presentation

As used herein, the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company I, LLC and its subsidiaries (“TRU Propco I”), except as expressly indicated or unless the context otherwise requires. TRU Propco I was formed on September 15, 2005 as part of a legal reorganization of the businesses of Toys “R” Us, Inc. (“TRU”). TRU, through various subsidiaries, operates or licenses Toys “R” Us and Babies “R” Us stores in the United States and foreign countries and jurisdictions. We are indirectly owned by TRU through our holding company, Wayne Real Estate Holding Company, LLC (“Wayne Holdings”), a direct wholly-owned subsidiary of TRU. We generate substantially all of our revenues, earnings and cash flows by leasing or subleasing properties primarily to our affiliate, Toys “R” Us-Delaware, Inc. (“Toys-Delaware”). The Company is one reportable segment.

The Condensed Consolidated Balance Sheets as of July 28, 2012 and January 28, 2012, the Condensed Consolidated Statements of Operations for the thirteen and twenty-six weeks ended July 28, 2012 and July 30, 2011, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Changes in Member’s Capital for the twenty-six weeks ended July 28, 2012 and July 30, 2011, have been prepared by us in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting, and in accordance with the requirements of this Quarterly Report on Form 10-Q. Our interim Condensed Consolidated Financial Statements are unaudited and are subject to year-end adjustments. In the opinion of management, the financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions that impact the financial statements) necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen and twenty-six weeks then ended. The Condensed Consolidated Balance Sheet at January 28, 2012, presented herein, has been derived from our audited balance sheet included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012, but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the financial statements and footnotes thereto included within our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

2. Real estate, net



(In thousands)	July 28, 2012			January 28, 2012
Land	$	274,228		$	277,001
Buildings	749,395			751,744
Property and leasehold improvements	403,238			407,060
	1,426,861			1,435,805
Less: accumulated depreciation	(567,476		)	(555,238		)
Total	$	859,385		$	880,567

Net properties held for sale

Assets held for sale represent assets owned by us that our management has committed to sell in the near term. The following assets are classified as held for sale:



(In thousands)	July 28, 2012
Land	$	2,773
Buildings	1,227
Property and leasehold improvements	1,185
	5,185
Less: accumulated depreciation	(1,918		)
Total	$	3,267

Subsequent to the second quarter of fiscal 2012, we sold a non-operating parcel classified as held for sale as of July 28, 2012, to an unrelated third party for gross proceeds of approximately $1 million, resulting in a nominal gain.

3. Discontinued operations

During the twenty-six weeks ended July 28, 2012, we classified a property and a non-operating parcel as held for sale and had two leases expire with unrelated third party landlords for which we opted not to exercise the renewal options. The Amended and Restated Master Lease Agreement (the “TRU Propco I Master Lease”) requires Toys-Delaware to make a payment to the Company upon early termination of the lease, as set forth under the terms of the TRU Propco I Master Lease, or the successful execution of the sale of such properties by the Company to a third party if the proceeds from the sale are less than the net present value of the base rent for such property over the remaining term for such property, discounted at 10% per annum. As per the terms of the TRU Propco I Master Lease, the two leases were terminated early and we recorded termination payments of approximately $1 million in (Loss) earnings from discontinued operations on the Condensed Consolidated Statement of Operations. Termination payments received are included in Cash Flows from Operating Activities.

During the twenty-six weeks ended July 30, 2011, we sold two owned properties to unrelated third parties for gross proceeds of approximately $8 million, resulting in a net gain of less than $1 million. We recorded termination payments of approximately $4 million for properties sold during the twenty-six weeks ended July 30, 2011 in (Loss) earnings from discontinued operations on the Condensed Consolidated Statement of Operations. In addition, subsequent to the second quarter of fiscal 2011, we sold two more properties and terminated two leased properties with unrelated third party landlords prior to the expiration of the leases.

We reported the operating results for these properties as (Loss) earnings from discontinued operations on the Condensed Consolidated Statements of Operations for the thirteen and twenty-six weeks ended July 28, 2012 and July 30, 2011. The operating results for these properties classified as discontinued operations through July 28, 2012 were derived from our historical financial information and have been segregated from continuing operations and reported separately on the Condensed Consolidated Statements of Operations for the thirteen and twenty-six weeks ended July 28, 2012 and July 30, 2011, respectively. These amounts have been summarized below:



	13 Weeks Ended
(In thousands)	July 28, 2012			July 30, 2011
Total revenues	$	56		$	2,769
(Loss) earnings from discontinued operations	$	(219	)	$	2,319

	26 Weeks Ended
(In thousands)	July 28, 2012			July 30, 2011
Total revenues	$	1,279		$	5,912
Earnings from discontinued operations	$	1,964		$	5,113

4. Long-term debt

As of July 28, 2012 and January 28, 2012, the carrying value of our debt was $935 million and $934 million, respectively.

10.75% Senior Notes, due fiscal 2017 ($932 million at July 28, 2012)

As of July 28, 2012 and January 28, 2012, the carrying value of our 10.75% senior unsecured notes due fiscal 2017 (the “Notes”) was $932 million and $931 million, respectively, with fair values of approximately $1,045 million and $1,064 million, respectively. The fair value of the Notes was estimated using Level 2 inputs, which represent quoted market prices of our debt instrument.

In accordance with the indenture governing the Notes, we commenced a tender offer on May 14, 2012 to purchase up to an aggregate principal amount of approximately $33 million of the Notes for approximately $32 million in cash. The tender offer expired on June 13, 2012, with no holders opting to tender at that time. Therefore, as permitted by the indenture, we made a cash distribution of approximately $32 million to TRU on June 21, 2012.

Lease Financing Obligation Associated with a Capital Project

During fiscal 2011, we were significantly involved in the construction of a leased store which included non-standard tenant improvements. As a result of our involvement, we are deemed the “owner” for accounting purposes and are required to capitalize the construction costs on our Condensed Consolidated Balance Sheet. Upon completion of the project, we performed a sale-leaseback analysis pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 840, “Leases”, and determined that we were unable to derecognize the assets capitalized during construction. Therefore, in

conjunction with this lease, as of July 28, 2012 and January 28, 2012, we had a financing obligation of $3 million, respectively. The rental payments to the landlord are recognized as a reduction of the financing obligation and interest expense. We also continue to recognize rent expense on the ground lease for the land on which this asset was constructed.

5 . Member’s capital

Wayne Holdings is the direct owner of 100% of our limited liability company interests. We evaluate our cash balances on an ongoing basis and periodically distribute cash to our ultimate parent company, TRU. From time to time, a portion of our cash may also be used to tender for a portion of the outstanding Notes as permitted by the indenture governing the Notes. If holders of the Notes elect not to tender their Notes, we may, at such time, in accordance with the indenture governing the Notes, make certain restricted payments, including distributing cash to TRU.

In accordance with the indenture governing the Notes, we commenced a tender offer on May 14, 2012 to purchase up to an aggregate principal amount of approximately $33 million of the Notes for approximately $32 million in cash. The tender offer expired on June 13, 2012, with no holders opting to tender at that time. Therefore, as permitted by the indenture, we made cash distributions of approximately $32 million to TRU on June 21, 2012.

During the twenty-six weeks ended July 28, 2012, we made cash distributions of $26 million and $22 million in dividends and return of capital, respectively, which includes the cash distributions of approximately $32 million to TRU on June 21, 2012 related to the expired tender offer. During the twenty-six weeks ended July 30, 2011, we made cash distributions of $29 million and $13 million in dividends and return of capital, respectively.

6. Related party transactions

Rental Revenues

Our Rental revenues are derived from payments received under the TRU Propco I Master Lease we have entered into with Toys-Delaware. The TRU Propco I Master Lease provides for Toys-Delaware to reimburse us for property related costs including, among others, real estate taxes and common area maintenance charges. Some of these costs are directly paid by Toys-Delaware and are recorded as both an expense and a tenant reimbursement. During each of the thirteen weeks ended July 28, 2012 and July 30, 2011, we earned related party Base rent revenues of approximately $60 million, excluding termination payments from Toys-Delaware. During the twenty-six weeks ended July 28, 2012 and July 30, 2011, we earned related party Base rent revenues of approximately $120 million and $121 million, respectively, excluding termination payments from Toys-Delaware. In addition, we recorded Tenant reimbursements of approximately $10 million under our leasing arrangements with Toys-Delaware during each of the thirteen weeks ended July 28, 2012 and July 30, 2011. During the twenty-six weeks ended July 28, 2012 and July 30, 2011, we recorded Tenant reimbursements of approximately $20 million and $21 million, respectively.

Termination Payments

As discussed in Note 3 entitled “Discontinued operations”, the TRU Propco I Master Lease requires Toys-Delaware to make a payment to the Company upon early termination of a lease, as set forth under the terms of the TRU Propco I Master Lease, or the successful execution of the sale of such properties by the Company to a third party if the proceeds from the sale are less than the net present value of the base rent for such property over the remaining term for such property, discounted at 10% per annum. No termination payments were recorded for the thirteen weeks ended July 28, 2012 and approximately $2 million was recorded for the thirteen weeks ended July 30, 2011. We recorded termination payments of approximately $1 million and $4 million for the twenty-six weeks ended July 28, 2012 and July 30, 2011, respectively, in (Loss) earnings from discontinued operations on the Condensed Consolidated Statement of Operations.

Management Service Fees

Toys-Delaware provides a majority of the centralized corporate functions, including accounting, human resources, legal, tax and treasury services to TRU, other affiliates and us under a Domestic Services Agreement (“Agreement”). The costs are based on a formula for each affiliate, as defined in the Agreement. During each of the thirteen weeks ended July 28, 2012 and July 30, 2011, the amounts charged to us for these services were approximately $1 million, and are recorded in Other operating expenses on the Condensed Consolidated Statements of Operations. During each of the twenty-six weeks ended July 28, 2012 and July 30, 2011, the amounts charged to us for these services were approximately $2 million, and are recorded in Other operating expenses on the Condensed Consolidated Statements of Operations.

Due from affiliate, net

As of July 28, 2012 and January 28, 2012, Due from affiliate, net of $10 million, respectively, primarily represents real estate taxes, certain property reimbursements and base rents owed to us by Toys-Delaware.


Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

As used herein the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company I, LLC and its subsidiaries (“TRU Propco I”), except as expressly indicated or unless the content otherwise requires. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help facilitate an understanding of our financial condition and our historical results of operations for the periods presented. This MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 28, 2012 and Condensed Consolidated Financial Statements and the accompanying notes thereto, and contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” below.

Our Business

We are a special purpose entity, owned indirectly by Toys “R” Us, Inc. (“TRU”) and formed in September 2005. Certain of our wholly-owned special purpose subsidiaries own fee and leasehold interests in 349 properties in various retail markets throughout the United States. Under an operating company/property company structure, we lease these properties on a triple-net basis, to Toys “R” Us – Delaware, Inc. (“Toys-Delaware”), the operating entity for all of TRU’s North American businesses, which operates the properties as Toys “R” Us stores, Babies “R” Us stores or side-by-side stores, or subleases them to alternative retailers. Substantially all of our revenues and cash flows are derived from payments from Toys-Delaware under the Amended and Restated Master Lease Agreement (the “TRU Propco I Master Lease”). For quarterly financial statements and other information about our master tenant, Toys-Delaware, see Exhibit 99.1 to this report.

Results of Operations

Earnings from Continuing Operations



	13 Weeks Ended								26 Weeks Ended
($ In thousands)	July 28, 2012		July 30, 2011		$ Change		% Change		July 28, 2012		July 30, 2011		$ Change		% Change
Earnings from continuing operations	$	11,915	$	11,524	$	391	3.4	%	$	24,366	$	24,158	$	208	0.9	%

Earnings from continuing operations increased by a nominal amount for the thirteen and twenty-six weeks ended July 28, 2012, compared to the same periods last year.

Total Revenues



	13 Weeks Ended									26 Weeks Ended
($ In thousands)	July 28, 2012		July 30, 2011		$ Change			% Change		July 28, 2012		July 30, 2011		$ Change			% Change
Total revenues	$	70,347	$	70,474	$	(127	)	(0.2	)%	$	141,602	$	142,143	$	(541	)	(0.4	)%

Total revenues decreased by a nominal amount for the thirteen weeks ended July 28, 2012, compared to the same period last year.

Total revenues decreased by $0.5 million, or 0.4%, to $141.6 million for the twenty-six weeks ended July 28, 2012, compared to $142.1 million for the twenty-six weeks ended July 30, 2011. The decrease was due to a decline in Tenant reimbursements, partially offset by an increase in Base rents.

Depreciation



	13 Weeks Ended								26 Weeks Ended
($ In thousands)	July 28, 2012		July 30, 2011		$ Change		% Change		July 28, 2012		July 30, 2011		$ Change		% Change
Depreciation	$	8,885	$	8,232	$	653	7.9	%	$	17,370	$	16,459	$	911	5.5	%

Depreciation increased by $0.7 million, or 7.9%, to $8.9 million for the thirteen weeks ended July 28, 2012, compared to $8.2 million for the thirteen weeks ended July 30, 2011, and increased by $0.9 million, or 5.5%, to $17.4 million for the twenty-six weeks ended July 28, 2012, compared to $16.5 million for the twenty-six weeks ended July 30, 2011. The increase for both periods was primarily due to accelerated depreciation related to a change in estimated lease terms.

Table of Contents

Rental Expense



	13 Weeks Ended									26 Weeks Ended
($ In thousands)	July 28, 2012		July 30, 2011		$ Change			% Change		July 28, 2012		July 30, 2011		$ Change			% Change
Rental expense	$	11,484	$	12,182	$	(698	)	(5.7	)%	$	23,618	$	24,275	$	(657	)	(2.7	)%

Rental expense decreased by $0.7 million, or 5.7%, to $11.5 million for the thirteen weeks ended July 28, 2012, compared to $12.2 million for the thirteen weeks ended July 30, 2011, and decreased by $0.7 million, or 2.7%, to $23.6 million for the twenty-six weeks ended July 28, 2012, compared to $24.3 million for the twenty-six weeks ended July 30, 2011. The decrease for both periods was primarily due to an adjustment to the non-cash straight-line third party rent amounts related to a change in estimated lease terms.

Common Area Maintenance Expenses



	13 Weeks Ended									26 Weeks Ended
($ In thousands)	July 28, 2012		July 30, 2011		$ Change			% Change		July 28, 2012		July 30, 2011		$ Change			% Change
Common area maintenance expenses	$	9,771	$	10,255	$	(484	)	(4.7	)%	$	19,767	$	20,617	$	(850	)	(4.1	)%

Common area maintenance expenses decreased by $0.5 million, or 4.7%, to $9.8 million for the thirteen weeks ended July 28, 2012, compared to $10.3 million for the thirteen weeks ended July 30, 2011, and decreased by $0.8 million, or 4.1%, to $19.8 million for the twenty-six weeks ended July 28, 2012, compared to $20.6 million for the twenty-six weeks ended July 30, 2011. These expenses are fully reimbursed by our tenant under the TRU Propco I Master Lease, and are reflected in Base rents, which is a component of Total revenues.

Other Operating Expenses



	13 Weeks Ended									26 Weeks Ended
($ In thousands)	July 28, 2012		July 30, 2011		$ Change			% Change		July 28, 2012		July 30, 2011		$ Change			% Change
Other operating expenses	$	1,331	$	1,359	$	(28	)	(2.1	)%	$	2,521	$	2,721	$	(200	)	(7.4	)%

Other operating expenses decreased by a nominal amount for the thirteen and twenty-six weeks ended July 28, 2012, compared to the same periods last year.

Interest Expense



	13 Weeks Ended								26 Weeks Ended
($ In thousands)	July 28, 2012		July 30, 2011		$ Change		% Change		July 28, 2012		July 30, 2011		$ Change		% Change
Interest expense	$	26,961	$	26,922	$	39	0.1	%	$	53,960	$	53,913	$	47	0.1	%

Interest expense increased by a nominal amount for the thirteen and twenty-six weeks ended July 28, 2012, compared to the same periods last year.

(Loss) earnings from Discontinued Operations



	13 Weeks Ended										26 Weeks Ended
($ In thousands)	July 28, 2012			July 30, 2011		$ Change			% Change		July 28, 2012		July 30, 2011		$ Change			% Change
(Loss) earnings from discontinued operations	$	(219	)	$	2,319	$	(2,538	)	(109.4	)%	$	1,964	$	5,113	$	(3,149	)	(61.6	)%

(Loss) earnings from discontinued operations decreased by $2.5 million to a loss of $0.2 million for the thirteen weeks ended July 28, 2012, compared to earnings of $2.3 million for the thirteen weeks ended July 30, 2011. The decrease was primarily due to a termination payment of approximately $2.2 million from Toys-Delaware as required under the TRU Propco I Master Lease for a property sold in the second quarter of fiscal 2011. See Note 6 to the Condensed Financial Statements entitled “Related party transactions” for further details.

Table of Contents

Earnings from discontinued operations decreased by $3.1 million to $2.0 million for the twenty-six weeks ended July 28, 2012, compared to earnings of $5.1 million for the twenty-six weeks ended July 30, 2011. The decrease was due to a decline in termination payments from Toys-Delaware as required under the TRU Propco I Master Lease of $2.7 million for properties sold during the twenty-six weeks ended July 28, 2012 compared to the same period last year. See Note 3 to the Condensed Financial Statements entitled “Discontinued operations” for further details.

Liquidity and Capital Resources

Overview

As of July 28, 2012, we were in compliance with all of our covenants related to the 10.75% senior unsecured notes due fiscal 2017 (the “Notes”).

Our largest source of operating cash flows is cash collections from our lessees. In general, we utilize our cash to service debt, pay normal operating costs and at the discretion of our sole member, based on the recommendation of our management, and as permitted by the indenture governing the Notes, declare and pay dividends or make distributions. From time to time, a portion of our cash may also be used to tender for a portion of the outstanding Notes as permitted by the indenture governing the Notes. Refer to Note 4 to the Condensed Consolidated Financial Statements entitled “Long-term debt” for further details regarding the tender for the Notes.

Additionally, the indenture governing the Notes allows us to re-invest the net cash proceeds from the sale of properties within 720 days subsequent to the receipt of the proceeds. If net cash proceeds are not reinvested within 720 days of receipt, the net cash proceeds are deemed to be excess proceeds (“Excess Proceeds”). When the aggregate amount of Excess Proceeds exceeds $10.0 million, we are required to make an offer to all holders of the Notes within 30 days to purchase Notes with the Excess Proceeds. Although we have recognized sales proceeds in excess of $10.0 million as of July 28, 2012, these are not classified as Excess Proceeds given the time that has elapsed from the sale of the properties.

We have been able to meet our cash needs principally by using cash on hand and cash flows from operations and we believe that cash from operations along with existing cash will be sufficient to fund expected cash flow requirements for the next twelve months.

Cash Flows



	26 Weeks Ended
(In thousands)	July 28, 2012			July 30, 2011			Change
Net cash provided by operating activities	$	33,757		$	38,224		$	(4,467	)
Net cash provided by investing activities	—			7,358			(7,358		)
Net cash used in financing activities	(48,466		)	(41,626		)	(6,840		)
Net (decrease) increase during period in cash	$	(14,709	)	$	3,956		$	(18,665	)

Cash Flows Provided by Operating Activities

During the twenty-six weeks ended July 28, 2012, net cash provided by operating activities was $33.8 million compared to $38.2 million for the twenty-six weeks ended July 30, 2011. The decrease in net cash provided by operating activities was primarily due to a decline in termination payments from Toys-Delaware as required under the TRU Propco I Master Lease of approximately $2.7 million for early lease terminations and properties sold during the twenty-six weeks ended July 28, 2012, as compared to the same period last year.

Cash Flows Provided by Investing Activities

During the twenty-six weeks ended July 28, 2012, no cash was provided by investing activities compared to $7.4 million for the twenty-six weeks ended July 30, 2011. Net cash provided by investing activities for the twenty-six weeks ended July 30, 2011, was due to proceeds from the sale of real estate of $7.9 million, partially offset by capital expenditures of $0.5 million incurred in the same period last year.

Cash Flows Used in Financing Activities

During the twenty-six weeks ended July 28, 2012, net cash used in financing activities was $48.5 million compared to $41.6 million for the twenty-six weeks ended July 30, 2011. The increase in net cash used in financing activities was primarily due to a $6.3 million increase in Distributions, as compared to the twenty-six weeks ended July 30, 2011.

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Debt

Refer to the Annual Report on Form 10-K and Note 4 to the Condensed Consolidated Financial Statements entitled “Long-term debt” for further details regarding our debt.

Contractual Obligations and Commitments

Our contractual obligations consist mainly of payments related to Long-term debt and related interest and operating leases related to real estate used in the operation of our business. Refer to the “Contractual Obligations and Commitments” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012, for details on our contractual obligations and commitments.

Critical Accounting Policies

Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities as of the date of the financial statements and during the applicable periods. We base these estimates on historical experience and on other factors that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions and could have a material impact on our Condensed Consolidated Financial Statements. Refer to the Annual Report on Form 10-K for the fiscal year ended January 28, 2012, for a discussion of critical accounting policies.

Recently Adopted Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The amendments in this ASU generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards (“IFRS”). As of January 29, 2012, the Company has adopted ASU 2011-04 and has applied this guidance prospectively. The adoption of ASU 2011-04 did not have an impact on our Condensed Consolidated Financial Statements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, the other reports and documents that we have filed or may in the future file with the

Securities and Exchange Commission and other publicly released materials and statements, both oral and written, that we have

made or may make in the future, may contain “forward looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. All statements herein or therein that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. We generally identify these statements by words or phrases, such as “anticipate,” “estimate,” “plan,” “project,” “expect,” “believe,” “intend,” “foresee,” “forecast,” “will,” “may,” “outlook,” and similar words or phrases. These statements discuss, among other things, our strategy, future financial or operational performance, anticipated cost savings, results of restructurings, cash flows generated from operating activities, anticipated developments, future financings, targets and future occurrences and trends.

These statements are subject to risks, uncertainties, and other factors, including, among others, competition in the retail industry, seasonality of Toys-Delaware’s business, changes in consumer preferences and consumer spending patterns, general economic conditions in the United States and other countries in which Toys-Delaware conducts its business, Toys-Delaware’s ability to implement its strategy, our, Toys-Delaware’s and TRU’s respective substantial levels of indebtedness and related debt-service obligations and the covenants in their and our respective debt agreements, availability of adequate financing to us, Toys-Delaware and TRU, Toys-Delaware’s dependence on key vendors of merchandise, international events affecting the delivery of toys and other products to Toys-Delaware’s stores, and such risks, uncertainties and factors set forth under Item 1A entitled “RISK FACTORS” of our Annual Report on Form 10-K filed on April 27, 2012 and in our reports and documents filed with the Securities and Exchange Commission (which reports and documents should be read in conjunction with this Quarterly Report on Form 10-Q). We believe that all forward-looking statements are based on reasonable assumptions when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update these statements in light of subsequent events or developments, unless required by the Securities and Exchange Commission's rules and regulations. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in any forward-looking statement.

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in our exposure to market risk during the twenty-six weeks ended July 28, 2012. For a discussion of our exposure to market risk, refer to Item 7A entitled “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

We have evaluated, under the supervision and with the participation of our management, including our principal executive and principal financial officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report.

Based on that evaluation, our principal executive and principal financial officer has concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the second quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION


Item 1.	Legal Proceedings

Although we do not currently have material legal proceedings pending against us, in the future, we may be involved in various lawsuits, claims and proceedings incident to the ordinary course of business. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty.


Item 1A.	Risk Factors

As of the date of this report, there have been no material changes to the information related to Item 1A entitled “RISK FACTORS” disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

None.


Item 5.	Other Information

None.


Item 6.	Exhibits

See the Index to Exhibits immediately following the signature page hereto, which Index to Exhibits is incorporated herein by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		TOYS “R” US PROPERTY COMPANY I, LLC
		(Registrant)

Date: September 11, 2012		/s/ F. Clay Creasey, Jr.
		F. Clay Creasey, Jr.
		Executive Vice President and Chief Financial Officer

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INDEX TO EXHIBITS

The following is a list of all exhibits filed or furnished as part of this report:



Exhibit No.		Description

3.1		Amended and Restated Certificate of Formation of TRU 2005 RE Holding Co., I, LLC, changing its name from TRU 2005 RE Holding Co. I, LLC to Toys “R” Us Property Company I, LLC (filed as Exhibit 3.1 to Registrant’s Form S-4 registration statement, filed on December 24, 2009 and incorporated herein by reference).

3.2		Second Amended and Restated Limited Liability Company Agreement of Toys “R” Us Property Company I, LLC (filed as Exhibit 3.2 to the Registrant’s Form S-4 registration statement, filed on December 24, 2009 and incorporated herein by reference).

31.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Toys “R” Us – Delaware, Inc. financial statements for the thirteen and twenty-six weeks ended July 28, 2012 (filed as Exhibit 99.1 to the Form 8-K filed by Toys “R” Us, Inc. on September 11, 2012 and incorporated herein by reference).

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Toys R Us Property Co I, LLC 10-Q