UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



	For the fiscal year ended January 30, 2016 Commission file number 333-168515

Toys “R” Us Property Company II, LLC



(Exact name of registrant as specified in its charter)



Delaware		37-1512919
(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)

______________________________________

Securities registered pursuant to Section 12(b) or 12(g) of the Act:

None

______________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes x No ¨

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 ¨ No ¨

(Note: As a voluntary filer not subject to the filing requirements of Section 13(a) or 15(d) of the Exchange Act, the registrant has filed all reports pursuant to Section 13(a) or 15(d) of the Exchange Act during the preceding 12 months as if the registrant were subject to such filing requirements.)

Indicate by check mark whether the registrants have submitted electronically and posted on their 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 registrants were required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

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 April 8, 2016, all of our outstanding membership interests were privately held by our sole member, Giraffe Junior Holdings, LLC.

Toys “R” Us Property Company II, LLC meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.

DOCUMENTS INCORPORATED BY REFERENCE

None

Forward-Looking Statements

This Annual Report on Form 10-K, 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, and such disclosures are intended to be covered by the safe harbors created thereby. These forward looking statements reflect our current views with respect to, among other things, our operations and financial performance. 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” or the negative version of these words or other 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, including rental income, anticipated developments, future financings, refinancings and debt repayments, targets and future occurrences and trends.

These statements are subject to risks, uncertainties and other factors, including, among others, the seasonality of Toys “R” Us - Delaware, Inc.’s (“Toys-Delaware”) business, competition in the retail industry, changes in Toys-Delaware’s product distribution mix and distribution channels, general economic factors in the United States and other countries in which Toys-Delaware conducts its business, consumer spending patterns, birth rates, Toys-Delaware’s ability to implement its strategy including implementing initiatives for season, Toys-Delaware’s ability to recognize cost savings, implementation and operation of Toys-Delaware’s new e-commerce platform, marketing strategies, the availability of adequate financing to us, Toys-Delaware and Toys “R” Us, Inc. (“TRU”), ability to repatriate cash from TRU’s foreign operations, ability to distribute cash from TRU’s operating subsidiaries to their parent entities, access to trade credit, changes in consumer preferences, changes in employment legislation, Toys-Delaware’s dependence on key vendors for its merchandise, political and other developments associated with Toys-Delaware’s international operations, costs of goods that Toys-Delaware sells, labor costs, transportation costs, domestic and international events affecting the delivery of toys and other products to Toys-Delaware’s stores, product safety issues including product recalls, the existence of adverse litigation, changes in laws that impact Toys-Delaware’s business, Toys-Delaware’s and TRU’s respective substantial level of indebtedness and related debt-service obligations, restrictions imposed by covenants in their and our respective debt agreements and other risks, uncertainties and factors set forth under Item 1A entitled “RISK FACTORS” of this Annual Report on Form 10-K and in our other reports and documents filed with the Securities and Exchange Commission. In addition, Toys-Delaware typically earns a disproportionate part of its annual operating earnings in the fourth quarter as a result of seasonal buying patterns and these buying patterns are difficult to forecast with certainty. These factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this report. 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.

INDEX




		Page
PART I.

Item 1.	Business	1
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosure	19

PART II.

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 8.	Financial Statements and Supplementary Data	27
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	47
Item 9A.	Controls and Procedures	47
Item 9B.	Other Information	48

PART III.

Item 10.	Directors, Executive Officers and Corporate Governance	49
Item 11.	Executive Compensation	49
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	49
Item 13.	Certain Relationships and Related Transactions and Director Independence	49
Item 14.	Principal Accounting Fees and Services	54

PART IV.

Item 15.	Exhibits and Financial Statement Schedules	55

SIGNATURES		56

INDEX TO EXHIBITS		58

PART I


ITEM 1.	BUSINESS

As used herein, the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company II, LLC (“TRU Propco II”), except as expressly indicated or unless the context otherwise requires. Our fiscal year ends on the Saturday nearest to January 31 of each calendar year. This Annual Report on Form 10-K focuses on our last three fiscal years ended as follows: fiscal 2015 ended January 30, 2016; fiscal 2014 ended January 31, 2015; and fiscal 2013 ended February 1, 2014. References to fiscals 2015, 2014 and 2013 are to our fiscal years unless otherwise specified.

Our Business

We are a special purpose entity owned indirectly by Toys “R” Us, Inc. (“TRU”), through Toys “R” Us - Delaware, Inc. (“Toys-Delaware”), and formed in July 2005. We own fee and ground leasehold interests in 123 properties in various retail markets throughout the United States (collectively, the “Properties” and each, a “Property”). We lease these Properties on a triple-net basis under a master lease to 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 II Master Lease”). For the financial statements for fiscal year ended January 30, 2016 and other information about our master tenant, Toys-Delaware (“Master Tenant”), see Exhibit 99.1 to this report.

TRU, through its subsidiary Toys-Delaware, also operates other properties in which the fee and leasehold interests in such properties are owned by the following affiliated entities: MAP 2005 Real Estate, LLC, Toys “R” Us Property Company I, LLC (“Propco I”) and Toys-Delaware. In 2005, TRU allocated certain properties to various subsidiaries, including entities that would eventually become Propco I and the Company. In 2009, TRU reorganized certain of these entities, including MPO Properties, LLC (“MPO Properties”), a wholly-owned indirect subsidiary of TRU that was merged into TRU on November 20, 2009, for the business purpose of facilitating the 2009 financings obtained at that time. As a result of the reorganization on November 20, 2009, we received from Toys-Delaware and other affiliates, including MPO Properties, certain properties which we now lease to Toys-Delaware. As the reorganization was between entities under common control, the net assets transferred were recorded at their historical costs.

As of January 30, 2016, we owned fee and ground leasehold interests in 123 properties domestically, which include the following stores operated by Toys-Delaware:



Store Type	Store Count	Typical Square Footage
Traditional Toy (1)	68	30,000-50,000
Baby (2)	32	30,000-45,000
Side-by-side (“SBS”) (3)	23	30,000-50,000
Total	123


(1)	Devote on average 5,000 square feet to boutique areas for baby products.


(2)	Devote typically 3,000 square feet to traditional toy products.


(3)	Devote typically 20,000 to 30,000 square feet to traditional toy products and 10,000 to 20,000 square feet to baby products.

The Properties are important to the operations of Toys-Delaware, generating $966 million of U.S. store revenues, which represented approximately 13% of Toys-Delaware’s total U.S. revenues (which includes e-commerce sales) for the fiscal year ended January 30, 2016. In the opinion of management, the Properties are adequately covered by insurance. Certain of the Properties are subject to customary encumbrances, such as ground leases, rights of first offer or refusal, third-party purchase rights, continuous-operations covenants and use restrictions.

The TRU Propco II Master Lease covers all of the Properties and is a triple-net lease requiring Toys-Delaware to pay all costs and expenses arising in connection with the ownership, operating, leasing, use, maintenance and repair of the Properties, including real estate taxes and assessments, utility charges, license and permit fees and insurance premiums, among other things. The TRU Propco II Master Lease requires the payment of a fixed rent which will increase by 10% every five years during its 20-year term. The TRU Propco II Master Lease provides that it is a single and indivisible lease of all the Properties.

Geographic Distribution of Properties

The following table sets forth the locations of the Properties as of January 30, 2016:



Location		Number of Properties
Alabama		1
Arizona		3
California		10
Colorado		2
Connecticut		3
Florida		3
Illinois		7
Indiana		3
Iowa		2
Kentucky		1
Louisiana		1
Maryland		3
Massachusetts		7
Michigan		7
Missouri		1
Nevada		2
New Hampshire		2
New Jersey		1
New York		4
North Carolina		2
Ohio		18
Oregon		2
Pennsylvania		18
South Carolina		1
Tennessee		4
Texas		5
Utah		1
Virginia		4
Wisconsin		5
Total		123

The TRU Propco II Master Lease

The net base cash rents to be paid by the Master Tenant to us under the TRU Propco II Master Lease, effective February 1, 2015, increased to $97 million per annum, reduced for lease terminations and properties sold through the end of fiscal 2015. Future rental payments are subject to additional 10% increases on February 1, 2020 and February 1, 2025. For a more detailed description of the TRU Propco II Master Lease, refer to Note 4 to the Financial Statements entitled “LEASES” and Item 13 entitled “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE” of this Annual Report on Form 10-K.

Leases with Third Parties — Company as Lessee

All of our leases with third parties where we are the lessee include options that allow us to renew or extend the lease term beyond the initial lease period, subject to terms and conditions agreed upon at the inception of the lease. Such terms and conditions include the rental rates agreed upon at the inception of the lease that could represent below or above market rental rates later in the life of the lease, depending upon market conditions at the time of such renewal or extension. In addition, some of our leases include early termination options, which can be exercised by us under specified conditions, including, upon damage, destruction or condemnation of a specified percentage of the value or land area of the property.

Formation Documents

We are a Delaware limited liability company with no subsidiaries. We own no material assets other than the Properties and related assets. Our sole equity member is Giraffe Junior Holdings, LLC.

We were organized solely to acquire, own, hold, sell, assign, transfer, operate, lease and otherwise deal with real estate properties, and to exercise all powers enumerated in the Delaware Limited Liability Company Act relating thereto. We are not permitted to own any asset or property other than our interest in the Properties or other real property and incidental personal property. Further, subject to certain exceptions, we must maintain an arm’s length relationship with any affiliate, and not enter into or be a party to any transaction other than arm’s length transactions. In addition, our organizational documents place certain restrictions on our ability to institute bankruptcy proceedings, liquidate, dissolve, consolidate or merge. No assurance can be given that we will not file for bankruptcy protection or that our creditors will not initiate a bankruptcy or similar proceeding against us. Refer to Item 1A entitled “RISK FACTORS” of this Annual Report on Form 10-K for further details.

Employees

As of January 30, 2016, we employed no individuals. Pursuant to the domestic services agreement and the TRU Propco II Master Lease, Toys-Delaware provides us with services to operate our Properties, including paying all costs and expenses arising in connection with the ownership, operation, lease, use, maintenance and repair of the Properties.

Our executive officers, together with Toys-Delaware pursuant to a domestic services agreement, manage our day-to-day operations. Our day-to-day operations consist primarily of receipt of rent from Toys-Delaware, pursuant to the TRU Propco II Master Lease, and payment of interest to the note holders pursuant to the terms of the 8.500% senior secured notes due fiscal 2017 (the “Secured Notes”).

Certain members of Toys-Delaware’s management were involved in the negotiation of the TRU Propco II Master Lease on our behalf. Future amendments to the TRU Propco II Master Lease may be negotiated on our behalf by certain officers of Toys-Delaware who might perform similar functions on behalf of Toys-Delaware. In addition, certain officers of Toys-Delaware, some of whom might perform similar functions on behalf of Toys-Delaware, may have responsibility for determining whether Toys-Delaware is in compliance with the TRU Propco II Master Lease. Although certain conflicts of interest may arise, such as whether to require compliance with certain covenants under the TRU Propco II Master Lease, we believe that in light of the importance of the Properties to both us and Toys-Delaware and the mutuality of interest in preserving the value of the Properties, conflicts will be resolved in a manner consistent with an arm’s length transaction. In addition, the officers involved are fully aware of, and intend to fully comply with, our contractual obligations; which require, among other things, that we and the Master Tenant deal with one another on an arm’s length basis.

There are certain members of Toys-Delaware management that are also involved in our management, and we, Toys-Delaware and our management teams are fully aware of our and their respective obligations under the TRU Propco II Master Lease and intend to comply with our and their respective contractual obligations. In the event of certain payment defaults by Toys-Delaware under the TRU Propco II Master Lease, the holders of the Secured Notes would have the right to accelerate the debt. As a result, in case a conflict of interest were to arise, we and Toys-Delaware would have a common interest to resolve the conflict to avoid the acceleration of the debt.

Mortgage Limitations

We have not adopted formal policies with respect to investing in real estate or interests in real estate. While we have not adopted a formal policy in this regard, in the event that we elect to lease or purchase additional properties, our current preference would be to lease such property. We currently have no intent to transfer properties or acquire additional properties although we may be required to sell properties in certain circumstances. We have not adopted an internal policy on the number or amount of mortgages, if any, which may be placed on any one piece of property; however, limitations contained in our indenture or the credit facilities or indentures to which TRU is a party may restrict our ability to mortgage our property.


ITEM 1A.	RISK FACTORS

Investors should carefully consider the risks described below together with all of the other information in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be less significant than the following risk factors, may also adversely affect our business and operations. If any of the following risks actually occur, our business, financial condition, cash flows or results of operations could be materially adversely affected.

Risks Relating to the Company

Our only assets, and sole source of revenue, are our Properties and the TRU Propco II Master Lease. Additionally, the Properties and the TRU Propco II Master Lease provide the sole source of cash to make payments on the Secured Notes, which are scheduled to mature within the next two years.

Our only assets are our Properties. We have no operations and generate all of our revenues from payments made by Toys-Delaware pursuant to the terms of the TRU Propco II Master Lease. As discussed in more detail below under “— Risks Related to the Master Tenant’s and TRU’s Substantial Indebtedness,” Toys-Delaware is highly leveraged and will be required to devote a substantial portion of its cash flow to service its own debt. Absent continued payments from Toys-Delaware under the TRU Propco II Master Lease, we will rely solely on cash on hand and additional borrowings to make payments on the Secured Notes.

Although this Form 10-K contains certain financial and operating information with respect to Toys-Delaware and TRU, neither of these entities nor any of their respective subsidiaries (other than us) is an obligor on, or a guarantor of, the Secured Notes. As a result, holders of the Secured Notes do not have a direct claim against any of these entities or their assets.

Additionally, as of January 30, 2016, we had all of our outstanding debt, which consists of $725 million of our Secured Notes, maturing in fiscal 2017. We believe we will have the ability to refinance, or repay a portion and refinance the balance of, the notes prior to their maturity date; however, a number of factors, including factors beyond our control, could reduce or restrict our ability to refinance these notes on favorable terms. If we are unable to repay amounts when due, the holders of our debt could proceed against us and the collateral granted to them to secure that debt.

All of our revenues are generated under the TRU Propco II Master Lease. Unexpected expenses, termination of the TRU Propco II Master Lease, sales of Properties under the TRU Propco II Master Lease or a bankruptcy of the Master Tenant could have a material impact on our financial condition.

The TRU Propco II Master Lease provides the only source of our revenue. The TRU Propco II Master Lease is a triple-net lease whereby Toys-Delaware, as tenant, is obligated to pay most operating costs with respect to the Properties. However, if we have unexpected expenses not covered by the TRU Propco II Master Lease, our net cash flow could be adversely affected. Toys-Delaware’s failure to make payments under the TRU Propco II Master Lease would have a material adverse effect on our financial condition.

In addition to the risk that Toys-Delaware might fail to make payments under the TRU Propco II Master Lease, Toys-Delaware may fail to perform other obligations under the TRU Propco II Master Lease, including the obligations to pay real estate taxes on the Properties and the rent owed under any underlying ground leases, insure the Properties, maintain the Properties in good repair and condition and in compliance with laws, remediate any environmental problems at the Properties and restore any Property following a casualty or condemnation. The failure of Toys-Delaware to perform these obligations may have a material adverse effect on the value of the Properties and our financial condition.

Pursuant to the TRU Propco II Master Lease, Toys-Delaware has the option to declare properties “uneconomic” and request the removal of such properties from the TRU Propco II Master Lease. Upon such a request from Toys-Delaware, we must use reasonable good faith efforts to sell such properties, free and clear of the liens in favor of the collateral agent. The sale of a substantial number of properties under the TRU Propco II Master Lease could have a material adverse effect on our cash flows. For a more detailed description of the TRU Propco II Master Lease, see Note 4 to the Financial Statements entitled “LEASES” and Item 13 entitled “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE” of this Annual Report on Form 10-K.

Real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond our control.

Certain events may decrease cash available for payments on the Secured Notes, as well as the value of the Properties. These events include, but are not limited to:


•	adverse changes in national or local economic and demographic conditions;


•	adverse changes in the financial condition of the Master Tenant;


•	inability to collect rent from the Master Tenant;


•	reductions in the level of demand for commercial space and changes in the relative popularity of properties;


•	increases in the supply of or demand for commercial space in a particular area;


•	fluctuations in interest rates, which could adversely affect our ability, or the ability of buyers and tenants of properties, to obtain financing on favorable terms or at all;


•	changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, governmental fiscal policies and the Americans with Disabilities Act of 1990;


•	property and casualty losses, some of which may be uninsured;


•	liens, encumbrances, zoning matters or other matters affecting title to or use of real estate;


•	asbestos/lead related liabilities and costs of containment or removal and other environmental hazards at the Properties for which we may be liable, including those created by prior owners or occupants, existing tenants, adjacent land or other parties; and


•	terrorist attacks which, among other things, could lead to damage to one or more of the Properties, result in higher costs for insurance premiums or diminished availability of insurance coverage for losses related to terrorist attacks.

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in market rents or property values. If we cannot operate the Properties to meet our financial expectations, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations could be materially adversely affected.

We lease, rather than own, a portion of the Properties and the leasing of such Properties exposes us to possible liabilities and losses.

Of our 123 Properties, 11 are leased from third parties where we have a leasehold interest via a ground lease. All of these leases include options that allow us to renew or extend the lease term beyond the initial lease period at rental rates agreed upon at the inception of the lease that could represent below or above market rental rates later in the life of the lease. As a result, we may be committed to pay rents at above market rental rates for certain of the Properties now and in the future.

In addition, because we lease these Properties, we will have no economic interest in the land or building at the expiration of the ground lease if not renewed or if such ground lease is terminated due to a breach by us. As a result, although we will share in the income stream derived from the lease, we will not share in any increase in the residual value of the land associated with the underlying property. Further, because we do not completely control the underlying land, the third party owners that lease this land to us could take certain actions to disrupt our rights in the Properties or Toys-Delaware’s operation of such Properties.

Several of the Properties are subject to rights of first refusal or other third party purchase rights, which may adversely affect the ability of the collateral agent to foreclose on such Properties.

Several of the Properties are subject to agreements that provide third parties with rights of first refusal, purchase options or other rights to purchase such Properties. These rights are most commonly triggered upon the occurrence of a store closing or the sale or lease of the Property to a non-affiliate. The rights of first refusal that apply to several of the Properties may be triggered by a sale resulting from a foreclosure, deed in lieu of foreclosure or other similar remedy of the collateral agent relating to the Property. In the event that any such right of first refusal or other repurchase right is interpreted as being exercisable upon a foreclosure, deed in lieu of foreclosure or other similar remedy of the collateral agent, or a sale following a foreclosure on the Property, the ability of the collateral agent to realize or foreclose on such Property may be adversely affected.

The Properties are concentrated in certain states and a downturn in such states could have a material adverse effect on us.

Toys-Delaware’s ability to make payments under the TRU Propco II Master Lease and the market value of the Properties could be materially adversely affected by economic conditions generally or in states where the Properties are located, conditions in the real estate markets where the Properties are located, changes in governmental rules and fiscal policies, acts of nature, including earthquakes, floods and hurricanes (which may result in uninsured losses), and other factors which are beyond our control. The Properties are located in 29 states. The economy of any state in which a Property is located may be adversely affected to a greater degree than that of other areas of the country by certain developments affecting industries concentrated in such state or region. Moreover, in recent periods, several regions have experienced significant downturns in the market value of real estate. Significant percentages of the Properties are located in Ohio and Pennsylvania (18 Properties in each of these states, or 15% of the Properties); California (10 Properties, or 8% of the Properties); and Illinois, Massachusetts and Michigan (7 Properties in each of these states, or 6% of the Properties).

Insurance for the Properties may be inadequate to cover future losses.

The Properties are covered by insurance policies that also cover other TRU real estate, subject to self-insurance retentions. These policies include property insurance with a per occurrence coverage limit of $600 million (which is less than the aggregate principal amount of the outstanding Secured Notes). In the event that such policies are drawn on to cover losses on

real estate other than the Properties, the amount of insurance coverage available under such policies would thereby be reduced and could be insufficient to cover the Properties’ insurable risks.

Additionally, there is a possibility of catastrophic loss with respect to each Property for which insurance proceeds may not be adequate (such as floods) or which may result from risks not covered by insurance. Also, certain of the Properties are located in states that have been historically at greater risk to acts of nature (such as earthquakes, hurricanes and floods). As with all real estate, if reconstruction (for example, following fire or other casualty) or any major repair or improvement is required to a Property, changes in laws and governmental regulations may be applicable and may materially affect the cost to us or our ability to effect such reconstruction, major repair or improvement.

There can be no assurance that the amount of earthquake or flood or property insurance currently required or provided would be sufficient to cover damages caused by an earthquake or flood or other hazard, or that such insurance will be commercially available in the future.

Pursuant to the TRU Propco II Master Lease, we are entirely reliant on Toys-Delaware for providing and maintaining insurance. In addition to the risk that Toys-Delaware may fail to perform these obligations, the risks outlined above are also applicable to the insurance provided and maintained by Toys-Delaware.

We may be exposed to material environmental liabilities.

While we have established procedures to reduce the likelihood of incurring liabilities under applicable federal, state and local environmental laws, there may be material environmental liabilities of which we are unaware.

In addition, no assurances can be given that future laws, ordinances or regulations will not impose any material environmental liability on us or that the current environmental condition of our owned or leased Properties will not be adversely affected by conditions at locations in the vicinity of the Properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.

We are entirely reliant on Toys-Delaware pursuant to the TRU Propco II Master Lease for our compliance with environmental laws. In addition to the risk that Toys-Delaware may fail to effect such compliance, the risks outlined above in this section are also applicable to such compliance by Toys-Delaware.

We, Toys-Delaware or TRU may become subject to bankruptcy proceedings and in that event our respective rights and obligations may be subject to material modification.

We were formed with the intent that we are a bankruptcy remote entity so as to reduce the likelihood of a bankruptcy of us. Although such measures reduce the likelihood that we would incur obligations that would result in a bankruptcy, no assurance can be given that we will not file for bankruptcy protection (including in connection with the commencement of any bankruptcy proceedings of another TRU entity, or otherwise) or that our creditors will not initiate a bankruptcy or similar proceeding against us. Because we are the owner or ground lessee of the Properties, the possibility that we could become such a debtor is likely greater, from a theoretical standpoint, than with respect to an entity that merely owns financial assets, because, among other reasons, claims may arise against us from our ownership or operation of the Properties.

Delay in Payments. In the event that we were to become a debtor in a case (a “Bankruptcy Case”) seeking reorganization or other relief under Title 11 of the United States Code (the “Bankruptcy Code”), a delay and/or substantial reduction in payments under the Secured Notes may occur.

Rejection of TRU Propco II Master Lease. If Toys-Delaware were to become a debtor in a Bankruptcy Case, a trustee in bankruptcy for Toys-Delaware (or Toys-Delaware as debtor-in-possession) would have the right, under the Bankruptcy Code, to reject or assume the TRU Propco II Master Lease. If the TRU Propco II Master Lease were so rejected, Toys-Delaware would be required to surrender the Properties to us and we would have a general unsecured claim against Toys-Delaware limited to the lesser of (a) our actual damages (if any) as determined under applicable state law and (b) the rent required by the TRU Propco II Master Lease, without acceleration, for the greater of one year, or 15%, not to exceed three years, of the remaining term of the TRU Propco II Master Lease. It is impossible to predict how such a claim would be treated in any Toys-Delaware Bankruptcy Case or when any distributions would be made thereon.

Recharacterization of TRU Propco II Master Lease as financing. The foregoing assumes that the TRU Propco II Master Lease would be treated in bankruptcy as a lease, and not as a financing. While the matter is not free from doubt, we believe that if the issue was properly presented to a court and the court interpreted the relevant law on a basis consistent with the existing legal precedents, the court would hold that the TRU Propco II Master Lease constitutes a true lease. If the TRU Propco II Master Lease were treated as a financing by a bankruptcy court, however, we and Toys-Delaware would have the rights and obligations of, respectively, a creditor and debtor, rather than a landlord and tenant. It is difficult to predict fully the consequences that

would result from this recharacterization, but they would include the potential of a non-consensual restructuring of Toys-Delaware’s obligations to us (a “cram-down”); the potential disallowance of the mortgage liens as having been granted by a party other than the equitable owners of the Properties; the absence of any requirement on the part of Toys-Delaware to accept or reject the TRU Propco II Master Lease and therefore to surrender the Properties in the event of a rejection; the elimination of Toys-Delaware’s obligation to either (i) pay, during the bankruptcy proceeding and prior to a TRU Propco II Master Lease rejection, as an administrative expense, the rents payable under the TRU Propco II Master Lease; or (ii) cure any outstanding monetary defaults prior to any assumption of the TRU Propco II Master Lease and the obligation to repay to Toys-Delaware for the benefit of its estate in bankruptcy payments made to us by Toys-Delaware under the TRU Propco II Master Lease during the one-year preference period prior to the commencement of the Bankruptcy Case.

Pari Passu treatment of claims. Regardless whether the TRU Propco II Master Lease were characterized as a true lease or as a financing by a bankruptcy court, any claim for damages against Toys-Delaware under the TRU Propco II Master Lease by us (to the extent allowed as discussed above) would be payable only out of the assets of Toys-Delaware available for such payment. Any such claim would rank pari passu with all unsecured general obligations of Toys-Delaware.

Severability of TRU Propco II Master Lease. Although the TRU Propco II Master Lease expresses the intention of the parties thereto that the TRU Propco II Master Lease constitutes a single, integrated lease for all of the Properties, there can be no assurance that a bankruptcy court would not permit a trustee in bankruptcy for Toys-Delaware (or Toys-Delaware as debtor-in-possession) to assume the TRU Propco II Master Lease only with respect to certain Properties and reject the TRU Propco II Master Lease with respect to other Properties. In that case, we would be entitled to lease rejection damages (limited as described above) but not rent and other rights to payment under the TRU Propco II Master Lease with respect to those Properties for which the TRU Propco II Master Lease was rejected and the surrender of only such Properties. Toys-Delaware would be entitled to remain in possession of those Properties for which the TRU Propco II Master Lease was assumed, or might be authorized to assign the TRU Propco II Master Lease with respect to some or all of those Properties to one or more other parties who will assume the TRU Propco II Master Lease with respect to those Properties, provided that all existing defaults under the TRU Propco II Master Lease with respect to such Properties are cured and we are provided with “adequate assurance” (as determined by the bankruptcy court) of future performance by the tenant of its obligations under the TRU Propco II Master Lease with respect to such Properties. In addition, we may determine that agreeing to a modification of the TRU Propco II Master Lease in a Toys-Delaware bankruptcy proceeding would be better for us than a rejection of the TRU Propco II Master Lease in its entirety by Toys-Delaware followed by a liquidation of Toys-Delaware.

No covenant to operate. Toys-Delaware is not required under the TRU Propco II Master Lease to operate any of the Properties as Toys “R” Us or Babies “R” Us stores and is permitted to sublease Properties. As a consequence, Properties in which Toys-Delaware is not operating may be maintained to a lesser standard than those in which it is operating, and, in the event of a Bankruptcy Case involving Toys-Delaware, Toys-Delaware may be more inclined to reject the TRU Propco II Master Lease with respect to such Properties, assuming the TRU Propco II Master Lease is not held to be indivisible, or reject the TRU Propco II Master Lease in its entirety assuming the TRU Propco II Master Lease is held to be indivisible, if the number of such Properties is substantial.

Ineffectiveness of bankruptcy-remoteness; consolidation with TRU or Toys-Delaware; fraudulent conveyance. We have taken steps that are intended to ensure that the voluntary or involuntary application for relief by TRU or Toys-Delaware under the Bankruptcy Code will not result in the consolidation of our assets and liabilities with those of TRU or Toys-Delaware or their subsidiaries (other than us). These steps include the maintenance of our own books and records and the requirement that all transactions between us, on the one hand, and TRU or Toys-Delaware, on the other hand, and our respective affiliates will be on an arm’s-length basis. In the event, however, that we, Toys-Delaware or TRU were to become a debtor in a Bankruptcy Case, a creditor, receiver, conservator or the trustee in a bankruptcy of the debtor might request a court to order our assets and liabilities be consolidated with our, Toys-Delaware’s or TRU’s assets (including its properties), as the case may be, for the satisfaction of claims of creditors of the debtor. If our assets and liabilities were consolidated with Toys-Delaware, the TRU Propco II Master Lease would be eliminated. Alternatively, any such party may seek to void any part of the 2005 financing transactions as a fraudulent transfer. In addition, any claim described herein against the bankruptcy estate of us, Toys-Delaware or TRU would be an unsecured claim against such bankruptcy estate and, as such, full recovery may be unlikely and the extent to which such claim would be paid, and the form and timing of such payment, is uncertain. As a result, under such circumstances, the amount and timing of distributions on the Secured Notes would be adversely affected.

We have two independent members whose approval is required as a condition to our commencement of a Bankruptcy Case with respect to ourselves. That requirement will not prevent the commencement of such a Bankruptcy Case (including, in connection with the commencement of any Bankruptcy Case of another TRU entity, or otherwise).

Risks Relating to the Master Tenant’s Business

Toys-Delaware’s business is highly seasonal, and its financial performance depends significantly on the results of the fourth quarter of each fiscal year and, as a result, its operating results could be materially adversely affected if it achieves less than satisfactory sales prior to or during the holiday season.

Toys-Delaware’s business is highly seasonal. During fiscals 2015, 2014 and 2013, 41%, 41% and 42%, respectively, of Toys-Delaware’s Total revenues were generated in the fourth quarter. Toys-Delaware typically incurs net losses in each of the first three quarters of the year, with a substantial portion of its operating earnings generated in the fourth quarter, with the exception of the fourth quarter of fiscal 2013, which resulted in a net loss primarily due to certain non-cash charges. As a result, Toys-Delaware depends significantly upon the fourth quarter holiday selling season. If Toys-Delaware achieves less than satisfactory sales, operating earnings or cash flows from operating activities during the fourth quarter, it may not be able to compensate sufficiently for the lower sales, operating earnings or cash flows from operating activities during the first three quarters of the fiscal year. Its results in any given period may be affected by dates on which important holidays fall and the shopping patterns relating to those holidays. Additionally, the concentrated nature of Toys-Delaware’s seasonal sales means that its operating results could be materially adversely affected if it achieves less than satisfactory sales prior to or during the holiday season, including as a result of natural disasters, labor strikes, work stoppages, terrorist acts or disruptive global political events, prior to or during the holiday season, as described below.

Toys-Delaware’s industry is highly competitive and competitive conditions may materially adversely affect its revenues and overall profitability.

The retail industry is highly and increasingly competitive and Toys-Delaware’s results of operations are sensitive to, and may be materially adversely affected by competitive pricing, promotional pressures, competitor credit programs, additional competitor store openings, growth of e-commerce competitors and other factors. As a specialty retailer that primarily focuses on toys and baby products, Toys-Delaware competes with discount and mass merchandisers, such as Walmart and Target, as well as Internet and catalog businesses, such as Amazon.com, national and regional chains and department stores and local retailers in the markets Toys-Delaware serves. Toys-Delaware also competes with national and local discount stores, consumer electronics retailers, supermarkets and warehouse clubs. Competition is principally based on product variety, price, quality, availability, advertising and promotion, convenience or store location, safety and customer support and service. Toys-Delaware believes that some of its competitors in the toy and baby products market, as well as in the other markets in which it competes, have a larger market share than its market share. In addition, some of its competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than Toys-Delaware does.

Much of the merchandise Toys-Delaware sells is also available from various retailers at competitive prices. Discount and mass merchandisers use aggressive pricing policies and enlarged toy-selling areas during the holiday season to increase sales and build traffic for other store departments. Toys-Delaware’s business is vulnerable to shifts in demand and pricing, as well as consumer preferences.

Toys-Delaware is vulnerable to competitive pressures from e-commerce activity in the market, both as they impact its own e-commerce business and its stores. The Internet provides greater price transparency of its merchandise that is widely available to customers. Toys-Delaware’s “Price Match Guarantee” may lead to reduced margins as a result of intense price competition, especially during the holiday selling season. In addition, sales of video games have been impacted by a shift to sales in channels other than traditional retail stores, including direct online distribution to customers through download, subscription or cloud play, which eliminates the need for a retailer. Furthermore, competitors’ subscription models for diapers, formula, and other commodities may eliminate the need for customers to visit Toys-Delaware’s stores or e-commerce websites. Toys-Delaware believes that this e-commerce activity has adversely affected its sales and profitability, and any increase in the proportion of its customers’ purchases via the Internet could materially adversely affect its sales and profitability from physical stores.

The baby registry market is highly competitive, based on convenience, quality and selection of merchandise offerings and functionality. Toys-Delaware’s baby registry primarily competes with the baby registries of mass merchandisers, Internet retailers and other specialty format and regional retailers. Some of Toys-Delaware’s competitors have been aggressively advertising and marketing their baby registries through national television, magazine and Internet campaigns. These trends present consumers with more choices for their baby registry needs, and as a result, increase competition for Toys-Delaware’s baby registry.

If Toys-Delaware fails to compete successfully, Toys-Delaware could face lower sales and may decide or be compelled to offer greater discounts to its customers, which could result in decreased profitability.

Toys-Delaware’s sales may be adversely affected by changes in economic factors and changes in consumer spending patterns.

Many economic and other factors outside Toys-Delaware’s control, including consumer confidence, consumer spending levels, employment levels, consumer debt levels, individual income tax and sales tax rates, inflation and deflation, as well as the availability of consumer credit, affect consumer spending habits. A significant deterioration in the global financial markets and economic environment, recessions or an uncertain economic outlook adversely affects consumer spending habits and results in lower levels of economic activity. The domestic and international political situation, including the economic health of various political jurisdictions, also affects economic conditions and consumer confidence. In addition, changing economic and regulatory conditions and increasing consumer credit delinquencies may cause banks to re-evaluate their lending practices and terms which could have an adverse effect on Toys-Delaware’s credit card program and consequently, an adverse effect on its sales. Any of these events and factors could cause consumers to curtail spending and could have a negative impact on Toys-Delaware’s financial performance and position in future fiscal periods.

Toys-Delaware’s operations have significant liquidity and capital requirements and depend on the availability of adequate financing on reasonable terms. If its lenders are unable to fund borrowings under their credit commitments or Toys-Delaware is unable to borrow, it could have a significant negative effect on its business.

Toys-Delaware has significant liquidity and capital requirements. Among other things, the seasonality of Toys-Delaware’s businesses requires it to purchase merchandise well in advance of the fourth quarter holiday selling season. Toys-Delaware depends on its ability to generate cash flow from operating activities, as well as on borrowings under its revolving credit facility, to finance the carrying costs of this inventory and to pay for capital expenditures and operating expenses. As of January 30, 2016, Toys-Delaware had $80 million of outstanding borrowings under its $1.85 billion secured revolving credit facility (“ABL Facility”). For fiscal 2015, peak borrowings under its ABL Facility amounted to $900 million, with remaining availability under the ABL Facility of $694 million in excess of a minimum excess availability covenant. As of January 30, 2016 and January 31, 2015, Toys-Delaware also had outstanding balances of $364 million and $376 million, respectively, in short-term intercompany loans with TRU. If its lenders are unable to fund borrowings under its credit commitments or Toys-Delaware is unable to borrow, it could have a significant negative effect on its business. In addition, any adverse change to its credit ratings or business could negatively impact its ability to refinance its debt on satisfactory terms and could have the effect of increasing its financing costs. While Toys-Delaware believes it currently has adequate sources of funds to provide for its ongoing operations and capital requirements for at least the next 12 months, any inability on Toys-Delaware’s part to have future access to financing, when needed, would have a negative effect on its business.

A loss of, or reduction in, trade credit from Toys-Delaware’s vendors could reduce its liquidity, increase its working capital needs and/or limit its ability to purchase products.

Trade credit from Toys-Delaware’s vendors is an important source of financing for the purchase of the inventory Toys-Delaware sells in its stores. Accordingly, the loss of, or reduction in, trade credit could have a significant adverse impact on Toys-Delaware’s inventory levels and operating cash flow and negatively impact its liquidity. Toys-Delaware’s vendors may seek credit insurance to protect against non-payment of amounts due to them. If credit insurance is not available to vendors at reasonable terms or at all, vendors may demand accelerated payment of amounts due to them or require advance payments or letters of credit before goods are shipped to Toys-Delaware. A negative change in Toys-Delaware’s credit ratings or its vendors’ perception of Toys-Delaware’s creditworthiness, including due to pending debt maturities, may impact their willingness to provide trade credit to Toys-Delaware. Any adverse changes in Toys-Delaware’s trade credit for these or other reasons could increase the costs to Toys-Delaware of financing its inventory or negatively impact its ability to deliver products to its customers, which could in turn negatively affect Toys-Delaware’s financial performance.

Toys-Delaware may not retain or attract customers if it fails to successfully implement its strategic initiatives, which could result in lower sales and a failure to realize the benefit of the expenditures incurred for these initiatives.

Toys-Delaware continues to implement a series of customer-oriented strategic programs designed to differentiate and strengthen its core merchandise content and service levels and to expand and enhance its merchandise offerings. As part of Toys-Delaware’s omnichannel strategy to integrate its e-commerce and brick-and-mortar businesses, it aims to satisfy its customers’ evolving shopping preferences by utilizing fulfillment channels such as “In-Store Pick Up,” “Ship from Store” and “Ship to Store.” In an effort to optimize e-commerce operations and improve the customer experience online, Toys-Delaware is currently developing an e-commerce platform which will allow it to manage and control all aspects of its Domestic e-commerce operations internally rather than through a third-party provider.

Toys-Delaware continues to evaluate the effectiveness of its marketing and advertising programs for its “R” Us stores and e-commerce business. The success of these and other initiatives will depend on various factors, including the implementation of its strategy, the appeal of its store and website formats, its ability to offer new products to customers, its financial condition, its ability to respond to changing consumer preferences and competitive and economic conditions. Toys-Delaware continuously endeavors to minimize its operating expenses, without adversely affecting the customer experience or the profitability of the

business. If it fails to implement successfully some or all of its strategic initiatives, it may be unable to retain or attract customers, which could result in lower sales and a failure to realize the benefit of the expenditures incurred for these initiatives.

If Toys-Delaware cannot increase profitability within existing stores or open new stores, its performance may be materially adversely affected.

Toys-Delaware’s performance is dependent on maintaining and increasing sales in existing stores and the ability to successfully open profitable new stores. Increases in sales in existing stores are dependent on factors such as competition, merchandise selection, store operations (including maintaining and remodeling these stores) and other factors discussed in these Risk Factors. The success of any store depends in substantial part on its location. There can be no assurance that current locations will continue to be attractive as demographic patterns change. Neighborhood or economic conditions where stores are located could decline in the future, potentially resulting in reduced sales in these locations.

Toys-Delaware’s ability to successfully relocate or open new stores and expand into additional market areas depends in part on the following factors, which are in part beyond Toys-Delaware’s control:


•	the availability of sufficient funds for the expansion;


•	the availability of attractive store locations and the ability to accurately assess the demographic or retail environment and customer demand at a given location;


•	the ability to negotiate favorable lease terms and obtain the necessary permits and zoning approvals;


•	the absence of occupancy delays;


•	the ability to construct, furnish and supply a store in a timely and cost effective manner;


•	the ability to hire and train new personnel, especially store managers, in a cost effective manner; and


•	general economic conditions.

Delays or failures in successfully opening new stores, or achieving lower than expected sales in existing or new stores, could materially adversely affect Toys-Delaware’s profitability. In addition, Toys-Delaware may not be able to anticipate all of the challenges imposed by the expansion of its operations and, as a result, may not meet its targets for opening new stores or relocating stores or expanding profitably.

Some of Toys-Delaware’s new stores may be located in areas where it has little or no meaningful experience. Those markets may have different market conditions, consumer preferences and discretionary spending patterns than Toys-Delaware’s existing markets, which may cause its new stores to be less successful than stores in its existing markets. Other new stores may be located in areas where Toys-Delaware has existing stores. Although Toys-Delaware has experience in these markets, increasing the number of locations may result in unanticipated over-saturation of markets and temporarily or permanently divert customers and sales from its existing stores, thereby adversely affecting Toys-Delaware’s overall financial performance.

The success and expansion of Toys-Delaware’s e-commerce business depends on its ability to successfully transition to an internally developed Domestic e-commerce platform and to provide quality service to its customers and if it is not able to provide such services, Toys-Delaware’s operating results may be materially adversely affected.

Toys-Delaware is currently in the process of developing a new internal e-commerce platform for its Domestic business which it expects to launch in fiscal 2016. Toys-Delaware may be faced with significant unforeseen transition challenges including implementation delays, cost overruns, technology interruptions and disruption of our distribution channels, which could adversely affect its e-commerce platform. Any inability to successfully transition to, operate or maintain its internal platform or unforeseen transition operation challenges or disruptions may materially impact Toys-Delaware sales, results of operations and financial condition and may materially adversely affect its ability to achieve future sales and profitability growth.

Additionally, Toys-Delaware’s Internet operations are subject to a number of risks and uncertainties which are in part beyond its control, including the following:


•	failure of Toys-Delaware’s Internet service providers to perform their services properly and in a timely and efficient manner;


•	changes in consumer willingness to purchase goods via the Internet;


•	increases in software filters that may inhibit Toys-Delaware’s ability to market its products through e-mail messages to its customers and increases in consumer privacy concerns relating to the Internet;


•	changes in applicable federal and state regulation, such as the Federal Trade Commission Act, the Children’s Online Privacy Act, the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act and similar types of international laws;


•	breaches of Internet security including Toys-Delaware’s new internal e-commerce platform;


•	failures in Toys-Delaware’s Internet infrastructure or the failure of systems or third parties, such as telephone or electric power service, resulting in website downtime or other problems;


•	failure by Toys-Delaware to process online customer orders properly and on time, which may negatively impact future online and in-store purchases by such customers;


•	failure by Toys-Delaware’s service provider to provide warehousing and fulfillment services, which may negatively impact future online and in-store purchases by customers; and


•	failure to keep up with changes in technology.

As technology continues to advance, customers are increasingly using a variety of devices, such as computers, tablets and smartphones to shop online with Toys-Delaware and its competitors. Toys-Delaware continues to enhance its customers’ shopping experience on each of these devices as well as incorporate social media as another means of communicating with its customers. If Toys-Delaware fails to provide attractive, user-friendly online shopping platforms or fails to continually meet the evolving expectations of customers with developments in online merchandising technology and competitor offerings, Toys-Delaware could be at a competitive disadvantage and its business and results of operations may be materially adversely affected.

Toys-Delaware’s sales may be adversely affected if it fails to respond to changes in consumer preferences in a timely manner.

Toys-Delaware’s financial performance depends on its ability to identify, originate and define product trends, as well as to anticipate, gauge and react to changing consumer preferences in a timely manner. Its products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to change. Its business fluctuates according to changes in consumer preferences dictated in part by fashion trends, perceived value and season. These fluctuations affect the merchandise in stock since purchase orders are written well in advance of the holiday season and, at times, before fashion trends and high-demand brands are evidenced by consumer purchases. If it overestimates the market for its products, it may be faced with significant excess inventories, which could result in increased expenses and reduced margins associated with having to liquidate obsolete inventory at lower prices or write it off. For example, in fiscal 2013, Toys-Delaware recorded an incremental write-down of $51 million of excess and obsolete inventory. Conversely, if it underestimates the market for its products, Toys-Delaware will miss opportunities for increased sales and profits, which would place it at a competitive disadvantage.

Sales of video games and video game systems are adversely affected by changing trends in the interactive entertainment industry including the rise in popularity of browser, mobile, tablet and social games distributed through alternative channels.

Sales of video games and video game systems, which have accounted for 5%, 6% and 7% of Toys-Delaware’s annual Total revenues for fiscals 2015, 2014 and 2013, respectively, have been impacted by trends in the interactive entertainment industry. Video games are now played on a wide variety of products, including mobile phones, tablets, social networking websites and other devices. The popularity of such non-traditional gaming has increased greatly and this popularity is expected to continue to grow. Browser, mobile, tablet and social gaming is accessed through hardware other than the consoles and traditional hand-held video game devices Toys-Delaware sells and its games are available through websites or proprietary app stores via direct online distribution at a fraction of the cost of console games. While Toys-Delaware continues to develop and implement various strategies to incorporate these new trends into its offerings, including selling third party tablets and other devices, there can be no assurance that these strategies will be successful or contribute to profitability. Similarly, a continued rise in the popularity of mobile and tablet gaming could negatively impact sales and profitability of traditional toys.

The decrease of birth rates in countries where Toys-Delaware operates could negatively affect its business.

Most of Toys-Delaware’s end-customers are newborns and children and, as a result, its revenues are dependent on the birth rates in countries where it operates. In recent years, many countries’ birth rates have dropped or stagnated as their population ages and education and income levels increase. A continued and significant decline in the number of newborns and children in these countries could have a material adverse effect on Toys-Delaware’s operating results.

Toys-Delaware depends on key vendors to supply the merchandise that it sells to its customers and its vendors’ failure to supply quality merchandise in a timely manner may damage its reputation and brands and harm its business.

Toys-Delaware’s performance depends, in part, on its ability to purchase merchandise in sufficient quantities at competitive prices. Toys-Delaware purchases its merchandise from numerous international and domestic manufacturers and importers. Toys-Delaware has no contractual assurances of continued supply, pricing or access to new products, and any vendor could change the terms under which they sell to it or discontinue selling to it at any time. Toys-Delaware may not be able to purchase desired merchandise in sufficient quantities on terms acceptable to it in the future. Better than expected sales demand may also lead to customer backorders and lower in-stock positions of its merchandise.

In fiscal 2015, Toys-Delaware had 1,700 active vendor relationships through which it procures the merchandise that it offers to its customers. For fiscal 2015, Toys-Delaware’s top 20 vendors worldwide, based on its purchase volume in USD, represented 45% of the total products it purchased. Toys-Delaware’s inability to purchase suitable merchandise on acceptable terms or the loss of one or more key vendors could have a negative effect on its business and operating results and could cause it to miss products that it felt were important to its assortment. Toys-Delaware may not be able to develop relationships with new vendors, and products from alternative sources, if any, may be of a lesser quality and/or more expensive than those from existing vendors.

In addition, Toys-Delaware’s vendors are subject to various risks, including raw material costs, inflation, labor disputes, union organizing activities, financial liquidity, product merchantability, inclement weather, natural disasters and general economic and political conditions that could limit its vendors’ ability to provide Toys-Delaware with quality merchandise on a timely basis and at prices and payment terms that are commercially acceptable. For these or other reasons, one or more of Toys-Delaware’s vendors might not adhere to its quality control standards, and Toys-Delaware might not identify the deficiency before merchandise ships to its stores or customers. In addition, Toys-Delaware’s vendors may have difficulty adjusting to Toys-Delaware’s changing demands and growing business. Toys-Delaware’s vendors’ failure to manufacture or import quality merchandise in a timely and effective manner could damage its reputation and brands, and could lead to an increase in customer litigation against Toys-Delaware and an increase in its routine and non-routine litigation costs. Further, any merchandise that does not meet Toys-Delaware’s quality standards could become subject to a recall, which could damage Toys-Delaware’s brand reputation and harm its business.

If Toys-Delaware’s vendors fail to provide promotional support consistent with past levels, Toys-Delaware’s sales, earnings and cash flow could be materially adversely affected.

Toys-Delaware’s vendors typically provide it with promotional support for the sale of their products in Toys-Delaware’s stores and on Toys-Delaware’s websites, including allowances for volume-related purchases. As part of this support, Toys-Delaware receives allowances, payments and credits from the vendors which reduce its cost of goods sold, supports the promotion and merchandising of the products Toys-Delaware sells and drives sales at its stores and on its websites. There can be no assurance that vendors will continue to provide it with this support consistent with past levels. If Toys-Delaware’s vendors fail to do so, its sales, earnings and cash flow could be materially adversely affected.

Toys-Delaware business operations could be disrupted if its information technology systems, including its new internal e-commerce platform, fail to perform adequately or Toys-Delaware is unable to protect the integrity and security of its customers’ information.

Toys-Delaware depends largely upon its information technology systems in the conduct of all aspects of its operations. If Toys-Delaware information technology systems, including its new internal e-commerce platform, fail to perform as anticipated, or should Toys-Delaware experience any delays or difficulties in transitioning to these or other new systems, or integrating these systems with its current systems, Toys-Delaware could experience difficulties in virtually any area of its operations, including but not limited to replenishing inventories or in delivering products to store locations and customers. Any of these or other systems-related problems could, in turn, materially adversely affect Toys-Delaware sales and profitability.

Other sophisticated retailers have recently suffered serious security breaches. A compromise of Toys-Delaware security systems (or a design flaw in its system environment) could result in unauthorized access to certain personal information about its employees or customers (including credit card and gift registry information) which could materially adversely affect its reputation with its customers and others, and thus affect its sales and profitability. In addition, a serious breach could negatively impact Toys-Delaware operations, and could result in litigation against Toys-Delaware or the imposition of penalties. In addition, a security breach could require that Toys-Delaware expend significant additional resources related to its information security systems. Such risks may be difficult to adequately insure against or insurance may be costly.

Toys-Delaware has substantial obligations under long-term leases that could materially adversely affect its financial condition and prevent it from fulfilling its obligations.

As of January 30, 2016, Toys-Delaware leased 838 of its properties pursuant to long-term space and ground leases with third parties (other than subsidiaries of Toys-Delaware, including us), of which 321 (including three distribution centers and its headquarters) and 31 are leased from Propco I and MAP 2005 Real Estate, LLC, respectively. Total unrelated third party rent expense, net of sublease income, was $202 million, $219 million and $219 million in fiscals 2015, 2014 and 2013, respectively. Total related party rent expense under leases with affiliates other than subsidiaries of Toys-Delaware was $240 million, $243 million and $249 million for fiscals 2015, 2014 and 2013, respectively. In addition, as of January 30, 2016, Toys-Delaware leased 123 properties from us with total rent expense of $103 million, $103 million and $104 million for fiscals 2015, 2014 and 2013, respectively. Many of Toys-Delaware’s leases provide for scheduled increases in rent. The substantial obligations under its leases could further exacerbate the risks described below under “Toys-Delaware’s substantial indebtedness could adversely

affect its ability to raise additional capital to fund its operations or refinance its maturing debt, limit its ability to react to changes in the economy or its industries, expose it to interest rate risk to the extent of its variable rate debt and prevent it from meeting its obligations under its various debt instruments and the TRU Propco II Master Lease.”

If Toys-Delaware is unable to renew or replace its current store leases or if it is unable to enter into leases for additional stores on favorable terms, or if one or more of its current leases are terminated prior to expiration of their stated term and it cannot find suitable alternate locations, Toys-Delaware’s growth and profitability could be negatively impacted.

Toys-Delaware currently leases the majority of its stores, including those leased to it by us. Most of its current leases provide for its unilateral option to renew for several additional periods at specific rental rates. Toys-Delaware’s ability to re-negotiate favorable terms on an expiring lease or to negotiate favorable terms for a suitable alternate location or for additional store locations could depend on conditions in the real estate market, competition for desirable properties and Toys-Delaware’s relationships with current and prospective landlords or may depend on other factors that are not within Toys-Delaware’s control. Any or all of these factors and conditions could negatively impact Toys-Delaware’s growth and profitability.

Toys-Delaware’s business, financial condition and results of operations are subject to risks arising from its international suppliers which could negatively impact its financial condition and results of operations.

The products Toys-Delaware sells are sourced from a variety of international suppliers, with China being a significant source. Political or financial instability, trade restrictions, labor unrest, transport capacity and costs, port security or other events that could slow port activities and affect foreign trade are beyond Toys-Delaware’s control and could disrupt its supply of merchandise and/or materiality adversely affect its results of operations. In addition, changes in the costs of procuring raw materials used in its merchandise or the costs related to its supply chain, including labor, fuel, tariffs, and currency exchange rates could have a material adverse effect on gross margin, expenses and results of operations.

In addition, any significant or prolonged deterioration in U.S. - China relations could adversely affect Toys-Delaware’s business. Certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law regulates the scope of foreign investments and business conducted within China. There are also uncertainties regarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China.

Toys-Delaware’s business is subject to fluctuations in foreign currency exchange rates and such fluctuations may have a material adverse effect on its business, financial condition and results of operations.

Exchange rate fluctuations may affect the translated value of Toys-Delaware’s earnings and cash flow associated with its international operations, as well as the translation of net asset or liability positions that are denominated in foreign currencies. In Canada, Toys-Delaware generates revenues and incurs operating expenses and selling, general and administrative expenses denominated in the local currency. In countries where Toys-Delaware does not operate stores, Toys-Delaware’s licensees pay royalties in USD. However, as the royalties are calculated based on local currency sales, Toys-Delaware’s revenues are still impacted by fluctuations in exchange rates. In each of fiscal years 2015, 2014 and 2013, 10% of Toys-Delaware’s Total revenues, respectively, were transacted in a currency other than the USD. In fiscal 2015, Toys-Delaware’s reported operating earnings would have decreased or increased $6 million if the related foreign currencies uniformly weakened or strengthened by an incremental 10% relative to the USD.

Toys-Delaware enters into foreign exchange agreements from time to time with financial institutions to reduce its exposure to fluctuations in currency exchange rates referred to as hedging activities. However, these hedging activities may not eliminate foreign currency risk entirely and involve costs and risks of their own. Although Toys-Delaware hedges some exposures to changes in foreign currency exchange rates arising in the ordinary course of business, foreign currency fluctuations may have a material adverse effect on Toys-Delaware’s business, financial condition and results of operations.

Because of Toys-Delaware’s extensive international activities, it could be adversely affected by violations of the United States Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.

The United States Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Toys-Delaware’s policies mandate compliance with these anti-bribery laws. There can be no assurance that its internal control policies and procedures always will protect Toys-Delaware from reckless or criminal acts committed by the employees or agents of Toys-Delaware. Violations of these laws, or allegations of such violations, could disrupt Toys-Delaware’s business, damage its reputation and result in a material adverse effect on its financial condition, results of operations and cash flows.

International events could delay or prevent the delivery of products to Toys-Delaware’s stores, which could negatively affect its sales and profitability.

A significant portion of products sold by Toys-Delaware are manufactured outside of the United States, primarily in Asia. As a result, any event causing a disruption of imports, including labor strikes, work stoppages, boycotts, safety issues on materials, the imposition of trade restrictions in the form of tariffs, embargoes or export controls, “anti-dumping” duties, port security or other events that could slow port activities, could increase the cost and reduce the supply of products available to Toys-Delaware. In addition, port-labor issues, rail congestion and trucking shortages can have an impact on all direct importers. Although Toys-Delaware attempts to anticipate and manage such situations, both Toys-Delaware’s sales and profitability could be materially adversely impacted by any such developments in the future.

Toys-Delaware’s results may be materially adversely affected by fluctuations in raw material and energy costs.

Toys-Delaware’s results may be affected by the prices of the components and raw materials used in the manufacture of its toys and baby products. These prices may fluctuate based on a number of factors beyond Toys-Delaware’s control, including: oil prices, changes in supply and demand, general economic conditions, labor costs, competition, import duties, tariffs, currency exchange rates and government regulation. In addition, energy costs have fluctuated dramatically in the past. These fluctuations may result in an increase in Toys-Delaware’s transportation costs for distribution, utility costs for its retail stores and overall costs to purchase products from its vendors.

Toys-Delaware may not be able to adjust the prices of its products, especially in the short-term, to recover these cost increases in raw materials and energy. A continual rise in raw material and energy costs could adversely affect consumer spending and demand for Toys-Delaware’s products and increase its operating costs, both of which could have a material adverse effect on its financial condition and results of operations.

Labor shortages and increases in hourly wage rates could restrict Toys-Delaware’s ability to operate its stores, grow its business or result in increased labor costs that could reduce its profits.

Toys-Delaware’s success depends in large part on its ability to attract, retain, train, manage and engage skilled employees. If Toys-Delaware is unable to do so, its ability to adequately manage and staff its stores could be impaired, which could reduce customer satisfaction and sales. Staffing shortages also could hinder Toys-Delaware’s ability to grow and expand its businesses. Payroll costs are a major component of the operating expenses at its stores. A shortage of skilled labor could require higher wages that would increase labor costs, which could adversely affect its profits. In addition, its hourly wage may increase as a result of market pressure and the minimum wage has increased or is scheduled to increase in multiple states and local jurisdictions and there is a possibility that Congress will increase the federal minimum wage. Increases in hourly wage rates could have a material adverse effect on Toys-Delaware’s costs and profitability.

A significant disruption to Toys-Delaware’s distribution network or to the timely receipt of inventory could adversely impact sales or increase its transportation costs, which would decrease its profits.

Toys-Delaware relies on its ability to replenish depleted inventory in its stores through deliveries to its distribution centers from vendors and then from its distribution centers or direct ship vendors to its stores by various means of transportation, including shipments by sea, rail, air and truck. Toys-Delaware relies on various third-party vendors to manage services related to the delivery of inventory from distribution centers to its stores. Unexpected delays in those deliveries or increases in transportation costs (including from increased fuel costs) could significantly decrease its ability to generate sales and earn profits. In addition, labor shortages or labor disagreements in the transportation industry or long-term disruptions to the national and international transportation infrastructure that lead to delays or interruptions of deliveries could negatively affect its business.

Product safety issues, including product recalls, could harm Toys-Delaware’s reputation, divert resources, reduce sales and increase costs.

The products Toys-Delaware sells in its stores are subject to regulation by the Federal Consumer Product Safety Commission and similar U.S. state, Canadian and other international regulatory authorities. As a result, such products have been and could be in the future subject to recalls and other remedial actions. Product safety concerns may require Toys-Delaware to voluntarily remove selected products from its stores. Such recalls and voluntary removal of products can result in, among other things, lost sales, diverted resources, potential harm to Toys-Delaware’s reputation and increased customer service costs, which could have a material adverse effect on Toys-Delaware’s business, financial condition and results of operations.

Toys-Delaware’s business exposes it to personal injury and product liability claims which could result in adverse publicity and harm to its brands and its results of operations.

Toys-Delaware is from time to time subject to claims due to the injury of an individual in its stores or on its property. In addition, Toys-Delaware has in the past been subject to product liability claims for the products that it sells. Subject to certain

exceptions, Toys-Delaware’s purchase orders generally require the manufacturer to indemnify it against any product liability claims; however, if the manufacturer does not have insurance or becomes insolvent, there is a risk that Toys-Delaware would not be indemnified. Any personal injury or product liability claim made against Toys-Delaware, whether or not it has merit, could be time consuming and costly to defend, result in adverse publicity or damage to Toys-Delaware’s reputation and have an adverse effect on Toys-Delaware’s results of operations.

Adverse litigation judgments or settlements resulting from legal proceedings in which Toys-Delaware may be involved could expose it to monetary damages or limit its ability to operate its business.

Toys-Delaware is involved in private actions, investigations and various other legal proceedings by employees, suppliers, competitors, government agencies or others. The results of such litigation, investigations and other legal proceedings are inherently unpredictable. Any claims against Toys-Delaware, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and divert significant resources. If any of these legal proceedings were to be determined adversely to Toys-Delaware, Toys-Delaware could be exposed to monetary damages or limits on its ability to operate its business, which could have a material adverse effect on its business, financial condition and results of operations.

Healthcare reform legislation could have an adverse impact on Toys-Delaware’s business, financial condition and results of operations.

The enacted healthcare reform legislation under the Affordable Care Act has impacted and will potentially impact Toys-Delaware’s healthcare cost structure and may, over time, increase its employee healthcare related expenses. Provisions of this law have become effective and others will become effective at various dates over the next several years and Toys-Delaware expects that there will be clarifications and continued guidance updates to many of the provisions. The law is relatively new and Toys-Delaware continues to evaluate the potential additional impact the healthcare reform legislation will have on its business as additional provisions will become effective and regulations and guidance are communicated. Due to the breadth and complexity of this law, the lack of regulations and guidance for implementation and the phased-in nature of new requirements, Toys-Delaware cannot predict with certainty the future effect of this law on its results. Because it may further increase the costs of providing medical insurance to its employees, the new healthcare legislation may adversely affect Toys-Delaware’s results of operations, financial condition and cash flow.

Toys-Delaware is subject to certain regulatory and legal requirements. If it fails to comply with regulatory or legal requirements, its business and results of operations may be materially adversely affected.

Toys-Delaware is subject to numerous regulatory and legal requirements. Its policies and procedures are, to the extent applicable, required to comply with all applicable laws and regulations, including those imposed by the Federal Trade Commission and the Securities and Exchange Commission. In addition, its business activities require it to comply with complex regulatory and legal issues on a local, national and worldwide basis (including, in some cases, more stringent local labor law or regulations). Future legislative and regulatory actions relating to credit cards could also have an adverse impact on Toys-Delaware’s credit card program and its sales. Additionally, Toys-Delaware may be subject to new disclosure and reporting requirements, established under existing or new state or federal laws. Failure to comply with such laws and regulations could adversely affect its operations, involve significant expense and divert management’s attention and resources from other matters, which in turn could materially harm its business and results of operations.

Natural disasters, inclement weather, pandemic outbreaks, terrorist acts or disruptive global political events could cause permanent or temporary distribution center or store closures, impair Toys-Delaware’s ability to purchase, receive or replenish inventory or decrease customer traffic, all of which could result in lost sales and otherwise materially adversely affect Toys-Delaware’s financial performance.

The occurrence of one or more natural disasters, such as hurricanes, fires, floods, earthquakes, tornadoes and volcano eruptions, or inclement weather such as frequent or unusually heavy snow, ice or rain storms, or extended periods of unseasonable temperatures, or the occurrence of pandemic outbreaks, labor strikes, work stoppages, terrorist acts or disruptive global political events, such as civil unrest in countries in which Toys-Delaware operates stores or its suppliers are located, or similar disruptions could materially adversely affect Toys-Delaware’s operations and financial performance. To the extent these events impact one or more of Toys-Delaware’s key vendors or result in the closure of one or more of its distribution centers or a significant number of stores, Toys-Delaware’s operations and financial performance could be materially adversely affected through an inability to make deliveries to its stores and through lost sales. In addition, these events could result in increases in fuel (or other energy) prices or a fuel shortage, delays in opening new stores, the temporary lack of an adequate work force in a market, the temporary or long-term disruption in the supply of products from some local and overseas vendors, the temporary disruption in the transport of goods from overseas, delay in the delivery of goods to Toys-Delaware’s distribution centers or stores, the temporary reduction in the availability of products in its stores and disruption to its information systems. These

events also can have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage.

Toys-Delaware’s results of operations could suffer if it loses key management or is unable to attract and retain experienced senior management for its business.

Toys-Delaware’s future success depends to a significant degree on the skills, experience and efforts of its senior management team. The loss of services of any of these individuals, or the inability to attract and retain qualified individuals for key management positions, could harm Toys-Delaware’s business and financial performance.

Toys-Delaware utilizes outsourcing arrangements for certain financial and other functions. By relying on third-party service providers it may come across unexpected obstacles that can disrupt our business operations.

Toys-Delaware has outsourced certain financial and other functions to third-party service providers to achieve further operating efficiencies. Inadequate management or training of theses providers can lead to lack of proper skill sets to effectively manage and execute the applicable processes. In addition, Toys-Delaware is at risk of data security, losing visibility and control of the applicable processes and potential language barriers. If Toys-Delaware does not effectively manage outsourcing relationships, if third-party providers do not perform efficiently or in a timely manner, or if Toys-Delaware experiences problems with transitioning the work to a third party, it may experience disruptions in transaction processing or information technology services all of which can negatively impact its business processes, reputation and customers.

Toys-Delaware may experience fluctuations in its tax obligations and effective tax rate, which could materially adversely affect its results of operations.

Toys-Delaware is subject to income taxes in the United States, Puerto Rico and Canada. Toys-Delaware records tax expense based on current tax payments and its estimates of future tax payments, which include reserves for estimates of probable settlements of international and domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, Toys-Delaware expects that throughout the year there could be ongoing variability in its quarterly tax rates as taxable events occur and exposures are re-evaluated. Further, Toys-Delaware’s effective tax rate in a given financial statement period may be materially impacted by changes in tax laws, changes in the mix and level of earnings by taxing jurisdiction, changes to existing accounting rules or regulations, or by changes to its ownership or capital structures. Fluctuations in Toys-Delaware’s tax obligations and effective tax rate could materially adversely affect its results of operations.

Changes to accounting rules or regulations may materially adversely affect Toys-Delaware’s results of operations.

Changes to existing accounting rules or regulations may impact Toys-Delaware’s future results of operations. New accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. In February 2016, the Financial Accounting Standards Board (“FASB”) released new accounting rules, effective fiscal 2019, requiring companies to capitalize substantially all leases, including operating leases, in their financial statements. This change would require Toys-Delaware to record a significant amount of lease related assets and liabilities on its balance sheet. These and other future changes to accounting rules or regulations may materially adversely affect Toys-Delaware’s reported results of operations and financial position.

Toys-Delaware’s total assets include a substantial amount of property and equipment. Changes to estimates or projections related to such assets, or operating results that are lower than its current estimates at certain store locations, may cause Toys-Delaware to incur impairment charges that could materially adversely affect its results of operations.

Toys-Delaware’s total assets include a substantial amount of property and equipment and have historically included a substantial goodwill balance prior to impairments recorded in fiscal 2013. Toys-Delaware makes certain estimates and projections in connection with impairment analyses for these assets, in accordance with FASB Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant and Equipment” (“ASC 360”), and ASC Topic 350, “Intangibles — Goodwill and Other” (“ASC 350”). Toys-Delaware reviews the carrying value of these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable in accordance with ASC 360 or ASC 350. Toys-Delaware will record an impairment loss when the carrying value of the underlying asset, asset group or reporting unit exceeds its fair value. These calculations require Toys-Delaware to make a number of estimates and projections of future results. During fiscal 2013, Toys-Delaware recorded impairment losses of $20 million on property and equipment and $361 million on goodwill. If these estimates or projections change, Toys-Delaware may be required to record additional impairment charges on certain of these assets. If these impairment charges are significant, Toys-Delaware’s results of operations could be materially adversely affected.

Toys-Delaware may from time to time pursue acquisitions, which could have an adverse impact on its business, as could the integration of the businesses following acquisition.

Toys-Delaware may from time to time acquire complementary companies or businesses. Acquisitions may result in unanticipated costs, delays or other operational or financial problems related to integrating the acquired company and business with Toys-Delaware, which may result in the diversion of its capital and its management’s attention from other business issues and opportunities. Toys-Delaware may not be able to successfully integrate operations that it acquires, including their personnel, technology, financial systems, distribution and general business operations and procedures. There can be no assurance that any acquisition it makes will be successful and its operating results may be adversely impacted by the integration of a new business and its financial results.

An investment group led by Bain Capital Partners, LLC, Kohlberg Kravis Roberts & Co. L.P., and Vornado Realty Trust (collectively, the “Sponsors”) controls Toys-Delaware and may have conflicts of interest with it in the future.

Investment funds or groups advised by or affiliated with the Sponsors currently indirectly control Toys-Delaware through their ownership of 98% of TRU’s voting common stock. As a result, the Sponsors have control over Toys-Delaware’s decisions to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of stockholders. In addition, the Sponsors may have an interest in pursuing dispositions, acquisitions, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to Toys-Delaware as a company.

The Sponsors may direct Toys-Delaware to make significant changes to its business operations and strategy, including with respect to, among other things, store openings and closings, new product and service offerings, sales of real estate and other assets, employee headcount levels and initiatives to reduce costs and expenses. There can be no assurance that Toys-Delaware’s future business operations will remain broadly in line with its existing operations or that significant real estate and other assets will not be sold.

The Sponsors are also in the business of making investments for their own accounts in companies, and may from time to time acquire and hold interests in businesses that compete directly or indirectly with Toys-Delaware. One or more of the Sponsors may also pursue acquisition opportunities that may be complementary to Toys-Delaware’s business and, as a result, those acquisition opportunities may not be available to Toys-Delaware. So long as investment funds associated with or designated by the Sponsors continue to indirectly own a significant amount of the outstanding shares of TRU’s common stock, the Sponsors will continue to be able to strongly influence or effectively control TRU’s and, accordingly, Toys-Delaware’s decisions.

Risks Related to the Master Tenant’s and TRU’s Substantial Indebtedness

Toys-Delaware’s substantial indebtedness could adversely affect its ability to raise additional capital to fund its operations or refinance its maturing debt, limit its ability to react to changes in the economy or its industry, expose it to interest rate risk to the extent of its variable rate debt and prevent it from meeting its obligations under its various debt instruments and the TRU Propco II Master Lease.

Toys-Delaware is highly leveraged. As of January 30, 2016, Toys-Delaware’s total long-term indebtedness was $2.5 billion, of which $2.3 billion was secured indebtedness. Toys-Delaware’s substantial indebtedness could have significant consequences, including, among others, the following:


•	increasing its vulnerability to general economic and industry conditions;


•	requiring a substantial portion of its cash flows from operating activities to be dedicated to the payment of principal and interest on its indebtedness, and as a result, reducing its ability to use its cash flows to fund its operations and capital expenditures, capitalize on future business opportunities and expand its business and execute its strategy;


•	increasing the difficulty for it to make scheduled payments on its outstanding debt and other obligations, including the TRU Propco II Master Lease, as its business may not be able to generate sufficient cash flows from operating activities to meet its obligations;


•	exposing it to the risk of increased interest expense due to changes in borrowing spreads and short-term interest rates;


•	causing it to make non-strategic divestitures;


•	limiting its ability to obtain additional financing for working capital, capital expenditures, debt service requirements and general, corporate or other purposes; and


•	limiting its ability to adjust to changing market conditions and reacting to competitive pressure, placing it at a competitive disadvantage compared to its competitors who are less leveraged.

Despite Toys-Delaware’s current level of indebtedness, it may still be able to incur substantially more debt. This could further exacerbate the risks to its financial condition described above.

Toys-Delaware may be able to incur additional indebtedness in the future, including under its current secured revolving credit agreement, subject to the restrictions contained in its debt instruments. Although its indentures, credit agreements and documents governing its other indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent Toys-Delaware from incurring obligations that do not constitute indebtedness. If new indebtedness is added to its current debt levels, the related risks that it now faces could intensify.

If Toys-Delaware’s cash flows and capital resources are insufficient to fund its debt service obligations or it is unable to refinance its indebtedness, it may be forced to take other actions to satisfy its obligations under its indebtedness, its obligations under the TRU Propco II Master Lease and/or other obligations, which may not be successful.

Toys-Delaware’s ability to make scheduled payments on or to refinance its debt obligations depends on its financial condition and operating performance, which are subject to prevailing global economic and market conditions and to certain financial, business and other factors beyond its control.

Even if it were able to refinance or obtain additional financing, the costs of new indebtedness could be substantially higher than the costs of its existing indebtedness.

If Toys-Delaware’s cash flows and capital resources are insufficient to fund its debt service obligations or it is unable to refinance its indebtedness, it could face substantial liquidity problems, and it may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure its indebtedness. These alternative measures may not be successful and may not permit it to meet its debt obligations. Additionally, in the event of such liquidity problems, Toys-Delaware may become unable to meet its obligations under the TRU Propco II Master Lease which may impact our cash flow and consequently, our ability to meet our obligations under the Secured Notes.

Toys-Delaware’s debt agreements contain covenants that limit its flexibility in operating its business.

The agreements governing Toys-Delaware’s indebtedness contain various covenants that limit its ability to engage in specified types of transactions, and may materially adversely affect its ability to operate its business and refinance its indebtedness. Among other things, these covenants limit Toys-Delaware’s and its subsidiaries’ ability to:


•	incur certain additional indebtedness;


•	transfer assets between and among Toys-Delaware, its various subsidiaries and TRU;


•	pay dividends on, repurchase or make distributions with respect to its or its subsidiaries’ capital stock or make other restricted payments;


•	issue stock of subsidiaries;


•	make certain investments, loans or advances;


•	transfer and sell certain assets;


•	create or permit liens on assets;


•	consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;


•	enter into certain transactions with its affiliates; and


•	amend certain documents.

A breach of any of these covenants could result in default under one or more of Toys-Delaware’s debt agreements, which could prompt the lenders to declare all amounts outstanding under one or more of the debt agreements to be immediately due and payable and terminate all commitments to extend further credit. If Toys-Delaware were unable to repay those amounts, the secured lenders could proceed against the collateral granted to them to secure that indebtedness. If the lenders under the debt agreements accelerate the repayment of borrowings, Toys-Delaware may not have sufficient assets and funds to repay the borrowings under its debt agreements or meets its obligations under the TRU Propco II Master Lease.

TRU and its subsidiaries are highly leveraged and may need to refinance debt in the future, which refinancing may not be available.

TRU’s ability to make scheduled payments on or to refinance its debt obligations depends on its financial condition and operating performance, which are subject to prevailing global economic and market conditions and to certain financial, business and other factors beyond its control. Even if it were able to refinance or obtain additional financing, the costs of new indebtedness could be substantially higher than the costs of its existing indebtedness.

If TRU’s cash flows and capital resources are insufficient to fund its debt service obligations or it is unable to refinance its indebtedness, it could face substantial liquidity problems, and it may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure its indebtedness. These alternative measures may not be successful and may not permit it to meet its debt obligations. If TRU were unable to repay amounts when due, the lenders could proceed against the collateral granted to them to secure that indebtedness.

While TRU and its subsidiaries (other than Toys-Delaware or us) are not obligated to make payments under the TRU Propco II Master Lease or the Secured Notes, respectively, in the event that TRU or its subsidiaries were to become a debtor in a Bankruptcy Case, a creditor, receiver, conservator or the trustee in such bankruptcy might request a court to order TRU and its subsidiaries’ assets and liabilities be consolidated with ours or Toys-Delaware’s (including its properties) for the satisfaction of claims of creditors of TRU or its subsidiaries. We, Toys-Delaware or TRU or its subsidiaries may become subject to bankruptcy proceedings and in that event our respective rights and obligations may be subject to material modification.


ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.


ITEM 2.	PROPERTIES

The following summarizes our properties as of January 30, 2016:



Ownership		Properties
Owned		112
Ground-leased (1)		11
Total		123


(1)	Owned buildings on leased land.

Refer to “Geographic Distribution of Properties” within Item 1 of this Annual Report on Form 10-K for more information on our Properties.


ITEM 3.	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 4.	MINE SAFETY DISCLOSURE

None.

PART II


ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of April 8, 2016, all of our outstanding membership interests were privately held by our sole member, Giraffe Junior Holdings, LLC.

Refer to Note 6 to the Financial Statements entitled “LONG-TERM DEBT” for a description of restrictions on our ability to pay dividends.

We evaluate our cash balances on an ongoing basis and periodically distribute cash to our parent companies. During fiscals 2015 and 2014, we made cash distributions of $11 million and $13 million in dividends, respectively.


ITEM 6.	SELECTED FINANCIAL DATA

Item 6 is omitted as we meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K.


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 historical results of operations during the periods presented and our financial condition. This MD&A should be read in conjunction with our Financial Statements and the accompanying notes, and contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” and Item 1A entitled “RISK FACTORS” of this Annual Report on Form 10-K. Our MD&A includes the following sections:

EXECUTIVE OVERVIEW provides an overview of our business.

RESULTS OF OPERATIONS provides an analysis of our results of operations for fiscal 2015 compared to fiscal 2014 and fiscal 2014 compared to fiscal 2013.

LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash flows, financing and contractual obligations.

CRITICAL ACCOUNTING POLICIES provides a discussion of our accounting policies that require critical judgment, assumptions and estimates.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS provides a brief description of significant accounting standards which were adopted during fiscal 2015. This section also refers to Note 10 to the Financial Statements entitled “RECENT ACCOUNTING PRONOUNCEMENTS” for accounting standards which we have not yet been required to implement and may be applicable to our future operations.

All information in this MD&A is presented on a historical basis and reflects results of continuing operations for all periods presented.

EXECUTIVE OVERVIEW

Our Business

We are a special purpose entity, owned indirectly by TRU, through Toys-Delaware, and formed in July 2005. We own fee and ground leasehold interests in 123 properties in various retail markets throughout the United States. Under the operating company/property company structure, we lease these properties on a triple-net basis to Toys-Delaware, the operating entity for all of TRU’s North American businesses. Substantially all of our revenues and cash flows are derived from payments from Toys-Delaware under the TRU Propco II Master Lease. For the financial statements for fiscal year ended January 30, 2016 and other information about our master tenant, Toys-Delaware, see Exhibit 99.1 to this report.

Our primary business operations consist of leasing properties to our affiliate Toys-Delaware, servicing our debt via payments on our debt instruments and, subject to compliance with our debt agreements, distributing cash to our parent companies. Our management does not currently have plans to purchase additional properties. As a result, we do not believe we are subject to risks associated with obtaining financing for individual properties when availability of capital in the marketplace may be limited or may be subject to the overall economic environment. Substantially all of our cash revenues are subject to fixed increases under the TRU Propco II Master Lease which will expire in 2030. Also, interest payments under the Secured Notes are fixed at 8.500%.

Although a majority of our properties are owned, we lease several of our properties from third parties and as these leases expire, we may need to renew these leases on terms that may not be as favorable as under the expiring lease. However, none of our leases expire prior to the maturity of the Secured Notes. Also, the terms of the TRU Propco II Master Lease allow us to charge real estate taxes, common area maintenance expenses and certain other operating expenses to Toys-Delaware.

Material Trends and Uncertainties

Our primary source of rental revenue and cash flows is derived from the leasing arrangements we have entered into with Toys-Delaware under the TRU Propco II Master Lease which expires in fiscal 2030. We record rental revenue using the straight-line method, which results in recording a consistent rate of revenue over the terms of our lease agreements even when cash rents received increase or decrease over the lease term. Rental payments under the TRU Propco II Master Lease increased by 10% for each property on February 1, 2015 and are scheduled to further increase by 10% on February 1, 2020 and February 1, 2025. Future annual related party base rents may be reduced by payments we receive from Toys-Delaware as a result of an early termination of a lease, as set forth under the terms of the TRU Propco II Master Lease, or the successful execution of the sale of such property by us to a third party. Our largest expense is interest expense; the payment and recording of which is fixed over the term of the Secured Notes.

RESULTS OF OPERATIONS

Fiscal 2015 Compared to Fiscal 2014

Total Revenues



($ In thousands)	Fiscal 2015		Fiscal 2014		$ Change			% Change
Total revenues	$	118,395	$	119,131	$	(736	)	(0.6	)%

Total revenues decreased by $0.7 million in fiscal 2015 compared to fiscal 2014. The decrease was primarily due to a $1.0 million decline in termination payments as required under the TRU Propco II Master Lease, partially offset by a $0.6 million increase in Tenant reimbursements predominantly related to Real estate taxes.

Depreciation



($ In thousands)	Fiscal 2015		Fiscal 2014		$ Change			% Change
Depreciation	$	10,504	$	10,951	$	(447	)	(4.1	)%

Depreciation decreased by $0.4 million in fiscal 2015 compared to fiscal 2014. The decrease was primarily due to fully depreciated assets.

Rental Expense



($ In thousands)	Fiscal 2015		Fiscal 2014		$ Change			% Change
Rental expense	$	2,681	$	2,712	$	(31	)	(1.1	)%

Rental expense decreased by less than $0.1 million in fiscal 2015 compared to fiscal 2014.

Common Area Maintenance Expenses



($ In thousands)	Fiscal 2015		Fiscal 2014		$ Change		% Change
Common area maintenance expenses	$	13,550	$	12,908	$	642	5.0	%

Common area maintenance expenses increased by $0.6 million in fiscal 2015 compared to fiscal 2014. The increase was primarily due to an increase in Real estate taxes. These expenses are fully reimbursed by our tenant under the TRU Propco II Master Lease, and are reflected in Tenant reimbursements, which is a component of Total revenues.

Other Operating Expenses, Net



($ In thousands)	Fiscal 2015		Fiscal 2014		$ Change			% Change
Other operating expenses, net	$	2,843	$	4,975	$	(2,132	)	(42.9	)%

Other operating expenses, net decreased by $2.1 million in fiscal 2015 compared to fiscal 2014. The decrease was primarily due to a decline in the net loss on sales of properties of $2.1 million.

Interest Expense, Net



($ In thousands)	Fiscal 2015		Fiscal 2014		$ Change			% Change
Interest expense, net	$	66,345	$	66,359	$	(14	)	—	%

Interest expense decreased by less than $0.1 million in fiscal 2015 compared to fiscal 2014.

Earnings from Continuing Operations



($ In thousands)	Fiscal 2015		Fiscal 2014		$ Change		% Change
Earnings from continuing operations	$	22,472	$	21,226	$	1,246	5.9	%

Earnings from continuing operations increased by $1.2 million in fiscal 2015, compared to fiscal 2014. The increase was primarily due to a decrease in Other operating expenses, net, partially offset by a decrease in Total revenues.

Fiscal 2014 Compared to Fiscal 2013

Earnings from continuing operations includes the results of properties disposed of in fiscal 2014, whereas the results of properties disposed of in fiscal 2013 are presented in Earnings from discontinued operations. Refer to Note 1 to the Financial Statements entitled “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for further details.

Total Revenues



($ In thousands)	Fiscal 2014		Fiscal 2013		$ Change		% Change
Total revenues	$	119,131	$	116,593	$	2,538	2.2	%

Total revenues increased by $2.5 million in fiscal 2014 compared to fiscal 2013. The increase was primarily due to a termination payment of $3.1 million recognized from Toys-Delaware as required under the TRU Propco II Master Lease for one property sold.

Depreciation



($ In thousands)	Fiscal 2014		Fiscal 2013		$ Change			% Change
Depreciation	$	10,951	$	11,339	$	(388	)	(3.4	)%

Depreciation decreased by $0.4 million in fiscal 2014 compared to fiscal 2013. The decrease was primarily due to assets that were fully depreciated in fiscal 2014 and accelerated depreciation taken in fiscal 2013 for properties which we committed to exit prior to the end of the useful lives of the assets.

Rental Expense



($ In thousands)	Fiscal 2014		Fiscal 2013		$ Change		% Change
Rental expense	$	2,712	$	2,695	$	17	0.6	%

Rental expense increased by less than $0.1 million in fiscal 2014 compared to fiscal 2013.

Common Area Maintenance Expenses



($ In thousands)	Fiscal 2014		Fiscal 2013		$ Change		% Change
Common area maintenance expenses	$	12,908	$	12,474	$	434	3.5	%

Common area maintenance expenses increased by $0.4 million in fiscal 2014 compared to fiscal 2013. The increase was primarily due to an increase in Real estate taxes. These expenses are fully reimbursed by our tenant under the TRU Propco II Master Lease, and are reflected in Tenant reimbursements, which is a component of Total revenues.

Other Operating Expenses, Net



($ In thousands)	Fiscal 2014		Fiscal 2013		$ Change		% Change
Other operating expenses, net	$	4,975	$	1,700	$	3,275	192.6	%

Other operating expenses, net increased by $3.3 million in fiscal 2014 compared to fiscal 2013. The increase was primarily due to the sale of an owned property and a non-operating parcel to unrelated third parties in fiscal 2014, which resulted in a net loss of $3.2 million.

Interest Expense, Net



($ In thousands)	Fiscal 2014		Fiscal 2013		$ Change		% Change
Interest expense, net	$	66,359	$	66,257	$	102	0.2	%

Interest expense, net increased by $0.1 million in fiscal 2014 compared to fiscal 2013.

Earnings from Continuing Operations



($ In thousands)	Fiscal 2014		Fiscal 2013		$ Change			% Change
Earnings from continuing operations	$	21,226	$	22,128	$	(902	)	(4.1	)%

Earnings from continuing operations decreased by $0.9 million in fiscal 2014, compared to fiscal 2013. The decrease was primarily due to an increase in Other operating expenses, net, partially offset by an increase in Total revenues.

Earnings from Discontinued Operations



($ In thousands)	Fiscal 2014		Fiscal 2013		$ Change			% Change
Earnings from discontinued operations	$	—	$	11,887	$	(11,887	)	(100.0	)%

We did not have Earnings from discontinued operations in fiscal 2014. Earnings from discontinued operations in fiscal 2013 consisted primarily of termination payments of $11.8 million recognized from Toys-Delaware as required under the TRU Propco II Master Lease for an early lease termination, a lease expiration for which we opted not to exercise the renewal option and two properties sold.

Liquidity and Capital Resources

Overview

As of January 30, 2016, we were in compliance with all of the covenants related to the Secured Notes.

Our largest source of operating cash flows is cash collections from our lessee, Toys-Delaware. 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 Secured Notes, declare and pay dividends or make distributions.

Additionally, the indenture governing the Secured Notes allows us to re-invest the net cash proceeds from the sale of properties (“Asset Sales” as defined in the indenture) 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 Secured Notes within 30 days to purchase Secured Notes with the Excess Proceeds. We have not recognized cumulative Asset Sales, as defined in the indenture, in excess of $10.0 million as of January 30, 2016.

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

As of January 30, 2016, we had all of our outstanding debt, which consists of $725 million of our Secured Notes, maturing in fiscal 2017. We believe we will have the ability to refinance, or repay a portion and refinance the balance of, the notes prior to their maturity date; however a number of factors, including factors beyond our control, could reduce or restrict our ability to refinance the notes on favorable terms. We are currently working with advisors to assist us in connection with potential debt refinancings.

Cash Flows



(In thousands)	Fiscal 2015			Fiscal 2014			Fiscal 2013
Net cash provided by operating activities	$	35,761		$	28,499		$	31,164
Net cash provided by investing activities	592			1,355			3,933
Net cash used in financing activities	(11,389		)	(12,634		)	(13,577		)
Net increase during period in Cash and cash equivalents	$	24,964		$	17,220		$	21,520

Cash Flows Provided by Operating Activities

Net cash provided by operating activities for fiscal 2015 was $35.8 million compared to $28.5 million for fiscal 2014. The increase in Net cash provided by operating activities was primarily due to an increase in collections of base rents as a result of a base rent escalation of 10% in fiscal 2015 as set forth under the terms of the TRU Propco II Master Lease. Partially offsetting the increase was a decrease in termination payments received from Toys-Delaware.

Net cash provided by operating activities for fiscal 2014 was $28.5 million compared to $31.2 million for fiscal 2013. The decrease in Net cash provided by operating activities was primarily due to a decrease in termination payments received from Toys-Delaware in fiscal 2014 as required under the TRU Propco II Master Lease, partially offset by an increase in collections of base rents in fiscal 2014 due to the timing of rental payments received.

Cash Flows Provided by Investing Activities

Net cash provided by investing activities for fiscals 2015, 2014 and 2013 was $0.6 million, $1.4 million and $3.9 million, respectively. The decreases in net cash provided by investing activities were due to decreases in proceeds received from the sale of real estate in each fiscal year.

Cash Flows Used in Financing Activities

Net cash used in financing activities for fiscals 2015, 2014 and 2013 was $11.4 million, $12.6 million and $13.6 million, respectively. The decreases in Net cash used in financing activities were due to declines in Distributions in each fiscal year.

Debt

Refer to Note 6 to the Financial Statements entitled “LONG-TERM DEBT” for further details regarding our Secured Notes.

We, TRU, its subsidiaries, as well as the Sponsors or their affiliates, may from time to time prepay, repurchase, refinance or otherwise acquire debt or debt securities issued by us in open market transactions, tender offers, exchange offers, privately negotiated transactions or otherwise. Any such transactions, and the amounts involved, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Refer to Note 9 to the Financial Statements entitled “RELATED PARTY TRANSACTIONS.”

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. The following table summarizes our contractual obligations associated with our Long-term debt and other obligations as of January 30, 2016:



	Payments Due By Period
(In thousands)	Fiscal 2016		Fiscals 2017 & 2018		Fiscals 2019 & 2020		Fiscals 2021 and thereafter		Total
Operating leases (1)	$	2,340	$	3,668	$	1,354	$	1,187	$	8,549
Long-term debt	—		725,000		—		—		725,000
Interest payments	61,625		61,625		—		—		123,250
Total contractual obligations	$	63,965	$	790,293	$	1,354	$	1,187	$	856,799


(1)	Excluded from Operating leases displayed above are $63 million related to options to extend ground lease terms that are reasonably assured of being exercised, the balance of which predominantly relates to fiscals 2021 and thereafter.

Obligations under our operating leases in the above table do not include payments for real estate taxes or maintenance and other expenses. The following table presents these expenses for fiscals 2015, 2014 and 2013:



(In thousands)	Fiscal 2015		Fiscal 2014		Fiscal 2013
Real estate taxes	$	11,639	$	11,220	$	10,836
Maintenance and other expenses	1,911		1,688		1,680
Total	$	13,550	$	12,908	$	12,516

Off-Balance Sheet Arrangements

None.

CRITICAL ACCOUNTING POLICIES

Our Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States. 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 Financial Statements.

We believe the following are our most critical accounting policies that include significant judgments and estimates used in the preparation of our Financial Statements. We consider an accounting policy to be critical if it requires assumptions to be made that were uncertain at the time they were made, and if changes in these assumptions could have a material impact on our financial condition or results of operations.

Long-lived Asset Impairment

We evaluate the carrying value of all long-lived assets, which include land and buildings, for impairment whenever events or changes in circumstances, including the tenant’s intent to exit a property in advance of the TRU Propco II Master Lease term, indicate that the carrying value of an asset may not be recoverable, in accordance with ASC 360. This evaluation requires management to make judgments relating to an estimate of undiscounted future cash flows to determine whether an asset group is recoverable. Our calculation of undiscounted cash flows takes into consideration any termination payments to be received from Toys-Delaware as set forth under the terms of the TRU Propco II Master Lease where Toys-Delaware is required to make a termination payment equal to the excess (if any) of the net present value of the base rent for such Property over the remaining term for such Property, discounted at 10% per annum less any third party sale proceeds. If as a result of this evaluation, a long-lived asset group is found to be non-recoverable, we record an impairment charge equal to the amount by which the asset group’s carrying value exceeds its fair value. We estimate the fair value of an asset group using a valuation method such as discounted cash flows or a relative, market-based approach.

Revenue Recognition

Base rental revenue is reported on a straight-line basis over the non-cancelable terms of our respective leases. Straight-line rent receivable from affiliate as reported on the Balance Sheets represents rental income recognized in excess of rent payments

actually received pursuant to the terms of the TRU Propco II Master Lease. The leases also typically provide for tenant reimbursements of common area maintenance and other operating expenses and real estate taxes. Accordingly, revenues associated with tenant reimbursements are recognized in the period in which the expenses are incurred based upon the tenant lease provision. Ancillary and other property-related income, which includes the leasing of vacant space to temporary tenants, is recognized in the period earned. Lease termination fees are included in Base rents and recognized upon termination of a tenant’s lease and relinquishment of space after which we have no further obligation to the tenant.

Deferred Rent

The difference between recognized rental expense and amounts payable under the leases is recorded as Deferred third party rent liabilities. We recognize operating leases on a straight-line basis over the lease term, which includes renewal options only if those options are specified in the lease agreement and if failure to exercise the renewal option imposes a significant economic penalty to us. For Ground Lease Locations, we include renewal options in the lease term through the estimated useful life of the owned building located on the property as failure to renew a ground lease during the estimated useful life of the building would result in forgoing an economic benefit given our significant capital investment at the inception of the lease to construct a new building.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-08, “'Business Combinations (Topic 805): Pushdown Accounting - Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115” (“ASU 2015-08”). The amendments in ASU 2015-08 amend various SEC paragraphs included in the FASB’s Accounting Standards Codification to reflect the issuance of Staff Accounting Bulletin No. 115 (“SAB 115”). SAB 115 rescinds portions of the interpretive guidance included in the SEC’s Staff Accounting Bulletins series and brings existing guidance into conformity with ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting,” which provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The Company has adopted the amendments in ASU 2015-08, effective May 8, 2015, as the amendments in the update are effective upon issuance. The adoption did not have an impact on our Condensed Financial Statements.

Refer to Note 10 to the Financial Statements entitled “RECENT ACCOUNTING PRONOUNCEMENTS” for discussions of accounting standards which we have not yet been required to implement and may be applicable to our future operations and their expected impact on the Financial Statements.


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not participate in speculative derivative trading.

Interest Rate Exposure

During fiscal 2015, we had only fixed rate debt and had not entered into any derivatives.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




	PAGE
Report of Independent Registered Public Accounting Firm	28
Statements of Operations	30
Balance Sheets	31
Statements of Cash Flows	32
Statements of Changes in Member’s Deficit	33
Notes to the Financial Statements	34
Schedule III – Real Estate and Accumulated Depreciation	42

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Member of

Toys “R” Us Property Company II, LLC:

We have audited the accompanying balance sheet of Toys “R” Us Property Company II, LLC (the “Company”) as of January 30, 2016, and the related statement of operations, changes in member’s deficit and cash flows for the year ended January 30, 2016. Our audit also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Toys “R” Us Property Company II, LLC at January 30, 2016, and the results of its operations and its cash flows for year ended January 30, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

New York, New York

April 8, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Member of

Toys “R” Us Property Company II, LLC:

We have audited the accompanying balance sheet of Toys “R” Us Property Company II, LLC (the “Company”) as of January 31, 2015, and the related statements of operations, changes in member’s deficit, and cash flows for each of the two fiscal years in the period ended January 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Toys “R” Us Property Company II, LLC as of January 31, 2015, and the results of its operations and its cash flows for each of the two fiscal years in the period ended January 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

New York, New York

April 24, 2015

TOYS “R” US PROPERTY COMPANY II, LLC

STATEMENTS OF OPERATIONS



	Fiscal Years Ended
(In thousands)	January 30, 2016		January 31, 2015		February 1, 2014
Rental revenues:
Base rents	$	104,845	$	106,223	$	104,119
Tenant reimbursements	13,550		12,908		12,474
Total revenues	118,395		119,131		116,593
Depreciation	10,504		10,951		11,339
Rental expense	2,681		2,712		2,695
Common area maintenance expenses	13,550		12,908		12,474
Other operating expenses, net	2,843		4,975		1,700
Total operating expenses	29,578		31,546		28,208
Operating earnings	88,817		87,585		88,385
Interest expense, net	66,345		66,359		66,257
Earnings from continuing operations	22,472		21,226		22,128
Earnings from discontinued operations	—		—		11,887
Net earnings	$	22,472	$	21,226	$	34,015

See Notes to the Financial Statements.

TOYS “R” US PROPERTY COMPANY II, LLC

BALANCE SHEETS



(In thousands)	January 30, 2016			January 31, 2015
ASSETS
Current Assets:
Cash and cash equivalents	$	91,362		$	66,398
Due from affiliate, net	3,627			3,436
Prepaid expenses	1,415			1,450
Total current assets	96,404			71,284
Real Estate, Net:
Land	165,101			165,677
Buildings, net	138,514			144,729
Property and leasehold improvements, net	21,730			27,061
Total real estate, net	325,345			337,467
Straight-line rent receivable from affiliate	98,635			95,029
Debt issuance costs	6,532			10,145
Total Assets	$	526,916		$	513,925

LIABILITIES AND MEMBER’S DEFICIT
Current Liabilities:
Accrued interest	$	10,271		$	10,497
Real estate taxes payable	4,679			4,538
Deferred related party revenue	260			—
Deferred third party rent liabilities	30			4
Other current liabilities	257			314
Total current liabilities	15,497			15,353
Long-term debt	721,990			720,542
Deferred third party rent liabilities	14,029			13,713
Member’s deficit	(224,600		)	(235,683		)
Total Liabilities and Member’s Deficit	$	526,916		$	513,925

See Notes to the Financial Statements.

TOYS “R” US PROPERTY COMPANY II, LLC

STATEMENTS OF CASH FLOWS



	Fiscal Years Ended
(In thousands)	January 30, 2016			January 31, 2015			February 1, 2014
Cash Flows from Operating Activities:
Net earnings	$	22,472		$	21,226		$	34,015
Adjustments to reconcile Net earnings to net cash provided by operating activities:
Depreciation	10,504			10,951			12,404
Amortization and write-off of debt issuance costs	3,613			3,613			3,614
Amortization of original issue discount	1,448			1,331			1,222
Loss (gain) on sale of real estate	1,026			3,163			(547		)
Changes in operating assets and liabilities:
Due from affiliate, net	(191		)	898			763
Prepaid expenses	35			(119		)	7
Straight-line rent receivable from affiliate and Deferred third party rent liabilities	(3,264		)	(11,994		)	(12,699		)
Accrued interest, Real estate taxes payable and Other current liabilities	(142		)	(570		)	(612		)
Deferred related party revenue	260			—			(7,003		)
Net cash provided by operating activities	35,761			28,499			31,164
Cash Flows from Investing Activities:
Proceeds from sale of real estate	592			1,355			3,933
Net cash provided by investing activities	592			1,355			3,933
Cash Flows from Financing Activities:
Distributions	(11,389		)	(12,634		)	(13,577		)
Net cash used in financing activities	(11,389		)	(12,634		)	(13,577		)
Cash and cash equivalents:
Net increase during period	24,964			17,220			21,520
Cash and cash equivalents at beginning of period	66,398			49,178			27,658
Cash and cash equivalents at end of period	$	91,362		$	66,398		$	49,178

Supplemental Disclosure of Cash Flow Information:
Interest paid	$	61,625		$	61,625		$	61,625

See Notes to the Financial Statements.

TOYS “R” US PROPERTY COMPANY II, LLC

STATEMENTS OF CHANGES IN MEMBER’S DEFICIT




(In thousands)	Member’s Deficit
Balance, February 2, 2013	$	(264,713	)
Net earnings	34,015
Distributions	(13,577		)
Balance, February 1, 2014	$	(244,275	)
Net earnings	21,226
Distributions	(12,634		)
Balance, January 31, 2015	$	(235,683	)
Net earnings	22,472
Distributions	(11,389		)
Balance, January 30, 2016	$	(224,600	)

See Notes to the Financial Statements.

Toys “R” Us Property Company II, LLC

Notes to the Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Organization

As used herein the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company II, LLC (“TRU Propco II”), a Delaware limited liability company, which was formed in July 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 ultimately owned by TRU through our indirect parent, Toys “R” Us-Delaware, Inc. (“Toys-Delaware”), to whom we lease or sublease substantially all of our properties and from whom we derive substantially all of our revenues and cash flows. The Company is one reportable segment.

As a result of the reorganization, we received, as contributions from Toys-Delaware and other affiliates, certain properties which we now lease to Toys-Delaware. As the reorganization was between entities under common control, the net assets transferred were recorded at their carrying value.

Fiscal Year

Our fiscal year ends on the Saturday nearest to January 31. Unless otherwise stated, references to years in this report relate to the fiscal years ended below:



Fiscal Year	Number of Weeks	Ended
2015	52	January 30, 2016
2014	52	January 31, 2015
2013	52	February 1, 2014

Basis of Presentation

The accompanying financial statements as of January 30, 2016 and January 31, 2015 and for each of the three periods ended January 30, 2016, January 31, 2015 and February 1, 2014, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). We have no other comprehensive income items. Therefore, our comprehensive income is equal to Net earnings for fiscals 2015, 2014 and 2013.

Use of Estimates

The preparation of our 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 other factors that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates and such differences could have a material impact on our Financial Statements.

Cash and Cash Equivalents

We consider our highly liquid investments with original maturities of three months or less at acquisition to be cash equivalents.

Real Estate, Net

We record depreciation using the straight-line method over the shorter of the estimated useful lives of the assets or the terms of the respective leases, if applicable, which for buildings is generally 50 years and for buildings on ground leases is the lesser of the lease term or 50 years, and for leasehold improvements is generally the lesser of the lease term or 25 years.

Impairment of Long-Lived Assets

We evaluate the carrying value of all long-lived assets, which include land and buildings, for impairment whenever events or changes in circumstances, including the tenant’s intent to exit a property in advance of the Amended and Restated Master Lease Agreement (the “TRU Propco II Master Lease”) term, indicate that the carrying value of an asset may not be recoverable, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant and Equipment.” This evaluation requires management to make judgments relating to an estimate of undiscounted future cash flows to determine whether an asset group is recoverable. Our calculation of undiscounted cash flows takes into consideration any termination payments to be received from Toys-Delaware as set forth under the terms of the TRU Propco II Master Lease where Toys-Delaware is required to make a termination payment equal to the excess (if any) of the net present value of the base rent for the property over its remaining term, discounted at 10% per annum, less any proceeds from

sale. If as a result of this evaluation, a long-lived asset group is found to be non-recoverable, we record an impairment charge equal to the amount by which the asset group’s carrying value exceeds its fair value. We estimate the fair value of an asset group using a valuation method such as discounted cash flows or a relative, market-based approach. There were no impairment charges in fiscals 2015, 2014 and 2013.

Discontinued Operations

In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”), which limits the requirement to report discontinued operations to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The amendments also require expanded disclosures concerning discontinued operations, disclosures of certain financial results attributable to a disposal of a significant component of an entity that does not qualify for discontinued operations reporting and expanded disclosures for long-lived assets classified as held for sale or disposed of. Early adoption is permitted, but only for disposals (or assets classified as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company early adopted the amendments, effective February 2, 2014. As a result of the adoption, results of operations for properties that are disposed of (or classified as held for sale) in the ordinary course of business on or subsequent to February 2, 2014 are included in continuing operations on the Statements of Operations, to the extent such disposals do not meet the criteria for classification as a discontinued operation described above. Any related gain or loss on sale of real estate that does not meet the criteria for classification as a discontinued operation is presented in Other operating expenses, net on the Statements of Operations. Additionally, termination payments are recorded in Base rents. These were previously included in Earnings from discontinued operations. For disposals prior to February 2, 2014, which were not subject to the early adoption of ASU 2014-08, the Company continues to report the gain on sale and results of operations prior to the disposal as discontinued operations for the fiscal years ended February 1, 2014 in our Statements of Operations. During each of fiscals 2015 and 2014, we sold one owned property and a non-operating parcel to unrelated third parties, which did not meet the criteria for classification as discontinued operations. Refer to Note 2 entitled “REAL ESTATE, NET” for further details and Note 3 entitled “DISCONTINUED OPERATIONS” for further details on disposals in fiscal 2013.

Rental Revenues

Base rental revenues are recognized on a straight-line basis over the non-cancelable terms of the related leases. Differences between rental revenues recognized and amounts due per the respective lease agreements are recorded on our Balance Sheets as Straight-line rent receivable from affiliate. Tenant reimbursements for taxes, maintenance, and other operating expenses are billed and recognized as revenues in the period the applicable costs are incurred.

The TRU Propco II Master Lease requires Toys-Delaware to make a payment to us upon early termination of a lease, as set forth under the terms of the TRU Propco II Master Lease, or the successful execution of the sale of a property by us to a third party if the proceeds from the sale are less than the net present value of the base rent for the property over its remaining term, discounted at 10% per annum. We recorded termination payments of $2 million and $3 million in fiscals 2015 and 2014, respectively, in Base rents in the Statements of Operations. We recorded termination payments of $12 million in fiscal 2013 in Earnings from discontinued operations.

Debt Issuance Costs

We defer debt issuance costs and amortize such costs into Interest expense, net over the term of the related debt facility. Debt issuance costs amortized to Interest expense, net were $3 million, $4 million and $3 million for fiscals 2015, 2014 and 2013, respectively. Unamortized amounts as of January 30, 2016 and January 31, 2015 were $7 million and $10 million, respectively.

Deferred Rent

We recognize fixed minimum rent expense on non-cancelable leases on a straight-line basis over the term of each individual lease starting at the date of possession, including the build-out period, and record the difference between the recognized rental expense and amounts payable under the leases as Deferred third party rent liabilities. Deferred third party rent liabilities in our Balance Sheets totaled $14 million as of January 30, 2016 and January 31, 2015, respectively. Landlord incentives and abatements received are included in Deferred third party rent liabilities and amortized over the term of the lease.

Leases for Lessee only

We lease land used in our operations. We account for our leases under the provisions of ASC Topic 840, “Leases,” which require that leases be evaluated and classified as operating or capital leases for financial reporting purposes.

Operating leases are recorded on a straight-line basis over the lease term. At the inception of a lease, we determine the lease term by assuming the exercise of renewal options that are reasonably assured if a significant economic penalty exists for not

exercising such options. Renewal options are exercised at our sole discretion. The expected lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the useful life of buildings and leasehold improvements are limited by the expected lease term. Refer to Note 4 entitled “LEASES” for further details.

All of our leases include options that allow us to renew or extend the lease term beyond the initial lease period, subject to terms and conditions agreed upon at the inception of the lease. Such terms and conditions include rental rates agreed upon at the inception of the lease that could represent below or above market rental rates later in the life of the lease, depending upon market conditions at the time of such renewal or extension. In addition, many leases include early termination options, which can be exercised under specified conditions, including upon damage, destruction or condemnation of a specified percentage of the value or land area of the property.

Income Taxes

No income tax expense or benefit is recognized in the accompanying Financial Statements as of January 30, 2016, January 31, 2015 and February 1, 2014, respectively. We are treated as a disregarded entity for income tax purposes and, accordingly, our taxable income or loss is included in the income tax returns of our owners.

We have calculated the net basis of our assets and liabilities for income tax purposes as if the Company was a stand-alone entity (i.e., on a “Separate Company” basis). The net basis of our assets and liabilities for income tax purposes is $32 million higher than the amount reported in our Financial Statements.

NOTE 2 – REAL ESTATE, NET



(In thousands)	January 30, 2016		January 31, 2015
Land	$	165,101	$	165,677
Buildings	262,786		264,695
Property and leasehold improvements	127,997		128,300
	555,884		558,672
Less: accumulated depreciation	230,539		221,205
Total	$	325,345	$	337,467

During fiscal 2015, we sold an owned property and a non-operating parcel to unrelated third parties for proceeds of $1 million, resulting in a net loss of $1 million, which is included in Other operating expenses, net. During fiscal 2014, we sold one owned property and a non-operating parcel to unrelated third parties for proceeds of $1 million, resulting in a net loss of $3 million, which is included in Other operating expenses, net. The TRU Propco II Master Lease requires Toys-Delaware to make a payment to us, as set forth under the terms of the TRU Propco II Master Lease, upon early termination of a lease or the successful execution of the sale of a property by us to a third party if the proceeds from the sale are less than the net present value of the base rent for the property over its remaining term, discounted at 10% per annum. We recorded a termination payment of $2 million and $3 million during fiscals 2015 and 2014, respectively, in Base rents in the Statements of Operations.

NOTE 3 — DISCONTINUED OPERATIONS

During fiscal 2013, we sold two owned properties and a non-operating parcel to unrelated third parties for proceeds of $4 million, resulting in a net gain of $1 million. Additionally, we had an early termination of a ground lease and had a ground lease expire with an unrelated third party landlord for which we opted not to exercise the renewal option. As per the terms of the TRU Propco II Master Lease, we recorded termination payments of $12 million in fiscal 2013.

The operating results of properties classified as discontinued operations have been segregated from continuing operations and reported separately as Earnings from discontinued operations on the Statements of Operations for fiscal 2013. These amounts have been summarized below:



(In thousands)	February 1, 2014
Total revenues (1)	$	11,961
Earnings from discontinued operations	$	11,887

(1) Includes termination payments from Toys-Delaware.

NOTE 4 – LEASES

As lessor

Our operations consist of leasing or subleasing properties to our affiliate, Toys-Delaware under a master lease agreement.

In connection with the offering of the 8.500% senior secured notes due fiscal 2017 (the “Secured Notes”) on November 20, 2009 described in Note 6 entitled “LONG-TERM DEBT,” we entered into the TRU Propco II Master Lease with Toys-Delaware under which Toys-Delaware continues to lease properties from us, including properties, which were formerly owned by MPO Holdings, LLC and are now held by TRU Propco II. The term of the TRU Propco II Master Lease was extended through January 31, 2030 except with respect to any property that is leased from a third party landlord to us with a term expiring prior to such date. Annual net base rents under the TRU Propco II Master Lease increased by 10% for each property on February 1, 2015 and are scheduled to further increase by 10% on February 1, 2020 and February 1, 2025. The TRU Propco II Master Lease requires Toys-Delaware to pay real estate taxes and certain other amounts. Future annual related party base rents may be reduced by payments we receive from Toys-Delaware, as set forth under the terms of the TRU Propco II Master Lease, as a result of an early termination of a lease or the successful execution of the sale of such properties by us to a third party.

Future base rents to be received under the TRU Propco II Master Lease as of January 30, 2016 are as follows:



(In thousands)	Future Related Party Base Rents⁽¹⁾
2016	$	99,271
2017	98,526
2018	96,687
2019	95,720
2020	102,468
2021 and subsequent	971,615
Total	$	1,464,287


(1)	Future Related Party Base Rents for owned locations are based on the TRU Propco II Master Lease term. Excluded from Future Related Party Base Rents are options to extend ground lease terms past the TRU Propco II Master Lease term.

Leased retail properties under the TRU Propco II Master Lease consist of locations which are owned outright by us (“Owned Locations”) and locations which have buildings that are owned by us and land which is controlled through ground leases with unrelated third parties (“Ground Lease Locations”). For Owned Locations, the TRU Propco II Master Lease contains predetermined fixed escalations of the minimum rentals on February 1, 2020 and February 1, 2025. For Ground Lease Locations, the base rents consist of a net lease payment plus the rent on the underlying ground lease. The predetermined fixed escalations are applied separately. The rent escalations for the underlying ground leases occur as provided in the respective lease agreements. For Ground Lease Locations, Toys-Delaware has a unilateral right to have us exercise the renewal option prior to the time the initial underlying lease term expires, so long as the renewed option is exercised prior to expiration of the TRU Propco II Master Lease. Deferred related party revenue was less than $1 million as of January 30, 2016. We did not have Deferred related party revenue as of January 31, 2015.

The TRU Propco II Master Lease includes early termination options, which can be exercised by Toys-Delaware under specified conditions, including upon damage, destruction or condemnation of a specified percentage of the value or land area of the property.

As lessee

Our minimum rental commitments under non-cancelable operating leases to unaffiliated third parties having a term of more than one year as of January 30, 2016 are as follows:



(In thousands)	Future Minimum Rentals⁽¹⁾
2016	$	2,340
2017	2,155
2018	1,513
2019	1,153
2020	201
2021 and subsequent	1,187
Total	$	8,549


(1)	Excluded from Future Minimum Rentals displayed above are approximately $63 million related to options to extend ground lease terms that are reasonably assured of being exercised, the balance of which predominantly relates to fiscals 2021 and thereafter.

We record operating leases on a straight-line basis over the lease term, which includes renewal options only if those options are specified in the lease agreement and if failure to exercise the renewal option imposes a significant economic penalty on us. For Ground Lease Locations, we include renewal options in the lease term through the estimated useful life of the owned building located on the property as failure to renew a ground lease during the estimated useful life of the building would result in forgoing an economic benefit given our significant capital investment at the inception of the lease to construct a new building. All of our leases include options that allow us to renew or extend the lease term beyond the initial lease period, subject to terms and conditions agreed upon at the inception of the lease. Such terms and conditions include rental rates agreed upon at the inception of the lease that could represent below or above market rental rates later in the life of the lease, depending upon market conditions at the time of such renewal or extension. In addition, some of our leases include early termination options, which can be exercised by us under specified conditions, including upon damage, destruction or condemnation of a specified percentage of the value or land area of the property.

The difference between recognized rental expense and amounts payable under the leases is recorded as Deferred third party rent liabilities. Deferred third party rent liabilities in our Balance Sheets totaled $14 million as of January 30, 2016 and January 31, 2015, respectively.

NOTE 5 — COMMITMENTS AND CONTINGENCIES

Although we do not currently have material legal proceedings pending against us, we may be subject to various claims and contingencies related to lawsuits and real estate taxes, as well as commitments under contractual and other commercial obligations. We recognize liabilities for contingencies and commitments when a loss is probable and estimable. Refer to Note 4 entitled “LEASES” for minimum rental commitments under non-cancelable operating leases having a term of more than one year as of January 30, 2016.

TRU self-insures a substantial portion of our property insurance risks, in addition to third party insurance coverage. Accordingly, TRU bills Toys-Delaware, which leases our retail properties and is responsible for insuring our properties. As such, any property losses incurred by us would be reimbursed by Toys-Delaware.

NOTE 6 — LONG-TERM DEBT

As of January 30, 2016 and January 31, 2015, the carrying value of our Long-term debt was $722 million and $721 million, respectively.

8.500% senior secured notes, due fiscal 2017 ($722 million at January 30, 2016)

On November 20, 2009, we completed the offering of $725 million aggregate principal amount of senior secured 8.500% notes, which will mature on December 1, 2017. The Secured Notes were issued at a discount of $10 million which resulted in proceeds of $715 million. The Secured Notes are solely our obligation and are not guaranteed by TRU or Toys-Delaware. The Secured Notes are secured by the first priority security interests in all of our existing and future real estate properties and our interest in the TRU Propco II Master Lease between us as landlord and Toys-Delaware as tenant. Fees paid in connection with the sale of the Secured Notes were deferred and expensed over the life of the Secured Notes. Deferred debt issuance costs for these notes were $7 million and $10 million as of January 30, 2016 and January 31, 2015, respectively.

The indenture governing the Secured Notes contains covenants that, among other things, restrict our ability to incur additional indebtedness, sell assets, enter into affiliate transactions, pay dividends or make other distributions, make other restricted payments and investments, or create liens. The indenture governing the Secured Notes also contains covenants that limit the ability of TRU to cause or permit Toys-Delaware to incur indebtedness, pay dividends, make distributions or make other restricted payments and investments. These covenants are subject to a number of important qualifications and limitations. The Secured Notes are redeemable, in whole or in part, at the specified redemption prices, plus accrued and unpaid interest, if any. Following specified kinds of changes of control with respect to TRU, Toys-Delaware or us, we will be required to offer to purchase the Secured Notes at a purchase price in cash equal to 101% of their principal amount, plus accrued and unpaid interest, if any to, but not including, the purchase date. Interest on the Secured Notes is payable in cash semi-annually in arrears through maturity on June 1 and December 1 of each year.

NOTE 7 — FAIR VALUE MEASUREMENTS

To determine the fair value of our assets and liabilities, we utilize the established fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Long-term Debt

As of January 30, 2016 and January 31, 2015, the fair value of our Long-term debt was $667 million and $719 million, respectively, which was estimated using Level 1 inputs, representing quoted market prices of our debt instrument.

Other Financial Instruments

Other financial instruments that are not measured at fair value on our Balance Sheets include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. Due to the short-term nature of these assets and liabilities, their carrying amounts approximate fair value.

NOTE 8 — MEMBER’S DEFICIT

Giraffe Junior Holdings, LLC, an indirect wholly-owned subsidiary of TRU, 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 parent companies. During fiscals 2015, 2014 and 2013 we made cash distributions of $11 million, $13 million and $14 million in dividends, respectively.

NOTE 9 — RELATED PARTY TRANSACTIONS

Rental Revenues

Our rental revenues are derived from payments received under the TRU Propco II Master Lease we entered into with Toys-Delaware. The TRU Propco II Master Lease provides for Toys-Delaware to reimburse us for property related costs including, among others, real estate taxes and common area maintenance charges. These costs are directly paid by Toys-Delaware and are recorded as both an expense and a tenant reimbursement. We earned related party Base rent revenues of $103 million during fiscals 2015 and 2014, respectively, and $104 million during fiscal 2013, excluding termination payments from Toys-Delaware. We recorded Tenant reimbursements of $14 million during fiscal 2015 and $13 million during fiscals 2014 and 2013, respectively, under the TRU Propco II Master Lease. Refer to Note 4 entitled “LEASES” for further details regarding our rental arrangements.

Termination Payments

As discussed in Note 2 entitled “REAL ESTATE, NET” and Note 3 entitled “DISCONTINUED OPERATIONS,” the TRU Propco II Master Lease requires Toys-Delaware to make a payment to us upon early termination of a lease, as set forth under the terms of the TRU Propco II Master Lease, or the successful execution of the sale of a property by us to a third party if the proceeds from the sale are less than the net present value of the base rent for the property over its remaining term, discounted at 10% per annum. We recorded termination payments of $2 million and $3 million in fiscals 2015 and 2014, respectively, in Base rents in the Statements of Operations. We recorded termination payments of $12 million in fiscal 2013 in Earnings from discontinued 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 the Domestic Services Agreement (“Agreement”). The costs are

based on a formula for each affiliate, as defined in the Agreement and are recorded in Other operating expenses, net in the Statements of Operations. The amount charged to us for these services was $2 million during fiscals 2015 and 2014, respectively, and $1 million during fiscal 2013.

Transactions with the Sponsors

We did not have any transactions with entities advised by or affiliated with Bain Capital Partners, LLC, Kohlberg Kravis Roberts & Co. L.P., and Vornado Realty Trust (collectively, the “Sponsors”) during fiscals 2015, 2014 and 2013 respectively. The Sponsors did not own any of the Secured Notes as of January 30, 2016 and January 31, 2015, respectively.

Due from Affiliate, Net

As of January 30, 2016 and January 31, 2015, Due from affiliate, net was $4 million and $3 million, respectively, and primarily represents real estate taxes, base rents and certain property reimbursements owed to us by Toys-Delaware.

NOTE 10 — RECENT ACCOUNTING PRONOUNCEMENTS

In March 2016, the FASB issued ASU 2016-07 “Investments - Equity Method and Joint Ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting” (“ASU 2016-07”). ASU 2016-07 eliminates the requirement that when an investment subsequently qualifies for use of the equity method as a result of an increase in level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. This ASU requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and to adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. In addition, ASU 2016-07 requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The adoption of ASU 2016-07, is not expected to have an impact on our Financial Statements.

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from current GAAP. ASU 2016-02 retains a distinction between finance leases (i.e. capital leases under current GAAP) and operating leases. The classification criteria for distinguishing between finance leases and operating leases will be substantially similar to the classification criteria for distinguishing between capital leases and operating leases under current GAAP. The accounting applied by the lessor is largely unchanged from that applied under current GAAP. The amendments of this ASU are effective for reporting periods beginning after December 15, 2018, with early adoption permitted. An entity will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Management is currently assessing the impact the adoption of ASU 2016-02 will have on our Financial Statements.

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments-Overall (Subtopic 825-10), Recognition and measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 requires the fair value measurement of equity investments that do not result in consolidation and are not accounted for under the equity method. Entities will recognize the changes in fair value through net income. ASU 2016-01 eliminates an entity’s ability to be able to recognize unrealized holding gains and losses on equity securities that are classified as available for sale in other comprehensive income. Entities will also no longer be able to use the cost method of accounting for equity securities that do not have readily determinable fair values. A practical expedient will be available for equity investments that do not have readily determinable fair values and do not qualify for the practical expedient to estimate fair value under ASC 820, Fair Value Measurement (i.e. net asset value practical expedient). ASU 2016-01 does not change the guidance for classifying and measuring investments in debt securities and loans. In addition, for financial liabilities measured using the fair value option in ASC 825, ASU 2016-01 requires the change in fair value caused by a change in instrument-specific credit risk to be presented separately in other comprehensive income. Under ASU 2016-01, entities will be required to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the statement of financial position or in the accompanying notes to the financial statements. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted for certain provisions. The adoption of ASU 2016-01, is not expected to have an impact on our Financial Statements.

In September 2015, the FASB issued Accounting Standards Update (“ASU”) ASU 2015-16 “Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Under the previous guidance, an acquirer must recognize adjustments to provisional amounts during the measurement period retrospectively (i.e. as if the accounting for the business combination had been completed at the acquisition date). That is, the acquirer must revise comparative information on the income statement and balance sheet for any prior periods affected. Under ASU 2015-16, acquirers must recognize measurement-period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The amendments in ASU 2015-16 require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earning by line item that would have been in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 did not change the criteria for determining whether an adjustment qualifies as a measurement-period adjustment and does not change the length of the measurement period. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The adoption of ASU 2015-16, is not expected to have an impact on our Financial Statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Under the previous practice, debt issuance costs were recognized as a deferred charge (that is, an asset). This ASU will create consistencies with the guidance in International Financial Reporting Standards as well as the guidance in FASB Concepts Statement No. 6, “Elements of Financial Statements,” which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU 2015-15 “Interest - Imputed Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”), which clarifies that the guidance in ASU 2015-03 does not apply to line-of-credit arrangements. According to ASU 2015-15, line-of-credit arrangements will continue to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt costs ratably over the term of the arrangement. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. The amendments in ASU 2015-03 are effective for reporting periods beginning after December 15, 2015, with early adoption permitted. A reporting entity should apply the amendments on a retrospective basis to all prior periods presented in the financial statements. Other than the revised balance sheet presentation of debt issuance costs from an asset to a deduction from the carrying amount of the debt liability and related disclosures, the adoption of ASU 2015-03 is not expected to have an impact on our Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments of ASU 2014-09 were effective for reporting periods beginning after December 15, 2016, with early adoption prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.

Subsequent to issuing ASU 2014-09, the FASB issued the following amendments concerning the adoption and clarification of ASU 2014-09. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date,” which deferred the effective date one year. As a result, the amendments of ASU 2014-09 are effective for reporting periods beginning after December 15, 2017, with early adoption permitted only as of annual reporting periods beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. ASU 2016-08 clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. Management is currently assessing the adoption methodology and the impact the adoption of these ASUs will have on our Financial Statements.

TOYS “R” US PROPERTY COMPANY II, LLC

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)

January 30, 2016



		INITIAL COST TO COMPANY					GROSS AMOUNT AT WHICH CARRIED AT JANUARY 30, 2016
DESCRIPTION	ENCUMBRANCES	LAND	BUILDINGS & IMPROVEMENTS	TOTAL	ADJUSTMENTS TO INITIAL COST		LAND	BUILDINGS & IMPROVEMENTS	TOTAL	ACCUMULATED DEPRECIATION		DATE OF ACQUISITION	LIFE ON WHICH DEPRECIATION IN LATEST INCOME STATEMENT IS COMPUTED
BRU Oxnard, CA	—	1,703	2,357	4,060	—		1,703	2,357	4,060	(913	)	7/21/2005	0	to	50	YEARS
BRU Van Nuys, CA	—	3,390	2,942	6,332	—		3,390	2,942	6,332	(1,355	)	7/21/2005	0	to	50	YEARS
BRU Glendale(Arrowhead), AZ	—	—	4,800	4,800	—		—	4,800	4,800	(1,777	)	7/21/2005	0	to	50	YEARS
BRU Tucson, AZ	—	2,660	2,072	4,732	—		2,660	2,072	4,732	(699	)	7/21/2005	0	to	50	YEARS
BRU Sterling, VA	—	1,917	2,114	4,031	—		1,917	2,114	4,031	(649	)	7/21/2005	0	to	50	YEARS
BRU White Oak, MD	—	1,367	3,529	4,896	—		1,367	3,529	4,896	(1,013	)	7/21/2005	0	to	50	YEARS
BRU Milford, CT	—	2,234	3,164	5,398	—		2,234	3,164	5,398	(906	)	7/21/2005	0	to	50	YEARS
BRU Reno, NV	—	1,412	2,063	3,475	—		1,412	2,063	3,475	(560	)	7/21/2005	0	to	50	YEARS
BRU Fairview Heights, IL	—	1,072	2,986	4,058	—		1,072	2,986	4,058	(1,343	)	7/21/2005	0	to	50	YEARS
BRU Ogden, UT	—	621	2,187	2,808	—		621	2,187	2,808	(1,056	)	7/21/2005	0	to	50	YEARS
BRU Columbia, SC	—	3,491	1,175	4,666	—		3,491	1,175	4,666	(391	)	7/21/2005	0	to	50	YEARS
BRU Orland Park, IL	—	1,620	2,187	3,807	—		1,620	2,187	3,807	(1,015	)	7/21/2005	0	to	50	YEARS
BRU Northville, MI	—	2,052	3,271	5,323	—		2,052	3,271	5,323	(1,507	)	7/21/2005	0	to	50	YEARS
BRU Flint, MI	—	31	3,385	3,416	—		31	3,385	3,416	(1,352	)	7/21/2005	0	to	50	YEARS
BRU Auburn Hills, MI	—	2,529	2,412	4,941	—		2,529	2,412	4,941	(831	)	7/21/2005	0	to	50	YEARS
BRU Fort Wayne, IN	—	1,767	2,164	3,931	—		1,767	2,164	3,931	(707	)	7/21/2005	0	to	50	YEARS
BRU Syracuse, NY	—	1,408	3,824	5,232	—		1,408	3,824	5,232	(1,102	)	7/21/2005	0	to	50	YEARS
BRU Merrillville, IN	—	1,029	2,443	3,472	—		1,029	2,443	3,472	(701	)	7/21/2005	0	to	50	YEARS
BRU Dublin(Pleasanton), CA	—	21	5,335	5,356	—		21	5,335	5,356	(1,165	)	7/21/2005	0	to	50	YEARS
BRU Modesto, CA	—	916	3,382	4,298	—		916	3,382	4,298	(1,135	)	7/21/2005	0	to	50	YEARS
BRU Tigard, OR	—	25	6,165	6,190	—		25	6,165	6,190	(2,059	)	7/21/2005	0	to	50	YEARS
BRU Highland Ranch, CO	—	1,854	2,863	4,717	—		1,854	2,863	4,717	(895	)	7/21/2005	0	to	50	YEARS
BRU Vista, CA	—	2,006	2,423	4,429	—		2,006	2,423	4,429	(796	)	7/21/2005	0	to	50	YEARS
BRU Madison, WI	—	1,045	1,834	2,879	(186	)	1,045	1,648	2,693	(889	)	7/21/2005	0	to	50	YEARS
BRU Braintree, MA	—	5,096	1,985	7,081	—		5,096	1,985	7,081	(1,043	)	7/21/2005	0	to	50	YEARS
BRU Springfield, PA	—	6,345	3,927	10,272	—		6,345	3,927	10,272	(1,074	)	7/21/2005	0	to	50	YEARS
BRU Montgomeryville, PA	—	3,709	2,469	6,178	—		3,709	2,469	6,178	(644	)	7/21/2005	0	to	50	YEARS



		INITIAL COST TO COMPANY					GROSS AMOUNT AT WHICH CARRIED AT JANUARY 30, 2016
DESCRIPTION	ENCUMBRANCES	LAND	BUILDINGS & IMPROVEMENTS	TOTAL	ADJUSTMENTS TO INITIAL COST		LAND	BUILDINGS & IMPROVEMENTS	TOTAL	ACCUMULATED DEPRECIATION		DATE OF ACQUISITION	LIFE ON WHICH DEPRECIATION IN LATEST INCOME STATEMENT IS COMPUTED
TRU Riverside, CA	—	2,326	4,324	6,650	—		2,326	4,324	6,650	(3,308	)	7/21/2005	0	to	50	YEARS
TRU Bell Gardens, CA	—	1,032	3,964	4,996	—		1,032	3,964	4,996	(2,752	)	7/21/2005	0	to	50	YEARS
TRU Murrietta, CA	—	1,110	2,468	3,578	—		1,110	2,468	3,578	(1,574	)	7/21/2005	0	to	50	YEARS
TRU E. Mesa, AZ	—	1,142	3,142	4,284	—		1,142	3,142	4,284	(1,741	)	7/21/2005	0	to	50	YEARS
TRU Mission Viejo, CA	—	3,117	3,280	6,397	—		3,117	3,280	6,397	(1,701	)	7/21/2005	0	to	50	YEARS
TRU Reno, NV	—	950	3,044	3,994	—		950	3,044	3,994	(2,187	)	7/21/2005	0	to	50	YEARS
TRU Modesto, CA	—	1,141	3,647	4,788	—		1,141	3,647	4,788	(2,506	)	7/21/2005	0	to	50	YEARS
TRU Niles, IL	—	532	4,268	4,800	—		532	4,268	4,800	(3,103	)	7/21/2005	0	to	50	YEARS
TRU Bloomingdale, IL	—	736	5,015	5,751	—		736	5,015	5,751	(3,477	)	7/21/2005	0	to	50	YEARS
TRU Orland Park, IL	—	1,014	4,017	5,031	—		1,014	4,017	5,031	(3,047	)	7/21/2005	0	to	50	YEARS
TRU S. Milwaukee, WI	—	215	2,657	2,872	(306	)	215	2,351	2,566	(1,930	)	7/21/2005	0	to	50	YEARS
TRU Brookfield, WI	—	917	3,079	3,996	—		917	3,079	3,996	(2,255	)	7/21/2005	0	to	50	YEARS
TRU Davenport, IA	—	950	2,881	3,831	—		950	2,881	3,831	(1,606	)	7/21/2005	0	to	50	YEARS
TRU Racine, WI	—	703	2,679	3,382	—		703	2,679	3,382	(1,729	)	7/21/2005	0	to	50	YEARS
TRU Gurnee, IL	—	1,681	2,876	4,557	—		1,681	2,876	4,557	(1,786	)	7/21/2005	0	to	50	YEARS
TRU Yonkers, NY	—	1,570	5,867	7,437	—		1,570	5,867	7,437	(4,300	)	7/21/2005	0	to	50	YEARS
TRU Toms River, NJ	—	783	4,508	5,291	—		783	4,508	5,291	(3,340	)	7/21/2005	0	to	50	YEARS
TRU Nanuet, NY	—	666	4,372	5,038	—		666	4,372	5,038	(3,159	)	7/21/2005	0	to	50	YEARS
TRU Milford, CT	—	698	3,762	4,460	—		698	3,762	4,460	(2,742	)	7/21/2005	0	to	50	YEARS
TRU Poughkeepsie, NY	—	662	4,578	5,240	—		662	4,578	5,240	(2,990	)	7/21/2005	0	to	50	YEARS
TRU Norwalk, CT	—	2,420	5,172	7,592	—		2,420	5,172	7,592	(2,523	)	7/21/2005	0	to	50	YEARS
TRU Austin(So), TX	—	967	3,878	4,845	—		967	3,878	4,845	(2,177	)	7/21/2005	0	to	50	YEARS
TRU Corpus Christi, TX	—	1,224	2,925	4,149	—		1,224	2,925	4,149	(2,004	)	7/21/2005	0	to	50	YEARS
TRU Lafayette, LA	—	1,155	2,514	3,669	—		1,155	2,514	3,669	(1,447	)	7/21/2005	0	to	50	YEARS
TRU Mc Allen, TX	—	2,438	2,615	5,053	—		2,438	2,615	5,053	(1,505	)	7/21/2005	0	to	50	YEARS
TRU Manchester, NH	—	578	2,867	3,445	—		578	2,867	3,445	(2,092	)	7/21/2005	0	to	50	YEARS
TRU Salem, NH	—	2,622	4,027	6,649	—		2,622	4,027	6,649	(2,438	)	7/21/2005	0	to	50	YEARS
TRU South Arlington, TX	—	1,819	3,975	5,794	—		1,819	3,975	5,794	(2,728	)	7/21/2005	0	to	50	YEARS
TRU Lewisville, TX	—	1,400	2,787	4,187	—		1,400	2,787	4,187	(1,678	)	7/21/2005	0	to	50	YEARS
TRU Tigard, OR	—	1,501	3,874	5,375	—		1,501	3,874	5,375	(2,940	)	7/21/2005	0	to	50	YEARS
TRU Annapolis, MD	—	5,007	4,176	9,183	—		5,007	4,176	9,183	(2,389	)	7/21/2005	0	to	50	YEARS
TRU Winchester, VA	—	4	2,515	2,519	—		4	2,515	2,519	(1,536	)	7/21/2005	0	to	50	YEARS
TRU Fredericksburg, VA	—	1,500	1,711	3,211	—		1,500	1,711	3,211	(1,060	)	7/21/2005	0	to	50	YEARS



		INITIAL COST TO COMPANY					GROSS AMOUNT AT WHICH CARRIED AT JANUARY 30, 2016
DESCRIPTION	ENCUMBRANCES	LAND	BUILDINGS & IMPROVEMENTS	TOTAL	ADJUSTMENTS TO INITIAL COST		LAND	BUILDINGS & IMPROVEMENTS	TOTAL	ACCUMULATED DEPRECIATION		DATE OF ACQUISITION	LIFE ON WHICH DEPRECIATION IN LATEST INCOME STATEMENT IS COMPUTED
TRU Norfolk, VA	—	821	3,077	3,898	—		821	3,077	3,898	(2,448	)	7/21/2005	0	to	50	YEARS
TRU Golden Ring, MD	—	1,426	3,759	5,185	—		1,426	3,759	5,185	(2,483	)	7/21/2005	0	to	50	YEARS
TRU Johnson City, TN	—	1,434	2,552	3,986	—		1,434	2,552	3,986	(1,486	)	7/21/2005	0	to	50	YEARS
TRU Cary, NC	—	1,056	2,833	3,889	—		1,056	2,833	3,889	(1,623	)	7/21/2005	0	to	50	YEARS
TRU Dadeland, FL	—	3,052	4,426	7,478	—		3,052	4,426	7,478	(3,290	)	7/21/2005	0	to	50	YEARS
TRU Orlando III , FL	—	3,550	4,102	7,652	—		3,550	4,102	7,652	(2,507	)	7/21/2005	0	to	50	YEARS
TRU Pembroke Pines, FL	—	2,986	3,214	6,200	—		2,986	3,214	6,200	(1,645	)	7/21/2005	0	to	50	YEARS
TRU Rivergate, TN	—	1,910	3,042	4,952	—		1,910	3,042	4,952	(2,325	)	7/21/2005	0	to	50	YEARS
TRU Birmingham II, AL	—	3,225	3,706	6,931	—		3,225	3,706	6,931	(2,316	)	7/21/2005	0	to	50	YEARS
TRU Pineville, NC	—	1,783	2,233	4,016	(313	)	1,470	2,233	3,703	(1,277	)	7/21/2005	0	to	50	YEARS
TRU Franklin, TN	—	1,208	2,951	4,159	—		1,208	2,951	4,159	(1,341	)	7/21/2005	0	to	50	YEARS
TRU Germantown, TN	—	1,179	2,331	3,510	—		1,179	2,331	3,510	(1,100	)	7/21/2005	0	to	50	YEARS
TRU Castleton, IN	—	559	3,049	3,608	—		559	3,049	3,608	(2,143	)	7/21/2005	0	to	50	YEARS
TRU Florence, KY	—	884	2,579	3,463	—		884	2,579	3,463	(2,033	)	7/21/2005	0	to	50	YEARS
TRU Southgate, MI	—	218	2,603	2,821	—		218	2,603	2,821	(2,400	)	7/21/2005	0	to	50	YEARS
TRU Madison Heights, MI	—	256	4,314	4,570	—		256	4,314	4,570	(3,407	)	7/21/2005	0	to	50	YEARS
TRU Sterling Hghts, MI	—	1,395	3,555	4,950	—		1,395	3,555	4,950	(2,624	)	7/21/2005	0	to	50	YEARS
TRU Westland, MI	—	752	4,025	4,777	—		752	4,025	4,777	(2,839	)	7/21/2005	0	to	50	YEARS
TRU Des Moines, IA	—	824	2,879	3,703	—		824	2,879	3,703	(1,851	)	7/21/2005	0	to	50	YEARS
TRU Mid Rivers, MO	—	1,117	3,053	4,170	—		1,117	3,053	4,170	(1,959	)	7/21/2005	0	to	50	YEARS
TRU Fairview Hts, IL	—	1,217	3,152	4,369	—		1,217	3,152	4,369	(2,088	)	7/21/2005	0	to	50	YEARS
TRU Westminster, CO	—	1,599	3,408	5,007	—		1,599	3,408	5,007	(2,152	)	7/21/2005	0	to	50	YEARS
TRU Appleton, WI	—	851	3,062	3,913	—		851	3,062	3,913	(1,667	)	7/21/2005	0	to	50	YEARS
TRU Kingston, MA	—	2,671	2,951	5,622	—		2,671	2,951	5,622	(1,800	)	7/21/2005	0	to	50	YEARS
TRU Brockton, MA	—	1,205	2,978	4,183	—		1,205	2,978	4,183	(1,860	)	7/21/2005	0	to	50	YEARS
TRU No Attlboro, MA	—	2,664	3,857	6,521	—		2,664	3,857	6,521	(2,207	)	7/21/2005	0	to	50	YEARS
TRU Colerain, OH	—	673	3,304	3,977	—		673	3,304	3,977

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Non-accelerated filer

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Smaller reporting company

Toys R Us Property Co II, LLC 10-K