10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 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)

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

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

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

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

As of September 13, 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

TABLE OF CONTENTS

	PAGE
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets	1
Condensed Statements of Operations	2
Condensed Statements of Cash Flows	3
Condensed Statements of Changes in Member's Deficit	4
Notes to the Condensed Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk	13
Item 4. Controls and Procedures	14
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	15
Item 1A. Risk Factors	15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3. Defaults Upon Senior Securities	15
Item 4. Mine Safety Disclosures	15
Item 5. Other Information	15
Item 6. Exhibits	15
SIGNATURE	16
INDEX TO EXHIBITS	17

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

TOYS “R” US PROPERTY COMPANY II, LLC

CONDENSED BALANCE SHEETS

(Unaudited)

(In thousands)	July 30, 2016			January 30, 2016
ASSETS
Current Assets:
Cash and cash equivalents	$	108,256		$	91,362
Due from affiliate, net	4,091			3,627
Prepaid expenses	886			1,415
Total current assets	113,233			96,404
Real Estate, Net:
Land	165,101			165,101
Buildings, net	135,904			138,514
Property and leasehold improvements, net	19,199			21,730
Total real estate, net	320,204			325,345
Straight-line rent receivable from affiliate	100,654			98,635
Other assets	239			—
Total Assets	$	534,330		$	520,384
LIABILITIES AND MEMBER’S DEFICIT
Current Liabilities:
Accrued interest	$	10,102		$	10,271
Real estate taxes payable	5,074			4,679
Deferred related party revenue	260			260
Deferred third party rent liabilities	30			30
Other current liabilities	210			257
Total current liabilities	15,676			15,497
Long-term debt	718,020			715,458
Deferred third party rent liabilities	14,191			14,029
Member’s deficit	(213,557		)	(224,600		)
Total Liabilities and Member’s Deficit	$	534,330		$	520,384

See accompanying notes to the Condensed Financial Statements.

1

TOYS “R” US PROPERTY COMPANY II, LLC

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	13 Weeks Ended				26 Weeks Ended
(In thousands)	July 30, 2016		August 1, 2015		July 30, 2016		August 1, 2015
Rental revenues:
Base rents	$	25,544	$	25,537	$	51,655	$	53,778
Tenant reimbursements	3,457		3,375		6,918		6,718
Total revenues	29,001		28,912		58,573		60,496
Depreciation	2,569		2,678		5,141		5,360
Rental expense	666		671		1,332		1,349
Common area maintenance expenses	3,454		3,375		6,918		6,718
Other operating expenses, net	729		437		1,140		1,900
Total operating expenses	7,418		7,161		14,531		15,327
Operating earnings	21,583		21,751		44,042		45,169
Interest expense, net	16,501		16,593		32,999		33,237
Net earnings	$	5,082	$	5,158	$	11,043	$	11,932

See accompanying notes to the Condensed Financial Statements.

2

TOYS “R” US PROPERTY COMPANY II, LLC

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	26 Weeks Ended
(In thousands)	July 30, 2016			August 1, 2015
Cash Flows from Operating Activities:
Net earnings	$	11,043		$	11,932
Adjustments to reconcile Net earnings to Net cash provided by operating activities:
Depreciation	5,141			5,360
Amortization and write-off of debt issuance costs and debt discount	2,562			2,517
Loss on sale of real estate	—			1,026
Changes in operating assets and liabilities:
Due from affiliate, net	(464		)	(1,375		)
Prepaid expenses	529			691
Straight-line rent receivable from affiliate and Deferred third party rent liabilities	(1,857		)	(1,476		)
Accrued interest, Real estate taxes payable and Other current liabilities	179			190
Other assets	(239		)	—
Net cash provided by operating activities	16,894			18,865
Cash Flows from Investing Activities:
Proceeds from sale of real estate	—			592
Net cash provided by investing activities	—			592
Cash Flows from Financing Activities:
Distributions	—			(7,389		)
Net cash used in financing activities	—			(7,389		)
Cash and cash equivalents:
Net increase during period	16,894			12,068
Cash and cash equivalents at beginning of period	91,362			66,398
Cash and cash equivalents at end of period	$	108,256		$	78,466

See accompanying notes to the Condensed Financial Statements.

3

TOYS “R” US PROPERTY COMPANY II, LLC

CONDENSED STATEMENTS OF CHANGES IN MEMBER’S DEFICIT

(Unaudited)

(In thousands)	Member’s Deficit
Balance, January 31, 2015	$	(235,683	)
Net earnings	11,932
Distributions	(7,389		)
Balance, August 1, 2015	$	(231,140	)
Balance, January 30, 2016	$	(224,600	)
Net earnings	11,043
Balance, July 30, 2016	$	(213,557	)

See accompanying notes to the Condensed Financial Statements.

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TOYS “R” US PROPERTY COMPANY II, LLC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of presentation

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. TRU Propco II 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.

The Condensed Balance Sheets as of July 30, 2016 and January 30, 2016, the Condensed Statements of Operations for the thirteen and twenty-six weeks ended July 30, 2016 and August 1, 2015, the Condensed Statements of Cash Flows and the Condensed Statements of Changes in Member’s Deficit for the twenty-six weeks ended July 30, 2016 and August 1, 2015, have been prepared by us in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting, and in accordance with the requirements of this Quarterly Report on Form 10-Q. We have no other comprehensive income items. Therefore, our comprehensive income is equal to Net earnings for the twenty-six weeks ended July 30, 2016 and August 1, 2015. Our interim Condensed Financial Statements are unaudited and are subject to year-end adjustments. In the opinion of management, the financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions that impact the financial statements) necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen and twenty-six weeks then ended. The Condensed Balance Sheet at January 30, 2016, presented herein, has been derived from our audited balance sheet included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016, but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the financial statements and footnotes thereto included within our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

Adoption of New Accounting Pronouncement

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 an asset.  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.  The Company has retrospectively adopted the amendments of ASU 2015-03 and ASU 2015-15, effective January 31, 2016.  We revised the balance sheet presentation of debt issuance costs from an asset to a deduction from the carrying amount of Long-term debt on the Condensed Balance Sheets. The amounts of debt issuance costs that were reclassified as of July 30, 2016 and January 30, 2016 totaled $5 million and $7 million, respectively.

2. Real estate, net

(In thousands)	July 30, 2016		January 30, 2016
Land	$	165,101	$	165,101
Buildings	262,786		262,786
Property and leasehold improvements	127,997		127,997
	555,884		555,884
Less: accumulated depreciation	235,680		230,539
Total	$	320,204	$	325,345

During the twenty-six weeks ended July 30, 2016, we did not dispose of any properties.

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During the thirteen weeks ended August 1, 2015, we did not dispose of any properties. During the twenty-six weeks ended August 1, 2015, we sold an owned property and a non-operating parcel to unrelated third parties for proceeds of $1 million, resulting in a netlossof $1 million, which is included in Other operating expenses, net.

The Amended and Restated Master Lease Agreement (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. Termination payments are included in Base Rents in the Condensed Statements of Operations. We did not record any termination payments for the twenty-six weeks ended July 30, 2016 or for the thirteen weeks ended August 1, 2015. We recorded a termination payment of $2 million during the twenty-six weeks ended August 1, 2015.

3. 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 July 30, 2016 and January 30, 2016, the fair value of our Long-term debt was $724 million and $667 million, respectively, which was estimated using Level 1 inputs, representing quoted market prices in reasonably active markets of our debt instrument.

Other Financial Instruments

Other financial instruments that are not measured at fair value on our Condensed 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.

4. 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 the twenty-six weeks ended July 30, 2016, we did not make any cash distributions. During the twenty-six weeks ended August 1, 2015, we made cash distributions of $7 million in dividends.

5. 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. During each of the thirteen weeks ended July 30, 2016 and August 1, 2015, we earned related party Base rent revenues of $26 million, excluding termination payments from Toys-Delaware. During each of the twenty-six weeks ended July 30, 2016 and August 1, 2015, we earned related party Base rent revenues of $52 million, excluding termination payments from Toys-Delaware. In addition, we recorded Tenant reimbursements of $3 million under the TRU Propco II Master Lease during each of the thirteen weeks ended July 30, 2016 and August 1, 2015. During each of the twenty-six weeks ended July 30, 2016 and August 1, 2015, we recorded Tenant reimbursements of $7 million.

Termination Payments

As discussed in Note 2 entitled “Real estate, 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 did not record any termination payments for the twenty-six weeks ended July 30, 2016 or for the thirteen weeks ended August 1, 2015. We recorded a termination payment of $2 million during the twenty-six weeks ended August 1, 2015.

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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 on the Condensed Statements of Operations. During each of the thirteen weeks ended July 30, 2016 and August 1, 2015, the amounts charged to us for these services were less than $1 million. During each of the twenty-six weeks ended July 30, 2016 and August 1, 2015, the amounts charged to us for these services were $1 million.

Due from Affiliate, Net

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

6. Recent accounting pronouncements

In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. Management is currently assessing the impact the adoption of ASU 2016-15 will have on our Condensed Financial Statements.

In February 2016, the FASB issued ASU No. 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 Condensed 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 No. 2015-14 “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date” (“ASU 2015-14”), 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 No. 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

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service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. Management is currently assessing the adoption methodology and the impact the adoption of these ASUs will have on our Condensed Financial Statements.

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

As used herein the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company II, LLC (“TRU Propco II”), except as expressly indicated or unless the content otherwise requires. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help facilitate an understanding of our financial condition and our historical results of operations for the periods presented. This MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 30, 2016 and Condensed Financial Statements and the accompanying notes thereto, and contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” below.

Our Business

We are a special purpose entity owned indirectly by Toys “R” Us, Inc. (“TRU”), 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. Under an 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, 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 quarterly financial statements and other information about our master tenant, Toys-Delaware, see Exhibit 99.1 to this report.

Results of Operations

Total Revenues

	13 Weeks Ended								26 Weeks Ended
($ In thousands)	July 30, 2016		August 1, 2015		$ Change		% Change		July 30, 2016		August 1, 2015		$ Change			% Change
Total revenues	$	29,001	$	28,912	$	89	0.3	%	$	58,573	$	60,496	$	(1,923	)	(3.2	)%

Total revenuesincreased by $0.1 million for the thirteen weeks ended July 30, 2016, compared to the same period last year.

Total revenuesdecreased by $1.9 million for the twenty-six weeks ended July 30, 2016, compared to the same period last year. The decrease was primarily due to a $2.2 million termination payment recorded in the prior year for the sale of property as required under the TRU Propco II Master Lease.

Depreciation

	13 Weeks Ended									26 Weeks Ended
($ In thousands)	July 30, 2016		August 1, 2015		$ Change			% Change		July 30, 2016		August 1, 2015		$ Change			% Change
Depreciation	$	2,569	$	2,678	$	(109	)	(4.1	)%	$	5,141	$	5,360	$	(219	)	(4.1	)%

Depreciationdecreased by $0.1 million and $0.2 million for the thirteen and twenty-six weeks ended July 30, 2016, respectively, compared to the same periods last year. The decrease in both periods was due to fully depreciated assets.

Rental Expense

	13 Weeks Ended									26 Weeks Ended
($ In thousands)	July 30, 2016		August 1, 2015		$ Change			% Change		July 30, 2016		August 1, 2015		$ Change			% Change
Rental expense	$	666	$	671	$	(5	)	(0.7	)%	$	1,332	$	1,349	$	(17	)	(1.3	)%

Rental expensedecreased by less than $0.1 million for the thirteen and twenty-six weeks ended July 30, 2016, respectively, compared to the same period last year.

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Common Area Maintenance Expenses

	13 Weeks Ended								26 Weeks Ended
($ In thousands)	July 30, 2016		August 1, 2015		$ Change		% Change		July 30, 2016		August 1, 2015		$ Change		% Change
Common area maintenance expenses	$	3,454	$	3,375	$	79	2.3	%	$	6,918	$	6,718	$	200	3.0	%

Common area maintenance expenses increased by $0.1 million and $0.2 million for the thirteen and twenty-six weeks ended July 30, 2016, respectively, compared to the same periods last year. The increase in both periods 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

	13 Weeks Ended								26 Weeks Ended
($ In thousands)	July 30, 2016		August 1, 2015		$ Change		% Change		July 30, 2016		August 1, 2015		$ Change			% Change
Other operating expenses, net	$	729	$	437	$	292	66.8	%	$	1,140	$	1,900	$	(760	)	(40.0	)%

Other operating expenses, net increased by $0.3 million for the thirteen weeks ended July 30, 2016, compared to the same period last year. The increase was primarily due to professional fees related to a potential debt refinancing.

Other operating expenses, netdecreased by $0.8 million for the twenty-six weeks ended July 30, 2016, compared to the same period last year. The decrease was primarily due to a $1.0 million prior year net loss incurred on the sale of real estate, partially offset by an increase in professional fees.

Interest Expense, Net

	13 Weeks Ended									26 Weeks Ended
($ In thousands)	July 30, 2016		August 1, 2015		$ Change			% Change		July 30, 2016		August 1, 2015		$ Change			% Change
Interest expense, net	$	16,501	$	16,593	$	(92	)	(0.6	)%	$	32,999	$	33,237	$	(238	)	(0.7	)%

Interest expense, net decreased by $0.1 million and $0.2 million for the thirteen and twenty-six weeks ended July 30, 2016, respectively, compared to the same periods last year.

Net Earnings

	13 Weeks Ended									26 Weeks Ended
($ In thousands)	July 30, 2016		August 1, 2015		$ Change			% Change		July 30, 2016		August 1, 2015		$ Change			% Change
Net earnings	$	5,082	$	5,158	$	(76	)	(1.5	)%	$	11,043	$	11,932	$	(889	)	(7.5	)%

Net earningsdecreased by $0.1 million for the thirteen weeks ended July 30, 2016, compared to the same period last year.

Net earningsdecreased by $0.9 million for the twenty-six weeks ended July 30, 2016, compared to the same period last year. The decrease was primarily due to a decline in Total Revenues partially offset by a decrease in Other operating expenses, net.

Liquidity and Capital Resources

Overview

As of July 30, 2016, we were in compliance with all of the covenants related to the 8.500% senior secured notes due fiscal 2017 (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

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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 July 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 expected cash flow requirements for at least the next twelve months.

As of July 30, 2016, we had all of our outstanding debt, which consists of $725 million of our Secured Notes, maturing in December 2017. We believe that we have the ability to address the upcoming maturity by refinancing the notes, or repaying a portion and refinancing the balance of, the notes; however market conditions and the value of our properties could reduce or restrict the amount of such notes we are able to refinance and our ability to refinance the notes on favorable terms. We are currently working with advisors to assist us in connection with a potential debt refinancing and exploring structures, including accessing the commercial mortgage-backed securities and mezzanine financing markets.

Our advisors retained Cushman & Wakefield to perform an appraisal of our properties. Cushman & Wakefield performed appraisals estimating the aggregate of the individual values of our portfolio as of April 2016 under the following scenarios: assuming each property was leased at market rent as of the date of value (“Leased at Market Rent”) and assuming the property was vacant and available for lease as of the date of value (“Dark Value”). The aggregate of the individual values under the Leased at Market Rent and Dark Value scenarios as of the date of value was estimated at $878.8 million and $617.9 million, respectively.

An appraisal is only an estimate of value, as of the date stated in the appraisal. It is subject to various assumptions and limiting conditions and qualifications, any or all of which may have influenced the valuation. Changes since the date of the appraisal, whether in external market factors or in the property itself can significantly affect the value. As an estimate, the appraisal is not necessarily a measure of realizable value and may not reflect the amount which would be received if the property were sold.

Cash Flows

	26 Weeks Ended
(In thousands)	July 30, 2016		August 1, 2015			Change
Net cash provided by operating activities	$	16,894	$	18,865		$	(1,971	)
Net cash provided by investing activities	—		592			(592		)
Net cash used in financing activities	—		(7,389		)	7,389
Net increase during period in cash and cash equivalents	$	16,894	$	12,068		$	4,826

Cash Flows Provided by Operating Activities

During the twenty-six weeks ended July 30, 2016, Net cash provided by operating activities was $16.9 million, compared to $18.9 million for the twenty-six weeks ended August 1, 2015. The decrease in Net cash provided by operating activities was primarily due to a $2.2 million termination payment recorded in the prior year from the sale of real estate, as required under the TRU Propco II Master Lease.

Cash Flows Provided by Investing Activities

TheNet cash provided by investing activities for the twenty-six weeks ended August 1, 2015 was $0.6 million due to proceeds received from the sale of real estate.

Cash Flows Used in Financing Activities

During the twenty-six weeks ended August 1, 2015, Net cash used in financing activities was $7.4 million due to Distributions.

Debt

Refer to the Annual Report on Form 10-K for further details regarding our debt.

Contractual Obligations and Commitments

Our contractual obligations consist mainly of payments related to Long-term debt and related interest and operating leases related to real estate used in the operation of our business. Refer to the “Contractual Obligations and Commitments” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016 for details on our contractual obligations and commitments.

11

Critical Accounting Policies

Our Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities as of the date of the financial statements and during the applicable periods. We base these estimates on historical experience and on other factors that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions and could have a material impact on our Condensed Financial Statements. Refer to the Annual Report on Form 10-K for the fiscal year ended January 30, 2016, for a discussion of critical accounting policies.

Recently Adopted Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 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 Company has adopted the amendments of ASU 2015-16, effective January 31, 2016. The adoption did not have an impact on our Condensed 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 No. 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 Company has adopted the amendments of ASU 2015-03 and ASU 2015-15, effective January 31, 2016. 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 and ASU 2015-15 did not have an impact on our Condensed Financial Statements.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). ASU 2015-02 is intended to improve targeted areas of consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. This ASU simplifies consolidation accounting by reducing the number of consolidation models and improves current GAAP by (1) placing more emphasis on risk of loss when determining a controlling financial interest; (2) reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE; and (3) changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. Entities can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. The Company adopted the amendments of ASU 2015-02, effective January 31, 2016. The adoption did not have an impact on our Condensed Financial Statements.

12

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items. Under the previous practice, an entity was required to separately classify, present, and disclose extraordinary events and transactions. The FASB issued this ASU as part of its initiative to reduce complexity in accounting standards. This ASU will also align more closely U.S. GAAP income statement presentation guidance with IAS 1, “Presentation of Financial Statements,” which prohibits the presentation and disclosure of extraordinary items. The Company adopted the amendments of ASU 2015-01, effective January 31, 2016. The adoption did not have an impact on our Condensed Financial Statements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, the other reports and documents that we have filed or may in the future file with the Securities and Exchange Commission and other publicly released materials and statements, both oral and written, that we have made or may make in the future, may contain “forward looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 including exchange offers, 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-Delaware’s 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 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 our Annual Report on Form 10-K filed on April 8, 2016, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no change in our exposure to market risk during the twenty-six weeks ended July 30, 2016. For a discussion of our exposure to market risk, refer to Item 7A entitled “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the second quarter of fiscal 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

14

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

As of the date of this report, there have been no material changes to the information related to Item 1A entitled “RISK FACTORS” disclosed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

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

15

SIGNATURE

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

	TOYS “R” US PROPERTY COMPANY II, LLC
	(Registrant)
Date: September 13, 2016	/s/ Michael J. Short
	Michael J. Short
	President and Chief Financial Officer

16

INDEX TO EXHIBITS

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

Exhibit No.	Description
3.1	Amended and Restated Certificate of Formation of Toys “R” Us Property Company II, LLC (filed as Exhibit 3.1 to Registrant’s Form S-4 registration statement, filed on August 4, 2010 and incorporated herein by reference).
3.2	Second Amended and Restated Limited Liability Company Agreement of Toys “R” Us Property Company II, LLC (filed as Exhibit 3.2 to the Registrant’s Form S-4 registration statement, filed on August 4, 2010 and incorporated herein by reference).
31.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Toys “R” Us – Delaware, Inc. financial statements for the thirteen and twenty-six weeks ended July 30, 2016 (filed as Exhibit 99.1 to the Form 8-K filed by Toys “R” Us, Inc. on September 13, 2016 and incorporated herein by reference).
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

17

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael J. Short, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Toys “R” Us Property Company II, LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 13, 2016

/s/  Michael J. Short

Michael J. Short

President and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification Pursuant To 18 U.S.C. Section 1350 By The Principal Executive Officer and Principal Financial Officer,

As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002.

I, Michael J. Short, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The Quarterly Report on Form 10-Q of Toys “R” Us Property Company II, LLC (the “Company”) for the quarterly period ended July 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

September 13, 2016

/s/  Michael J. Short

Michael J. Short

President and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

XML

Document and Entity Information Document - shares	6 Months Ended
	Jul. 30, 2016	Sep. 13, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	Toys R Us Property Co II, LLC
Entity Central Index Key	0001497188
Current Fiscal Year End Date	--01-28
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Jul. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		0

XML

Condensed Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jul. 30, 2016	Jan. 30, 2016
Current Assets:
Cash and cash equivalents	$ 108,256	$ 91,362
Due from affiliate, net	4,091	3,627
Prepaid expenses	886	1,415
Total current assets	113,233	96,404
Real Estate, Net:
Land	165,101	165,101
Buildings, net	135,904	138,514
Property and leasehold improvements, net	19,199	21,730
Total real estate, net	320,204	325,345
Straight-line rent receivable from affiliate	100,654	98,635
Other assets	239	0
Total Assets	534,330	520,384
Current Liabilities:
Accrued interest	10,102	10,271
Real estate taxes payable	5,074	4,679
Deferred related party revenue	260	260
Deferred third party rent liabilities	30	30
Other current liabilities	210	257
Total current liabilities	15,676	15,497
Long-term debt	718,020	715,458
Deferred third party rent liabilities	14,191	14,029
Member’s deficit	(213,557)	(224,600)
Total Liabilities and Member’s Deficit	$ 534,330	$ 520,384

XML

Condensed Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015	Jul. 30, 2016	Aug. 01, 2015
Rental revenues:
Base rents	$ 25,544	$ 25,537	$ 51,655	$ 53,778
Tenant reimbursements	3,457	3,375	6,918	6,718
Total revenues	29,001	28,912	58,573	60,496
Depreciation	2,569	2,678	5,141	5,360
Rental expense	666	671	1,332	1,349
Common area maintenance expenses	3,454	3,375	6,918	6,718
Other operating expenses, net	729	437	1,140	1,900
Total operating expenses	7,418	7,161	14,531	15,327
Operating earnings	21,583	21,751	44,042	45,169
Interest expense, net	16,501	16,593	32,999	33,237
Net earnings	$ 5,082	$ 5,158	$ 11,043	$ 11,932

XML

Condensed Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015
Cash Flows from Operating Activities:
Net earnings	$ 11,043	$ 11,932
Adjustments to reconcile Net earnings to Net cash provided by operating activities:
Depreciation	5,141	5,360
Amortization and write-off of debt issuance costs and debt discount	2,562	2,517
Loss on sale of real estate	0	1,026
Changes in operating assets and liabilities:
Due from affiliate, net	(464)	(1,375)
Prepaid expenses	529	691
Straight-line rent receivable from affiliate and Deferred third party rent liabilities	(1,857)	(1,476)
Accrued interest, Real estate taxes payable and Other current liabilities	179	190
Other assets	(239)	0
Net cash provided by operating activities	16,894	18,865
Cash Flows from Investing Activities:
Proceeds from sale of real estate	0	592
Net cash provided by investing activities	0	592
Cash Flows from Financing Activities:
Distributions	0	(7,389)
Net cash used in financing activities	0	(7,389)
Cash and cash equivalents:
Net increase during period	16,894	12,068
Cash and cash equivalents at beginning of period	91,362	66,398
Cash and cash equivalents at end of period	$ 108,256	$ 78,466

XML

Condensed Statements of Changes in Member's Deficit (Unaudited) $ in Thousands	USD ($)
Beginning Balance at Jan. 31, 2015	$ (235,683)
Net earnings	11,932
Distributions	(7,389)
Ending Balance at Aug. 01, 2015	(231,140)
Beginning Balance at Jan. 30, 2016	(224,600)
Net earnings	11,043
Distributions	0
Ending Balance at Jul. 30, 2016	$ (213,557)

XML

Basis of presentation

6 Months Ended

Jul. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of presentation

Basis of presentation

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. TRU Propco II 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.

The Condensed Balance Sheets as of July 30, 2016 and January 30, 2016, the Condensed Statements of Operations for the thirteen and twenty-six weeks ended July 30, 2016 and August 1, 2015, the Condensed Statements of Cash Flows and the Condensed Statements of Changes in Member’s Deficit for the twenty-six weeks ended July 30, 2016 and August 1, 2015, have been prepared by us in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting, and in accordance with the requirements of this Quarterly Report on Form 10-Q. We have no other comprehensive income items. Therefore, our comprehensive income is equal to Net earnings for the twenty-six weeks ended July 30, 2016 and August 1, 2015. Our interim Condensed Financial Statements are unaudited and are subject to year-end adjustments. In the opinion of management, the financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions that impact the financial statements) necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen and twenty-six weeks then ended. The Condensed Balance Sheet at January 30, 2016, presented herein, has been derived from our audited balance sheet included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016, but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the financial statements and footnotes thereto included within our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

Adoption of New Accounting Pronouncement

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 an asset.  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.  The Company has retrospectively adopted the amendments of ASU 2015-03 and ASU 2015-15, effective January 31, 2016.  We revised the balance sheet presentation of debt issuance costs from an asset to a deduction from the carrying amount of Long-term debt on the Condensed Balance Sheets. The amounts of debt issuance costs that were reclassified as of July 30, 2016 and January 30, 2016 totaled $5 million and $7 million, respectively.

XML

Real estate, net

6 Months Ended

Jul. 30, 2016

Property, Plant and Equipment [Abstract]

Real estate, net

Real estate, net

(In thousands)	July 30, 2016		January 30, 2016
Land	$	165,101	$	165,101
Buildings	262,786		262,786
Property and leasehold improvements	127,997		127,997
	555,884		555,884
Less: accumulated depreciation	235,680		230,539
Total	$	320,204	$	325,345

During the twenty-six weeks ended July 30, 2016, we did not dispose of any properties.

During the thirteen weeks ended August 1, 2015, we did not dispose of any properties. During the twenty-six weeks ended August 1, 2015, we sold an owned property and a non-operating parcel to unrelated third parties for proceeds of $1 million, resulting in a netlossof $1 million, which is included in Other operating expenses, net.

The Amended and Restated Master Lease Agreement (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. Termination payments are included in Base Rents in the Condensed Statements of Operations. We did not record any termination payments for the twenty-six weeks ended July 30, 2016 or for the thirteen weeks ended August 1, 2015. We recorded a termination payment of $2 million during the twenty-six weeks ended August 1, 2015.

XML

Fair value measurements

6 Months Ended

Jul. 30, 2016

Fair Value Disclosures [Abstract]

Fair value measurements

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 July 30, 2016 and January 30, 2016, the fair value of our Long-term debt was $724 million and $667 million, respectively, which was estimated using Level 1 inputs, representing quoted market prices in reasonably active markets of our debt instrument.

Other Financial Instruments

Other financial instruments that are not measured at fair value on our Condensed 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.

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Member's deficit

6 Months Ended

Jul. 30, 2016

Stockholders' Equity Note [Abstract]

Member's deficit

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 the twenty-six weeks ended July 30, 2016, we did not make any cash distributions. During the twenty-six weeks ended August 1, 2015, we made cash distributions of $7 million in dividends.

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Related party transactions

6 Months Ended

Jul. 30, 2016

Related Party Transactions [Abstract]

Related party transactions

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. During each of the thirteen weeks ended July 30, 2016 and August 1, 2015, we earned related party Base rent revenues of $26 million, excluding termination payments from Toys-Delaware. During each of the twenty-six weeks ended July 30, 2016 and August 1, 2015, we earned related party Base rent revenues of $52 million, excluding termination payments from Toys-Delaware. In addition, we recorded Tenant reimbursements of $3 million under the TRU Propco II Master Lease during each of the thirteen weeks ended July 30, 2016 and August 1, 2015. During each of the twenty-six weeks ended July 30, 2016 and August 1, 2015, we recorded Tenant reimbursements of $7 million.

Termination Payments

As discussed in Note 2 entitled “Real estate, 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 did not record any termination payments for the twenty-six weeks ended July 30, 2016 or for the thirteen weeks ended August 1, 2015. We recorded a termination payment of $2 million during the twenty-six weeks ended August 1, 2015.

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 on the Condensed Statements of Operations. During each of the thirteen weeks ended July 30, 2016 and August 1, 2015, the amounts charged to us for these services were less than $1 million. During each of the twenty-six weeks ended July 30, 2016 and August 1, 2015, the amounts charged to us for these services were $1 million.

Due from Affiliate, Net

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

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Recent accounting pronouncements

6 Months Ended

Jul. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent accounting pronouncements

Recent accounting pronouncements

In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. Management is currently assessing the impact the adoption of ASU 2016-15 will have on our Condensed Financial Statements.

In February 2016, the FASB issued ASU No. 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 Condensed 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 No. 2015-14 “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date” (“ASU 2015-14”), 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 No. 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. In April 2016, the FASB issued ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. Management is currently assessing the adoption methodology and the impact the adoption of these ASUs will have on our Condensed Financial Statements.

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Real estate, net (Tables)

6 Months Ended

Jul. 30, 2016

Property, Plant and Equipment [Abstract]

Schedule of real estate properties

(In thousands)	July 30, 2016		January 30, 2016
Land	$	165,101	$	165,101
Buildings	262,786		262,786
Property and leasehold improvements	127,997		127,997
	555,884		555,884
Less: accumulated depreciation	235,680		230,539
Total	$	320,204	$	325,345

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Basis of presentation - Narrative (Details) $ in Millions	6 Months Ended
	Jul. 30, 2016 USD ($)	Jan. 30, 2016 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of reportable segments	1
Debt Issuance Costs, Net	$ 5	$ 7

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Real estate, net - Narrative (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Aug. 01, 2015 USD ($) Properties	Jul. 30, 2016 USD ($) Properties	Aug. 01, 2015 USD ($) Properties
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Number of Properties Sold | Properties	0	0	1,000,000
Number of non-operating parcels sold | Properties			1,000,000
Proceeds from sale of real estate		$ 0	$ 592
Loss on sale of real estate		$ 0	1,026
Early Lease Termination or Property Sale, Discount Rate		10.00%
Early Lease Termination or Property Sale, Termination Payments, Related Parties	$ 0	$ 0	$ 2,000

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Real estate, net - Schedule of Property, Plant and Equipment (Details) - USD ($) $ in Thousands	Jul. 30, 2016	Jan. 30, 2016
Property, Plant and Equipment [Abstract]
Land	$ 165,101	$ 165,101
Buildings	262,786	262,786
Property and leasehold improvements	127,997	127,997
Real estate investment property, gross	555,884	555,884
Less: accumulated depreciation	235,680	230,539
Total real estate, net	$ 320,204	$ 325,345

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Fair value measurements - Narrative (Details) - USD ($) $ in Millions	Jul. 30, 2016	Jan. 30, 2016
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Long-term Debt, Fair Value	$ 724	$ 667

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Member's deficit - Narrative (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015
Schedule of Member's Capital [Line Items]
Distribution made to limited liability company (LLC) member, cash distributions paid	$ 0	$ (7,389)
Principal Owner [Member]
Schedule of Member's Capital [Line Items]
Limited liability company (LLC) or limited partnership (LP), members or limited partners, ownership interest (percent)	100.00%

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Related party transactions - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015	Jul. 30, 2016	Aug. 01, 2015	Jan. 30, 2016
Related Party Transaction [Line Items]
Related party base rent revenues	$ 26,000	$ 26,000	$ 52,000	$ 52,000
Tenant reimbursements, excluding discontinued operations	$ 3,000	3,000	$ 7,000	7,000
Early Lease Termination or Property Sale, Discount Rate	10.00%		10.00%
Early Lease Termination or Property Sale, Termination Payments, Related Parties		0	$ 0	2,000
Due from affiliate, net	$ 4,091		4,091		$ 3,627
Toys R Us - Delaware [Member]
Related Party Transaction [Line Items]
Management service fees			$ 1,000	$ 1,000
Maximum [Member] | Toys R Us - Delaware [Member]
Related Party Transaction [Line Items]
Management service fees	$ 1,000	$ 1,000