A little more than a year after a trio of investors bought the struggling Toys ‘R’ Us chain for $6.6 billion, they have made their long-anticipated move to squeeze some value from the company’s real estate assets.

Last week Vornado Realty Trust, one of the three partners (Bain Capital and Kohlberg, Kravis, Roberts & Co. are the others) agreed to purchase up to 44 previously closed stores for up to $190 million. These properties comprise 1.8 million square feet and are primarily located in eight east coast states, Texas and California. Of these, 26 are leased or subleased to other retailers and 18 are currently vacant; 21 are owned, eight are ground-leased and 15 are space leased.

Vornado didn’t announce plans for the sites, but it is spinning the properties into a new subsidiary: Vornado Surplus 2006 Realty LLC, in a move that hearkens back to Vornado’s roots. In the mid 1990s, it bought Two Guys and Alexander's, shut down both chains and converted them to realty companies and redeveloped or sold off the real estate over a period of several years—which is what observers think Vornado has in store. The locations Vornado is getting are in dense markets with few opportunities for greenfield development.

Vornado did not return calls seeking comment.

The biggest question was not why Vornado, a Paramus, N.J.-based REIT with 58 million square feet of commercial real estate assets, made the move—which analysts predicted the day the deal was announced--but why it took so long.

“My guess is that when you have three partners at the table, doing anything is not that simple,” says Howard Davidowitz, chairman of Davidowitz Associates Inc., a national retail consultant and investment banking firm. (Davidowitz has served as a consultant to Vornado in the past.) “When [Vornado Chairman and CEO] Steven Roth does his own stuff he just sits there and makes his calls and that’s the end. But here things are a little more delicate.”

The new owners have been busy on other fronts, implementing a strategy to shrink the U.S. store count, grow the international business and expand the Babies ‘R’ Us sub-chain. The investors also recently brought in former Target Corp. vice chairman Gerald Storch as CEO At Target, Storch managed supply chain operation, technology services, financial services, and Internet divisions. The company has also formed a series of new strategic partnerships to improve its logistics, and re-think its online strategy. It also hired Ron Boire, Best Buy's former global merchandising manager, to bring the chain's offerings more in line with the digital age.

Britt Beemer, chairman and founder of America’s Research Group, thinks, however, that Toys’ best bet on the domestic front is to continue to cash in on Toys’ real estate and focus on growing the Babies ‘R’ Us chain.

“The hottest category is the video game category and once you get into that there are so many other retailers that have a bigger presence and do a better job than Toys does,” Beemer says. “Personally, I think the toy store industry is in big trouble. … Babies, on the other hand, has staying power because there is no one left competing with them and there is more than enough demand to serve them.”

Vornado could use a boost from redeploying the Toys-R-Us assets. In the year since the deal closed, its 32.9 percent stake in the retailer has been a drag on earnings; in three of the last four quarters Toys has posted net losses, restricting Vornado’s FFO gains. For Vornado’s third quarter, which ends Sept. 30, its results will include a Toys operating loss of $36.4 million, which will drag Vornado’s FFO down $0.18 per diluted share. As a result, it is estimating its FFO per share will come in at $0.92 per share for the quarter. That followed Toys losses of $7.8 million in the second quarter and $39.6 million in the fourth quarter of 2005. Only in the first quarter of this year was Toys’ impact positive—providing Vornado a net income of $52.8 million.

Investors, however, do not seem to regard the Toys problem as permanent: Vornado’s shares hit a new 52-week high on Wednesday of $111.63 per share in morning trading, up from $107.85, on Sept. 13, when the third-quarter loss was disclosed.

Since the merger, Toys has decreased its overall store count by about 100, to 1,400. It now operates 587 U.S. stores, down from 681 stores when the merger was announced. Meanwhile its international store count has risen from 601 to 651 and the Babies ‘R’ Us chain has added 26 locations to grow to 244 units.

In the U.S., however, Toys has dropped to No. 3, behind Target and Wal-Mart.. Davidowitz, who was a consultant to Toys ‘R’ Us in the 1980s, estimates its market share at 15 percent. That’s a stark change from the 1980s when it was the big boy on the block and grew to control 28 percent of the U.S. toy market.

In the latest quarter, international same-store sales dropped—for the first time since 2004—falling 0.4 percent. U.S. same-store sales dropped 0.2 percent, making the quarter its best since the acquisition. Babies ‘R’ Us outlets posted a 5.8 percent same-store sales increase.