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Pep Boys - Manny, Moe & Jack Message Board

  • buysell2025 buysell2025 Jul 18, 2010 8:18 PM Flag

    Pep Boys Real Estate

    The problem with the real estate holdings is that many of the sites are presently not liquid, and true value unknown. Many of the stores are not in the best retail locations so alternate users or development potential of the sites will not be easy to achieve. In the best possible real estate market several years ago no deal was to be had, so given the current market conditions anything other than more sale leasebacks (which will be self-limiting as they leverage the balance sheet)will be in question at best. I have heard the figure on this board that the real estate alone makes the company worth $10.00 per share. How does anyone know how to value this real estate? The value of 5 years ago is absolutely not the same value as today. Maybe one day the game will be on again but for right now I can't see it, no tenant demand, no buyer demand and very few companies in expansion mode. There needs to be demand for excess property to be sold off or leased after an acquisition.

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    • XQ---first off, AAP, AZO, ORLY and all the other top ten have done and will continue to do sales leasebacks. It makes your balance sheet look better not worse. Secondly, I have now realized that I did indeed go over your head. You have not kept up with my postings. I said about 2 months back that PBY real estate is worth about $750 million or 75% of what it was before. It has increased 20% since the trough. It was probably dowen to 50-60% at the bottom of the cycle. I think it will be worth $800-$900 million again in 12-18 months. I used the billion figure the other day because of the "expert" that said it was worth a billion. I think we both actually value the company about the same. DaninFW

    • U dont know what your talking about. Give them 3 years and they will be done. Mark this post!

    • PBY offers dual protection:

      1) In an inflationary environment, Pepboys' extensive real estate holdings get a boost and lift real book value.

      2) In a deflationary environment, people put off purchasing new cars and buy parts and service to keep their present car on the road.

      Not many stocks offer that today.

      • 2 Replies to flying_nobodaddy
      • I am totally confused!!!Is PBY in the real estate business or parts, tires and service business. It seems that this board is going back and forth on real estate holdings rather than PBY business model. You know, I don't see Autozone, O'Rielly's and others talking about how much real estate they have or own. Their business model is on servicing the public, having parts in the stores etc. They don't have to put real estate in the mix because they know how to do right and they have the right people running their business and have class act peronnel in the stores. Mean while, PBY has terrible upper management, lousy area and VP's managers, inexperienced store personnel and unqualified service technicians. PBY may have state of the art service centers and equipment, however the quality of work has alot to be desired. If investors are relying on real estate to bring this company back to profitability, I have some beach front property for sale in Arizona.

        Retail business is about having the the best in-stock position at a competive price, superior customer service, employee satisfaction and having experienced and qualified peronnel in both store and service center. And not hitting a home run everytime a customer visits the service department, that is if you want repeat customers and referrals.

      • ok, So which are we in now?

        XQ

    • Dan,

      We were talking about the value of commercial real estate and not to specific items on the balance sheet. I am fully aware how depreciation and amortization works both for and against a property owner. That is one reason why PBY should not be selling property as it becomes a taxable event. It is really stupid to sell property that is free and clear of mortgages and then turn around and buy back debt. They should refinance some of the properties at interest rates lower then the debt and then pay off the bonds.

      There actions suggest that they are trying to make there balance sheet look better by these real estate sales and lease backs. Remember that they will now incur payments to the new property owners.

      They may be showing a small profit now, but it will catch up with them. They are not growing the business as are other auto part retailers.

      XQ

      The bobble head commercial is really ignorant. Their ad should be focused on the quality of their services. The bobblehead thing only works for Cramer.

    • Again, info is on balance sheet and carried as deferred gains. It is currently over $162 million dollars gain just from previous sales......buy what you will. It didn't go over my head. I just simply disagree with you 100%. DaninFW

    • Dan,

      It seems that my post went right over your head. The commercial real estate business is not improving. It has been overbuilt. PBY real estate are niche use properties. That means the use is limited and if put up for sale it will not fetch top dollar or even fair market value. I would rather do lease buy back deals with CVS, Walgreen or a PNC bank. I know for sure that the buildings will have multiple uses.

      It would be nice to know what the actual cost of each building that PBY has sold versus the actual sales price received.

      http://www.lvrj.com/business/commercial-real-estate-prices-reaching-one-third-2007-rates-98267024.html

      http://econlog.econlib.org/archives/2010/01/commercial_real.html

      http://www.calculatedriskblog.com/2010/06/moodys-commercial-real-estate-prices.html

      XQ

    • It seems you know real estate but PBY is a cash flow machine because of depreciation and amortization. Cash flow was just under $49 million last quarter alone with no real estate sales. The more profitable PBY becomes the longer the lines for sale leasebacks. Granted they are having trouble putting together large package deals but they have been averaging about 2 a quarter even in this market. Once economy recovers in 6-12 months investors will be lined up. DaninW

    • Dan,

      The sad fact is that commercial real estate has dropped and it looks like it will again take another turn down. I have been in the business for 30 years. In areas with high residential defaults we are seeing higher commercial space vacancies and older buildings sitting on the market for longer time frames. PBY has not been exempt in the price decline of their real estate. Pick some PBY locations and then go to the tax assessors website for that area and review the assessment values.

      Most cash investors of lease back properties are looking for a minimum 9% return and even greater then that if the company has a less then a stellar performance, like PBY.

      It would be a poor business decision by PBY to sell properties into a depressed market. If they cannot find investments with a greater return then their monthly lease back payments plus taxes due on the gain; they will slowly drain their cash reserves. Any sale of property into this market is nothing more then an attempt to shore up the balance sheet to fool investors.

      XQ

    • They have been selling stores individually for about $3.5 million average each....several this year which is also average of big deals in the past. Multiply that by almost 250, add in warehouses and corporate offices and easily over a billion in today's market. PBY is signing 15 year leases on them. Minus half billion indebt you get $500 +/- million or $10 a share. Real easy math> DaninFW

      • 1 Reply to daninfw04
      • Dan,

        I am afraid it is not that simple. Cap rates have increased 30% in the last 5 years on commercial property, that is inversely related to value, the similarity in price on completed sales has to do with the leases Pep Boys would write on the lease back and then calculated on a cap rate. They can only write a lease for so much rent and still make money. As the underlying market value decreases because of market forces, the rents they pay will need to be adjusted or they will not be able to write leases and still find buyers. The sale leaseback game will only work so long as it makes sense for the buyers. 125 million for warehouses and offices.. I am not sure about. Do you know how many sq ft total they have in owned office/warehouse facilities?

 
PBY
10.91-0.11(-1.00%)Jul 23 4:04 PMEDT

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