Retailers With Real Estate

By now, it may seem as though the bloom is off the rose in terms of the major, household-name retailers that actually own some of their stores and the land beneath them. It might be common knowledge that Sears (SHLD - commentary - Cramer's Take), Target (TGT - commentary - Cramer's Take) and McDonald's (MCD - commentary - Cramer's Take), to name a few, have substantial real estate portfolios, but it doesn't take anything away from the stories of any of these companies.

It's one thing in this day and age to have a retail business; it's quite another to not only own the business but the land and buildings as well. In the perfect scenario, shareholders own the present value of future cash flows and a portfolio of commercial real estate that could have incredible value that may not be reflected in the current share price. This may also present such companies with opportunities down the road to monetize their real estate holdings.

Those that don't own their real estate typically employ operating leases, which don't show up on a company's balance sheet -- you can, however, find this information in the notes -- and are more or less debt, in my opinion. I've got to admit, the first time I look at an unfamiliar retailer's financials, I start at "Item 2: Properties" in that company's 10K, which usually gives just about all that you need to know on the real estate front.

Although leases are now the norm, there are still retailers (restaurants included) beyond the major players that own significant real estate. These companies are often on the smaller side and often have significant debt. While real estate holdings certainly don't guarantee investment success, especially if debt is significant, they can sweeten the deal if you are in search of companies with real assets.

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At the time of publication, Heller was long Cracker Barrel and Pep Boys.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, a fee-only financial planning he recently launched. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.