Activist investors looking to real estate holdings of U.S. restaurant chains, such as Ruby Tuesday, Cracker Barrel, in belief that their real estate holdings might be more valuable than the underlying business
September 12, 2011
– The cheapest restaurants in America are enticing activist investors who are betting companies such as Ruby Tuesday Inc. and Cracker Barrel Old Country Store Inc. can earn more money selling their real estate than food, Bloomberg reported Sept. 12
The 10 largest U.S. restaurants that sell below the value of their property, plants and equipment trade at 70 cents on the dollar, according to Bloomberg data.
Investment firms including Biglari Holdings Inc., Carlson Capital LP and Becker Drapkin Management LP are pushing for board seats at restaurants with fixed assets that are 53% more valuable on average than the companies themselves as eateries have slumped twice as much as the Standard & Poor’s 500 index this year.
Ruby Tuesday has assets valued at US$1 billion, which is twice its market value.
Activist funds are looking to land and buildings owned by restaurants after the value of U.S. commercial property gained for a second straight month following the largest gain on record. Investors can still profit from the sale of real estate despite profits at restaurants being trimmed by rising food costs, as demand for commercial mortgage-backed bonds jumps to the highest-level since the credit crisis, Stifel Nicolaus and Co. said, Bloomberg reported.
Ruby Tuesday sells for the largest discount to its net fixed assets as the company’s valued has plummeted 44% this year to $459 million. Cracker Barrel exceeds its market capitalization by 16% after the company lost nearly a third of its value, with nearly $1 billion in land and buildings.
The valuation gap is encouraging investment firms that are looking to make fast money from property sales that could be used to repurchase shares or fund cash payouts, Stifel analyst Steve West. The sold real estate could then be rented back in a sale-leaseback arrangement, BGB Securities Inc. analyst Sam Yake said.
Investors are looking at land and buildings owned by eateries as property values recover from the bottom of the financial crisis. U.S. commercial real estate prices increased 0.9% in June for the second consecutive gain, Moody’s Investor Service reported last month.
The gain followed a 6.3% jump in May that was the largest ever recorded by Moody’s. Prices fell five consecutive months and hit an historic low in April.
The primary source of this article is Bloomberg, New York, New York, on Sept. 12, 2011.