Archive for December 2008

Walgreens Reducing Store Openings

December 23, 2008

By Debra Hazel, GlobeSt.com

walgreens DEERFIELD, IL-Despite record sales and record store openings, Walgreens is reducing its new store openings by fiscal 2011, executives said at the company’s first quarter conference call.

Previously, the company had announced plans to reduce its planned store growth from 8% long term to 5% by fiscal 2001. That now has been reduced further to a projected 2.5% to 3% by 2011.

“The biggest reason for the change is that the economy continues to shift and change,” said Wade D. Miquelon, chief financial officer. “We may so more consolidation, so this gives us more flexibility. This is the single biggest value creation lever we can pull.”

The company will expand between 4% and 4.5% in 2010. In the last quarter, the company had opened 212 new units.

“We will continue to open new stores on the best corners and in the markets with the best returns,” said Gregory D. Wasson, president and chief operating officer. “We’re going to continue to invest, and find markets that make sense strategically.”

The move will save an additional $500 million in capital expenditures, some of which will be allocated to refreshing existing stores, including creating new merchandise presentations.

What will continue to expand is its Take Care Clinics and worksite health centers, which now total 661, and will have 800 locations by year-end.

Sales for the quarter rose 6.6% from the previous year to a record $14.9 billion, with comparable stores rising 1.7% in the quarter. Perhaps not surprisingly in the current economy, prescription sales rose 6.2%. Net earnings were $408 million, down 10.4% from last year.

Walgreens operates 7,035 locations (which includes 6,500 drug stores) in 49 states, the District of Columbia and Puerto Rico.

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Rite Aid closes more stores

December 19, 2008
By Ian Ritter , GlobeSt.com

Rite Aid

CAMP HILL, PA-Drugstore chain Rite Aid has closed 181 stores year-to-date, including 29 in its most recent quarter. Executives at the company said during their Q3 conference call to expect more of the same in the future.

Management is currently looking at its 4,900 units on a store-by-store basis, said John Standley, Rite Aid’s president and chief operating officer. “I do think there will be some additional stores closures,” he said. “You’ll see some clumps here and there as we work our way through it.”

Store closures were, in part, what led to the company’s $243.1-million net loss in the quarter, compared to a $84.8-million shortfall during the same period in 2007. Other charges leading to the loss were a result of underperforming stores and tax setbacks.

Same-store sales at Rite Aid were 1.4% year over year, rising 2.3% in the stores’ front ends and 1% in pharmacies. Total revenues were $6.47 billion, down from $6.5 billion in 2007’s Q3 because of 239 store closings in the last 12 months.

For the entire fiscal year, management expects same-store sales to rise between 0.5% and 1.5% year over year, down from a previous forecast of 1.5% to 3%, due to the tough economic environment. Net loss is forecast to come in between $593 million and $773 million, up from $445 million to $535 million.

Netleased Financing after the Near Zero Fed Rate cut!

December 17, 2008

Neil C. Efron, CCIM

10 year treasury 12-17-08: 2.12%; 1 month ago 3.38%, 6 months ago, 4.15%; 1 year ago 4.12%

5 year treasury 12-17-08: 1.21%; 1 month ago 2.41%, 6 months ago, 3.57%; 1 year ago 3.49%

Wall Street: At this point it is likely that the Wall Street conduits will be gone for at least the next 12 to 24 months if they ever return at all. Well Fargo continues to be the only lender still willing to do conduit oriented deals with non-recourse. The underwriting criteria have become more stringent and their upper limit of loan to value is only 65% versus 75% 2 months ago. They are still doing 2, 3 or 5 year fixed rate deals. Today the rates range from the mid 5% range for the 2 year deal, the upper 5% range for the 3 year deal and the upper 6% range for the 5 year deal. I purposely do not list the spreads. It is best to just focus on the overall interest rate. The debt coverage requirement is 1.30 times and 30 year amortization is relatively standard. Wells also now offers a program that will fix the interest rate at loan application with a 1% deposit with no hedge risk whatsoever. The premium on the rate is about 40 basis points though. The other Wall Street lenders like NATIXIS and CIBC are continuing to focus on larger (in excess of $15MM) short term floating transactions. For 65% loans the spread over LIBOR ranges from 500 to 600 (mid to higher 8% range), For 75% the spread has ballooned to over 800 (mid 9% or higher).

Life companies are effectively out of the market through the end of 2008. More life companies are reporting that there may be cash flow issues for investment in 2009. With the dramatic decrease in the value of their stock portfolio the percentage of real estate has grown beyond the targeted allocation and therefore they will have less money for real estate investment. They may not even have enough money for renewals in their own portfolio.

Credit Tenant Lease Transactions got even worse since the last newsletter but have started to recover somewhat. The levels though are not nearly what they had been before. Walgreen’s deals can get done today at an overall rate of 7.9% for a fully amortizing 25 year loan (it is a hefty spread and no where near the spreads of 250 from 3 months ago). GSA deals are getting done in the mid 7% range for long term lease deals. The good news is that the underwriting has not changed. There is no loan to value constraint and the debt coverage can be as low as 1.0 times.  GE Capital continues to be on the sideline.

FANNIE MAE AND FREDDIE MAC: Fannie Mae continues to be an active lender for multi-family product. Florida has been put on the Fannie pre-screen list which likely means maximum loan to value of 65% to 70% and debt coverage of 1.35 times. The overall spreads have increased in the past 60 days but the decrease in the US Treasuries mean that the 10 year rates are in the upper 5% to low 6% range. Freddie Mac is now only looking at deals $10MM and over.

Neil Efron, CCIM is the Senior Vice President at Atlantic Bank in Fort Lauderdale Florida and can be reached by email NEfron@BankAtlantic.com  or phone 954-940-5313.

10 Reasons why Sales / Leaseback is Good

December 13, 2008

By By Donald J. Valachi, CCIM, CPA as printed in CIRE Magazine

While sale-leaseback transactions may be structured in a variety of ways, a basic sale-leaseback can benefit both the seller/lessee and the buyer/lessor. However, all parties must consider the business and tax advantages, disadvantages, and risks involved in this type of arrangement before moving forward.

In the typical sale-leaseback, a property owner sells real estate used in its business to an unrelated private investor or to an institutional investor. Simultaneously with the sale, the property is leased back to the seller for a mutually agreed-upon time period, usually 20 to 30 years. >>>Read More

EZ Lube files for Chapter 11

December 13, 2008

ez-lube1
Santa Ana, Calif. (December 9, 2008) From Chain Store Age: EZ Lube is the latest retailer to fall victim to the economic downturn. The company said Tuesday that it filed for bankruptcy protection in U.S. Bankruptcy Court for the District of Delaware, along with its Xpress Lube-Tech affiliate, and put the company up for sale. >>> Read More

Waffle House not Affected by Franchisees chapter 11

December 10, 2008

By Carl Cronan of GlobeSt.com

Tuesday, December 09, 2008 –  NORCROSS, GA-Locally based Waffle House Inc., which has 1,500 never-closed restaurants throughout half the US, does not appear to be affected by bankruptcy filings by two of its major franchisees in the Southeast. Only a few of its iconic 1,400-square-foot yellow buildings have closed since the actions began in recent months.
SouthEast Waffles LLC, which owns 113 Waffle House units, filed for Chapter 11 reorganization in August after discovering what it termed as “accounting irregularities,” including nearly $3 million owed in federal income tax. The Nashville, TN-based franchisee is working with Atlanta-based Resurgence Financial Services LLC on a restructuring plan.

In September, Tampa, FL-based Northlake Foods LLC also filed Chapter 11 to halt Waffle House from kicking it out of the chain. Northlake has 125 restaurants, mostly in Central Florida but also in Georgia and Virginia. The company previously owned 146 restaurants and claimed annual revenue of approximately $80 million.

Executives at Waffle House’s Norcross headquarters decline comment on the pending bankruptcies. An attorney representing the company in both cases, Philip Martino of DLA Piper in Tampa, did not return a phone message before the weekend.

Retail observers say the bankruptcies of the Tampa and Nashville franchisees do not appear to have hurt Waffle House’s locations overall. The privately held chain, second-largest in the US behind Denny’s Corp., has 6,000 employees and annual sales of $750 million, according to the business information Web site OneSource.

Waffle House, which began near Atlanta in 1955, is famous for serving breakfast fare plus T-bone steaks and burgers around the clock every day of the year, including holidays. The chain has working jukeboxes in each of its 35-seat eateries, along with signature menu items such as “scattered, smothered and covered” hash browns.

Another Blow to Faltering 1031 Real Estate Industry

December 4, 2008

December 3, 2008

Mark  Heschmeyer- CoStar Group

Already stung by cases alleging massive embezzlements and a string of failures of 1031 exchange accommodators, now comes another major blow to the business of tax-free real estate exchanges. LandAmerica 1031 Exchange Services Company Inc., one of the stalwarts of the business and one that many investors turned to for stability has run out of money, closed up shop and filed for bankruptcy court protection.

LandAmerica Financial Group Inc., Fortune magazine’s number one Most Admired Company in the mortgage services industry in 2007, shut down operations of its LandAmerica 1031 Exchange Services. In addition, the parent company is being forced to sell its primary title insurance subsidiaries: Commonwealth Land Title Insurance Co.; and Lawyers Title Insurance Corp. >>>Read More