Sunday, August 16, 2009

"Cash Flow Kings" weekly post

Aug 16 2009

* Pardon our delay in posting this week(s) blog. Please don’t forget to click on our sponsors ads throughout this blog, so that we can continue to provide you this free information weekly.

So far from last weeks reading you should’ve…
Thought/or are thinking of the type of investor you are…

**You’ve probably decided that you are the type that just wants to make money.
Cash flow is fine, but you want to make money now!
You want to buy today and sell tomorrow for 1000% (one thousand percent profit)!

Sorry…but that’s very rare…Notice… I didn’t say impossible, but it is rare.

Some of you bought residential properties at the height of the market in 2005 and can’t sell it anywhere near what you paid, now you’re forced to hold the property (tune into future blogs for ideas and options, to hopefully remedy your situation & don’t forget to click on our sponsors Google Ads throughout this blog, so that we can continue to provide you this free information weekly).

A few of my commercial clients are in that same boat; however, because they bought commercial properties, the corporation that has the lease on those properties continues to pay the rent. They are receiving their money from that corporation by bank wire, on the 1st of the month, for the next 15+ years (after debt service) = $$$ Cash Flow!

Now let’s look at an actual deal that just came across my desk that is actually for sale:
Pep Boys
Austin, TX
7.25% Cap
Actual Deal
New 15 Year Absolute NNN Lease(1)
Annual 1.5% Increase(2)
Pep Boys Guarantee(3a)
Zero Landlord Obligations(4)
Irreplaceable Hard Corner Location(5)
Financing Available(6)
70% of the State’s Population within 2 Hour Drive of Austin, TX.(7)
Additional Locations Also Available Individually or as Portfolio

Pep Boys - Manny, Moe & Jack (NYSE: PBY) beat the average analyst estimate by 89 percent, according to Bloomberg data .

Pep Boys - Manny, Moe & Jack (NYSE: PBY) reported a first-quarter profit of $10.9 million, or 21 cents per share, compared with $4.7 million, or 9 cents a share, in the year-ago quarter .

Pep Boys - Manny, Moe & Jack (NYSE: PBY) posted a first-quarter profit that more than doubled from a year ago.

Now lets look at the price $3,137,260
**If you can get financing at 30% down then

Price $3,137,260- 941,178 Down payment = $2,196,082 to be financed.

Cap 7.25% [the cap rate is the Net Operating Income (NOI) divided by the sale price]
So, the NOI on this property is $227,451.00 or $18,955.00 per month paid to the owner by the corporation.

New 15 year Absolute NNN Lease (1) - Means not a dime out of your pocket for the next fifteen years of the lease.

Annual 1.5% Increase (2) – means the rent goes up 1.5% annually

Pep Boys Guarantee (3a) – Means that this is a Pep Boy corporation guaranteed lease for the next 15 years,

NYSE (3b) means that this is a public traded company on the New York Stock Exchange.
PBY (3b) – stock symbol for Pep Boys

Stock information below provided by Bloomberg.

PBY:US PEP Boys-Manny Moe & JackIndustry: Retail-Auto Parts
08/14 New York Currency: USD

Price - 9.110
Change - 0.820
% Change - 8.258
Bid - N.A.
Ask - N.A.
Open - 9.930
Volume - N.A.
High - 9.940
Low - 9.020
52-Week High - (07/01/09) 10.83
52-Week Low - (01/22/09) 2.62
1-Yr Return - 4.421%


Earnings Past 12 Months-0.240
Quarter Est. EPS (07/09) 0.15
Quarter Est. EPS (10/09) 0.03
Year Est. EPS (01/10) 0.18
Price/Earnings (Trailing) N.A.
Relative P/EN.A.
Earnings Growth Rate 155.400
Estimated P/E 55.500


Shares (Millions) 52.302
Market Cap (Millions) 476.475
Float (Millions) 47.415
Return on Equity - 6.808
Short Interest 3,966,943.000
Last Dividend Reported 0.030 Regular Cash
Dividend Yield (ttm)2.140
Relative Dividend Yield0.813


The Pep Boys - Manny, Moe & Jack retails automotive parts and accessories, provides automotive maintenance and service, and installs parts. The Company operates PEP BOYS stores in the United States and Puerto Rico.

Zero Landlord Obligations (4) - means just that.

Irreplaceable Hard Corner Location (5) - means corner lot at four way traffic intersection.

Financing Available (6) - means the listing company has a bank ready and able to provide financing to anyone qualified to do the deal.

70% of the states population within 2 hours drive of Austin TX (7) – means just that.

Additional Location(s) also available, individually or as portfolio - means that this property is being sold as a single property; however, others are available from the same seller.

Let’s look @ Cap Rates for a moment…

Cap rates 7.25% are negotiable, As cap rates go up, sale prices come down, so you would negotiate for the highest cap rate possible, as “the buyer” and the lowest cap rate possible, as “the seller”. The agreed upon cap rate between buyer and seller divided by the NOI $227,451.00 will determine the sale price.

Now… let’s take a look at the Memorandum (click link below)

Now let’s look at this deal again:

Calculate the NOI with Cap Rate
$227,451 divide 7.25% equal price $3,137,260.00
Loan in memorandum is based on 50% down $1,568,630
6% interest only, Loan payment of $94,118 pre tax cash flow $133,333.00
Cash on cash return 8.50% first year. Buyer to submit terms,
Pro Forma Assumes 50% Loan to Value 6% interest only financing.

Now if 30% down is $941,178 out of pocket then you will get a {“cash on cash”} return of 24% or you will see a 24% return on your $941,178.00 down payment.
That’s more than what a bank pays. Agreed? So far so good.
Finance $2,196,082
Term 20 years
Interest Rate 6.5% (If you can get this type of interest rate)
Payments would be $16,374 monthly or $196,481 Annually (Debt Service)
NOI $227,451 minus Debt Service 196,481= $30,970 Annual Cash Flow.
Plus rent bumps of 1.5% annually for the next fifteen years.
And four/five year options to stay.
Personally, on this deal I would negotiate a higher cap rate, but over all this could be a pretty good deal. Right?

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** The Author/publisher makes no representation or warranties with respect to the accuracy of completeness of the content(s) of this work. The advise and strategies contained herein may not be suitable for everyone or situation.

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