Posted by DMC on October 01, 2003 at 22:35:45:
Another wonderful thing about the internet is I can get insight like this,
Thanks Ray!
DMC
NNN newbie - Posted by DMC
Posted by DMC on September 28, 2003 at 22:09:10:
I am towards the end of completing a 1031 exchange. I have found a couple of single tenant NN buildings leased to Movie Gallery and I am getting ready to enter a contract. I will be paying about $110.00 per sq ft for the 3900 sq ft buildings which are a couple of years old and in two small towns in Missouri. Building #1 has 3 years remaining on a 5 year lease and building #2 has 4 years remaining on a 7 year lease. Each lease has options to renew with 5% bumps. The deal has a 10.5% cap rate.There is some landlord responsibilty for roof, parking lot. Has anyone had any experience with this company? Is there any landmines ahead? I live about a 5 - 6 hour drive fron the properties. Thanks for any input.
Re: NNN newbie - Posted by ray@lcorn
Posted by ray@lcorn on October 01, 2003 at 21:02:42:
DMC,
I was just at an ICSC meeting last week where Movie Gallery made a presentation. They are aggressively expanding, projecting 140 new stores in '04, like free-standing as their first choice, and concentrate on smaller markets. Sounds like these buildings fit the game plan.
Their financials look to be healthy, lot’s of cash and little debt, but I couldn’t find a credit rating on their site or with Moodys or S&P. You might get a banker or loan broker experienced with CTL deals to look at the private rating services for a listing. They are on the Positive Growth list with Retail Maxim, a proprietary retail credit tenant rating service I subscribe to, and that usually means credit of about BBB, one peg above the level of not being a credit, but relatively strong for their segment.
Long term prospects for rental video are iffy… no one seems to have handle on what technology will bring in this biz. Just this week Disney announced a direct movie-on-demand service using TV bandwidth and a set-top box. That could do to rental DVDs what file-sharing has done to CD sales… or not. NetFlix has found a market niche with subscription DVDs, though their market share so far is miniscule compared to the stores. My personal opinion is that when widely available internet broadband meets improved video file compression technology, DVDs will go the way of the eight track… but that could take a while.
The consensus opinion seems to be that the rental video vendors will find a way to get their share, but no one but the vendors is betting a lot of money on them. And the vendors are hedging their bets… that’s why the short initial lease terms and internal focus on movie/games inventory ratios. The games are a large portion of their business, and could soften moves ala Disney’s MovieBeam.
At a 10.5% cap, the price reflects the short lease term and the uncertain future of the business. Depending on the raw land value and the tenant improvements, the price might be about $10 per foot over replacement cost, but I wouldn’t worry about it unless the site is impaired.
As with any single tenant building, know your market; evaluate the site and building for suitability for alternate uses (access, visibility, neighborhood, etc.); and read every word of the lease for any hidden outs by the tenant.
ray
Re: NNN newbie - Posted by Chuck
Posted by Chuck on September 29, 2003 at 10:28:32:
http://www.moviegallery.com/base.cgi?template=investor_relations
and then again… - Posted by ray@lcorn
Posted by ray@lcorn on October 01, 2003 at 21:10:16:
I meant to include this link to an alternate view of what the Disney MovieBeam may mean to the video biz…
http://www.thestreet.com/_yahoo/funds/smarter_up/10116177.html
I just love the internet… being online means you don’t even have to leave your chair to find another opinion!
ray