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Owning Real Estate Is Part of Restaurants' Value

Tickers in this article: BH BOBE CBRL COSI DENN FRS JACK LUB RT SONC WEN
NEW YORK ( TheStreet) -- As a value investor, I've long been fascinated by companies that own substantial amounts of real estate. Assets are a key component of value investing, for me anyway, and real estate can play a big role. In some cases, it may be raw land; in the case of restaurant names, it's land and buildings.

While owning land and buildings is certainly not an instant recipe for success as a restaurant investor, it can sweeten the deal. Since many of the companies I research and/or own have a value flavor, are in distress, or are trying to right the ship, it's important to know what is supporting book value; what owned assets might have some real value, could be of interest to potential acquirers, or could backstop the company in case of bankruptcy.

One of the calculations that I use in these situations is enterprise value to owned location, EV/OL, a homegrown calculation. This will not provide you with an apple to apples comparison across companies because all real estate is different and the value depends on quality, location and other factors.

While my EV/OL calculation cannot account for the many factors invoIved in assessing real estate, it can be used this as an indicator, a way of measuring the current value of a company solely on owned real estate. Keep in mind that the enterprise value calculation considers company debt, which is important because many names that own a lot of real estate may also have significant debt.

Take Cracker Barrel for instance. While it is not currently in distress, and has enjoyed an incredible run from less than $12 in late 2008, to $80. The company's real estate was a factor for me when I initially took a position. With a current enterprise value of $2.28 billion, the company owns 409 of its locations. That equates to an EV per owned location of $5.6 million. This calculation places no value on the business itself, future cash flow, or any other assets beyond real estate.