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Strategies & Market Trends : Value Investing
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To: Michael Burry who wrote (9739)1/26/2000 12:27:00 AM
From: James Clarke  Read Replies (2) of 78507
 
Interesting point on EBSC. In one sense, an operating lease is a future obligation which might be subtracted if you are considering liquidation value. But on the other hand, ask yourself what happens to an operating lease on a department store in liquidation. Lets say a department store operator has a lease for $20 a foot and market rents are $20. The landlord will break that lease and retenant the property, without a big concession. If market rents are $30, the landlord would probably pay you to break the lease, especially if you are an underperforming department store. What you have to worry about is if you are leasing space for $20 in a $10 market. I don't think that is what we are dealing with here.

Think of it as if you have a five year lease on an apartment. Depending on the relationship between the contract rent and the market rent, that lease could be either an asset or a liability.

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