I'd subtract these leases in getting to net-nets for retail companies like EBSC. My reasoning is that I figure the retailers can muddle through when the economy is good, people are working and confident, and therefore buying. But with downturn in economy, retail sales are curtailed and imo, so is demand by businesses for office/retail space. Therefore market value of leases is down. So just at the point when the investor might look at a retail business as an investment (when retail stocks are cheap and the economy is bad), those lease obligations are a severe burden on the
retailer. In good or normal times it doesn't matter, as you say, and maybe now for EBSC it doesn't matter either. But imo, subtracting the lease obligations is the more conservative way to go. Especially, I'd say, if someone were trying to value the business as an ongoing entity or otherwise trying to pick the "best" net-nets. Maybe Prof. Graham, who would take a basket approach and maybe advise the amateur "defensive" investors to keep it simple, would say it's not practical for the average investor to do this evaluation - so just ignore it unless it can be seen that the lease obligations are overly onerous? Or maybe just skip on by such companies.
Paul |
