Friday, January 21, 2011

Pep Boys Said to Explore Possible Sale

Pep Boys - Manny, Moe & Jack, the Philadelphia-based auto-parts retailer, is considering a sale of the company and working with Bank of America Corp. to explore strategic options, said two people with knowledge of the matter. The shares rose the most in almost 10 years.

Pep Boys isn’t likely to run a formal sales process, and is trying to drum up interest among a handful of private-equity firms such as Leonard Green & Partners LP, Bain Capital LLC and TPG Capital, said one of the people, who declined to be identified because the process is private. Pep Boys tried unsuccessfully to sell itself in the past, the people said.

The company has renewed efforts to find a buyer as its earnings improve and private-equity firms seek takeover targets in retail, the people said. Founded 90 years ago, Pep Boys has more than 600 stores across the U.S. offering service and parts. It earned $23 million in the year ended Jan. 30 after four straight years of losses. In December, Pep Boys said profit for the first nine months of the year climbed 36 percent, bolstered by new tire centers and increasing customer traffic.

Pep Boy leases are absolute net leases, while Advance Auto generally signs a net lease that provides for the Landlord to be responsible for the maintenance of the roof and structure of the building. Generally speaking, Pep Boys utilizes a larger building footprint with six to eight service bays attached to the retail storefront. This is important for two reasons: 1) with a cost segregation study, Landlords are able to capture significant amount of accelerated depreciation and 2) Landlords have relatively large buildings and land parcels (17,000-22,000 sf buildings on a 2+ acre lots), which offer advantageous options for re-use and/or redevelopment.

The Pep Boys — Manny, Moe & Jack (NYSE: PBY), is an automotive service and retail chain. The Company is engaged in automotive repair and maintenance, and the sale of automotive tires, parts and accessories. Competitors include Advanced Auto Parts and AutoZone.

Net Lease Market

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