SHLDQ - Sears Holdings Corp

[tombgrt]

Could it also be 70% off? Or am I being silly? Just to get an idea..

[Luke 532]

Could it also be 70% off? Or am I being silly? Just to get an idea..

 

Given the demand as evidenced by quotes from Mathrani, Sokolov, Henry, and Lebovitz I would think 70% is a stretch. 

 

Haircut it by 50% and we're still looking at $1.88B which is nearly 40% of SHLD's cap.

[treasurehunt]

 

I don't want exact weight.  But is it a 30% slimming?  Oh, it might be 25%, or 35% -- roughly right is good enough.  Putting no discount at all just seems like pumping the value of the stock.

 

A 200lb woman can look fat, but if she loses 30% of bodyweight she might be hot at 140 lb.

 

Sure, take 35% off.  So that $3.76B is instead $2.44B... which is 50% of the entire market cap of SHLD on that 18.5M sq ft.

 

The 18.5 million sq ft mentioned by Morris -- is that owned by Sears or leased by Sears from SGP? Taking a quick look at SGP's 10-K, it looks like many of their properties are fully owned, so much of this area is probably leased by Sears. In that case, how can you get even a rough idea of the value without knowing the terms of the lease?

 

[krazeenyc]

Interesting given the square footage Sears has within SPG.  From Todd Sullivan...

 

Simon spokesman Les Morris said Sears has 119 stores with the company, and trails in the company’s portfolio only by Macy’s. “Sears has 18 1/2 million square feet with us,” Morris said.

 

Sears is just under 8% of $SPG total square footage.  Simon has a market cap of $47B so $SHLD ‘s 8% of that comes to $3.7B. now one can discount as they wish due to the upcoming spin of $SPG that will cause some of these properties to enter into either mall portfolio. This exercise is not to give a hard number on valuation but to illustrate what the market thinks (or the mall owners might) this space is worth based on its position in these portfolios.

 

 

http://www.valueplays.net/2013/12/27/sears-real-estate/

 

 

Doesn't the Sears square footage need to be converted to suitably sized mall space first before getting leased out at similar rates to what SPG is getting across it's portfolio?  I mean, presumably you don't just get full market lease rates in existing Sears big-box format.  It has to go renovation -- planning, permitting, construction, etc...  So if that process takes a couple of years (planning, permitting and construction)  you would want to discount the real estate for a couple of years.  Then if it takes dollars to pay the people for the planning, permitting and construction, then you'll need to knock those dollars off of the value as well.

 

It's hard to determine what the exact discount rate should be. I would think that Sears' SPG real estate would be stronger within SPG than it is within Sears. 

 

here is what we're discounting right?

 

1) Time to get the space rented out/renovated etc. 

2) Cost to renovate the space to maximize income.

3) Also the uncertainty with regards to leasing such a large # of sq ft of mall space.

4) Some of the spaces may not have wonderful lease terms.

 

SPG Market Value is $47 Billion + $23 Billion of Debt (Mortgage and Non). So SPG EV is $70 Billion x 8% = $5.6 Billion.

 

Assuming SPG Market Value is correct -- if they replaced Sears' under performing mall space with smaller stores/better performing stores, and stores that will help drive traffic to the mall -- that should in theory boost the market value of SPG. Right?

 

What's the right discount on based on this... who knows. Eric what do you think it should be?

 

But, at the end of the day, if Eddie Lampert weren't involved, I probably woudln't own SHLD.

[ERICOPOLY]

Eric what do you think it should be?

 

Higher than 0%.  Almost certainly higher than 10%.  I have no idea how much higher.  Could be 30%, or 40%, or 50%, or 20%!  Absolutely no clue. 

[krazeenyc]

Eric what do you think it should be?

 

Higher than 0%.  Almost certainly higher than 10%.  I have no idea how much higher.  Could be 30%, or 40%, or 50%, or 20%!  Absolutely no clue.

 

Of course. I also think it should be substantially higher than 10%.  In the end the question is at what % discount does it no longer make sense to own SHLD (based on all the negatives attached to SHLD).  I think even with a 50% discount you're in pretty good shape.

[bmichaud]

I'm in podunk St. Joe, MO for the week - population 70k, low income area. I see next to no evidence of general real estate stress. Was just in a strip mall type area probably half a mile long that had: Sam's, Wal-Mart, tjmaxx, Home Depot, bed bath and beyond, among other small shops. Parking lot was packed and traffic was miserable getting out of the general lot.

 

Obviously this is one random example on one random night, admittedly during a busy holiday week, but still. Just seems hard to believe there isn't strong demand for 400 high quality properties in areas far better than St. Joe Missouri.

[Sportgamma]

In reference to a discussion from a short time (but many pages) ago:

 

The Impact of Higher Interest Rates On Real Estate (when and if it happens)

http://www.thirdave.com/ta/documents/reports/Interest%20Rates%20Insights.pdf

 

But, all else isn’t equal. The second part of the answer to the big question is that the impact of rising interest rates depends on the property type, location and tenant lease terms. In order for property values to not decline, higher cap rates need to be offset by increased cash flow. For example, a property that generates $12 million of cash flow would be valued at $200 million using a 6.0% cap rate. At a 6.5% cap rate, the value would be only $184.6 million – a 7.7% decrease. The property would have to generate an additional $1 million of cash flow (an 8.3% increase) to offset the impact of the higher cap rate. The impact of leverage further magnifies higher cap rates. For instance, if the property was 50% leveraged with a mortgage, the 7.7% decrease in property value would result in 15.4% decrease in equity (or net asset value). The ability of commercial property owners to increase cash flow through rental increases depends on the length of lease terms for tenants in place, near-term lease expirations/renewals and current occupancy levels.

Property types with shorter lease terms, such as hotels (daily leases), apartments (annual leases), or industrial and retail properties (five-year leases) should fare the best over the medium term, as these property types are more likely to be able to increase rental rates, offset higher cap rates and keep pace with, if not exceed, the rate of inflation. On the other end of the spectrum, properties that are fully occupied by tenants with long term leases (e.g., office buildings) are likely to underperform in a rising interest rate environment. It may prove very challenging to increase rental rates at a fully-occupied office building with 10-15 year leases in place. This is a somewhat contrarian view, as these types of properties have been very popular in recent years and have been bid up in price based on their stable, long-term contractual cash flows.

[thinkpad]

 

I don't want exact weight.  But is it a 30% slimming?  Oh, it might be 25%, or 35% -- roughly right is good enough.  Putting no discount at all just seems like pumping the value of the stock.

 

A 200lb woman can look fat, but if she loses 30% of bodyweight she might be hot at 140 lb.

 

Sure, take 35% off.  So that $3.76B is instead $2.44B... which is 50% of the entire market cap of SHLD on that 18.5M sq ft.

 

The 18.5 million sq ft mentioned by Morris -- is that owned by Sears or leased by Sears from SGP? Taking a quick look at SGP's 10-K, it looks like many of their properties are fully owned, so much of this area is probably leased by Sears. In that case, how can you get even a rough idea of the value without knowing the terms of the lease?

 

I think this is the only relevant question about this subject.

[Luke 532]

A Visit To The Front Lines Of The Sears Holdings Cold War

 

http://seekingalpha.com/article/1919971-a-visit-to-the-front-lines-of-the-sears-holdings-cold-war?source=email_rt_article_readmore_button

 

Excerpt...

 

What did surprise me was my conversation with one of the - very capable and pleasant - associates, who said that the store is consolidating early next year into just the bottom of the two floors. I was told that the top floor was being rented to Dick's Sporting Goods and the auto center was being rented to a restaurant. Dick's is one of the retailers Simon Properties has mentioned in presentations as actively growing their big box footprint.

 

While investors have read in the past of similar redevelopments, with one-off subleases to Whole Foods or health clubs, there is no mention anywhere online of the King of Prussia location being redeveloped, nor is it mentioned anywhere on the Seritage website. The only reference I could find online was a YouTube video from a vintage elevator enthusiast who went to the store for one last ride on the 1983 Otis hydraulic elevator.

[ScottHall]

A Visit To The Front Lines Of The Sears Holdings Cold War

 

http://seekingalpha.com/article/1919971-a-visit-to-the-front-lines-of-the-sears-holdings-cold-war?source=email_rt_article_readmore_button

 

Excerpt...

 

What did surprise me was my conversation with one of the - very capable and pleasant - associates, who said that the store is consolidating early next year into just the bottom of the two floors. I was told that the top floor was being rented to Dick's Sporting Goods and the auto center was being rented to a restaurant. Dick's is one of the retailers Simon Properties has mentioned in presentations as actively growing their big box footprint.

 

While investors have read in the past of similar redevelopments, with one-off subleases to Whole Foods or health clubs, there is no mention anywhere online of the King of Prussia location being redeveloped, nor is it mentioned anywhere on the Seritage website. The only reference I could find online was a YouTube video from a vintage elevator enthusiast who went to the store for one last ride on the 1983 Otis hydraulic elevator.

 

That was a much better article than Bishop's.

[Evolveus]

I found this SHLD subsidiary link in the comments:

 

http://www.ubiquityce.com/

 

I may have overlooked it on this thread, but I haven't seen much discussed about this sub. Glad to see them seriously considering maximizing available space - even if it is a rooftop.

[Guest ajc]

Recent Reddit write-up on SHLD:

 

Alright, I know what you're thinking. Sears? The struggling retail business? No, here we are talking about Sears Holdings Corp.

Sears Holdings has struggle written all over it from its connection with the struggling retail business. Sears Holdings Corp has many great businesses and brands that contribute to the sales of the company.

SHLD is the owner of Sears (obviously), Kmart, Craftsman, Kenmore, Diehard, Lands' End, and many others and counting. These great brands are great for the company but that is not the important part. The negativity surrounding SHLD is what causes the undervalued price and this is one of the things that makes this a great long term investment.

I will go into depth of the many reasons that I highly recommend a buy for SHLD so let's get started...

 

http://www.reddit.com/r/SecurityAnalysis/comments/1tfvlm/i_did_a_little_write_up_on_shld/

[DCG]

Since when is K-Mart a great brand? It's an awful brand. Lands End, Kenmore & Diehard are mediocre brands.

[merkhet]

The reddit write up is pretty bad. Factually inaccurate even. A quick Google search would have shown that the short interest is not at 19 million.

[Guest ajc]

The reddit write up is pretty bad. Factually inaccurate even. A quick Google search would have shown that the short interest is not at 19 million.

 

I sort of figured. Thought I'd post it anyway, just in case there was even a little value in it that folks who knew more than me could extract. It seems there wasn't. My mistake.

 

Frankly, I found the comments section slightly more interesting than the post itself though that's not saying much either.

I'm pleading temporary insanity for the post due to current tech stock frothiness, a proliferation of Pinterest's/Mashable's as well as being off of my meds.

[racemize]

The reddit write up is pretty bad. Factually inaccurate even. A quick Google search would have shown that the short interest is not at 19 million.

 

I sort of figured. Thought I'd post it anyway, just in case there was even a little value in it that folks who knew more than me could extract. It seems there wasn't. My mistake.

 

Frankly, I found the comments section slightly more interesting than the post itself though that's not saying much either.

I'm pleading temporary insanity for the post due to current tech stock frothiness, a proliferation of Pinterest's/Mashable's as well as being off of my meds.

 

Yeah, I posted a few notes, and then the OP told me to go read the Berkowitz presentation...  I'm not sure why I even bother with posting on reddit.

 

It is good for finding new stuff to read occasionally, but don't like it for comments/discussion.

[ERICOPOLY]

My wife was watching the 'WE' channel a couple of nights ago.

 

Sears was running a commercial for apparel (jeans) on practically every commercial break.  Attractive ad  :)

[CorpRaider]

Did you see the Joe Boxer one with the guys shaking their "bells"?  Disturbing.  They have been absolutely carpet bombing the airwaves here.

[bmichaud]

Hahahahhahaha the bells commercial is beyond disturbing hahahha.

[Luke 532]

I like it when there are potential value-enhancing actions taking place that are undisclosed.

 

Here's one...

 

 

http://www.theglobeandmail.com/report-on-business/sears-joins-retails-real-estate-push/article12325885/

 

Sears owns roughly $900-million of real estate, according to a past estimate by retail analyst Keith Howlett at Desjardins Securities. It includes more than 10 owned stores, a number of distribution centres and joint mall holdings. But the retailer hasn’t disclosed all its property holdings in public filings, including the one at Burnaby, he said.

 

Here's another...

 

 

http://seekingalpha.com/article/1919971-a-visit-to-the-front-lines-of-the-sears-holdings-cold-war?source=email_rt_article_readmore_button

 

While investors have read in the past of similar redevelopments, with one-off subleases to Whole Foods or health clubs, there is no mention anywhere online of the King of Prussia location being redeveloped, nor is it mentioned anywhere on the Seritage website. The only reference I could find online was a YouTube video from a vintage elevator enthusiast who went to the store for one last ride on the 1983 Otis hydraulic elevator.

[phil_Buffett]

I like it when there are potential value-enhancing actions taking place that are undisclosed.

 

Here's one...

 

 

http://www.theglobeandmail.com/report-on-business/sears-joins-retails-real-estate-push/article12325885/

 

Sears owns roughly $900-million of real estate, according to a past estimate by retail analyst Keith Howlett at Desjardins Securities. It includes more than 10 owned stores, a number of distribution centres and joint mall holdings. But the retailer hasn’t disclosed all its property holdings in public filings, including the one at Burnaby, he said.

 

Here's another...

 

 

http://seekingalpha.com/article/1919971-a-visit-to-the-front-lines-of-the-sears-holdings-cold-war?source=email_rt_article_readmore_button

 

While investors have read in the past of similar redevelopments, with one-off subleases to Whole Foods or health clubs, there is no mention anywhere online of the King of Prussia location being redeveloped, nor is it mentioned anywhere on the Seritage website. The only reference I could find online was a YouTube video from a vintage elevator enthusiast who went to the store for one last ride on the 1983 Otis hydraulic elevator.

 

luke thanks for that. i like i too

[BTShine]

After considering the fall and rise of BBY, I was interested in reading what members here were saying about BBY back in late 2012 when the price was near $12 (now BBY is $40).  Though SHLD and BBY are different, I think there are some similarities....and, it's interesting to see how people talk about a company after it's price has crashed.  Definitely some frustration, fear and pessimism in late 2012.

 

 

Here's a link for those interested. 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/bby-best-buy/150/

[Luke 532]

Bad Axe Kmart store to close

 

http://www.michigansthumb.com/articles/2014/01/03/news/local_news/doc52c71c36ba89f306120622.txt

 

BAD AXE — A Sears Holdings official confirmed Friday that the Kmart store in Bad Axe will close its doors this year.

 

“Today, we announced that the Kmart store in Bad Axe will close to the public in mid-April,” stated spokesman Chris Brathwaite on Friday. “Until then, the store will remain open for customers.”

 

According to Brathwaite, the store — which has 61 employees — is closing because its lease was not renewed.

 

Brathwaite stated Sears Holdings is closing some Kmart stores as part of a series of actions it’s taking to reduce on-going expenses, adjust its asset base, and accelerate the transformation of its business model.

 

“These actions will better enable us to focus our investments on serving our customers and members through integrated retail — at the store, online and in the home,” he stated.

 

Of the 61 employees at the Bad Axe Kmart, eligible associates will receive severance and have the opportunity to apply for open positions at area Sears or Kmart stores, according to Brathwaite.

 

He noted most of the associates are part time and work on an hourly basis.

 

Huron County Register of Deeds Sheri Stanton said the Verona Township Kmart store is deeded to Fort Dodge Realty Associates, and the tax billing address is in Hoffman Estates, Ill.

 

County Treasurer Sherry Learman told the Tribune that Fort Dodge Realty Associates’ property taxes in 2013 were $82,809, and Kmart’s 2013 personal property taxes were $3,446.

 

Though the Bad Axe Kmart isn’t scheduled to close until some time in April, the store will begin its liquidation sale Jan. 12, according to Brathwaite.

[abitofvalue]

I had a question about Shop Your Way -  Why would it work with a smaller retail footprint? I understand that SHLD gets all sorts of great customer information through a loyalty program that SHLD can leverage through targeted marketing etc. But why would that reduce the retail footprint? Surely they can already tell what products sell and various other correlations between products. I seem to be missing why SYW allows lampert to reduce the retail footprint?

 

All these statistics about XX% of our sales are now to SYW customers etc just seem like the kind of meaningless statistics that if some non-Lampert led management team tried to highlight - investors on this board would lampoon and call bullshit on.. The way I see it is having a shop your way membership is free similar to at most grocery stores so really not that different than a CVS, or Domincks card.  You sign-up (at the register if necessary) and get a few dollars of your purchase. Once you sign-up, you get "member" pricing but does this really drive sales? Maybe I am completely misunderstanding the American consumer but I can't imagine a lot of people are consciously picking the store they shop at based on the points earned on these programs. Heck half the time the cashier will just swipe some card they have behind the counter to make sure you get the deal if you dont have yours on you. 

 

Isn't SYW in some ways just an effort to build something that's similar to an airline rewards program.  You can rewards points at all these retailers (Burger King etc..) and use rewards points at Sears/Kmart.  This is kind of similar to Tesco's clubcard but Tesco used the information gleaned to better market and grow its retail footprint. The information that Tesco gleaned was used to micro-target consumers and reward customers with vouchers that could be used in stores to pay for items.  This was extremely innovative in the 90's when Tesco introduced it but is pretty much par for the course with retailers today.  SYW is then not an innovative way to make Sears into a cutting edge retail company but merely playing catch-up to join the Target's of the world in becoming a 21st century retailer.

 

The huge investments in SYW suggest that Lampert is NOT doing a slow liquidation of Sears Real Estate. Will he close stores along the way - sure, but I think anyone expecting the megadeals like Todd Sullivan implies in his posts is really just speculating at this point.  Lampert seems to be making another push at saving retail - closing unprofitable stores, trying to right-size the business etc but very much implementing a turnaround.  I suspect most of the cash that will be generated by various spin-offs etc will be used to try and revitalize Sears / K-mart.