SHLDQ - Sears Holdings Corp

[nestorius]

You guys may be talking past one another. I think that the author meant redevelopments including both leases to other department stores and redevelopment into commercial office building space. So, on average, they'd get to $30 per square feet. FWIW, I don't think that the office building redevelopments are being run out of Seritage, but I may be mistaken.

 

Yeah, I think we are. Unfortunately I can't add much data on the capital requirements vis a vis capex / TIs for redeveloping a box into specialty stores or office (other than that they are significant), or the approvals required if the box is under ground lease. Department stores are definitely the simplest and cheapest on that basis.

[heth247]

More redemption coming...

 

Dow Jones: Clients in Lampert's fund make further redemption requests

 

    Goldman Sachs clients who invested $3.5B in Eddie Lampert's hedge fund back in 2007 have asked to redeem their money, Dow Jones Newswires reports.

    If the fund faces a slew of redemptions, Sears shares may be susceptible to the exogenous risk that draw downs of the fund lead to continued share selling. Forbes speculated yesterday that ESL Investments may have been hit by at least $400M in end-of-year redemption requests, leading it to distribute 7.4M shares on Wed. The Jenga-esque scenario could bode poorly for other shareholders.

    Shares (SHLD -0.4%) have pared a bounce earlier in the day after falling 9.1% yesterday.

 

 

[Luke 532]

More redemption coming...

 

Dow Jones: Clients in Lampert's fund make further redemption requests

 

    Goldman Sachs clients who invested $3.5B in Eddie Lampert's hedge fund back in 2007 have asked to redeem their money, Dow Jones Newswires reports.

    If the fund faces a slew of redemptions, Sears shares may be susceptible to the exogenous risk that draw downs of the fund lead to continued share selling. Forbes speculated yesterday that ESL Investments may have been hit by at least $400M in end-of-year redemption requests, leading it to distribute 7.4M shares on Wed. The Jenga-esque scenario could bode poorly for other shareholders.

    Shares (SHLD -0.4%) have pared a bounce earlier in the day after falling 9.1% yesterday.

 

Might hurt the short-term stock price (depending on when those redemption requests need to be honored), but gives Lampert all the more reason to close ESL and focus solely on SHLD as his permanent investment vehicle.  Close up shop already, Eddie! 

[AchilliesValue]

Here's a contrarian view...

 

$30/sqft rent is a big number for a department store and particularly SHLD. A reasonable rent coverage that a REIT investor would look for is 2x 4-wall EBITDAR. I estimate SHLD in its present form is generating $12/sqft in 4-wall EBITDAR (EBITDA+R+advertising exp) which suggests $6/sqft NOI. The typical North American department stores can do $200/sqft in revenue at maybe a 20% 4-wall margin, for $40/sqft EBITDAR and $20/sqft NOI.

 

The unlevered cap rate on a triple net basis for a captive single-tenant REIT would likely be closer to 8 or even 9% on IPO. REIT cash flows would be standing behind the creditors of SHLD who are charging 8.5% to 2018.

 

On a 8% cap rate value is $6 x 18m / 8% = $1.35bn.

 

I wouldn't assume that all of Seritage's business would be done with other department stores, although the most recent deal was with Nordstrom's.

 

It was Nordstrom's Rack not a full department store.  They're outlet / clearance stores.

[nestorius]

So for outlets, productivity a bit higher, maybe $300/sqft, margins about the same at 20% 4-wall EBITDAR... $60/sqft EBITDAR, in this case $30/sqft NOI makes sense.

[muscleman]

More redemption coming...

 

Dow Jones: Clients in Lampert's fund make further redemption requests

 

    Goldman Sachs clients who invested $3.5B in Eddie Lampert's hedge fund back in 2007 have asked to redeem their money, Dow Jones Newswires reports.

    If the fund faces a slew of redemptions, Sears shares may be susceptible to the exogenous risk that draw downs of the fund lead to continued share selling. Forbes speculated yesterday that ESL Investments may have been hit by at least $400M in end-of-year redemption requests, leading it to distribute 7.4M shares on Wed. The Jenga-esque scenario could bode poorly for other shareholders.

    Shares (SHLD -0.4%) have pared a bounce earlier in the day after falling 9.1% yesterday.

 

Might hurt the short-term stock price (depending on when those redemption requests need to be honored), but gives Lampert all the more reason to close ESL and focus solely on SHLD as his permanent investment vehicle.  Close up shop already, Eddie!

 

Do you know if Lampert is holding his personal stocks in a margin account or a cash account? If he holds the stocks in a margin account, then things could become very bad all of a sudden.

[heth247]

Do you know if Lampert is holding his personal stocks in a margin account or a cash account? If he holds the stocks in a margin account, then things could become very bad all of a sudden.

 

I suppose only crazy CEO like Aubrey McClendon do that...

[no_free_lunch]

If you ask me, Sears should go the real estate route. It may take a long time, but shareholders should see some tangible benefits over time. Consider Seritage Realty Trust, the new company within Sears that holds 200 properties (or about 10% of the total). According to the Seritage web site, those properties control about 18 million square feet of space. Let’s assume they are redeveloped and can generate $30 per square foot, on average. That equates to $540 million of annual net operating income. If Seritage was IPO’d it could be worth about $8 billion (at a 7% cap rate). That is why Sears shareholders have a margin of safety in the stock and why it is not going bankrupt.

 

Another way to look at it, is to compare it to another REIT.  Not sure how comparable they are but Kimco realty has 125 million square feet and a market cap of $8.5B.  Against that, 18 million at $8B seems very aggressive.

[BTShine]

Kimco also has $4.4 Billion of debt that should be included in the value of their real estate.  Mkt Cap + Net Debt - Cash = Enterprise Value

 

Enterprise value is what we should look at when trying to value comparable REIT's. 

 

Kimco's enterprise value is approx. $12.5 Billion.

 

 

[AchilliesValue]

That's one of the ways I put a guesstimate on the property value.  I stole the idea from the slide in Bruce's presentation where he basically lays it out for you comparing the market value / Sq Ft of SHLD vs SPG, GGP, and KIM.  Last December, when I last looked KIM had the lowest EV / Sq ft of ~$60.  Now obviously that number is probably way too high to think about relative to SHLD.  They're making money on their leases, SHLD is not primarily because they have a large crappy tenet (themselves). I thought about using those numbers and then somehow weighting it by comparing the Sales / Sq Ft of the tenets but never got around to it to be honest.  I think the other acceptable ways to look at it are to keep a running tally of disclosed sales / sq ft and to look at tax assessments vs sq ft.  In my opinion the tax assessments would be the "low" case because if a property is worth less do you think a guy like Lampert isn't going to get it reassessed?  At the time I thought the running tally would be the "mid" case though that might have changed with recent sales.  And I used the Comps as the "high" case. 

[20ppy]

5000 call options opened today

[BargainValueHunter]

Land's End spin-off announced.

 

http://www.sec.gov/Archives/edgar/data/1310067/000119312513464161/d641256d8k.htm

 

On December 6, 2013, Sears Holdings Corporation (the “Company”) issued a press release announcing the initial filing by Lands’ End, Inc. of a Registration Statement on Form 10 with the U.S. Securities and Exchange Commission in connection with the Company’s previously announced consideration of a separation of its Lands’ End business.

[Luke 532]

It's impressive how much Lampert has done in 2013 compared to the many years prior.  Store closures ramping up, Seritage kicking into gear, pension liability to be reduced meaningfully (reflected in financials at year-end, granted this is more due to interest rates than Lampert), Lands' End spin-off, effectively winding down ESL (less companies owned and partners leaving), generating $2B in liquidity vs $500M goal, etc.

 

I understand this has been a very frustrating investment for many since 2004, but it seems pretty darn clear to me that Lampert is done messing around and is in aggressive (relatively speaking) monetization mode.

[Luke 532]

No, I'be always thought that the assets have value, but they were too slow in monetizing them.  Instead, a lot of value was eaten up by continuing losses from the department store business.  I think that portion of the business in many markets is doomed.  Sears scaled down department stores will still do reasonably well in more rural under-served communities, but there is too much competition elsewhere.  The other aspect is how much are those assets worth when monetized, relative to the remaining liabilities of the company, including debt and pension liabilities?  I think you could easily double your money if they work quickly, efficiently, and cut operating losses.  Cheers!

 

Sanjeev, I'm curious if you have any follow-up to this comment made back in July.  It seems Lampert has been fairly quick and efficient this year in monetization efforts.  Your thoughts?

[phil_Buffett]

what can actual shareholders expect from this spinoff? whats the probably number that we get from this spin off?

 

i ask a Little bit stupid sry for this  ;D. my question is, do shareholders get lands end Shares directly? or do they only have the right to buy some? a Little bit confusing right now for me.

 

 

[krazeenyc]

what can actual shareholders expect from this spinoff? whats the probably number that we get from this spin off?

 

i ask a Little bit stupid sry for this  ;D. my question is, do shareholders get lands end Shares directly? or do they only have the right to buy some? a Little bit confusing right now for me.

 

According to the filing SHLD shareholders will get shares directly.

 

Anyone find it interesting that Lands End derives zero/negative ebitda from their retail locations? Of course they will be entering into an agreement to rent out all the Lands End stores in Sears..I also wonder what kind of terms they'll negotiate.

[phil_Buffett]

what can actual shareholders expect from this spinoff? whats the probably number that we get from this spin off?

 

i ask a Little bit stupid sry for this  ;D. my question is, do shareholders get lands end Shares directly? or do they only have the right to buy some? a Little bit confusing right now for me.

 

According to the filing SHLD shareholders will get shares directly.

 

Anyone find it interesting that Lands End derives zero/negative ebitda from their retail locations? Of course they will be entering into an agreement to rent out all the Lands End stores in Sears..I also wonder what kind of terms they'll negotiate.

 

thanks krazeenyc  :)

[merkhet]

 

According to the filing SHLD shareholders will get shares directly.

 

Anyone find it interesting that Lands End derives zero/negative ebitda from their retail locations? Of course they will be entering into an agreement to rent out all the Lands End stores in Sears..I also wonder what kind of terms they'll negotiate.

 

 

krazeenyc, where are you finding this information?

 

Also, out of curiosity -- when a company pays a cash dividend, short sellers are liable for paying the dividend out to those from whom they've borrowed shares. In a spin-off situation, are the short sellers liable for buying shares to deliver back? Or are they just short both stocks at that point.

[krazeenyc]

 

According to the filing SHLD shareholders will get shares directly.

 

Anyone find it interesting that Lands End derives zero/negative ebitda from their retail locations? Of course they will be entering into an agreement to rent out all the Lands End stores in Sears..I also wonder what kind of terms they'll negotiate.

 

 

krazeenyc, where are you finding this information?

 

Also, out of curiosity -- when a company pays a cash dividend, short sellers are liable for paying the dividend out to those from whom they've borrowed shares. In a spin-off situation, are the short sellers liable for buying shares to deliver back? Or are they just short both stocks at that point.

 

http://www.sec.gov/Archives/edgar/data/799288/000119312513464144/d632333dex991.htm

[FCharlie]

I guess Lands' End is now the largest tenant of SHLD.

 

Master Lease Agreement and Master Sublease Agreement

 

In connection with the spin-off, Lands’ End and Sears Roebuck expect to enter into a master lease agreement and a master sublease agreement pursuant to which Sears Roebuck will lease or sublease to us the leases for the premises of Lands’ End Shops at Sears where the lease for such store permits the subletting of the lease or where Sears Roebuck is able to obtain landlord consent to such assignment or sublease. The master lease agreement and master sublease agreement, as applicable, will set forth the terms and conditions on which we will be permitted to occupy certain space within the Sears stores in order to operate our Lands’ End Shops at Sears in such locations. The agreements will provide us rights to use the space in which our store will operate and we will pay rent directly to Sears Roebuck on the terms negotiated in connection with the spin-off.

[merkhet]

 

According to the filing SHLD shareholders will get shares directly.

 

Anyone find it interesting that Lands End derives zero/negative ebitda from their retail locations? Of course they will be entering into an agreement to rent out all the Lands End stores in Sears..I also wonder what kind of terms they'll negotiate.

 

 

krazeenyc, where are you finding this information?

 

Also, out of curiosity -- when a company pays a cash dividend, short sellers are liable for paying the dividend out to those from whom they've borrowed shares. In a spin-off situation, are the short sellers liable for buying shares to deliver back? Or are they just short both stocks at that point.

 

http://www.sec.gov/Archives/edgar/data/799288/000119312513464144/d632333dex991.htm

 

Thanks!

[Lance]

 

According to the filing SHLD shareholders will get shares directly.

 

Anyone find it interesting that Lands End derives zero/negative ebitda from their retail locations? Of course they will be entering into an agreement to rent out all the Lands End stores in Sears..I also wonder what kind of terms they'll negotiate.

 

 

krazeenyc, where are you finding this information?

 

Also, out of curiosity -- when a company pays a cash dividend, short sellers are liable for paying the dividend out to those from whom they've borrowed shares. In a spin-off situation, are the short sellers liable for buying shares to deliver back? Or are they just short both stocks at that point.

 

Merkhet - In a spin-off situation the short sellers would be short both stocks.

 

Thanks

Lance

[merkhet]

Thanks Lance.

[FCharlie]

Lands' End profitability is pretty weak the past couple years.

 

I wonder is SHLD will be more profitable w/out them as an operating business but rather as a tenant.

 

 

[alertmeipp]

Makinf something out of nothing?