SHLDQ - Sears Holdings Corp

[Guest wellmont]

obviously a long shot (it'd be a 150% return in a month lol) but what i don't understand is how he is able to buy these back and reduce the size of the amount outstanding and destroy liquidity for holders?

 

I never looked at these closely, had never noticed they all used to be bigger issue sizes. i'm sure if i went through the 10-k's with more carefulness i'd see them getting smaller every year.

 

because he doesn't care about "liquidity" of holders of his bonds or common. and on this I have to agree with him. it's not his job to ensure liquidity of the holders. I think it is his job to communicate a coherent strategy so that his constituents can make informed decisions. but esl disagrees with me on that.

[Guest wellmont]

I don't see him redeeming them early. Right now every dollar of cash is precious so the upside for him to do that is minimal. Now, if 24 months from now SHLD is miraculously free cash flow positive and can issue long term debt at lower rates than 7% as a result, then refinancing them early could make a lot of sense. But that seems to be a long shot.

 

yep this is low cost debt for a company in the shape of sears holdings.

[Guest wellmont]

Yes, I'm sure he was opportunistically buying when the stock fell hard in 2011 and sold most when the stock (and presumably the debt) rallied back.

 

Definitely something to watch though. He won't dare bankrupt SRAC as long as the latest disclosures shows him owning its debt personally... selling it between 10K's without a disclosure and then forcing it to default would open him up to a big lawsuit...

 

I agree that it does not make sense default SRAC for now. But if has been 10 months since Feb, so he certainly could have already sold those remaining notes without disclosure, could he not?  Or, he could have bought more since it is 55c on a dollar....  Does SEC require disclosure for such transaction?

 

No, he'll update the 10K every year and that's it. And we don't know which SRAC debt owns either. The longer term debt trades at distressed priced, but the 2017 debt trades around 90 cents (FD: I own the latter).

 

but don't they get the same recovery?

[thepupil]

uggghh sorry, i feel like my last few posts have been idiotic and are bordering on spamming. i'm going to give it a rest and allow others to contribute to what non-SHLD devotees must consider to be the most overly verbose thread in COBAF's history. 

 

what i'm trying to understand  are possible scenarios to get rid of SHLD's liabilities  but i have no corportate bond experience and it's all pretty complex.

 

if SHLD has 100MM of liabilities trading at 40 cents on the dollar and a 17% cash yield (higher YTM), why wouldn't they buy them back and retire them if they haven't already? if they bought them back before, judging by the difference bonds originally and currently outstanding, then couldn't they do so now?

 

they just raised a ton of money and what better use than that? is it liquidity? is it because the

 

i just don't understand but in the end it won't change the big picture stuff so maybe i shouldn't worry about....

 

Also 17% yield is kind of crazy. Use a few years of carry to get you down to a very low % of par and even if there is a bankruptcy, your recovery will probably not be 0 so you may come out in a good place. I don't know.

 

oh and about the liquidity thing, i'm just surprised the bonds allow him to do that. I know he doesn't care.

 

[Guest wellmont]

Wellmont, I found your long SRACs! And dug deeper into the SRACs generally to learn some more.  The longer maturities  (2042 + 2043) are also called preferred stock under bloomberg nomenclature and don't show up on IB for some reason. The 7.4% coup 7.0% coups do seem to trade around 40 cents on the dollar  ($10 / $25) so they offer 17+% yields (can you confirm the coupon payments?).

 

Interestingly, they are callable on 1/10/2014, so if they got called you'd see quite the appreciation in these bad boys. It would not cost the company must since there are is only 90MM par value of  bonds left, but obviously it's in the best interest of the company to just buy them back at a discount. That would be the ultimate odd lot tender!

 

More interestingly, these are almost gone. If you look on the BB screen shot, there used to be 10MM outstanding and there are only 1.8MM now. They are being tendered for already. there used t be 250MM par value in each of the 2042 and 2043 classes.  It looks like par value of the other SRACs has been diminished as well (all the issue sizes are odd numbers and below 50MM) .

 

I did not realize that Eddie was already buying these back. I always thought they traded at such low $ prices and high yields because the market was saying they don't have any real rights and that they would be worthless in a BK, but that thinking could be misguided if SHLD deems it worthwhile to buy these back. 

 

Anyone besides Wellmont own these? With all the liquidity coming in to SHLD, maybe the SRACs will be gone soon. It's only 330MM in a big cap structure so it is not really consequential in the big picture, I guess. But it could be consequential for those who own them.

 

I think they tendered for these back in early 2005 as part of refinancing of kmart/sears merger. what's left are the holdouts. That was almost 9 years ago. Eddie is not retiring the ones I hold.  He retired some srac debt in 2009 when it was probably trading at 30c on the dollar. I bought mine in 2008 at lower prices and they pay like clockwork. He has no incentive to retire this debt. He has more incentive to retire the debt due in 2018.

[peridotcapital]

Yes, I'm sure he was opportunistically buying when the stock fell hard in 2011 and sold most when the stock (and presumably the debt) rallied back.

 

Definitely something to watch though. He won't dare bankrupt SRAC as long as the latest disclosures shows him owning its debt personally... selling it between 10K's without a disclosure and then forcing it to default would open him up to a big lawsuit...

 

I agree that it does not make sense default SRAC for now. But if has been 10 months since Feb, so he certainly could have already sold those remaining notes without disclosure, could he not?  Or, he could have bought more since it is 55c on a dollar....  Does SEC require disclosure for such transaction?

 

No, he'll update the 10K every year and that's it. And we don't know which SRAC debt owns either. The longer term debt trades at distressed priced, but the 2017 debt trades around 90 cents (FD: I own the latter).

 

but don't they get the same recovery?

 

They get the same recovery, but you have to wait an extra 25 years and who knows what SHLD looks like in a couple of decades. You might make 13% YTM instead of 10% YTM but you have to be keen on very long-dated debt in a low-rate environment and be willing to wait that long.

[Guest wellmont]

no i mean in a bk scenario are they pari passu with the shorter term debt? if so the longer dated stuff is mispriced. not sure how you get your 13% ytm.  at 40c on the dollar the current yield is 17.5%.

[krazeenyc]

How does everyone's view change on owning the equity right now if Eddie Lampert can spin off the following out of SHLD to shareholders without substantial debt attached.

 

1) Land's End

2) Seritage

3) Sears' Auto

4) KCD

 

Having to distribute retained earnings was one of the biggest obstacles to spinning off the REIT. Now there are no retained earnings to purge :D.

 

[peridotcapital]

Not sure how long this has been the case (it wasn't the last time I looked), but on the Seritage web site they now list most (over 150) of the 200 properties they are managing and have flyers posted for each one showing number of planned spaces, square footage, etc.

 

If you happen to live near any of these, it would be interesting to drive by and snap some photos to see if development has started on any of them. There aren't any in Seattle for me to check, but the best mall in Portland (I frequented it a lot when I lived there recently) is listed so next time I am there I plan on checking it out.

 

I apologize if these have been listed online for a while and I just missed them (last time I checked there was limited info other than the St Paul, MN artist renderings, etc). Since Eddie won't even mention Seritage in any SHLD corporate filings this list is pretty in-depth for us to look at. I'm not sure if I will put in the time or not, but this makes it far easier to come up with a projected value for Seritage since we have an idea where these locations are therefore what kinds of rents they could possibly expect.

[krazeenyc]

Not sure how long this has been the case (it wasn't the last time I looked), but on the Seritage web site they now list most (over 150) of the 200 properties they are managing and have flyers posted for each one showing number of planned spaces, square footage, etc.

 

If you happen to live near any of these, it would be interesting to drive by and snap some photos to see if development has started on any of them. There aren't any in Seattle for me to check, but the best mall in Portland (I frequented it a lot when I lived there recently) is listed so next time I am there I plan on checking it out.

 

I apologize if these have been listed online for a while and I just missed them (last time I checked there was limited info other than the St Paul, MN artist renderings, etc). Since Eddie won't even mention Seritage in any SHLD corporate filings this list is pretty in-depth for us to look at. I'm not sure if I will put in the time or not, but this makes it far easier to come up with a projected value for Seritage since we have an idea where these locations are therefore what kinds of rents they could possibly expect.

 

Peridot (Chad?)

 

Do you know anything more about their real estate at Costa Mesa as part of South Coast Plaza. They've subleased part of the store to Forever 21, but supposedly they actually own 1/3 of that entire mall (I've seen the original loan docs, it seems that they do -- but I don't know the details).  Any way to get more info on that? Sales in that mall over over $1000 per square foot. They were original owners from back in the late 60s.

 

I do know that the Westfield's Clearwater Countryside Mall in Florida is on the Seritage website -- Whole Foods is moving into the Sears at that location 38,000 sq foot store (they'll have their own entrance of course -- like the other Whole Foods in Sears) - they should be opening spring of 2014.

 

obviously the Janns Marketplace mall where the Nordstroms Rack is opening is also on Seritage - scheduled to open 2015.

 

The Colonie Center Mall in Albany NY is on Seritage, and a Whole Foods will be opening there 32,000 sq ft store opening also spring 2014.

 

[Parsad]

How does everyone's view change on owning the equity right now if Eddie Lampert can spin off the following out of SHLD to shareholders without substantial debt attached.

 

1) Land's End

2) Seritage

3) Sears' Auto

4) KCD

 

Having to distribute retained earnings was one of the biggest obstacles to spinning off the REIT. Now there are no retained earnings to purge :D.

 

I think you are finally at the point where owning the equity outright may end up being quite profitable longer term.  The remaining LEAPs we had that we were retaining to possibly exercise...we exercised this month...and now SHLD is a fairly significant equity holding.  Cheers!

[heth247]

If you happen to live near any of these, it would be interesting to drive by and snap some photos to see if development has started on any of them. There aren't any in Seattle for me to check, but the best mall in Portland (I frequented it a lot when I lived there recently) is listed so next time I am there I plan on checking it out.

 

Hey, Chad, I did not know you used to live in Portland, I am here!

 

I checked out the Portland Washington Square Mall flyer on Seritage's website. The building they highlighted in the flyer picture seems to be the Sears Auto Center that stands alone, not the actual Sears store inside the mall. I don't remember seeing any development on that Auto center, it has a big parking lot by itself and has always been pretty empty. Anyway, I am going to take a look this weekend.

[peridotcapital]

Not sure how long this has been the case (it wasn't the last time I looked), but on the Seritage web site they now list most (over 150) of the 200 properties they are managing and have flyers posted for each one showing number of planned spaces, square footage, etc.

 

If you happen to live near any of these, it would be interesting to drive by and snap some photos to see if development has started on any of them. There aren't any in Seattle for me to check, but the best mall in Portland (I frequented it a lot when I lived there recently) is listed so next time I am there I plan on checking it out.

 

I apologize if these have been listed online for a while and I just missed them (last time I checked there was limited info other than the St Paul, MN artist renderings, etc). Since Eddie won't even mention Seritage in any SHLD corporate filings this list is pretty in-depth for us to look at. I'm not sure if I will put in the time or not, but this makes it far easier to come up with a projected value for Seritage since we have an idea where these locations are therefore what kinds of rents they could possibly expect.

 

Peridot (Chad?)

 

Do you know anything more about their real estate at Costa Mesa as part of South Coast Plaza. They've subleased part of the store to Forever 21, but supposedly they actually own 1/3 of that entire mall (I've seen the original loan docs, it seems that they do -- but I don't know the details).  Any way to get more info on that? Sales in that mall over over $1000 per square foot. They were original owners from back in the late 60s.

 

I do know that the Westfield's Clearwater Countryside Mall in Florida is on the Seritage website -- Whole Foods is moving into the Sears at that location 38,000 sq foot store (they'll have their own entrance of course -- like the other Whole Foods in Sears) - they should be opening spring of 2014.

 

obviously the Janns Marketplace mall where the Nordstroms Rack is opening is also on Seritage - scheduled to open 2015.

 

The Colonie Center Mall in Albany NY is on Seritage, and a Whole Foods will be opening there 32,000 sq ft store opening also spring 2014.

 

Thanks for the rundown! I have not been keeping track of the few Seritage deals announced but may start doing so. Given it's only 200 properties to begin with and the announcements should be fairly slow to trickle in, it might not be a huge chore. I have not dug deep into these holdings yet so I can't shed any light on the CA property, sorry. However, it does seem like many of these sites are in smaller cities are a large portion are just off the actual malls. That coupled with ~25% of them being strip centers makes my original estimate of ~$30/sf for average rental income a bit high, so I will be adjusting that figure downward. The biggest thing to watch from an equity holder perspective is how quickly the team can get interest in these sites, as there will likely be ~1,000 separate spaces to rent out and it could take a really, really long time to get the occupancy rate up to something significant.

[peridotcapital]

If you happen to live near any of these, it would be interesting to drive by and snap some photos to see if development has started on any of them. There aren't any in Seattle for me to check, but the best mall in Portland (I frequented it a lot when I lived there recently) is listed so next time I am there I plan on checking it out.

 

Hey, Chad, I did not know you used to live in Portland, I am here!

 

I checked out the Portland Washington Square Mall flyer on Seritage's website. The building they highlighted in the flyer picture seems to be the Sears Auto Center that stands alone, not the actual Sears store inside the mall. I don't remember seeing any development on that Auto center, it has a big parking lot by itself and has always been pretty empty. Anyway, I am going to take a look this weekend.

 

Small world! I just moved up to Seattle over the summer (been moving around quite a bit lately due to my wife's career). Spent a little over a year in Portland and really enjoyed it (we love the pacific northwest so far).

 

It might have just been coincidence, but many of the Seritage flyers I looked at appeared to be vacant Sears Auto Centers adjacent to malls (which means lower rents, more on par with strip shopping centers, mot shopping malls). I'd be curious if they are taking steps to clean these up, separate the spaces, and prep them for a possible tenant, or if they literally are just abandoned and sitting there in legacy form. If I was a small tenant, that might make a difference for me since many new commercial spaces are new and have been prepped to some degree, which would reduce the amount of money and time it would take to finish the space off and actually open. Most of the Google Maps images are likely 2-3 years old and likely don't show the current condition of these properties. Interestingly, I don't recall ever seeing the Sears Auto Center despite numerous trips to Washington Square mall. Oh well.

[Luke 532]

How does everyone's view change on owning the equity right now if Eddie Lampert can spin off the following out of SHLD to shareholders without substantial debt attached.

 

1) Land's End

2) Seritage

3) Sears' Auto

4) KCD

 

Having to distribute retained earnings was one of the biggest obstacles to spinning off the REIT. Now there are no retained earnings to purge :D.

 

I think you are finally at the point where owning the equity outright may end up being quite profitable longer term.  The remaining LEAPs we had that we were retaining to possibly exercise...we exercised this month...and now SHLD is a fairly significant equity holding.  Cheers!

 

I agree with you, Sanjeev.  There is just too much long-term value being created to not like it at this level.  Added some this week.

[peridotcapital]

FYI: I ran some numbers. There are 54 strip center properties listed on the Seritage web site. They are empty Sears and Kmart locations either free-standing or attached to a handful of other big boxes (average: 116.000 sf). Together they represent 6.26 million square feet. So big boxes make up ~1/4 of Seritage's property count and ~ 1/3 of their total square footage. That is the bad news for Seritage's total value (very low rents and very low demand due to the relative low number of potential tenants who could use such a large space). The better news is that about 100 of the other properties are multi-tenant subdivide situations where the rents will be higher and the potential market will be larger due to the smaller spaces. At any rate, now we can really drill down on Seritage's potential value a lot easier (with ultimate demand still the biggest question mark). In terms of box splits with existing Sears stores that are still open, there are only 9 listed on the site, so that is not going to be the biggest focus for Seritage it appears at least right now.

[krazeenyc]

FYI: I ran some numbers. There are 54 strip center properties listed on the Seritage web site. They are empty Sears and Kmart locations either free-standing or attached to a handful of other big boxes (average: 116.000 sf). Together they represent 6.26 million square feet. So big boxes make up ~1/4 of Seritage's property count and ~ 1/3 of their total square footage. That is the bad news for Seritage's total value (very low rents and very low demand due to the relative low number of potential tenants who could use such a large space). The better news is that about 100 of the other properties are multi-tenant subdivide situations where the rents will be higher and the potential market will be larger due to the smaller spaces. At any rate, now we can really drill down on Seritage's potential value a lot easier (with ultimate demand still the biggest question mark). In terms of box splits with existing Sears stores that are still open, there are only 9 listed on the site, so that is not going to be the biggest focus for Seritage it appears at least right now.

 

 

Of course at the end of the day we don't have all the properties that are part of Seritage. Are there any trophy properties part of Seritage? 1 trophy property such as the South Coast Plaza mall changes everything. What is the St Paul Development worth on its own -- when will it be completed? I wonder if we will see mention of Seritage in the 10-K this year with any details.  None of the properties near the NYC area are PRIME (NJ and Long Island malls) but they're ok. The malls where the whole foods are going in are mid range malls that do about $400 per sq ft. With SHLD b/c it's not a cashflow story right now ... there is a lot of educated guessing going on.

[heth247]

Small world! I just moved up to Seattle over the summer (been moving around quite a bit lately due to my wife's career). Spent a little over a year in Portland and really enjoyed it (we love the pacific northwest so far).

 

It might have just been coincidence, but many of the Seritage flyers I looked at appeared to be vacant Sears Auto Centers adjacent to malls (which means lower rents, more on par with strip shopping centers, mot shopping malls). I'd be curious if they are taking steps to clean these up, separate the spaces, and prep them for a possible tenant, or if they literally are just abandoned and sitting there in legacy form. If I was a small tenant, that might make a difference for me since many new commercial spaces are new and have been prepped to some degree, which would reduce the amount of money and time it would take to finish the space off and actually open. Most of the Google Maps images are likely 2-3 years old and likely don't show the current condition of these properties. Interestingly, I don't recall ever seeing the Sears Auto Center despite numerous trips to Washington Square mall. Oh well.

 

Hi, Chad,

 

It used to have a big Sears Auto Center sign but I believe now it is (at least partially) rented to AVIS car rental. This is the name that come up if you google the address 9800 SW Washington SQ Rd, Portland, OR -- Avis Washington Square Mall - Sears Auto Ctr Car Rental

[Luke 532]

Is it just me or do Munger's words make you think of SHLD?

 

This is from Variant Perceptions, user PlanMaestro's blog.  I only included an excerpt.  Click link for full blog post...

 

http://variantperceptions.wordpress.com/2012/03/07/munger-on-the-perfect-turnaround/

I’ve had many friends in the sick business fix-up game over a long lifetime. And they practically all use the following formula—I call it the cancer surgery formula:

 

-They look at this mess.

-And they figure out if there’s anything sound left that can live on its own if they cut away everything else.

-And if they find anything sound, they just cut away everything else.

-Of course, if that doesn’t work, they liquidate the business.

-But it frequently does work.

 

 

[ERICOPOLY]

Is it just me or do Munger's words make you think of SHLD?

 

This is from Variant Perceptions, user PlanMaestro's blog.  I only included an excerpt.  Click link for full blog post...

 

http://variantperceptions.wordpress.com/2012/03/07/munger-on-the-perfect-turnaround/

I’ve had many friends in the sick business fix-up game over a long lifetime. And they practically all use the following formula—I call it the cancer surgery formula:

 

-They look at this mess.

-And they figure out if there’s anything sound left that can live on its own if they cut away everything else.

-And if they find anything sound, they just cut away everything else.

-Of course, if that doesn’t work, they liquidate the business.

-But it frequently does work.

 

In a few words, I can say that Bank of America fit this description because the cancer was the expenses in runoff at LAS, the NewBAC expenses in runoff, and the legal settlements.  Absent that, that bank was making reasonably good money.

 

What is the good business at SHLD, and what is the cancer?  The good operating business behind the cancer is which of their parts?

[Luke 532]

 

What is the good business at SHLD, and what is the cancer?  The good operating business behind the cancer is which of their parts?

 

I think that is what Lampert is figuring out with segregating the company into different divisions with separate P&L, BOD, etc. 

[BTShine]

Good Businesses:

Lands' End

Kenmore Appliances/ Brands

Craftsman Tools/ Brands

Unencumbered Real Estate

Sears.com / ShopYourWay (could be run as an independent website driving sales)

 

 

 

[CorpRaider]

The best business is being WFM's landlord!  I would be getting those things rezoned and throwing some mixed use development condos to the yuppies in droves.

[ERICOPOLY]

 

What is the good business at SHLD, and what is the cancer?  The good operating business behind the cancer is which of their parts?

 

I think that is what Lampert is figuring out with segregating the company into different divisions with separate P&L, BOD, etc.

 

 

You, the investor.  What has Luke determined to be the cancer and what is the patient post-surgery?

 

I want you to tell me your secrets because I want to make money here possibly.  I'm perfectly free to tell everyone my "secret" thesis behind what the BAC cancer is/was -- it only benefits me for everyone to know because I don't get hurt if the stock reflects the true value.

 

But I can't explain why you would wouldn't just be free to tell me in one sentence what exactly the cancer is and what's the good business lying behind it?

 

[BTShine]

+1