SHLDQ - Sears Holdings Corp

[txlaw]

Apparently, Bruce B said the following about SHLD at the CSIMA conference (thanks to hellsten for the notes):

 

I'll give you a hint. Go to Sears. Do an analysis of Sears' legal entities.

Separate the companies between guarantors and non-guarantors.

Take a look at those two individual balance sheets and cash flows and tell me what you think.

 

This is exactly the same advice that was given to the board by a friend of Sanjeev, which I have pointed out several times in the various SHLD threads.

 

So if you're interested in SHLD, you probably ought to do that analysis.

[PlanMaestro]

So if you're interested in SHLD, you probably ought to do that analysis.

 

Yes, it's a good one … and SHOS might be worth studying in that context too.

[txlaw]

So if you're interested in SHLD, you probably ought to do that analysis.

 

Yes, it's a good one … and SHOS might be worth studying in that context too.

 

Indeed.

[PlanMaestro]

Apparently, Bruce B said the following about SHLD at the CSIMA conference (thanks to hellsten for the notes):

 

59 min. mark.

 

http://investinginknowledge.com/info/2013/02/bruce-berkowitz-csima-2013-audio/

[muscleman]

Apparently, Bruce B said the following about SHLD at the CSIMA conference (thanks to hellsten for the notes):

 

I'll give you a hint. Go to Sears. Do an analysis of Sears' legal entities.

Separate the companies between guarantors and non-guarantors.

Take a look at those two individual balance sheets and cash flows and tell me what you think.

 

This is exactly the same advice that was given to the board by a friend of Sanjeev, which I have pointed out several times in the various SHLD threads.

 

So if you're interested in SHLD, you probably ought to do that analysis.

 

 

Does SHLD's SEC filings have the info sufficient to do the break down analysis?

[txlaw]

Apparently, Bruce B said the following about SHLD at the CSIMA conference (thanks to hellsten for the notes):

 

I'll give you a hint. Go to Sears. Do an analysis of Sears' legal entities.

Separate the companies between guarantors and non-guarantors.

Take a look at those two individual balance sheets and cash flows and tell me what you think.

 

This is exactly the same advice that was given to the board by a friend of Sanjeev, which I have pointed out several times in the various SHLD threads.

 

So if you're interested in SHLD, you probably ought to do that analysis.

 

 

Does SHLD's SEC filings have the info sufficient to do the break down analysis?

 

Yes.  Just do a search on the board for the referenced thread.  Once you find that thread and read it, you'll figure out where to go look.

[hyten1]

compoundinglife, i just recently saw this post of yours, did you ever get the RE values done? do you need help?

 

 

 

The biggest factor here IMO with regards to margin of safety is the value of the real estate. I have read 16 billion, "at least $80 a share" and of BB's comparison of Sear's total Sq. footage vs that of Simon. So summoning Howard Marks (watched the interview recently), what do we know that the market doesn't about SHLD's real estate? Nothing. What is our second level of thinking that makes us confident that the market is wrong and we are right?

 

So for most of us I think this boils down to a few things:

 

1. Smart Investors whom most of us respect have indicated the real estate is worth considerably more than the EV of 7.8B

 

2. ESL has a great long term investing track record. I think anyone on this board who is long SHLD believes he will be able to eventually monetize assets and either return capital to share holders or deploy it in attractive investments.

 

3. We understand the balance sheet and realize that SHLD is not widely followed, has a small float, most analysts that do bother to report on it focus on retail sales and compare it to BBY or other retailers overlooking the sum of parts value.

 

So the question I have been asking myself is "Is this really second level thinking?". Is it just that my temperament and personality is well suited for these situations and I am able to tune out the noise and look at the facts? Or am I missing something others see?

 

I keep coming back to the one wildcard which for me is the value of the real estate. I have been following the saga for quite a while and jumped in at the lows of late 2011/early 2012, I felt like it was very much a "I don't have to know a man's weight to know he is fat" scenario. But this is mainly based on estimates from BB and hints that ESL has dropped. They have demonstrated a little by selling some properties. But really for the most part I feel we are going off of what we have read or heard from people that we respect and are deserving of respect.

 

So where I am going with this? I have really wanted to pull the trigger on SHLD in a big way when the price gets down but in order to do that I need to be able to back up the real estate value thesis. It is currently a 2% position that I would probably go 5 to 10 on if I could assert some estimation of the MOS provided by the real estate. So I purchased a database of all their US locations with approximate co-ordinates, addresses, phone numbers, type of store (sears, hometown etc...). It has about 3100 locations, some of which were spun off already or sold.

 

The question is how does one go about efficiently taking this list and getting reasonable estimates of value? Is this something that a group of people could tackle and quickly knock out in a week or two? Is that something that SHLD junkies on the board would be interested in doing?

 

I would like to know at least the following about each:

 

1. Lease or Own

2. How big is the store

3. If lease, what is the remaining time

4. What is the current rate in that market per sq. ft for renting or purchasing

 

I could go on but that is a good starting point. Internet research and cold calling the stores are the first things that come to mind. But 3000 is a large #.

 

If folks are interested enough crowd sourcing this or even have good ideas for getting this information I am all ears. I have usually done all my own research on investments so I am not sure if this information is already available for a reasonable cost somewhere.

[no_free_lunch]

Hyten1 & compoundinglife,

 

I was thinking about this a bit.  Obviously it would be ideal if you could get the square footage of each location along with the type of store at each location.  I just don't know if that is possible.  Maybe even if you got a decent sampling of a hundred+ stores it would allow you to make good estimates.  At any rate I certainly can't help with that type of project.

 

However, what you might be able to do is compare each location to the average residential price in the city that it's located in.  This would allow you to get a crude weighted average.  If you could come up with some actual sale prices in a few locations you could try to tie those to the residential prices and apply it to the weighted average.  Now it wouldn't take into account store square footage, type of store, quality of store, etc. but it would still give you a considerably more accurate figure than what is in the Berkowitz presentation.  Also I am pretty sure it could actually be done.

 

If it is a dumb idea then just ignore this post.

 

 

 

 

[jeffmori7]

Is it not a danger in SHLD that Lampert take it private, à là Dell?

 

Let's say Sears is worth a multiple of what the market values it today, but as it is never recognized, Lampert could be able to buy it all, with Berkowitz, for much less than what it's worth..In this case, you must be sure to have a cost basis really low as a 50% to your intrinsic value wouldn't do it if they buy it entirely at, let's say, one-third of it?

[value-is-what-you-get]

Hyten1 & compoundinglife,

 

I was thinking about this a bit.  Obviously it would be ideal if you could get the square footage of each location along with the type of store at each location.  I just don't know if that is possible.  Maybe even if you got a decent sampling of a hundred+ stores it would allow you to make good estimates.  At any rate I certainly can't help with that type of project.

 

However, what you might be able to do is compare each location to the average residential price in the city that it's located in.  This would allow you to get a crude weighted average.  If you could come up with some actual sale prices in a few locations you could try to tie those to the residential prices and apply it to the weighted average.  Now it wouldn't take into account store square footage, type of store, quality of store, etc. but it would still give you a considerably more accurate figure than what is in the Berkowitz presentation.  Also I am pretty sure it could actually be done.

 

If it is a dumb idea then just ignore this post.

 

That's not a bad idea at all - using the average home prices as a proxy.

 

Also, as Munger says "Invert, always invert", so strip out inventory and other known assets at a liquidation price and divide the remaining market cap by square feet to see if it's a ridiculous number. 

 

If the lowest number you get from your residential by proxy method is well above the markets valuation of SHLD square footage, then you have a margin of safety. 

 

Knowing exactly how much it's worth is not easy to do, but knowing it's worth a whole lot more (perhaps many multiples more) than the market will sell it for is good enough.  Then it's a question of time.

[MYDemaray]

Hyten1 & compoundinglife,

 

I was thinking about this a bit.  Obviously it would be ideal if you could get the square footage of each location along with the type of store at each location.  I just don't know if that is possible.  Maybe even if you got a decent sampling of a hundred+ stores it would allow you to make good estimates.  At any rate I certainly can't help with that type of project.

 

However, what you might be able to do is compare each location to the average residential price in the city that it's located in.  This would allow you to get a crude weighted average.  If you could come up with some actual sale prices in a few locations you could try to tie those to the residential prices and apply it to the weighted average.  Now it wouldn't take into account store square footage, type of store, quality of store, etc. but it would still give you a considerably more accurate figure than what is in the Berkowitz presentation.  Also I am pretty sure it could actually be done.

 

If it is a dumb idea then just ignore this post.

 

That's not a bad idea at all - using the average home prices as a proxy.

 

Also, as Munger says "Invert, always invert", so strip out inventory and other known assets at a liquidation price and divide the remaining market cap by square feet to see if it's a ridiculous number. 

 

If the lowest number you get from your residential by proxy method is well above the markets valuation of SHLD square footage, then you have a margin of safety. 

 

Knowing exactly how much it's worth is not easy to do, but knowing it's worth a whole lot more (perhaps many multiples more) than the market will sell it for is good enough.  Then it's a question of time.

 

I have no position here, but maybe this would help in square footage estimation.  Google Earth Pro.  Allows you to take measurements - $400: http://www.google.com/enterprise/earthmaps/earthpro-features.html

[compoundinglife]

compoundinglife, i just recently saw this post of yours, did you ever get the RE values done? do you need help?

 

 

Sorry for the delayed response.

 

I loaded the store location data onto a google doc spreadsheet and board member nsa122 updated some data he had from Texas. I have not actually done anything yet due to being extremely busy at work. I am willing to share the spreadsheet with anyone who PM's me. I just don't want to link it in public because of the EULA w/the data source. Although I don't think they legally do anything about it, I agreed to it when I purchased the list and I like to keep my word.

 

 

 

 

[compoundinglife]

Is it not a danger in SHLD that Lampert take it private, à là Dell?

 

Let's say Sears is worth a multiple of what the market values it today, but as it is never recognized, Lampert could be able to buy it all, with Berkowitz, for much less than what it's worth..In this case, you must be sure to have a cost basis really low as a 50% to your intrinsic value wouldn't do it if they buy it entirely at, let's say, one-third of it?

 

There is a risk. But if you read the thread history this was asked at one of the meetings and ESL indicated he would not do anything that benefitted him and not all share holders. I don't believe he would intentionally go back on his word. But each person has to make that character judgement on their own.

[JAllen]

For those that want more SHLD real estate info you can go here: http://www.shcrealty.com/

[muscleman]

Is it not a danger in SHLD that Lampert take it private, à là Dell?

 

Let's say Sears is worth a multiple of what the market values it today, but as it is never recognized, Lampert could be able to buy it all, with Berkowitz, for much less than what it's worth..In this case, you must be sure to have a cost basis really low as a 50% to your intrinsic value wouldn't do it if they buy it entirely at, let's say, one-third of it?

 

There is a risk. But if you read the thread history this was asked at one of the meetings and ESL indicated he would not do anything that benefitted him and not all share holders. I don't believe he would intentionally go back on his word. But each person has to make that character judgement on their own.

 

I agree with you. I bought around $46, which is lower than Bruce's entry price of $54. As long as my price is lower than theirs, even if they want to take it private, they would probably have to pay a price higher than $54. Otherwise Bruce won't agree with it.

[no_free_lunch]

I had a crack at valuing the SHLD real estate over the past couple of days.  In the end I came to the conclusion that it just way too hard to properly evaluate RE over the internet and my initial results really didn't point to anything too exciting.

 

I initially was planning to just look at the city of the property and scale the results based on residential real estate prices.  Then I realized that there are actual commercial retail RE prices online as well.  So I had a look using these.  The problem I ran into is that the variance in RE prices even with a city are tremendous.  This is probably all very obvious to most but I had thought that the prices would be within a factor of 2 or 3 but I am seeing prices vary from $20-$250 / sqft.  Makes it VERY difficult to do a valuation.

 

For instance, look at these two listings:

 

I think both of these cities have KMart or Sears locations:

 

http://www.loopnet.com/xNet/MainSite/Listing/Search/SearchResults.aspx#/Saint-Cloud,MN/Retail/For-Sale/c!ARUIBQAAAQ

 

In the above listing there is an actual WalMart location for sale in Saint-Cloud Minnesota.  That has to be a good proxy for a Kmart right?  So it is going for $3.9M for 119k sqft.  That works out to $33 / sqft.

 

http://www.loopnet.com/xNet/MainSite/Listing/Search/SearchResults.aspx#/Rochester,MN/Retail/For-Sale/c!ARUIBQAAAQ

 

In the listing above is a mall.  It's going for $9.7M for 75k sqft.    That gives about $130 / sqft. 

 

Both of these locations are in the same state and similar populations (I think Rochester's population is about 100k vs 70k for St Cloud) but just due to differences in the type of building and perhaps location the prices vary by 4-fold.  Which is a KMart more similar to?  I tend to think the WalMart.

 

Based on these prices and others I have a hard time being both conservative and arriving at a number much past $80 / sqft.  This is really just a guess but honestly I almost feel that I'm not being conservative enough with that figure.  With 240M sqft and only 37% owned, that would value the owned RE at about $7B. 

 

So it all depends on what value the leases have.  To me the leases are even harder to evaluate.  Without knowing the average cost and lease life as well as comparable lease rates in the area it is just a total black box.  It could be $5B or it could be $500M, I just can't put a figure on it.  If anyone has came across any good info on valuing the leases, I would certainly be interested.

 

For the time being I am putting it back into the too hard pile. 

[BTShine]

Good point.  There's a lot of variance within real estate values. 

 

The two examples you gave, St. Cloud and Rochester, are very different cities even though their population size may be similar.  I'm somewhat familiar with both towns (I live about 90 minutes from each). 

 

- Rochester is the home to Mayo Clinic, and is funny because it's a small town in the middle of nowhere, but you'll see BMW and Mercedes SUV's rolling around town because there's some wealth from the Mayo Clinic (Dr's and other highly paid medical professionals live in this small town).  Rochester is considered to be more vibrant and growing vs. St. Cloud, likely some of the reason it has more valuable real estate.

 

- St. Cloud is more of a typical American town of it's size.  For safety, I'd value Sears' rural real estate based upon the St. Cloud, MN value of $33/sq ft, not the Rochester's $100+ sq ft. 

 

 

 

[BargainValueHunter]

I was in a Sears today in a rather affluent mall. The mall was @ about 45% of what I'd call "Christmas Eve" traffic. The Sears, on the other hand, was a ghost town slash museum. The staff looked bored stiff and desperate to help a customer ANY customer.

 

But interestingly, the store was VERY clean, neat and well tended. The prices were not bad at all. I had the feeling that if you magically transported 300 shoppers into the store they would have no qualms about buying stuff. The problem is that shoppers were avoiding the entrance as if the Sears products carried a fungus.

 

I don't see any possible way an investment in SHLD is not a liquidation/ Eddie $$ alchemy play.

 

Am I wrong?

[ShahKhezri]

I was in a Sears today in a rather affluent mall. The mall was @ about 45% of what I'd call "Christmas Eve" traffic. The Sears, on the other hand, was a ghost town slash museum. The staff looked bored stiff and desperate to help a customer ANY customer.

 

But interestingly, the store was VERY clean, neat and well tended. The prices were not bad at all. I had the feeling that if you magically transported 300 shoppers into the store they would have no qualms about buying stuff. The problem is that shoppers were avoiding the entrance as if the Sears products carried a fungus.

 

I don't see any possible way an investment in SHLD is not a liquidation/ Eddie $$ alchemy play.

 

Am I wrong?

 

Other than Wednesday being one of the slowest business days...you're not wrong.

[BargainValueHunter]

I was in a Sears today in a rather affluent mall. The mall was @ about 45% of what I'd call "Christmas Eve" traffic. The Sears, on the other hand, was a ghost town slash museum. The staff looked bored stiff and desperate to help a customer ANY customer.

 

But interestingly, the store was VERY clean, neat and well tended. The prices were not bad at all. I had the feeling that if you magically transported 300 shoppers into the store they would have no qualms about buying stuff. The problem is that shoppers were avoiding the entrance as if the Sears products carried a fungus.

 

I don't see any possible way an investment in SHLD is not a liquidation/ Eddie $$ alchemy play.

 

Am I wrong?

 

Other than Wednesday being one of the slowest business days...you're not wrong.

 

Yeah, but Wed. is a slow day for ALL retailers. Sears was DEAD. The other stores had light to moderate traffic. It was baffling because the store looked REALLY well managed as opposed to the down market Kmarts I've stumbled into...

[Palantir]

When have you ever gone to Sears to buy something? I personally think about Sears as a home hardware and appliances store....

[no_free_lunch]

There is a good, albeit old, article on Bronte Capital about the Sears liquidation case.  His argument is that it would be a monumental undertaking.  Not sure I agree it's impossible but it's worth thinking about if that's why you're buying the stock.  Keep in mind that he was short sears at the time of writing.

 

My view: owning Sears as a property play is a demonstration of the arrogance and breathtaking naivete of much that passes on Wall Street. Sears Holdings has over 300 thousand employees. I don't know how you successfully liquidate a business integrated with that many lives. I don't know of anyone who has ever successfully liquidated a business with that many employees.** I am not sure it can be done and it certainly can't be done by someone with my skill-set (highly analytical, ability to spy value or value traps but no people management skill and not much tact).

 

http://brontecapital.blogspot.ca/2011/12/sears-holdings-liquidation-sale.html

[fareastwarriors]

I was in a Sears today in a rather affluent mall. The mall was @ about 45% of what I'd call "Christmas Eve" traffic. The Sears, on the other hand, was a ghost town slash museum. The staff looked bored stiff and desperate to help a customer ANY customer.

 

But interestingly, the store was VERY clean, neat and well tended. The prices were not bad at all. I had the feeling that if you magically transported 300 shoppers into the store they would have no qualms about buying stuff. The problem is that shoppers were avoiding the entrance as if the Sears products carried a fungus.

 

I don't see any possible way an investment in SHLD is not a liquidation/ Eddie $$ alchemy play.

 

Am I wrong?

 

Other than Wednesday being one of the slowest business days...you're not wrong.

 

Yeah, but Wed. is a slow day for ALL retailers. Sears was DEAD. The other stores had light to moderate traffic. It was baffling because the store looked REALLY well managed as opposed to the down market Kmarts I've stumbled into...

 

All the Sears I been to in the San Francisco area are dead.  But The prices are reasonable. The sales were good. I got a few shirts but it was quiet ...

[LC]

There is a good, albeit old, article on Bronte Capital about the Sears liquidation case.  His argument is that it would be a monumental undertaking.  Not sure I agree it's impossible but it's worth thinking about if that's why you're buying the stock.  Keep in mind that he was short sears at the time of writing.

 

My view: owning Sears as a property play is a demonstration of the arrogance and breathtaking naivete of much that passes on Wall Street. Sears Holdings has over 300 thousand employees. I don't know how you successfully liquidate a business integrated with that many lives. I don't know of anyone who has ever successfully liquidated a business with that many employees.** I am not sure it can be done and it certainly can't be done by someone with my skill-set (highly analytical, ability to spy value or value traps but no people management skill and not much tact).

 

http://brontecapital.blogspot.ca/2011/12/sears-holdings-liquidation-sale.html

 

I absolutely agree. Liquidation value can be a theoretical floor for the stock price if that makes you sleep better at night, but WHO KNOWS what prices they will incur if they ever attempted to liquidate. Additionally, imagine all those properties coming on the market at once! First, only a few retailers can buy them up all at once. So if you can't sell them all to Wal-Mart, you're looking at splitting them up and selling them piecemeal. In that case they would get horrible prices for their "average" building and be left with properties that just would not sell!

 

 

In my opinion anyone who says SHLD can be liquidated is simply trying to rationalize using a certain price as a "floor" for their investment.

 

(For what it's worth, I think they should franchise their smaller properties. Then chop up their other, run of the mill stores into a Sears half the size, rent out the other half to another non-competing retailer or restaurant or local biz. Keep the high-performing ones doing what they're doing now.)

[FCharlie]

Bruce Berkowitz just filed. He's purchased 1.2 million more SHLD shares. Now owns 18.1 million or over 17% of shares.

 

http://www.sec.gov/Archives/edgar/data/1056831/000105683113000001/submission021413.txt