SHLDQ - Sears Holdings Corp

[muscleman]

I couldn't tell if SHLD will trade at $20 sometime this year, but I am sure that Q1 will be another brutal quarter.

The reason is that with so many stores closing around April-May, they will likely have already started doing a liquidation sale around now, which means Q1's revenue drop will accelerate.

Yes Eddie is closing a lot of stores, but the reason for the close is lease not renewed.

I would like to see more active subleasing and redevelopment, but there are only a handful of these.

[bmichaud]

Some interesting commentary on overall retail sales from GGP:

 

1. they had predicted this year's overall slow down in retail sales, b/c the pace of the last couple of years were unsustainable, in that sales cannot continue to outpace GDP growth

 

2. around page 21, Sandeep briefly discusses the omnichannels. says that historically catalog sales and home shopping network sales have occupied roughly 10% of total retail sales.

 

obviously e-commerce will become a larger portion of the pie than catalog. but i think the point remains that bricks & mortar isn't going away.

 

not defending shld retail, which is a complete and utter disaster - just saying the core 68MM square feet of real estate is worth something significant even in the face of such scary retail headlines.

 

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

 

Also attached are two screen shots of JCP and SHLD. Interesting that SHLD's SI is 15% of shares out versus 36% for JCP.

GGP_3Q13_CC.pdf

JCP_Short_Interest.bmp

SHLD_Short_Interest.bmp

[Luke 532]

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

And for good reason, you shouldn't let that get out of your head.  It's info like that which brings long-term clarity amidst the short-term storm... which usually is a driver for sound investment decision-making.

[Guest wellmont]

Some interesting commentary on overall retail sales from GGP:

 

1. they had predicted this year's overall slow down in retail sales, b/c the pace of the last couple of years were unsustainable, in that sales cannot continue to outpace GDP growth

 

2. around page 21, Sandeep briefly discusses the omnichannels. says that historically catalog sales and home shopping network sales have occupied roughly 10% of total retail sales.

 

obviously e-commerce will become a larger portion of the pie than catalog. but i think the point remains that bricks & mortar isn't going away.

 

not defending shld retail, which is a complete and utter disaster - just saying the core 68MM square feet of real estate is worth something significant even in the face of such scary retail headlines.

 

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

 

Also attached are two screen shots of JCP and SHLD. Interesting that SHLD's SI is 15% of shares out versus 36% for JCP.

the reason they are not value the same is simple. ggp and spg make money and pay dividends. they are productive assets. the sears malls consume money and don't pay dividends. they are Non productive assets. it makes total sense that they aren't valued the same. that fairx pdf on shld is a SALES document. it's designed to stir up investor interest in a stock that bb is absolutely buried in. investors aren't buyin what bb is sellin.

[bmichaud]

the reason they are not value the same is simple. ggp and spg make money and pay dividends.

 

Lol no kidding - that's why the 68MM SF needs to be carved out and redeveloped. The earning power is there, it just needs to be unlocked via redevelopment.

 

Noticed I did not use $250 to value it. $150 is 60% of where GGP and SPG trade - not unreasonable, IMO.

 

that fairx pdf on shld is a SALES document. it's designed to stir up investor interest in a stock that bb is absolutely buried in. investors aren't buyin what bb is sellin.

 

They also weren't buying BAC when BB was selling it at $5....

[Guest wellmont]

his average cost on bac was much higher. and when bac was $5 Lots of things were cheap. dart board. in fact when bac was in the $5s fairx was suffering huge redemptions.

what is the logical basis for $150 other than it's a "haircut"?

[gg]

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

Also attached are two screen shots of JCP and SHLD. Interesting that SHLD's SI is 15% of shares out versus 36% for JCP.

 

bmichaud - what does TEV stand for in your comment?

 

Regarding the Short Interest, don't forget that 15% of SHLD shares being sold short really equates to almost 50% of the "free" float, since Fairholme and Lampert account for close to 70% of the total shares.

[bmichaud]

his average cost on bac was much higher. and when bac was $5 Lots of things were cheap. dart board.

 

what is the logical basis for $150 other than it's a "haircut"?

 

His average cost on SHLD is much higher. I don't get it....

 

I don't get the dart board comment either....it's a $15+ trillion equity market and BAC/SHLD are minnows. Doesn't matter what else is cheap.

 

You can get to $150 pretty easily using various $/SF NNN rental rates and development costs. Using the market value of publicly traded real estate of similar quality isn't a bad shorthand method either.

 

 

I get the continual bashing of companies you own. I get it. But honestly it doesn't make sense to continue bashing as the price goes down. You should be bashing at the top and cheering at the bottom. Since you said that you owned a small position in SHLD above current levels, I am guessing you found relatively decent value in the shares above these levels. Why continue to bash down here? Are you cheerleading it to go down?

 

While I very much admire ValueInv and your analysis on BBRY, you guys completely missed the boat on the stock going from $6 to $10 in a very short amount of time due to the inability to separate the business from the stock price. At certain prices, the negative business situation is priced into the stock, but it doesn't appear you guys are able to admit that. Case in point, ValueInv continued to bash Dell all the way up to the take-out from $9 to $13 per share, while others made money the whole way up.

 

If we woke up Monday morning to an announcement that SHLD had sold its top 68MM SF for $95 per share, and promised to return the proceeds via a special dividend, you could still continue to make the exact arguments you are making with regard to the cash-incinerating machine that is SHLD retail. Meanwhile, we would be sitting here with $95 of value in the for of cash plus stock in a money losing entity that MAYBE can wind itself down in a way that keeps the stock price above $0. That's how you have to look at SHLD. And I promise you that is how Lampert/Berkowitz are looking at SHLD. There just is no alternative when the debt holders are not collateralized by the real estate.

[bmichaud]

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

Also attached are two screen shots of JCP and SHLD. Interesting that SHLD's SI is 15% of shares out versus 36% for JCP.

 

bmichaud - what does TEV stand for in your comment?

 

Regarding the Short Interest, don't forget that 15% of SHLD shares being sold short really equates to almost 50% of the "free" float, since Fairholme and Lampert account for close to 70% of the total shares.

 

Total Enterprise Value

[krazeenyc]

Sears Holdings is definitely not making the best use of its real estate assets  -- at least not yet. For Sears Holdings these valuable mall assets are not very productive -- in combination with its retail operations it's the reason Sears trades were it does.  (It's why Sears is valued the way it is). However, just because the real estate is not currently a productive asset for Sears does not actually diminish the value of the real estate.

 

If company A owned 5 identical houses on a block (in NYC) and they were all updated and generated a total of $500K in net rent (call it market rate) annually -- coming up with the valuation of both the company as well as its property would be quite simple.  While company B owned by an eccentric billionaire owned an identical set of 5 houses on the same block -- but rather than renting them out he stored hundreds of thousands of books in the houses. Company B's houses also needed some updating --  it would cost company B a total of $500k to get his houses to generate the same annual net rent as company A.  It might be harder to value company B (since we don't know the value of the books he has in the houses could they generate proceeds out of them? or would it just be a cash drain to have them removed) -- but valuing the real estate value of Company B should be relatively easy. Just because an asset is not currently generating economic value does not change the value of the underlying asset -- of course there is a cost in time and money to convert the asset from non productive to productive.  This is an OVER simplification of course.

[Guest wellmont]

his average cost on bac was much higher. and when bac was $5 Lots of things were cheap. dart board.

 

what is the logical basis for $150 other than it's a "haircut"?

 

His average cost on SHLD is much higher. I don't get it....

 

I don't get the dart board comment either....it's a $15+ trillion equity market and BAC/SHLD are minnows. Doesn't matter what else is cheap.

 

You can get to $150 pretty easily using various $/SF NNN rental rates and development costs. Using the market value of publicly traded real estate of similar quality isn't a bad shorthand method either.

 

 

I get the continual bashing of companies you own. I get it. But honestly it doesn't make sense to continue bashing as the price goes down. You should be bashing at the top and cheering at the bottom. Since you said that you owned a small position in SHLD above current levels, I am guessing you found relatively decent value in the shares above these levels. Why continue to bash down here? Are you cheerleading it to go down?

 

While I very much admire ValueInv and your analysis on BBRY, you guys completely missed the boat on the stock going from $6 to $10 in a very short amount of time due to the inability to separate the business from the stock price. At certain prices, the negative business situation is priced into the stock, but it doesn't appear you guys are able to admit that. Case in point, ValueInv continued to bash Dell all the way up to the take-out from $9 to $13 per share, while others made money the whole way up.

 

If we woke up Monday morning to an announcement that SHLD had sold its top 68MM SF for $95 per share, and promised to return the proceeds via a special dividend, you could still continue to make the exact arguments you are making with regard to the cash-incinerating machine that is SHLD retail. Meanwhile, we would be sitting here with $95 of value in the for of cash plus stock in a money losing entity that MAYBE can wind itself down in a way that keeps the stock price above $0. That's how you have to look at SHLD. And I promise you that is how Lampert/Berkowitz are looking at SHLD. There just is no alternative when the debt holders are not collateralized by the real estate.

 

i don't try to play moves in lousy companies from $6 to $10 in a few weeks. Besides if you go back and read what I wrote about bbry you'll discover that I said bbry was likely to go UP now that it had no earnings. that turned out to be prescient. Because in this kind of market, that's what's working. Lousy fill in the blank companies are going up.  I was serious when I said that. however that was a comment on the Price of bbry. The business of bbry is a failure and a few speeches and press releases from the new CEO changes nothing for me. And it has no business trading anywhere near $10. In fact they tried to auction it to anybody with a pulse and nobody wanted to buy it at $9. So I don't put any credence at all into the move from $6 to $10. I saw it coming. The stock would be under $5 in a market not propped up by money printing and hype, which allowed PW to finance the company's restructuring. read the 10qs not the daily quote.

 

as for shld i hold a small amount for one reason. lampert will eventually get his money out of it and declare victory. However I don't subscribe to "mysteries" conspiracies or Puzzles about it. It's a Disaster. It's a disaster for ESL and for BB. The FF has under performed the Index since the market bottom in 2009 partly because he made a big bet on SHLD , which has been a massive opportunity cost for the fund. I can bash it as much as I want (and you can cheerlead as much as you want) because I provide color commentary for what's going on as I see it. It deserves bashing. When it starts to perform like a productive asset, or when I see ESL take steps to create value for all shareholders, I will take note and make comments that shld is actually starting to be a productive asset. what I say about anything doesn't effect how it trades. I see it as totally appropriate to question the bullish assumptions in the face of obvious value destruction and under performance.

[gg]

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

Also attached are two screen shots of JCP and SHLD. Interesting that SHLD's SI is 15% of shares out versus 36% for JCP.

 

bmichaud - what does TEV stand for in your comment?

 

Regarding the Short Interest, don't forget that 15% of SHLD shares being sold short really equates to almost 50% of the "free" float, since Fairholme and Lampert account for close to 70% of the total shares.

 

Total Enterprise Value

 

I don't believe the math is transferable to SHLD the way you did it there. I think you would need to take what you suggest is the total real estate value for SHLD (sqft*$/sqft), subtract the liabilities, then divide by number of shares. If you do that, you will get a number lower than 96, but I don't have the liabilities numbers in front of me so don't have an exact number. Of course, if you really think they'll be able to pull off selling real estate, and distributing it 100% to equity holders with zero recovery to the debt holders, this is not the case, but I can't imagine it happening that way.

 

I like the stock, but I think the more likely scenario is that we see monetization of some of the extremely valuable real estate (that will sell for prices significantly beyond the $150, or even $250, per sqft), found in malls where it simply doesn't make sense to have a Sears store. That value can potentially get transferred to equity holders (at expense of debt holders) via buybacks or special dividends. So long as its not too close to the 2018 maturities of the debt, I imagine they can do that with a decent amount of real estate value, and sell the story that their other less desirable real estate will serve as the footprint for their Sears stores, that will be much smaller and more focused on the SYW membership programs.

 

[Luke 532]

BlackRock takes position in SHOS

http://www.sec.gov/Archives/edgar/data/1364742/000108636414001489/sears.hometown.and.o.txt

[peridotcapital]

 

not defending shld retail, which is a complete and utter disaster - just saying the core 68MM square feet of real estate is worth something significant even in the face of such scary retail headlines.

 

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

 

If Sears was a real estate company aiming for 96% occupancy like SPG then that $95/share figure would be enough to influence an investment decision. But SHLD is not a real estate company, so it doesn't matter to many people. Until Eddie decides to make SHLD into a SPG or GGP, you will not see many other investors value the stock that way. And even if he did decide to exit retail completely, how many years would it take to lease out 96% of 68M sf? All of the sudden that $95/share figure gets discounted a lot...

 

At it stands now it fully appears that Eddie is planning to use the real estate assets to make his integrated retail operations more competitive/profitable. In five years maybe sublease income completely pays for the hundreds of millions of lease expense he incurs from the locations he is keeping open. But even in that case, SHLD will be an integrated retail company that indirectly owns 100% of its stores (zero net lease expense), not a real estate company. As odd as it seems to me, that is direction he seems to be going in, even though the vast majority of value within SHLD is in that owned 68M sf. In that case, SPG and GGP are not good comps in my view.

[ERICOPOLY]

how many years would it take to lease out 96% of 68M sf?

 

A lot less time if that 68M is located in many separate pieces scattered throughout each and every retail market in the country.

 

Compared to all in one retail market!

 

That 68M figure probably sounds a lot more sensational than it really is.

 

[ERICOPOLY]

Actually, leasing out 200m retail sqft might take twice as long as leasing out 1m retail sqft.

 

Depends if that 1m is less desirable than each and every location comprising that 200m figure.

 

There are individual home sellers who have listings that sit on the market for a year ( in bad locations ), despite a million+ other house sales taking place during that time.

 

So the total sqft probably is of far less importance than the locations of it.

[Luke 532]

how many years would it take to lease out 96% of 68M sf?

 

A lot less time if that 68M is located in many separate pieces scattered throughout each and every retail market in the country.

 

Compared to all in one retail market!

 

That 68M figure probably sounds a lot more sensational than it really is.

 

Besides, it's not as if he'd have to redevelop/sell/whatever all 68M sq ft for the market to catch on, once he does a nice chunk the market will likely start viewing SHLD as something much different than just a retailer, and perhaps will value it as such. 

 

Berkowitz: "One good deal may create more wealth than 10 years of brilliant operations."

http://www.investmentnews.com/article/20120918/BLOG06/120919939

[peridotcapital]

Actually, leasing out 200m retail sqft might take twice as long as leasing out 1m retail sqft.

 

Depends if that 1m is less desirable than each and every location comprising that 200m figure.

 

There are individual home sellers who have listings that sit on the market for a year ( in bad locations ), despite a million+ other house sales taking place during that time.

 

So the total sqft probably is of far less importance than the locations of it.

 

True. So instead of using 68M SF at $150 per, let's assume the top 20% has the bulk of the value and value that 14M SF at some crazy number... $500/sf. That's $7B in value for the prime RE holdings. Today's enterprise value is what, $8B? So even if the market gives you full credit for the prime RE within 2-3 years, I still don't think the equity looks like a no-brainer if the rest of the assets are considered in their current state.

[krazeenyc]

Actually, leasing out 200m retail sqft might take twice as long as leasing out 1m retail sqft.

 

Depends if that 1m is less desirable than each and every location comprising that 200m figure.

 

There are individual home sellers who have listings that sit on the market for a year ( in bad locations ), despite a million+ other house sales taking place during that time.

 

So the total sqft probably is of far less importance than the locations of it.

 

True. So instead of using 68M SF at $150 per, let's assume the top 20% has the bulk of the value and value that 14M SF at some crazy number... $500/sf. That's $7B in value for the prime RE holdings. Today's enterprise value is what, $8B? So even if the market gives you full credit for the prime RE within 2-3 years, I still don't think the equity looks like a no-brainer if the rest of the assets are considered in their current state.

 

I don't think you've thought this through -- especially if you consider that the real estate is not encumbered and can be spun out.

[Matson125]

Hi All, 

 

I was interested in a sublease opportunity for the Gardens Mall in Palm Beach Gardens.  I am unable to see any information under the commercial properties.  Is this sublease is still available can you please send a flyer or any information you can on this? 

 

 

Earlier this year I went to Florida and sopped at the Aventura Mall.  The mall was busy and was occupied by High End retailers.  The mall is one of the top 5 grossing malls in the country.  Sears has a store and on the SHC realty website shows subleasing opportunities.

 

You would think that this would be one of the easiest subleases in their portfolio.  Surely a real estate agent worth their salt would be able to sublease to any number of retailers based on the quality of the property, but the sublease has been available for 6 months.

 

I find that concerning, if retailers aren't fighting over each other to partner with Sears in one of the top 5 grossing malls in the country, what does that say about the rest of them?

 

I have other examples but the Aventura Mall in particular stood out to me.

 

 

[krazeenyc]

Hi All, 

 

I was interested in a sublease opportunity for the Gardens Mall in Palm Beach Gardens.  I am unable to see any information under the commercial properties.  Is this sublease is still available can you please send a flyer or any information you can on this? 

 

 

Earlier this year I went to Florida and sopped at the Aventura Mall.  The mall was busy and was occupied by High End retailers.  The mall is one of the top 5 grossing malls in the country.  Sears has a store and on the SHC realty website shows subleasing opportunities.

 

You would think that this would be one of the easiest subleases in their portfolio.  Surely a real estate agent worth their salt would be able to sublease to any number of retailers based on the quality of the property, but the sublease has been available for 6 months.

 

I find that concerning, if retailers aren't fighting over each other to partner with Sears in one of the top 5 grossing malls in the country, what does that say about the rest of them?

 

I have other examples but the Aventura Mall in particular stood out to me.

 

Even in situations where Sears actually owns their store, they usually work with the mall owner when they sublease their space. From speaking with people involved, they're currently only considering national retailers or large regional restaurant concepts for most of these spaces. 

[peridotcapital]

Actually, leasing out 200m retail sqft might take twice as long as leasing out 1m retail sqft.

 

Depends if that 1m is less desirable than each and every location comprising that 200m figure.

 

There are individual home sellers who have listings that sit on the market for a year ( in bad locations ), despite a million+ other house sales taking place during that time.

 

So the total sqft probably is of far less importance than the locations of it.

 

True. So instead of using 68M SF at $150 per, let's assume the top 20% has the bulk of the value and value that 14M SF at some crazy number... $500/sf. That's $7B in value for the prime RE holdings. Today's enterprise value is what, $8B? So even if the market gives you full credit for the prime RE within 2-3 years, I still don't think the equity looks like a no-brainer if the rest of the assets are considered in their current state.

 

I don't think you've thought this through -- especially if you consider that the real estate is not encumbered and can be spun out.

 

Even if the RE assets are spun out, how would current equity holders avoid taking a big loss on the remaining stub, which would be worth a small fraction of the current price without the RE assets?

[Cardboard]

Thanks Matson125 for the information.

 

I have been to the Aventura Mall and surely Sears does not belong in there. Pretty high end. I did not even notice the Sears in there. Considering also how much that area has rebounded in terms of real estate, it is pretty remarkable that Sears has not left yet after 6 months. Maybe that they are hanging for better terms but, that shows that it takes time to sublease.

 

Cardboard

[bmichaud]

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

Also attached are two screen shots of JCP and SHLD. Interesting that SHLD's SI is 15% of shares out versus 36% for JCP.

 

bmichaud - what does TEV stand for in your comment?

 

Regarding the Short Interest, don't forget that 15% of SHLD shares being sold short really equates to almost 50% of the "free" float, since Fairholme and Lampert account for close to 70% of the total shares.

 

Total Enterprise Value

 

I don't believe the math is transferable to SHLD the way you did it there. I think you would need to take what you suggest is the total real estate value for SHLD (sqft*$/sqft), subtract the liabilities, then divide by number of shares. If you do that, you will get a number lower than 96, but I don't have the liabilities numbers in front of me so don't have an exact number. Of course, if you really think they'll be able to pull off selling real estate, and distributing it 100% to equity holders with zero recovery to the debt holders, this is not the case, but I can't imagine it happening that way.

 

I like the stock, but I think the more likely scenario is that we see monetization of some of the extremely valuable real estate (that will sell for prices significantly beyond the $150, or even $250, per sqft), found in malls where it simply doesn't make sense to have a Sears store. That value can potentially get transferred to equity holders (at expense of debt holders) via buybacks or special dividends. So long as its not too close to the 2018 maturities of the debt, I imagine they can do that with a decent amount of real estate value, and sell the story that their other less desirable real estate will serve as the footprint for their Sears stores, that will be much smaller and more focused on the SYW membership programs.

 

If you put Sears Retail into the perspective of a retail company that leases ALL of its real estate, then you do not need to allocate much if any of the liabilities to the real estate. Post 68MM SF sale to GGP or SPG, nothing would change except Sears Retail would be leasing the real estate from GGP or SPG.

 

Obviously this is very simplistic, but it helps with visualizing where the value lies.

[Cardboard]

Bmichaud,

 

You have obviously done more research into SHLD than I have. Per all the debt agreements, covenants, leasing agreements and potential fraudulent conveyance could they truly create a REIT that owns all Sears and Kmart stores? Or at least the very best spots?

 

Right now, we know relatively well the value of Sears Canada and Land's End or at around $15-20 per SHLD share. If the Sears/Kmart carcass could be separated from the REIT and these two, then a case could be made for a solid double from here, but again is that feasible?

 

Cardboard