Mephistopheles Posted February 6, 2014 Share Posted February 6, 2014 1) Here's my generalized view. Mall supply is at a multi-year low, occupancy rates are at a multi-year high (I think), there isn't much new supply being added, and the population is increasing every year. This makes me confident about the pricing of the real estate. And even if not, I believe there is quite a large margin of safety in the stock at current levels. 2) This is hard to predict, but given Lampert has accelerated monetizing over the last couple of years, and by taking obvious steps (through the formation of Seritage) and again with the margin of safety that the stock offers, I am comfortable at this level. My concern with Sears is that: 1) The real estate value is quite uncertain. Cap rates are at very low today, but that may change in the future. What kind of sensitivities do these assets have to cap rate increases? If you assume that cap rates rise from the current sub 5% on Class A retail to 10% in 10 years, the real estate may only be worth half of what it is. 2) Timing of asset sales is also uncertain. There's a huge impact on IRRs if you assume that the assets get liquidated over a 5, 10 or 20 year period. It seems like slight changes to 1) and 2) can have a pretty big impact on your IRR and the dispersion of outcomes. Would like to hear your thoughts. Link to comment Share on other sites More sharing options...
Eye4Valu Posted February 6, 2014 Share Posted February 6, 2014 "Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of sears’ net assets exceeds $150 per share. If our research is accurate, we expect sears’ market price of $38 to increase to this value over time." -Fairholme Capital Management, L.L.C.'s Portfolio Manager’s Report For the Year Ended December 31, 2013 Link to comment Share on other sites More sharing options...
ERICOPOLY Posted February 6, 2014 Share Posted February 6, 2014 "Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, sears has distributed over $66 of cash per share via buybacks " Al Bundy talking about his high school glory days? Over the past year, there were $12 per share in losses... and I'm no scientist but I presume that's why over the past year there were no buybacks. Cheers for the years when there were profits and buybacks. Why is that relevant to Bruce's thesis today? Link to comment Share on other sites More sharing options...
adesigar Posted February 6, 2014 Share Posted February 6, 2014 "Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, sears has distributed over $66 of cash per share via buybacks " Al Bundy talking about his high school glory days? Over the past year, there were $12 per share in losses... and I'm no scientist but I presume that's why over the past year there were no buybacks. Cheers for the years when there were profits and buybacks. Why is that relevant to Bruce's thesis today? One year doesn't make a thesis for a value investor. We look for the track record over 5 years or longer. Link to comment Share on other sites More sharing options...
mcliu Posted February 6, 2014 Share Posted February 6, 2014 Thanks. Good reply. Just a follow up. My understanding was that the Class A super-regionals are doing well, but smaller regional malls continue to struggle. Even for the Class A properties, it seems like the high valuations are driven off of low cap rates rather than significant NOI growth. Didn't the Simon family sell a big chunk of shares early last year? I mean if the Class A retail market is somewhat frothy and most of Sears' real estate value is derived from a small portion of their portfolio in the top-performing malls. Is there still enough asset coverage if the market corrects and cap rates rise, say 3% or 5% over the next several years? For Sears' Class B portfolio, it just doesn't seem to have much value given how much those malls are shrinking and the time and capital it will take to re-demise and lease the boxes. 1) Here's my generalized view. Mall supply is at a multi-year low, occupancy rates are at a multi-year high (I think), there isn't much new supply being added, and the population is increasing every year. This makes me confident about the pricing of the real estate. And even if not, I believe there is quite a large margin of safety in the stock at current levels. 2) This is hard to predict, but given Lampert has accelerated monetizing over the last couple of years, and by taking obvious steps (through the formation of Seritage) and again with the margin of safety that the stock offers, I am comfortable at this level. My concern with Sears is that: 1) The real estate value is quite uncertain. Cap rates are at very low today, but that may change in the future. What kind of sensitivities do these assets have to cap rate increases? If you assume that cap rates rise from the current sub 5% on Class A retail to 10% in 10 years, the real estate may only be worth half of what it is. 2) Timing of asset sales is also uncertain. There's a huge impact on IRRs if you assume that the assets get liquidated over a 5, 10 or 20 year period. It seems like slight changes to 1) and 2) can have a pretty big impact on your IRR and the dispersion of outcomes. Would like to hear your thoughts. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted February 6, 2014 Share Posted February 6, 2014 "Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, sears has distributed over $66 of cash per share via buybacks " Al Bundy talking about his high school glory days? Over the past year, there were $12 per share in losses... and I'm no scientist but I presume that's why over the past year there were no buybacks. Cheers for the years when there were profits and buybacks. Why is that relevant to Bruce's thesis today? One year doesn't make a thesis for a value investor. We look for the track record over 5 years or longer. It's been more than 5 years. During that time, things have improved? What metric are you cheering about after this period of greater than 5 years? How fast has value per share been compounding? Link to comment Share on other sites More sharing options...
krazeenyc Posted February 6, 2014 Share Posted February 6, 2014 Thanks. Good reply. Just a follow up. My understanding was that the Class A super-regionals are doing well, but smaller regional malls continue to struggle. Even for the Class A properties, it seems like the high valuations are driven off of low cap rates rather than significant NOI growth. Didn't the Simon family sell a big chunk of shares early last year? I mean if the Class A retail market is somewhat frothy and most of Sears' real estate value is derived from a small portion of their portfolio in the top-performing malls. Is there still enough asset coverage if the market corrects and cap rates rise, say 3% or 5% over the next several years? For Sears' Class B portfolio, it just doesn't seem to have much value given how much those malls are shrinking and the time and capital it will take to re-demise and lease the boxes. 1) Here's my generalized view. Mall supply is at a multi-year low, occupancy rates are at a multi-year high (I think), there isn't much new supply being added, and the population is increasing every year. This makes me confident about the pricing of the real estate. And even if not, I believe there is quite a large margin of safety in the stock at current levels. 2) This is hard to predict, but given Lampert has accelerated monetizing over the last couple of years, and by taking obvious steps (through the formation of Seritage) and again with the margin of safety that the stock offers, I am comfortable at this level. My concern with Sears is that: 1) The real estate value is quite uncertain. Cap rates are at very low today, but that may change in the future. What kind of sensitivities do these assets have to cap rate increases? If you assume that cap rates rise from the current sub 5% on Class A retail to 10% in 10 years, the real estate may only be worth half of what it is. 2) Timing of asset sales is also uncertain. There's a huge impact on IRRs if you assume that the assets get liquidated over a 5, 10 or 20 year period. It seems like slight changes to 1) and 2) can have a pretty big impact on your IRR and the dispersion of outcomes. Would like to hear your thoughts. Do you define B Mall as avg sales per square foot at $450 + (and A as $650 +?) CBL bought 2 of these B Malls from Sears for about $50M. Both were very high occupancy malls one appx 110,000 sq ft ($459 per sq ft mall). The other was 150,000 Sq ft and appx sales per $580 per sq ft. Both were owned locations -- but 1 was a ground lease (I forget which off the top of my head -- and these numbers are appx). Link to comment Share on other sites More sharing options...
wisdom Posted February 6, 2014 Share Posted February 6, 2014 http://www.bloomberg.com/news/2014-02-06/hedge-funds-preparing-for-1-trillion-property-bill-mortgages.html Hedge funds raising $s as 1 trillion in commercial debt coming due over the next 3 yrs Link to comment Share on other sites More sharing options...
Luke 532 Posted February 6, 2014 Share Posted February 6, 2014 One clue to view how the real estate arm of Sears will look in the future is to look at their trademarks. In January they secured 2 trademarks related to their real estate. Seritage (website above) and Atrium Outlets (To view trademarks, a Google search of “Atrium outlets sears” will lead you in the right direction). Atrium Outlets does not have a live website at the moment, nor has there been any talk or discussion on the company. The only clue is there is an architecture firm that has posted the project online and based on the pictures this will be a mall base concept that will be leased to retail tenants. http://ark-itecture.com/ark-itecture-projects-r-atrium-outlets.html Atrium Outlets trademark has been "withdrawn before publication" as of two weeks ago (August 9th). http://www.trademarkia.com/atrium-outlets-85818138.html I know nothing about trademarks but found this interesting. The trademark was "withdrawn before publication" in August 2013 but appears (I could be wrong) that it is now moving forward: The USPTO has given the ATRIUM OUTLETS trademark serial number of 85818138. The current federal status of this trademark filing is NON-FINAL ACTION - MAILED. Status/Status Date: NON-FINAL ACTION - MAILED 9/1/2013 Estimated Response Deadline: 3/1/2014 http://www.trademarkia.com/atrium-outlets-85818138.html Not earth-shattering by any stretch, but I would be very interested in seeing what the AtriumOutlets website contained when/if it ever exists. Link to comment Share on other sites More sharing options...
Luke 532 Posted February 6, 2014 Share Posted February 6, 2014 Any rough idea how many stores were closed in 2013, 2012, and 2011? Curious how much of an "acceleration" is happening. See attachment for a generic spreadsheet of owned and leased stores year-over-year (for past few years). Will be interesting to see what the upcoming Annual Report shows. We know there have been about 45 in 2014 alone, but does anybody know the number of closings from 2/3/2013 to 12/31/2013? SHLD_-_Store_Count_Year-over-Year.xlsx Link to comment Share on other sites More sharing options...
Luke 532 Posted February 6, 2014 Share Posted February 6, 2014 No need to click on link, this is the entire blog post. Proud of all our Kmart Associates and Shop Your Way Members! http://edwardslampert.com/2014/02/06/proud-of-all-our-kmart-associates-and-shop-your-way-members/ “For the fifth consecutive year, Kmart is the top corporate fundraising partner in the St. Jude Thanks and Giving campaign” Link to comment Share on other sites More sharing options...
adesigar Posted February 7, 2014 Share Posted February 7, 2014 One clue to view how the real estate arm of Sears will look in the future is to look at their trademarks. In January they secured 2 trademarks related to their real estate. Seritage (website above) and Atrium Outlets (To view trademarks, a Google search of “Atrium outlets sears” will lead you in the right direction). Atrium Outlets does not have a live website at the moment, nor has there been any talk or discussion on the company. The only clue is there is an architecture firm that has posted the project online and based on the pictures this will be a mall base concept that will be leased to retail tenants. http://ark-itecture.com/ark-itecture-projects-r-atrium-outlets.html Atrium Outlets trademark has been "withdrawn before publication" as of two weeks ago (August 9th). http://www.trademarkia.com/atrium-outlets-85818138.html I know nothing about trademarks but found this interesting. The trademark was "withdrawn before publication" in August 2013 but appears (I could be wrong) that it is now moving forward: The USPTO has given the ATRIUM OUTLETS trademark serial number of 85818138. The current federal status of this trademark filing is NON-FINAL ACTION - MAILED. Status/Status Date: NON-FINAL ACTION - MAILED 9/1/2013 Estimated Response Deadline: 3/1/2014 http://www.trademarkia.com/atrium-outlets-85818138.html Not earth-shattering by any stretch, but I would be very interested in seeing what the AtriumOutlets website contained when/if it ever exists. So while researching this I found the following Trademarks being filed January 23, 2014 - EBLON TECHNOLOGIES which led me to http://www.eblontech.com/ Link to comment Share on other sites More sharing options...
enoch01 Posted February 7, 2014 Share Posted February 7, 2014 So while researching this I found the following Trademarks being filed January 23, 2014 - EBLON TECHNOLOGIES which led me to http://www.eblontech.com/ Nice find, thanks. Link to comment Share on other sites More sharing options...
Luke 532 Posted February 7, 2014 Share Posted February 7, 2014 So while researching this I found the following Trademarks being filed January 23, 2014 - EBLON TECHNOLOGIES which led me to http://www.eblontech.com/ Nice find, thanks. +1, good work adesigar! Link to comment Share on other sites More sharing options...
Luke 532 Posted February 7, 2014 Share Posted February 7, 2014 http://www.eblontech.com/ Vague but interesting case studies found at http://www.eblontech.com/#!resources/c1bam For "a large retailer" - wonder who that is? ;) http://media.wix.com/ugd/328102_1de1155edba54e7abf80316fbbe4e35b.pdf For an investment bank: http://media.wix.com/ugd/328102_4707d712c29b465e994b35e0c1eb442b.pdf Link to comment Share on other sites More sharing options...
adesigar Posted February 7, 2014 Share Posted February 7, 2014 Found another http://www.evoke-productions.com/ Scroll to the bottom to see Images, video and text ©[2013] Sears Brands, LLC Link to comment Share on other sites More sharing options...
Luke 532 Posted February 7, 2014 Share Posted February 7, 2014 Found another http://www.evoke-productions.com/ Scroll to the bottom to see Images, video and text ©[2013] Sears Brands, LLC Nice work. "Evoke’s 65,000 square foot multi-set facility is one of the largest photo studios in the Midwest. We’re equipped with more than 30 photography bays, full-size loading docks and soaring ceilings to accommodate large products and complicated deliveries. Equally important, our talented staff ensures that you’ll get images that meet your high creative standards." Link to comment Share on other sites More sharing options...
jeffmori7 Posted February 7, 2014 Share Posted February 7, 2014 It seems like the Google strategy of throwing a lot of stuff and see what stick to the wall. Link to comment Share on other sites More sharing options...
CorpRaider Posted February 7, 2014 Share Posted February 7, 2014 http://www.eblontech.com/ Vague but interesting case studies found at http://www.eblontech.com/#!resources/c1bam For "a large retailer" - wonder who that is? ;) http://media.wix.com/ugd/328102_1de1155edba54e7abf80316fbbe4e35b.pdf For an investment bank: http://media.wix.com/ugd/328102_4707d712c29b465e994b35e0c1eb442b.pdf Look at the top left one. LOL. They are talking about the sears online presence. Wow. They have a lot of work to do on that before I would be hiring them to set up my web universe. Holy lord man. Sell some refrigerators. I guess it is sort of like amazon selling web/cloud services, only their website actually works. Link to comment Share on other sites More sharing options...
hyten1 Posted February 7, 2014 Share Posted February 7, 2014 i think all these business are the result of separating various in house function that already exist in sears into separate entity. i don't think (just my opinion) these business was started from scratch hy Link to comment Share on other sites More sharing options...
ERICOPOLY Posted February 7, 2014 Share Posted February 7, 2014 For the cost conscious, notice that eblontech seems to be in India where you pay much less for engineers. Link to comment Share on other sites More sharing options...
adesigar Posted February 7, 2014 Share Posted February 7, 2014 eblontech.com may be related to or be a division of https://www.searsholdings.in/ The about page says they have 1200+ people at Sears Holdings India Link to comment Share on other sites More sharing options...
adesigar Posted February 7, 2014 Share Posted February 7, 2014 i think all these business are the result of separating various in house function that already exist in sears into separate entity. i don't think (just my opinion) these business was started from scratch hy Yup I think you are right. Its like the BusinessWeek article about Sears warring divisions. But I don't agree with BusinessWeek that its a bad thing. What Lampert did makes sense to me. I think that since Sears is such an old company they probably have a ton of divisions in house. So each division needs to show that they can match or beat having the work handed off to a specialized company. Sears Canada just cut a ton of jobs and handed the work off to IBM. Makes no sense to have things in-house when a specialized firm could do it better and cheaper. Lampert would need the warring divisions model to figure out what to keep in house vs. hand off to an outside company. Short Term pain -> Long Term Gain. Another advantage is if they have a division that performs better than what's available in the market they can expand/monetize it and make it a profit center. Link to comment Share on other sites More sharing options...
muscleman Posted February 7, 2014 Share Posted February 7, 2014 Any rough idea how many stores were closed in 2013, 2012, and 2011? Curious how much of an "acceleration" is happening. See attachment for a generic spreadsheet of owned and leased stores year-over-year (for past few years). Will be interesting to see what the upcoming Annual Report shows. We know there have been about 45 in 2014 alone, but does anybody know the number of closings from 2/3/2013 to 12/31/2013? The big drop in 2013 was because of the SHOS spin off, no? Link to comment Share on other sites More sharing options...
Guest hellsten Posted February 7, 2014 Share Posted February 7, 2014 For the cost conscious, notice that eblontech seems to be in India where you pay much less for engineers. …and they have outsourced their social media strategy to Africa: https://www.facebook.com/eblon Yes, that is the Facebook profile eblontech.com links to. The Twitter link goes to their website hosting provider. Link to comment Share on other sites More sharing options...
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