SHLDQ - Sears Holdings Corp

[hyten1]

man we need a wiki page where people can just update the bull vs bear case, side by side, instead of this LONG thread

 

hy

 

EDIT: my poor attempt to do this, if anyone has a better wiki page.

 

https://docs.google.com/document/d/1QUeOJEJhD7_Q9WF2b-U_UV11L7gR2SXfYZ7QXE0CxEI/edit

 

 

[peridotcapital]

I agree. $150/sf for the entire RE portfolio, without tenants, seems unrealistic to me.

 

HAHAHAHAH of course it is!!!!!!!!!!!!!! Who is valuing the entire 254 SF portfolio at $150/SF? I certainly am not and never have.

 

This is precisely why there is so much confusion around this stock and why this thread is so fricking long....

 

The bear case is so driven to HATE the company because there are so many disgusting rancid sears and Kmart stores out there that it just extrapolates ONE YEAR of negative EBITDA and a few crappy Sears/Kmart experiences across the entire portfolio and into perpetuity.

 

For goodness sakes it's not rocket science to know that a Sears A-quality property isn't worth the $250/SF that GGP and SPG trade at....hence the $150/SF I keep hammering on for the SIXTY-EIGHT MILLION SQUARE FEET.

 

I know you are not including leased space. I never mentioned leases. It seems like you are saying that the 550 Sears stores that they own are worth $150/sf (correct me if I'm wrong). That is what we are disagreeing with. Only a fraction of those are in "A" malls and even those, by your own admission, are worth less than the $250/sf figure that GGP/Simon trade at.

 

Or we can look at it another way. Let's use the 80/20 rule on the entire portfolio of 550 Sears owned locations. Let's assume the top 110 owned Sears mall locations are worth $200/sf ("A" malls, 20% discount to Simon/GGP). That's 13.6M sf at $200 each, for a total of $2.72B. That is 80% of the value in this exercise. So the total value of the 550 owned Sears stores would be $3.4B.

 

Now, I'm not saying that the 80/20 rule applies exactly in this case, but it is an interesting comparison to your estimated value of $10.2B (150/sf x 68M) and gives you some idea of why many of us would respectfully disagree with you.

 

Edit: I just realized that they own 500 Sears, not the 550 I typed, but the point is unchanged.

 

Edit #2: Just for kicks I looked to see what value Baker Street assigned to the "top 100 owned" locations: $2.79B.

[Luke 532]

As of today's filing, Jaffe's Force Capital owns 6,298,309 (5.6% of SHLD)

 

http://www.sec.gov/Archives/edgar/data/1310067/000117266114000342/shld123113.htm

[bmichaud]

1. GGP and SPG trade at $250/SF including less than A-quality RE and RE it does not own

2. The 80/20 rule applies to SHLD's entire portfolio of 2,036 stores and 254MM SF, owned and leased - not simply the 500 owned properties

3. The top 350 owned and 50 leased is 68MM SF, or ~27% of the 254MM SF portfolio

 

If the top 400 properties, owned and leased, are thought of as a mini GGP/SPG - i.e. less than A-quality and leased properties included - then a discount to the $250/SF valuation should be applied. I use $150, which is 60% of the GGP/SPG valuation.

 

If you apply the 80/20 rule to the 500 owned properties, then yes the RE is virtually worthless, since the remaining 1500 would be considered part of the 80% garbage.

 

And when you say "across the entire RE portfolio", I assume leases are included, as these are included in the Berkowitz/Baker RE valuation.

[gr33ngi4nt]

As of today's filing, Jaffe's Force Capital owns 6,298,309 (5.6% of SHLD)

 

http://www.sec.gov/Archives/edgar/data/1310067/000117266114000342/shld123113.htm

 

They own 535,909 shs (up from 155,481 in Q3) and 57,624 call options (had 3,878,700 calls in Q3; probably sold down and rebought), which total the number above. In any case, they are heavily invested. Looks like it was their largest holding in Q3.

[Luke 532]

As of today's filing, Jaffe's Force Capital owns 6,298,309 (5.6% of SHLD)

 

http://www.sec.gov/Archives/edgar/data/1310067/000117266114000342/shld123113.htm

 

They own 535,909 shs (up from 155,481 in Q3) and 57,624 call options, which total the number above. In any case, they are heavily invested. Looks like it was their largest holding in Q3.

 

The Reporting Persons may be deemed to be the beneficial owners of 6,298,309 shares of common stock, which includes 5,762,400 shares of common stock if 57,624 options were exercised. The percentage of beneficial ownership herein is determined by dividing the number of shares beneficially owned by Force Capital Management LLC, 6,298,309, by the number of shares outstanding at December 31, 2013, 106,451,439 plus 5,762,400 the number of shares that could be acquired if certain options were exercised.

[hyten1]

bmichaud,

 

i added this to https://docs.google.com/document/d/1QUeOJEJhD7_Q9WF2b-U_UV11L7gR2SXfYZ7QXE0CxEI/edit

 

hy

 

1. GGP and SPG trade at $250/SF including less than A-quality RE and RE it does not own

2. The 80/20 rule applies to SHLD's entire portfolio of 2,036 stores and 254MM SF, owned and leased - not simply the 500 owned properties

3. The top 350 owned and 50 leased is 68MM SF, or ~27% of the 254MM SF portfolio

 

If the top 400 properties, owned and leased, are thought of as a mini GGP/SPG - i.e. less than A-quality and leased properties included - then a discount to the $250/SF valuation should be applied. I use $150, which is 60% of the GGP/SPG valuation.

 

If you apply the 80/20 rule to the 500 owned properties, then yes the RE is virtually worthless, since the remaining 1500 would be considered part of the 80% garbage.

 

And when you say "across the entire RE portfolio", I assume leases are included, as these are included in the Berkowitz/Baker RE valuation.

[peridotcapital]

 

2. The 80/20 rule applies to SHLD's entire portfolio of 2,036 stores and 254MM SF, owned and leased - not simply the 500 owned properties

 

I was not aware that the 80/20 rule only applies to real estate values if there are both leased and owned properties included in the analysis. :) I'm pretty sure it is used much more generally than that.

 

 

3. The top 350 owned and 50 leased is 68MM SF, or ~27% of the 254MM SF portfolio

 

 

Interesting... I thought you were referring to the owned Sears locations, which I believe also total ~68M sf. Odd coincidence.

 

 

[merkhet]

At this point, Baker Street & Force Capital can lay claim on 15.26 million shares through calls and have 2.5 million shares outright... interesting.

 

https://docs.google.com/spreadsheet/pub?key=0ArX667iB-WCRdFZRMEl4T29EQnRmUTZueE1XY09nSWc&single=true&gid=0&output=html

[bmichaud]

I was not aware that the 80/20 rule only applies to real estate values if there are both leased and owned properties included in the analysis. :) I'm pretty sure it is used much more generally than that.

 

Based on Berkowitz' previous musings on the SHLD real estate portfolio, you have to assume he was talking about the entire owned and leased portfolio.

 

Say the majority of the RE value is in the top 20% of Sears' 500 owned locations you cite, or 110 properties. Assuming the entire portfolio averages 125K SF/store, that's 13.72MM SF in the 110 top owned properties.

 

Berkowitz implied the entire RE portfolio is worth $9.8B-$11B in his 2009 OID interview. If $8B is assigned to the top 110 owned, that's a valuation of $583/SF. This seems entirely unrealistic, even if you back that down to $400/SF to include some other "trophy" properties.

 

 

I realize you were using the 500 owned properties as an example...but it is indicative of what appears to be just straight-up disagreement on what the real estate portfolio is worth, regardless of how you break it down.

[mcliu]

bmichaud,

 

i added this to https://docs.google.com/document/d/1QUeOJEJhD7_Q9WF2b-U_UV11L7gR2SXfYZ7QXE0CxEI/edit

 

hy

 

1. GGP and SPG trade at $250/SF including less than A-quality RE and RE it does not own

2. The 80/20 rule applies to SHLD's entire portfolio of 2,036 stores and 254MM SF, owned and leased - not simply the 500 owned properties

3. The top 350 owned and 50 leased is 68MM SF, or ~27% of the 254MM SF portfolio

 

If the top 400 properties, owned and leased, are thought of as a mini GGP/SPG - i.e. less than A-quality and leased properties included - then a discount to the $250/SF valuation should be applied. I use $150, which is 60% of the GGP/SPG valuation.

 

If you apply the 80/20 rule to the 500 owned properties, then yes the RE is virtually worthless, since the remaining 1500 would be considered part of the 80% garbage.

 

And when you say "across the entire RE portfolio", I assume leases are included, as these are included in the Berkowitz/Baker RE valuation.

 

This is great idea. I feel like the same points keep getting debated..

 

Can you add this simple valuation spreadsheet that everyone can edit with their assumptions? I tried pasting it into your Google Docs but it looks weird..

SHLD_Assets.xlsx

[hyten1]

anyone can edit, already some updates by various folks

 

bmichaud,

 

i added this to https://docs.google.com/document/d/1QUeOJEJhD7_Q9WF2b-U_UV11L7gR2SXfYZ7QXE0CxEI/edit

 

hy

 

1. GGP and SPG trade at $250/SF including less than A-quality RE and RE it does not own

2. The 80/20 rule applies to SHLD's entire portfolio of 2,036 stores and 254MM SF, owned and leased - not simply the 500 owned properties

3. The top 350 owned and 50 leased is 68MM SF, or ~27% of the 254MM SF portfolio

 

If the top 400 properties, owned and leased, are thought of as a mini GGP/SPG - i.e. less than A-quality and leased properties included - then a discount to the $250/SF valuation should be applied. I use $150, which is 60% of the GGP/SPG valuation.

 

If you apply the 80/20 rule to the 500 owned properties, then yes the RE is virtually worthless, since the remaining 1500 would be considered part of the 80% garbage.

 

And when you say "across the entire RE portfolio", I assume leases are included, as these are included in the Berkowitz/Baker RE valuation.

 

This is great idea. I feel like the same points keep getting debated..

 

Can you add this simple valuation spreadsheet that everyone can edit with their assumptions? I tried pasting it into your Google Docs but it looks weird..

[hyten1]

mclui, i created a google spreadsheet, https://docs.google.com/spreadsheet/ccc?key=0AreYzyrU3frjdENIb3NxWlQyVkJBTlZ2OXd1MkhVU3c#gid=0

 

you might want to edit it, since i just cut and  paste it in

 

i also link to the bull vs bear doc

 

bmichaud,

 

i added this to https://docs.google.com/document/d/1QUeOJEJhD7_Q9WF2b-U_UV11L7gR2SXfYZ7QXE0CxEI/edit

 

hy

 

1. GGP and SPG trade at $250/SF including less than A-quality RE and RE it does not own

2. The 80/20 rule applies to SHLD's entire portfolio of 2,036 stores and 254MM SF, owned and leased - not simply the 500 owned properties

3. The top 350 owned and 50 leased is 68MM SF, or ~27% of the 254MM SF portfolio

 

If the top 400 properties, owned and leased, are thought of as a mini GGP/SPG - i.e. less than A-quality and leased properties included - then a discount to the $250/SF valuation should be applied. I use $150, which is 60% of the GGP/SPG valuation.

 

If you apply the 80/20 rule to the 500 owned properties, then yes the RE is virtually worthless, since the remaining 1500 would be considered part of the 80% garbage.

 

And when you say "across the entire RE portfolio", I assume leases are included, as these are included in the Berkowitz/Baker RE valuation.

 

This is great idea. I feel like the same points keep getting debated..

 

Can you add this simple valuation spreadsheet that everyone can edit with their assumptions? I tried pasting it into your Google Docs but it looks weird..

[bmichaud]

bmichaud,

 

i added this to https://docs.google.com/document/d/1QUeOJEJhD7_Q9WF2b-U_UV11L7gR2SXfYZ7QXE0CxEI/edit

 

hy

 

1. GGP and SPG trade at $250/SF including less than A-quality RE and RE it does not own

2. The 80/20 rule applies to SHLD's entire portfolio of 2,036 stores and 254MM SF, owned and leased - not simply the 500 owned properties

3. The top 350 owned and 50 leased is 68MM SF, or ~27% of the 254MM SF portfolio

 

If the top 400 properties, owned and leased, are thought of as a mini GGP/SPG - i.e. less than A-quality and leased properties included - then a discount to the $250/SF valuation should be applied. I use $150, which is 60% of the GGP/SPG valuation.

 

If you apply the 80/20 rule to the 500 owned properties, then yes the RE is virtually worthless, since the remaining 1500 would be considered part of the 80% garbage.

 

And when you say "across the entire RE portfolio", I assume leases are included, as these are included in the Berkowitz/Baker RE valuation.

 

this is great! thanks for putting it together.

[gg]

At this point, Baker Street & Force Capital can lay claim on 15.26 million shares through calls and have 2.5 million shares outright... interesting.

 

https://docs.google.com/spreadsheet/pub?key=0ArX667iB-WCRdFZRMEl4T29EQnRmUTZueE1XY09nSWc&single=true&gid=0&output=html

 

 

I have read a few places about the short interest as a percentage of the "float" left after accounting for the Baker St/ESL/Fairholme/Force/etc stakes, but if Force and Baker Street are mostly using options, the float is actually much bigger. Further isn't it possible that these guys (including Fairholme and ESL) lend out their shares to the short sellers to capture some extra yield?

[Luke 532]

At this point, Baker Street & Force Capital can lay claim on 15.26 million shares through calls and have 2.5 million shares outright... interesting.

 

https://docs.google.com/spreadsheet/pub?key=0ArX667iB-WCRdFZRMEl4T29EQnRmUTZueE1XY09nSWc&single=true&gid=0&output=html

 

 

I have read a few places about the short interest as a percentage of the "float" left after accounting for the Baker St/ESL/Fairholme/Force/etc stakes, but if Force and Baker Street are mostly using options, the float is actually much bigger. Further isn't it possible that these guys (including Fairholme and ESL) lend out their shares to the short sellers to capture some extra yield?

 

You should ignore any float calculations that include calls as part of the share count... it's just not conservative at all (very aggressive, actually).  In my model I only consider Lampert, Berkowitz, and Tisch to be strong hands, hence why I come up with just 57% of the float being short.  It's an unreasonably conservative approach, but when opportunities present themselves while being ultra-conservative it usually yields profitable results.

[merkhet]

At this point, Baker Street & Force Capital can lay claim on 15.26 million shares through calls and have 2.5 million shares outright... interesting.

 

https://docs.google.com/spreadsheet/pub?key=0ArX667iB-WCRdFZRMEl4T29EQnRmUTZueE1XY09nSWc&single=true&gid=0&output=html

 

 

I have read a few places about the short interest as a percentage of the "float" left after accounting for the Baker St/ESL/Fairholme/Force/etc stakes, but if Force and Baker Street are mostly using options, the float is actually much bigger. Further isn't it possible that these guys (including Fairholme and ESL) lend out their shares to the short sellers to capture some extra yield?

 

If you run through the numbers, you'll see that I don't include Baker Street's & Force Capital's calls as part of the calculation for the float...

[adesigar]

I could cry right now if I was the kind of guy that cried over these kinds of things.  Being bankruptcy remote has nothing to do with anything you discussed.  It is not some kind of sheltering mechanism to ensure gains stay with the parent.  Actually, I'm not sure exactly what your point is, but from what I can discern from your post bankruptcy remoteness has nothing to do with any of this.

 

Edit:  Just to comment further on the second point re the "hypothetical scenario".  I am not sure I understand it either, but there seems to be an analogy being made between BRK wholly owned subs and Sears' real estate and brands.  The point is made that if Mid American or BNSF didn't make a profit it wouldn't affect the value of BRK's "stock portfolio" which I assume means KO, WFC, etc.  I would agree with that.  However, if the point is that if Mid American or BNSF don't make money it has no bearing on BRK, that is not true at all.  It would have an impact although I don't know exactly how much.  Likewise with Sears, if their brands, real estate, etc regardless of how they are held don't make money or are sold at losses, etc that would most definitely have an impact on Sears Holding, the ultimate parent.

 

I apologies for making you so upset. I was commenting about Ericopoly's "Person  B" and trying to point out that retail losses would not reduce value of Real Estate holdings if the real estate is held in a subsidiary with no connection to the retail unit. I'm was mixing bankruptcy remote along with NonGuarantor subsidiaries. I my head as long as they are held by the holding company or a different subsidiary from the retail they are sheltered from problems at the retail units. Just because they are created for issuing bonds doesn't mean they don't shelter those assets from problems with the retail units. I thought sheltering from problems with the retail unit is precisely the reason why they are rated better. So in my theoretical case Retail Sears and Kmart could go to hell in a hand-basket and could go bankrupt and the Real Estate could be safe and would rise in value with inflation.  Like I said I don't know the details so I have no idea if my version is accurate.  But without knowing exactly which entity owns what, we cant say that the retail losses translate to reduced value for the Real Estate. Hence $1.0 doesn't necessarily become $0.93. It might become $0.93 or it might become $1.07.  I am again talking about a hypothetical scenario.

 

And the point as you understood was

The point is made that if Mid American or BNSF didn't make a profit it wouldn't affect the value of BRK's "stock portfolio" which I assume means KO, WFC, etc.  I would agree with that.

where Kmart+ Sears are Mid American+BNSF and Sears's Real Estate/Brands portfolio are the equivalent of BRK's stock portfolio.

 

Again sorry for getting so many people upset.

 

 

[bmichaud]

SHLD has now disconnected from JCP and appears to be tracking SHOS...upward. Fun fact.

[Luke 532]

SHLD has now disconnected from JCP and appears to be tracking SHOS...upward. Fun fact.

 

I'm more interested in it tracking VW, if you know what I mean :)  (for the record, no I don't think it will happen... but I'm positioned for it on the off chance something like that happens)

[bmichaud]

haha - you'd have to get out quick to take advantage of that. VW was $122 on 10/31/08 and $102 11/7/08. Wou

[Luke 532]

haha - you'd have to get out quick to take advantage of that. VW was $122 on 10/31/08 and $102 11/7/08. Wou

 

All my sell orders are already in place on the options.

[bmichaud]

Very nice. What is your VW-like sell price for SHLD, might I ask?

 

Not sure why I wrote "wou" at the end of my last post. Didn't realize until just now.

[gg]

Does anyone know how large a potential return of capital, or spin-off, has to be for options' strike prices to get adjusted downwards? Specifically curious if you own the SHLD LEAPS expiring in Jan 2016, how do you know what will happens to the strike price after the spin offs? Would love to hear from anyone who owned the SHLD LEAPS before the SHOS and Orchard Supplies spin offs

[Luke 532]

Very nice. What is your VW-like sell price for SHLD, might I ask?

 

Not sure why I wrote "wou" at the end of my last post. Didn't realize until just now.

 

Not a specific price.  I have two separate trades for the calls... those 40-strike 2016's I mentioned a month or so ago, and another batch at a strike so deep OTM I'm embarrassed to admit it (lottery tickets usually not my style). 

 

I have each trade broken up into about 4 or 5 sell orders... although I am tempted to just buy puts if SHLD continues to rise to lock in gains on the 40's so I don't have to sell them.  I'd prefer to stay in the 40-strike trade if I can as it has 2 full years to expiration and is only about 10-15% from break-even of 48.45 already.