SHLDQ - Sears Holdings Corp

[Mephistopheles]

and the CFO in the latest blog post excluding the upfront 1.75% fee).

 

???

 

"Our $400 million loan has an interest rate of 5 percent and an upfront fee of 175 base points,..."

http://blog.searsholdings.com/leadership-viewpoint/setting-the-record-straight-just-the-facts/

 

Wow, I'm embarrassed, my mistake. I read this a few days ago on my phone along with what some of the posters on this board were talking about in regards to the fee. I guess what I meant to say is that he was misleading when he implied that they got a better deal than JCP when you compute the effective interest rate.

[Luke 532]

and the CFO in the latest blog post excluding the upfront 1.75% fee).

 

???

 

"Our $400 million loan has an interest rate of 5 percent and an upfront fee of 175 base points,..."

http://blog.searsholdings.com/leadership-viewpoint/setting-the-record-straight-just-the-facts/

 

Wow, I'm embarrassed, my mistake. I read this a few days ago on my phone along with what some of the posters on this board were talking about in regards to the fee. I guess what I meant to say is that he was misleading when he implied that they got a better deal than JCP when you compute the effective interest rate.

 

No worries, it happens... especially when there's been so much going on in the past week.

[randomep]

Pardon me for probably repeating an old question, using this figure of $8.5 bil, how much is this greater than the current SHLD book value?

 

 

On that note, the EV is now $8.6 billion, including the market cap, debt, and pension. I didn't adjust for the consolidated SCC stake, so it's not completely accurate.

 

So for $8.6 billion you get the Real Estate, KCD, Home Services, Warranty, Auto Center, and Net Inventories.

 

Net Inventories are $3.9 billion and KCD IP, LLC is valued at $1.8 billion, so that leaves $2.9 billion for the rest. If we assume $5 billion in future cash burn, then that is $8 billion for RE, Home Services, Warranty, and Auto Center, which seems reasonable.

 

 

Edited: For a blunder

 

Sir I don't follow you.

 

Based on your numbers, selling the RE will pay for EV. So that leaves inventory and KCD IP which you give as $3.7b+1.8b=$5.7b. That's value that shareholders can harvest, but you say that cost is $5 bil of cash burn.... then at the end of the day shareholders get $0.7b ? hmmmm pretty hard sell for the risk!

[Luke 532]

Sir I don't follow you.

 

Based on your numbers, selling the RE will pay for EV. So that leaves inventory and KCD IP which you give as $3.7b+1.8b=$5.7b. That's value that shareholders can harvest, but you say that cost is $5 bil of cash burn.... then at the end of the day shareholders get $0.7b ? hmmmm pretty hard sell for the risk!

 

I believe he was just pointing out the margin of safety, which includes $5B of cash burn (no small number).  He also mentions $8B covers real estate, warranty business, and home services.  One could argue just the best real estate could sell for $150/sq ft * 68M = > $10B, leaving out all of the other real estate, warranty, home services, etc.  I think it's pretty easy to see the margin of safety in this investment, but maybe my calculator is broken.

[Mephistopheles]

Sir I don't follow you.

 

Based on your numbers, selling the RE will pay for EV. So that leaves inventory and KCD IP which you give as $3.7b+1.8b=$5.7b. That's value that shareholders can harvest, but you say that cost is $5 bil of cash burn.... then at the end of the day shareholders get $0.7b ? hmmmm pretty hard sell for the risk!

 

I believe he was just pointing out the margin of safety, which includes $5B of cash burn (no small number).  He also mentions $8B covers real estate, warranty business, and home services.  One could argue just the best real estate could sell for $150/sq ft * 68M = > $10B, leaving out all of the other real estate, warranty, home services, etc.  I think it's pretty easy to see the margin of safety in this investment, but maybe my calculator is broken.

 

Yes, that's what I meant. And don't forget that I already accounted for the pension in EV. So that's $5 billion of ex-pension cash burn.

[20ppy]

Sir I don't follow you.

 

Based on your numbers, selling the RE will pay for EV. So that leaves inventory and KCD IP which you give as $3.7b+1.8b=$5.7b. That's value that shareholders can harvest, but you say that cost is $5 bil of cash burn.... then at the end of the day shareholders get $0.7b ? hmmmm pretty hard sell for the risk!

 

I believe he was just pointing out the margin of safety, which includes $5B of cash burn (no small number).  He also mentions $8B covers real estate, warranty business, and home services.  One could argue just the best real estate could sell for $150/sq ft * 68M = > $10B, leaving out all of the other real estate, warranty, home services, etc.  I think it's pretty easy to see the margin of safety in this investment, but maybe my calculator is broken.

 

The 10 billion figure is the minimum in my opinion and can only prove to much greater... SYW may still work, we will see.

[Luke 532]

Sir I don't follow you.

 

Based on your numbers, selling the RE will pay for EV. So that leaves inventory and KCD IP which you give as $3.7b+1.8b=$5.7b. That's value that shareholders can harvest, but you say that cost is $5 bil of cash burn.... then at the end of the day shareholders get $0.7b ? hmmmm pretty hard sell for the risk!

 

I believe he was just pointing out the margin of safety, which includes $5B of cash burn (no small number).  He also mentions $8B covers real estate, warranty business, and home services.  One could argue just the best real estate could sell for $150/sq ft * 68M = > $10B, leaving out all of the other real estate, warranty, home services, etc.  I think it's pretty easy to see the margin of safety in this investment, but maybe my calculator is broken.

 

The 10 billion figure is the minimum in my opinion and can only prove to much greater... SYW may still work, we will see.

 

I was being conservative with $150/sq ft.  REIT's trade at roughly $250/sq ft.  Before people say "but it's not a REIT," they could sell their space back to GGP, SPG, etc.  There are tons of quotes from conference calls, interviews, etc. that the REIT's are extremely interested in this property.  Lampert just doesn't want to give it to them yet.

[peridotcapital]

I was being conservative with $150/sq ft.  REIT's trade at roughly $250/sq ft.  Before people say "but it's not a REIT," they could sell their space back to GGP, SPG, etc.  There are tons of quotes from conference calls, interviews, etc. that the REIT's are extremely interested in this property.  Lampert just doesn't want to give it to them yet.

 

The very best REITs may sell for $250/sf, but the vast majority of the SHLD property portfolio is not comparable to a SPG or GGP (as an aside, I'd be curious why you think their "best properties" total 68M sf --- as that's 80% of owned square footage). If you look at WPG or KIM, those REITs trade at around $100/sf. I think people may be surprised how much of SHLD's 85M sf of owned properties would be valued like WPG/KIM as opposed to SPG/GGP.

[Luke 532]

(as an aside, I'd be curious why you think their "best properties" total 68M sf --- as that's 80% of owned square footage).

 

Their best 350 owned properties coupled with their best 50 leased properties is approximately 68M square feet.

 

[Picasso]

I was being conservative with $150/sq ft.  REIT's trade at roughly $250/sq ft.  Before people say "but it's not a REIT," they could sell their space back to GGP, SPG, etc.  There are tons of quotes from conference calls, interviews, etc. that the REIT's are extremely interested in this property.  Lampert just doesn't want to give it to them yet.

 

The very best REITs may sell for $250/sf, but the vast majority of the SHLD property portfolio is not comparable to a SPG or GGP (as an aside, I'd be curious why you think their "best properties" total 68M sf --- as that's 80% of owned square footage). If you look at WPG or KIM, those REITs trade at around $100/sf. I think people may be surprised how much of SHLD's 85M sf of owned properties would be valued like WPG/KIM as opposed to SPG/GGP.

 

$150/sf is the high end of what Baker Street came up with. 90% of what Luke is quoting is directly from the Baker Street presentation.

[Luke 532]

$150/sf is the high end of what Baker Street came up with. 90% of what Luke is quoting is directly from the Baker Street presentation.

 

If you have a quote from Mathrani, Sokolov, etc. does it really matter if that was embedded in the Baker Street presentation?  No.

 

Are you telling me that GGP and SPG don't trade around $250/square foot?

 

I really don't care what some 30-something hedge fund guy says, but there is/was some useful information in his report.

[Picasso]

$150/sf is the high end of what Baker Street came up with. 90% of what Luke is quoting is directly from the Baker Street presentation.

 

If you have a quote from Mathrani, Sokolov, etc. does it really matter if that was embedded in the Baker Street presentation?  No.

 

Are you telling me that GGP and SPG don't trade around $250/square foot?

 

I really don't care what some 30-something hedge fund guy says, but there is/was some useful information in his report.

 

You are also quoting the real estate values with the "top 350 owned and 50 leased." The high end of his real estate value was roughly $150 per square feet as well.

 

I don't think anyone else has used the top 350 stores and top 50 leases terminology as that is quite specific to that slide deck from Baker Street.  Your short interest and effective float calculations also come from that presentation.

 

It also does not get away from Chad's question about how you assume 80 percent of their owned locations are suddenly worth $150/sf. It seems to me that the $5B in extra margin of safety is the difference between reality and $150/sf and the time it takes to get there minus the cash burn.

[Luke 532]

I don't think anyone else has used the top 350 stores and top 50 leases terminology as that is quite specific to that slide deck from Baker Street. 

 

Have you read the entire thread?  There's a lengthy discussion starting around here about this very thing between other COBF posters: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg156967/#msg156967

 

Your short interest and effective float calculations also come from that presentation.

 

I only include Berkowitz, Lampert, and Tisch.  It doesn't take any special analysis to see how many shares they control, compare that with the outstanding shares to calculate float, and then look up short interest 2 weeks in arrears.  What the heck does that have to do with Baker Street?

 

It also does not get away from Chad's question about how you assume 80 percent of their owned locations are suddenly worth $150/sf. It seems to me that the $5B in extra margin of safety is the difference between reality and $150/sf and the time it takes to get there minus the cash burn.

 

When did I ever say I was only talking about owned? I believe that their best 68M sq feet, both owned and leased is worth $150+/sq ft.  Feel free to disagree, that's what makes a market.

[peridotcapital]

(as an aside, I'd be curious why you think their "best properties" total 68M sf --- as that's 80% of owned square footage).

 

Their best 350 owned properties coupled with their best 50 leased properties is approximately 68M square feet.

 

On page 6 of the Baker Street presentation, it details their assessment of the top 400 properties (350 owned and 50 leased). That slide assigns a value to those stores of at least $7.3B. That equates to $103/sf. Is $150/sf your personal estimate for those properties because you feel Baker Street was overly conservative? If not, did it comes from another source?

 

If $103/sf is in the ballpark for the best 400 properties, it would support my point that WPG and KIM are better REIT comps for SHLD's real estate than SPG, GGP, or any other high end REIT. If we simply disagree then great, as you say, that's the market. I just wanted to catch an error if I was making one.

 

[oddballstocks]

I don't think anyone else has used the top 350 stores and top 50 leases terminology as that is quite specific to that slide deck from Baker Street. 

 

You obviously haven't read the entire thread.  There's a lengthy discussion starting around here about this very thing between other COBF posters: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg156967/#msg156967

 

Your short interest and effective float calculations also come from that presentation.

 

What in the world are you talking about?  I only include Berkowitz, Lampert, and Tisch.  It doesn't take any special analysis to see how many shares they control, compare that with the outstanding shares to calculate float, and then look up short interest 2 weeks in arrears.  What the heck does that have to do with Baker Street?

 

It also does not get away from Chad's question about how you assume 80 percent of their owned locations are suddenly worth $150/sf. It seems to me that the $5B in extra margin of safety is the difference between reality and $150/sf and the time it takes to get there minus the cash burn.

 

When did I ever say I was only talking about owned? I believe that their best 68M sq feet, both owned and leased is worth $150+/sq ft.  Feel free to disagree, that's what makes a market.

 

It seems your portfolio is almost entirely Sears, so I can imagine this might be an emotional roller coaster.  I'd recommend taking a step back, Picasso's post didn't come off as an attack at all.

 

Do you own anything besides your Sears position?

[Luke 532]

Do you own anything besides your Sears position?

 

I'm not sure how that's any of your business but I have been adding as the price drops and it is now my largest position, but not my only position.

[Luke 532]

That equates to $103/sf. Is $150/sf your personal estimate for those properties because you feel Baker Street was overly conservative?

 

On the best properties, yes.  Even if I'm wrong...

 

If $103/sf is in the ballpark for the best 400 properties, it would support my point that WPG and KIM are better REIT comps for SHLD's real estate than SPG, GGP, or any other high end REIT. If we simply disagree then great, as you say, that's the market. I just wanted to catch an error if I was making one.

 

...even if we were to value it at the lesser REIT's ($100/sq ft) I still believe there exists a wide margin of safety.

[peridotcapital]

That equates to $103/sf. Is $150/sf your personal estimate for those properties because you feel Baker Street was overly conservative?

 

On the best properties, yes.  Even if I'm wrong...

 

 

Gotcha.

 

 

...even if we were to value it at the lesser REIT's ($100/sq ft) I still believe there exists a wide margin of safety.

 

Agreed. I don't see the many, many multiples of potential upside that others do, hence I'm not long yet, but the margin of safety is quite clear.

[oddballstocks]

Do you own anything besides your Sears position?

 

I'm not sure how that's any of your business but I have been adding as the price drops and it is now my largest position, but not my only position.

 

No need to get defensive, on the board you're a one trick pony, only discussing Sears.

 

As an outsider with no position on this I have to honestly say I'm worried about you.  The wheels seem to be coming off the bus, and it seems a large majority of your wealth is tied up in this position, so its understandable that you're emotional about this.  Maybe the best thing to do is shut off the computer for a week and reconsider this from scratch.  What's the worst case here with Sears?  Retail can turn fast, their operating leverage can work against them.  Can your portfolio withstand a negative event from Sears?

 

You remind me of a trader who keeps doubling down hoping for a position to turn.  Eventually so much money is invested there are no options, either success or ruin.  The name of the game is to live another day.

 

Maybe I come across as presumptuous or a jerk or something for saying this.  You're right, I don't know your financial situation, maybe you have $50m with Sears being a 50% position, and if you lost $25m your life would be unchanged.  But I don't get the sense that this position is just a rich guy's plaything for you, maybe I'm wrong.  Maybe you're the reincarnation of moorecapital.

 

You can think I'm a jerk or a-hole or whatever you want, it won't bother me.  But you seem like a nice guy, and I'd hate for you to be wrecked with this.  Sure maybe everything will work out perfectly, which I hope is true.  But success isn't built on hoping for dreams to come through, it's built on avoiding the worst, and avoiding mistakes.

[Luke 532]

but the margin of safety is quite clear.

 

And that's the most important thing.  I'm of the belief that upside will take care of itself if you have a significant margin of safety.  I do believe there's plenty of upside (probably more than most), but the MOS is paramount in my decision making process.

[stevevri]

An interesting read on appliances:

http://www.businessweek.com/articles/2014-09-23/why-big-business-has-gone-cold-on-big-appliances#r=hp-ls

[Luke 532]

You can think I'm a jerk or a-hole or whatever you want, it won't bother me.

 

I don't think that at all, much can be lost in translation via the Internet if you got the impression that's what I thought about you.  I only post about SHLD because other stuff I own is basically on auto-pilot and I don't spend nearly as much time keeping up with those positions.

[randomep]

An interesting read on appliances:

http://www.businessweek.com/articles/2014-09-23/why-big-business-has-gone-cold-on-big-appliances#r=hp-ls

 

Good market share info, but I find it hard to know the point of the article. And I forget who makes sears/kenmore stuff.

 

Interestingly, I bought appliances from sears last year, it was fine, service was fine, EXCEPT my washer didn't work after delivery and they had to send in another one.

 

I also bought a bunch of stuff from kmart on a trip. Business was really slow, but I liked it, I got lots of khaki type clothing cheap. I like empty stores and would go to kmart anyday if I can find one.  Looking at it objectively, the kmarts I've seen are much better than walmart, but walmart has groceries.

 

 

[BargainValueHunter]

Do you own anything besides your Sears position?

 

I'm not sure how that's any of your business but I have been adding as the price drops and it is now my largest position, but not my only position.

 

No need to get defensive, on the board you're a one trick pony, only discussing Sears.

 

As an outsider with no position on this I have to honestly say I'm worried about you.  The wheels seem to be coming off the bus, and it seems a large majority of your wealth is tied up in this position, so its understandable that you're emotional about this.  Maybe the best thing to do is shut off the computer for a week and reconsider this from scratch.  What's the worst case here with Sears?  Retail can turn fast, their operating leverage can work against them.  Can your portfolio withstand a negative event from Sears?

 

You remind me of a trader who keeps doubling down hoping for a position to turn.  Eventually so much money is invested there are no options, either success or ruin.  The name of the game is to live another day.

 

Maybe I come across as presumptuous or a jerk or something for saying this.  You're right, I don't know your financial situation, maybe you have $50m with Sears being a 50% position, and if you lost $25m your life would be unchanged.  But I don't get the sense that this position is just a rich guy's plaything for you, maybe I'm wrong.  Maybe you're the reincarnation of moorecapital.

 

You can think I'm a jerk or a-hole or whatever you want, it won't bother me.  But you seem like a nice guy, and I'd hate for you to be wrecked with this.  Sure maybe everything will work out perfectly, which I hope is true.  But success isn't built on hoping for dreams to come through, it's built on avoiding the worst, and avoiding mistakes.

+1

[Picasso]

Do you own anything besides your Sears position?

 

I'm not sure how that's any of your business but I have been adding as the price drops and it is now my largest position, but not my only position.

 

No need to get defensive, on the board you're a one trick pony, only discussing Sears.

 

As an outsider with no position on this I have to honestly say I'm worried about you.  The wheels seem to be coming off the bus, and it seems a large majority of your wealth is tied up in this position, so its understandable that you're emotional about this.  Maybe the best thing to do is shut off the computer for a week and reconsider this from scratch.  What's the worst case here with Sears?  Retail can turn fast, their operating leverage can work against them.  Can your portfolio withstand a negative event from Sears?

 

You remind me of a trader who keeps doubling down hoping for a position to turn.  Eventually so much money is invested there are no options, either success or ruin.  The name of the game is to live another day.

 

Maybe I come across as presumptuous or a jerk or something for saying this.  You're right, I don't know your financial situation, maybe you have $50m with Sears being a 50% position, and if you lost $25m your life would be unchanged.  But I don't get the sense that this position is just a rich guy's plaything for you, maybe I'm wrong.  Maybe you're the reincarnation of moorecapital.

 

You can think I'm a jerk or a-hole or whatever you want, it won't bother me.  But you seem like a nice guy, and I'd hate for you to be wrecked with this.  Sure maybe everything will work out perfectly, which I hope is true.  But success isn't built on hoping for dreams to come through, it's built on avoiding the worst, and avoiding mistakes.

 

Wise words to follow.

 

What is the story on moorecapital?  I feel like I'm missing out on an interesting ex board member.