Luke 532 Posted November 7, 2014 Share Posted November 7, 2014 I need to buy the person that sent me this a beer... Somebody sent me this today and I found it interesting (posted with permission, emphasis added by me): The debt has interest of $50M/year, and given that their current EBITDA does not support that, it either means Eddie has lost his marbles, or he seems something big in the near future that is basically as close to a 100% chance of happening as possible which will boost their EBITDA at least enough to pay off that interest. Personally, I don't think that will come from the transformation though because the retail is too unpredictable to make a bet like this with debt and assume you'll have the $50M starting next year to pay the interest. I have a feeling it may come from something bigger like much larger bulk-lease deals in the pipeline right now. It's also likely the reason that the other SHLD bonds rallied today. Generally, existing bonds tend to sell off when new debt is issued, since it's just made the company's capital structure more risky. With Sears today, the opposite happened since Eddie bought unsecured debt (although it was senior). I should add that these comments came from somebody that, in his words, "didn't dream of touching the stock for many years until 2 weeks ago." Based on previous conversations with him I can verify that is true for at least the past 2 months and I have no reason to believe he was bullish at any point prior to then. Link to comment Share on other sites More sharing options...
txlaw Posted November 7, 2014 Share Posted November 7, 2014 Of course it's thru a rights offering. What a pig. This is truly a great way to do this... even though we put more capital at risk, it ensures Holdings has enough liquidity to do many other things. More cash in Eddy's hands (no comments from the peanut gallery) is money good... I agree that this is a good way to do this. Link to comment Share on other sites More sharing options...
peridotcapital Posted November 7, 2014 Share Posted November 7, 2014 Well now things really start to get interesting! The big question I have is whether these 200-300 stores will be good locations or bad locations. Given that many people seem to doubt the true value of the real estate, I will be curious to see what kind of valuation these properties fetch (it could very well be a discount at first), and based on that I could actually see myself possibly.... wait for it... going long once we find out more details?! :) I hope the longs get their dramatic short squeeze on this. Link to comment Share on other sites More sharing options...
focusinvestor Posted November 7, 2014 Share Posted November 7, 2014 Well now things really start to get interesting! The big question I have is whether these 200-300 stores will be good locations or bad locations. Given that many people seem to doubt the true value of the real estate, I will be curious to see what kind of valuation these properties fetch (it could very well be a discount at first), and based on that I could actually see myself possibly.... wait for it... going long once we find out more details?! :) I hope the longs get their dramatic short squeeze on this. I have always personally appreciated your independent commentary. You have been in this camp a long time given your bond ownership and certain other Sears equities... Glad to hear that you are willing to potentially change your thesis... when the facts change. Link to comment Share on other sites More sharing options...
peridotcapital Posted November 7, 2014 Share Posted November 7, 2014 Well now things really start to get interesting! The big question I have is whether these 200-300 stores will be good locations or bad locations. Given that many people seem to doubt the true value of the real estate, I will be curious to see what kind of valuation these properties fetch (it could very well be a discount at first), and based on that I could actually see myself possibly.... wait for it... going long once we find out more details?! :) I hope the longs get their dramatic short squeeze on this. I have always personally appreciated your independent commentary. You have been in this camp a long time given your bond ownership and certain other Sears equities... Glad to hear that you are willing to potentially change your thesis... when the facts change. Absolutely, you have to stay open-minded. It's all about analyzing what you are getting and what price you are paying. Even given today's news I'm not going to go out and buy SHLD at 40 (for the same reasons I have not yet before --- nothing has changed in terms of the intrinsic value of the company's assets). But I have never doubted the value of the real estate, so if we have a new public entity formed the whole process begins again... what properties am I getting and what price am I paying? And is it a good buy? Who knows at this point. I am curious how the longs are reacting to this and what they plan to do. The thesis with the real estate has been that if you buy SHLD for 30 or 40 or 50 or whatever price, and then Eddie spins off real estate worth a similar amount on its own, then your downside risk goes away. But what about the rights offering idea? If you have to pay near market value for the REIT (just look at where Eddie priced the rights offerings for SHOS and SCC), does that change how you manage your position? If you have to pay for the REIT, instead of getting it for free, all of the sudden your upside scenario is materially impacted. Link to comment Share on other sites More sharing options...
HeresyValue Posted November 7, 2014 Share Posted November 7, 2014 Well now things really start to get interesting! The big question I have is whether these 200-300 stores will be good locations or bad locations. Given that many people seem to doubt the true value of the real estate, I will be curious to see what kind of valuation these properties fetch (it could very well be a discount at first), and based on that I could actually see myself possibly.... wait for it... going long once we find out more details?! :) I hope the longs get their dramatic short squeeze on this. I have always personally appreciated your independent commentary. You have been in this camp a long time given your bond ownership and certain other Sears equities... Glad to hear that you are willing to potentially change your thesis... when the facts change. Absolutely, you have to stay open-minded. It's all about analyzing what you are getting and what price you are paying. Even given today's news I'm not going to go out and buy SHLD at 40 (for the same reasons I have not yet before --- nothing has changed in terms of the intrinsic value of the company's assets). But I have never doubted the value of the real estate, so if we have a new public entity formed the whole process begins again... what properties am I getting and what price am I paying? And is it a good buy? Who knows at this point. I am curious how the longs are reacting to this and what they plan to do. The thesis with the real estate has been that if you buy SHLD for 30 or 40 or 50 or whatever price, and then Eddie spins off real estate worth a similar amount on its own, then your downside risk goes away. But what about the rights offering idea? If you have to pay near market value for the REIT (just look at where Eddie priced the rights offerings for SHOS and SCC), does that change how you manage your position? If you have to pay for the REIT, instead of getting it for free, all of the sudden your upside scenario is materially impacted. The realization of underlying real estate value is going to shareholders one way or another, whether you have to pay FMV for the REIT or not. Though id highly doubt shareholders would get anything less than a fantastic separate drop down of value from the real estate, look at the last two rights issues if you have any doubt. I personally think this is THE game changer. A drop down RE vehicle makes a ton of sense and the number of stores will gradually be fed down the pipe as much as needed/possible. I multiplied my position with a very large allocation during the pre-market. As one analyst said, "this is the end". I agree. But this will be a very different ending. Link to comment Share on other sites More sharing options...
Matson125 Posted November 7, 2014 Share Posted November 7, 2014 I'm actually pleasantly surprised at the sss during the quarter. With the 400 million raise in September and the way they have been closing the stores in the past 6 weeks I was fully expecting comps to be -3 to -5 % total for Sears and Kmart. Link to comment Share on other sites More sharing options...
ASTA Posted November 7, 2014 Share Posted November 7, 2014 Well nice to see my portfolio up 7% today :D Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 7, 2014 Share Posted November 7, 2014 Looks like I got out just in tune to miss all of the excitement. I widh he would've led with this instead of the two rights offerings. Monetizing shareholders before the real estate left a really bad taste in my mouth and I gave up on hoping for near term real estate monetization. Maybe that was his plan all along to increase value for his shareholders. Made 15% or so in my two trades in and out. Would've made 50% if simply held the first purchase until now. I guess it could've been worse... Link to comment Share on other sites More sharing options...
thepupil Posted November 7, 2014 Share Posted November 7, 2014 I don't own any SHLD anymre, but watching Eddie's preemptive recapitalization of the company is so fun. The more cash he gets injected into SHLD the more time he buys for lease obligations to roll off (the biggest liability and biggest use of cash) and maybe even for rates to rise to help the pension (the liability that is probably hardest to dodge no matter what the rule of law is because it is very politically sensitive). SSS of 0% is awesome because it slows the spiral and allows him to liquidate more slowly and orderly (if he can keep it up). All the subleasing activity is picking up and going to be a bigger % of the minimum annual rent payments this year. Very fun to watch. Link to comment Share on other sites More sharing options...
wisdom Posted November 7, 2014 Share Posted November 7, 2014 looks like the short squeeze is on as well. Link to comment Share on other sites More sharing options...
jrallen81 Posted November 7, 2014 Share Posted November 7, 2014 If one bought today, could you still participate in the rights offering? Or do you have to tell your broker a few days in advance? Link to comment Share on other sites More sharing options...
krazeenyc Posted November 7, 2014 Share Posted November 7, 2014 Looks like I got out just in tune to miss all of the excitement. I widh he would've led with this instead of the two rights offerings. Monetizing shareholders before the real estate left a really bad taste in my mouth and I gave up on hoping for near term real estate monetization. Maybe that was his plan all along to increase value for his shareholders. Made 15% or so in my two trades in and out. Would've made 50% if simply held the first purchase until now. I guess it could've been worse... actually it makes a lot of sense the order in which he did all these things. Strike price at warrants are lower now. Now it means that the SHLDZ will 100% be fully subscribed. Congratulations to the faithful longs -- at least for now (sadly not me). And yes SHLD is fascinating. Link to comment Share on other sites More sharing options...
krazeenyc Posted November 7, 2014 Share Posted November 7, 2014 Baker street could make money on their calls -- so sick lol :D! Link to comment Share on other sites More sharing options...
CorpRaider Posted November 7, 2014 Share Posted November 7, 2014 Congrats longs! Link to comment Share on other sites More sharing options...
BTShine Posted November 7, 2014 Share Posted November 7, 2014 Sears said it sold Cupertino store for $102 million. Link to comment Share on other sites More sharing options...
krazeenyc Posted November 7, 2014 Share Posted November 7, 2014 Sears said it sold Cupertino store for $102 million. I think that was reported before in local news up by the bay. I think part of the reason Sears got so much more for their property is that their property includes 75-80k of renovated high end gym space -- which I assume the developer is keeping. Link to comment Share on other sites More sharing options...
abitofvalue Posted November 7, 2014 Share Posted November 7, 2014 I'm actually pleasantly surprised at the sss during the quarter. With the 400 million raise in September and the way they have been closing the stores in the past 6 weeks I was fully expecting comps to be -3 to -5 % total for Sears and Kmart. I would think closing stores would lead to better comparable store numbers. Surely he is only closing bad locations. The calc will only include stores that were open in both comparison periods. It's not a sales total comparison. Each company does it differently but generally comparable stores only compares the same stores over different periods so if a store closes it won't be in the comparison. The REIT is good news but the fact that it will most likely require additional capital isn't exactly ideal. Would much prefer a spin-off. I think a lot of retail / unsophisticated investors miss out on the warrants / exercising etc to the benefit of management / larger funds. Just rubs me the wron way. All perfectly legal I guess but seems to be taking advantage of partners by putting so much complexity in place. Congrats to the longs though. Shows the power of conviction and holding on to unloved assets when the core thesis (real estate value) hasn't been affected. Link to comment Share on other sites More sharing options...
Luke 532 Posted November 7, 2014 Share Posted November 7, 2014 I'm actually pleasantly surprised at the sss during the quarter. With the 400 million raise in September and the way they have been closing the stores in the past 6 weeks I was fully expecting comps to be -3 to -5 % total for Sears and Kmart. I was pleasantly surprised by that as well. The REIT is good news but the fact that it will most likely require additional capital isn't exactly ideal. Would much prefer a spin-off. Me too at first blush. Just depends on the terms of the offering. Link to comment Share on other sites More sharing options...
compoundinglife Posted November 7, 2014 Share Posted November 7, 2014 Wow, just catching up on the news. Been an intersting ride over the past 4 years or so. Not including rights or spin offs I still own SHLD is 20% of my port at the moment. I sold all the spin offs except for some of the LE. Did not exercise Sears Canada, was planning on exercising SHLDZ. Now the REIT offering. What was the average square footage per Sears/Kmart location over all their locations? I seem to remember thinking around 100K? Somewhere betweeen 200-300 stores. Will be interesting to see what the valuation is on the REIT and where SHLD trades post REIT. For the person who was asking about SHLDZ, it just showed up for me in Schwab and Etrade overnight. Link to comment Share on other sites More sharing options...
tooskinneejs Posted November 7, 2014 Share Posted November 7, 2014 Prior to the REIT news: $33 a share got you ownership of Sears and all of the financial upside purported to exist in the potential exploitation of real estate. After the REIT news: $43 a share gets you ownership of Sears the obligation to pay even more if you want the financial upside purported to exist in the real estate. In other words, if you don't pay even more (for the REIT rights) then you lose the financial upside from the real estate that you had the right to prior to the rights offering. Yet, based on the stock price, the market views this whole thing as a positive for investors? Link to comment Share on other sites More sharing options...
jrallen81 Posted November 7, 2014 Share Posted November 7, 2014 Hi all, If you hold SHLDZ, when do you have to pay to buy the bonds? Link to comment Share on other sites More sharing options...
compoundinglife Posted November 7, 2014 Share Posted November 7, 2014 Prior to the REIT news: $33 a share got you ownership of Sears and all of the financial upside purported to exist in the potential exploitation of real estate. After the REIT news: $43 a share gets you ownership of Sears the obligation to pay even more if you want the financial upside purported to exist in the real estate. In other words, if you don't pay even more (for the REIT rights) then you lose the financial upside from the real estate that you had the right to prior to the rights offering. Yet, based on the stock price, the market views this whole thing as a positive for investors? You could always sell SHLD now and wait for the REIT to trade then buy it. Or wait for the rights to come out then sell the remaining SHLD, buy more rights , buy more REIT. I get what you are saying but there are options if think the real estate has the most upside. Link to comment Share on other sites More sharing options...
compoundinglife Posted November 7, 2014 Share Posted November 7, 2014 It will be interesting to see what happens post REIT spin off. Will fuel the shorts on argument on SHLD post REIT because presumably the better real estate will end up in the REIT structure. Also curious to see how they do the sale leaseback, how much debt the REIT has etc... Still plenty of information to process in the near future. Link to comment Share on other sites More sharing options...
Luke 532 Posted November 7, 2014 Share Posted November 7, 2014 Latest SHC Speaks blog post: Rights Offerings and Sears Canada – The Facts http://blog.searsholdings.com/shc-updates/rights-offerings-and-sears-canada-the-facts/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+SHCSpeaks+%28SHC+Speaks%29 Link to comment Share on other sites More sharing options...
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