SHLDQ - Sears Holdings Corp

[krazeenyc]

This Aventure move shows SPG, GGP and other mall owners that if they don't want to pay fair value for properties they won't be able to control their malls because Sears will redevelop. 

 

SPG and Turnberry must want to have full control over their Aventura mall!  This move will start making other mall owners think hard about if they really want to let Sears redevelop anchor sites on their property.  It takes the negotiations from a standpoint of valuing anchor pads on the current square footage (100k sq ft X $200/sq ft value = $20 million) to negotiating based upon the properties potential value of over $300 million! (In this case 250k retail, hotel, office).

 

As said above, I just can't believe that SPG and Turnberry want to let Sears operate competing and complementary leasing at their Aventura Mall. 

 

Also, for those interested in construction costs of retail real estate.  Apparently big box retail costs about $50/sq. ft. to build.  Likely higher costs to build smaller specialty stores.  Maybe it will take $100 a square foot to build at Aventura.  That's $25 million to build their 250,000 sq. ft. of retail. If it really will be worth $300 million that's $275 million of 'found' profit.

 

http://newmarketadvisors.com/assets/Uploads/ConstructionSurveyCSA2012.pdf

 

It is simply an issue of dollars and cents. The mall can always buy the property at full value after development.

 

Sears and its mall partners have to work very closely together on a large number of properties. They can either make each others' lives easier or more difficult. For example the mall owners can often veto Sears' potential tenants. Sears on the other hand has the power to veto redevelopment.  Generally what you'll see happen is a ton of give and take where the mall allows Sears to redevelop their property/bring in a new tenant, but they'll get Sears to agree to allow a redevelopment on a another property.

 

When Sears spends the capex themselves on a property they'll get the financial rewards, but the mall also benefits tremendously -- by bringing in traffic generating tenants. It's a win win.

 

[Luke 532]

Canada offering fully subscribed. http://searsholdings.mediaroom.com/index.php?s=16310&item=137328

[BTShine]

Peridot,

 

Sure, the offer from SPG, etc. probably doesn't go from $20 to $250 million (maybe more like $75 million to $150 million).  Regardless, I wholeheartedly believe the development plans release today put SHLD in a very different bargaining position.  You and I can agree to disagree.

[Luke 532]

Sears Holdings Reaches Out to Holding Companies for Consolidation

http://adage.com/article/agency-news/sears-holdings-reaches-holding-companies/295796/

[peridotcapital]

Peridot,

 

Sure, the offer from SPG, etc. probably doesn't go from $20 to $250 million (maybe more like $75 million to $150 million).  Regardless, I wholeheartedly believe the development plans release today put SHLD in a very different bargaining position.  You and I can agree to disagree.

 

Fair enough.

 

The fact that Sears has now decided to put out a press release every time they do a deal (as opposed to before when it was all a secret), does not really change anything. Seritage has been designing and planning redevelopments for many of their properties for several years (Burlington Mall in MA, to name one). The mall owners are well aware of this internally. It is going to be easier for us to track them now that Sears has run out of liquidity and needs to talk up their assets to calm suppliers, lenders, etc down, but I don't think more press releases equates to better offers. I doubt the Aventura press release changes the valuation for that property, or any others, for those of us who have tried to value it already (nobody would have valued it at 200/sf or anywhere close yesterday).

 

Regardless though, the key for me here is really when/if this REIT deal gets done, what properties are in it, and what the price is. There is a very real possibility that you have multiple forces play out that result in a mispricing (small under-followed spin-off, largely a single tenant REIT, general negative sentiment for anything Sears-related, etc). If it's priced at a material discount to comps due to these factors, there will be an opportunity for us to pounce since we have dug deeper into the real estate assets than the average investor/analyst.

[ni-co]

Man, Mr. Market has no clue how to value this stock.

[hillfronter83]

Man, Mr. Market has no clue how to value this stock.

 

Same to the right offering, back to pre-REIT announcement level

[CorpRaider]

Any of you Canucks working on/have strong opinions on SRSC (SCC)?  I've just put in on my "to be examined" list.  Really recent insider valuation (backed up with cash) and I know it is (or was) in play.  Also, it seems like they don't have the grand ambition to take the next 140 years and build a new Amazon in Canada. 

[texual]

Never cared for the Canadian asset. Never understood what the thesis was. He should have liquidated it entirely years ago. Another bone headed move was fighting with Ackman over it, and paying him a premium for a chunk of it. There was something there, I bet. He sold some real estate and gutted it. Whatever these guys are doing with the rights seem to be a technical move. Maybe just owning it now for the chance that the chain might be bought up in the future? Lord knows. I took a bloodbath in Sears.

 

I'm still interested though in how it unfolds.

 

The SHLD story continues.

[texual]

Also I never utilized the SHOS rights. I didn't like that asset either. Today you can buy it for less than what we had the right to pay (15 if my memory serves me?). Does anyone see value in buying SHOS at around 14? Or is that kind of one of those 'as goes Sears, so goes SHOS' situations?

[adesigar]

Also I never utilized the SHOS rights. I didn't like that asset either. Today you can buy it for less than what we had the right to pay (15 if my memory serves me?). Does anyone see value in buying SHOS at around 14? Or is that kind of one of those 'as goes Sears, so goes SHOS' situations?

 

Today yes yopu can buy it for less. I exercised the rights and sold around 38-45. It went as high as 56.

[adesigar]

Never cared for the Canadian asset. Never understood what the thesis was. He should have liquidated it entirely years ago. Another bone headed move was fighting with Ackman over it, and paying him a premium for a chunk of it. There was something there, I bet. He sold some real estate and gutted it. Whatever these guys are doing with the rights seem to be a technical move. Maybe just owning it now for the chance that the chain might be bought up in the future? Lord knows. I took a bloodbath in Sears.

 

I'm still interested though in how it unfolds.

 

The SHLD story continues.

 

Maybe you need to look at the history of dividends Sears Canada has paid out since the Ackman deal.

[merkhet]

I'm anxious to see the REIT details. I wonder how likely it might be that he sells off the REIT in a way to make it easy for him to buy it back when there is no longer a liquidity issue.

[BTShine]

By 'him buy it back' do you mean 'SHLD buy it back?'

[adesigar]

So I didn't get the pricing for Sears Canada. Now I don't get the pricing of SHLDR.

 

I can sell 17.6 shares of SHLD for 670 and I can buy SHLDR rights for $170+$500 which give me exactly 17.6 shares and give me the equivalent of a 6% dividend for 5 years on the exact same money I had in the SHLD shares. Am I crazy or am I missing something?

 

BTW I already made the switch from SHLD to SHLDZ+Cash. Don't know if im cuckoo or the market is.

[Luke 532]

So I didn't get the pricing for Sears Canada. Now I don't get the pricing of SHLDR.

 

I can sell 17.6 shares of SHLD for 670 and I can buy SHLDR rights for $170+$500

 

SHLDZ, not SHLDR.

 

which give me exactly 17.6 shares and give me the equivalent of a 6% dividend for 5 years on the exact same money I had in the SHLD shares. Am I crazy or am I missing something?

 

The value of the deal depends on where the debt will trade.  It very likely won't trade anywhere near par.  If it trades at 80 cents on the dollar, and you buy a right for $170, then your total investment is $670 ($500 + $170) for $400 of debt (par $500) and 17.6 warrants (in which case you'd effectively be paying $15.34/warrant).  It's a great deal if you don't mind holding the debt and expect it goes to par in 2019 or trade near it anytime before then.  If it trades at par the cost of your warrants drops to $9.66... ($170 + $500 - $500) / 17.6.

[ni-co]

So I didn't get the pricing for Sears Canada. Now I don't get the pricing of SHLDR.

 

I can sell 17.6 shares of SHLD for 670 and I can buy SHLDR rights for $170+$500 which give me exactly 17.6 shares and give me the equivalent of a 6% dividend for 5 years on the exact same money I had in the SHLD shares. Am I crazy or am I missing something?

 

BTW I already made the switch from SHLD to SHLDZ+Cash. Don't know if im cuckoo or the market is.

 

This is exactly my line of thinking, too.

 

There even is a large discount if you assume that you'd be able to sell the debt at 80 cents on the dollar. My theory is that this is mostly an illiquidity premium. I will be very surprised, if the warrants trade at this discount after the separation from the bonds. Not listing the bonds on any exchange was quite a dick move. Really forces you to decide now whether you want to own SHLD credit risk until 2019.

[adesigar]

So I didn't get the pricing for Sears Canada. Now I don't get the pricing of SHLDR.

 

I can sell 17.6 shares of SHLD for 670 and I can buy SHLDR rights for $170+$500

 

SHLDZ, not SHLDR.

 

which give me exactly 17.6 shares and give me the equivalent of a 6% dividend for 5 years on the exact same money I had in the SHLD shares. Am I crazy or am I missing something?

 

The value of the deal depends on where the debt will trade.  It very likely won't trade anywhere near par.  If it trades at 80 cents on the dollar, and you buy a right for $170, then your total investment is $670 ($500 + $170) for $400 of debt (par $500) and 17.6 warrants (in which case you'd effectively be paying $15.34/warrant).  It's a great deal if you don't mind holding the debt and expect it goes to par in 2019 or trade near it anytime before then.  If it trades at par the cost of your warrants drops to $9.66... ($170 + $500 - $500) / 17.6.

 

Sorry yea SHLDZ not SHLDR.

[Luke 532]

I can sell 17.6 shares of SHLD for 670 and I can buy SHLDR rights for $170+$500 which give me exactly 17.6 shares and give me the equivalent of a 6% dividend for 5 years on the exact same money I had in the SHLD shares. Am I crazy or am I missing something?

 

The first highlighted is 17.6 shares of SHLD, the second is warrants.  There's a big difference as 17.6 shares of SHLD obviously have a higher dollar value than 17.6 warrants.

[adesigar]

So I didn't get the pricing for Sears Canada. Now I don't get the pricing of SHLDR.

 

I can sell 17.6 shares of SHLD for 670 and I can buy SHLDR rights for $170+$500 which give me exactly 17.6 shares and give me the equivalent of a 6% dividend for 5 years on the exact same money I had in the SHLD shares. Am I crazy or am I missing something?

 

BTW I already made the switch from SHLD to SHLDZ+Cash. Don't know if im cuckoo or the market is.

 

This is exactly my line of thinking, too.

 

There even is a large discount if you assume that you'd be able to sell the debt at 80 cents on the dollar. My theory is that this is mostly an illiquidity premium. I will be very surprised, if the warrants trade at this discount after the separation from the bonds. Not listing the bonds on any exchange was quite a dick move. Really forces you to decide now whether you want to own SHLD credit risk until 2019.

 

Simple surrender the bonds to get shares and sell the shares

 

The warrants will have a term of approximately five years and the exercise price will be payable either in cash or by surrendering notes issued in the rights offering.

 

 

[Picasso]

Other SHLD bonds are not listed on an exchange either.  That should not impact whether you can hold/sell those notes.  Have your broker get a bid on the bonds and if they are unable to do so, find a broker that does and DTC the bonds to them to settle the trade.

 

You can get multiple bids across several brokers and execute to the one with the highest price.

 

The rights look abnormally cheap at $170.  I started buying them as well.

[Luke 532]

The warrants will have a term of approximately five years and the exercise price will be payable either in cash or by surrendering notes issued in the rights offering.

 

That doesn't get you more warrants via paying with the notes.  It's simply exercising your existing warrants using the notes you hold.  Nobody is going to exercise prior to 2019, if at all.

[adesigar]

I can sell 17.6 shares of SHLD for 670 and I can buy SHLDR rights for $170+$500 which give me exactly 17.6 shares and give me the equivalent of a 6% dividend for 5 years on the exact same money I had in the SHLD shares. Am I crazy or am I missing something?

 

The first highlighted is 17.6 shares of SHLD, the second is warrants.  There's a big difference as 17.6 shares of SHLD obviously have a higher dollar value than 17.6 warrants.

 

Yes but look at it 5 years out. I have 17.6 shares now worth 670.

option a is I keep shares - In 2019 I have 17.6 shares of SHLD

option b is I move to rights - I get $40 per year for 5 years and in 2019 I have 17.6 shares of SHLD. I can switch to shares at anytime by surrendering the bonds.

[adesigar]

The warrants will have a term of approximately five years and the exercise price will be payable either in cash or by surrendering notes issued in the rights offering.

 

That doesn't get you more warrants via paying with the notes.  It's simply exercising your existing warrants using the notes you hold.  Nobody is going to exercise prior to 2019, if at all.

 

I know that. I said it was a possibility to get out of SHLD bonds for someone who changed his mind about holding SHLD credit.

[Luke 532]

The warrants will have a term of approximately five years and the exercise price will be payable either in cash or by surrendering notes issued in the rights offering.

 

That doesn't get you more warrants via paying with the notes.  It's simply exercising your existing warrants using the notes you hold.  Nobody is going to exercise prior to 2019, if at all.

 

I know that. I said it was a possibility to get out of SHLD bonds for someone who changed his mind about holding SHLD credit.

 

Right, but the original problem was somebody not wanting to hold the notes.  I just want to make sure people don't think they can simply trade in their bonds immediately and get additional shares/warrants, it would exercise their existing warrants.  5 years out is a completely different story, one in which assumes holding the notes for that long.