peridotcapital Posted April 1, 2015 Share Posted April 1, 2015 http://www.prnewswire.com/news-releases/sears-holdings-and-general-growth-properties-announce-5050-joint-venture-and-sale-leaseback-involving-12-sears-holdings-properties-located-at-ggp-malls-300059186.html JV with GGP as well as rights offering to Seritage. The real estate story continues.... The terms seem very realistic to me. The fair market value appraisal comes out to $60/sf. Given where diversified retail REIT comps trade, coupled with the overall condition of the SHC portfolio and the fact that SHC will be the tenant in 93% of the space, it seems like a reasonable discount to assign to the properties. Obviously over time as SHC's % declines, the valuation will move up towards other public REITs. Who knows where it will trade initially, but with a $2.5B purchase price, there is a good benchmark in place. A couple other tidbits after my initial skimming of the document: 1) Lots of good properties included, but not every crown jewel. For instance, South Coast Plaza is excluded. Also, a fair number of lesser properties, as 1/3 of the stores are Kmarts. I suspect they purposely created a good balance of properties so SHC could do this again when they need to raise a nice chunk of money in the future. 2) The gross and net book values of the properties are $2.4B and $1.5B, respectively. I took note of this because it allows one to back in to an estimated fair market value for the entire SHC real estate portfolio, which on 1/31/15 had a gross/net book value of $8.31B and $4.45B. This implies total RE value of $7.2B to $8.7B, so about $5.5B leftover at SHC post-deal. I am not going to venture a guess as to what E/V Seritage trades for initially (learned my lesson after underestimating the price of LE), but I am very interested to see what happens. I don't think a discount to the $2.5B is likely, so then it becomes a question of how much credit the market gives Seritage for future rent growth, which is inevitable but pretty far into the future at least in a material way. I would be a buyer at the right price, so I am hopeful that the market does not give the portfolio a big premium over the purchase price. Maybe the fact that everyone who wants to own it already will have their shares can make that hope a reality. Not sure who the marginal buyer would be post-closing, but the current owners could very well add to their stakes pretty substantially. The estimate in #2 is very useful. The risk I could see there is that even a small excess of A-grade properties in the REIT could inflate its valuation. Conversely, a relative deficit of A-grade properties in the REIT should mean that the value of SHC's remaining portfolio is greater than this analysis implies. It would be interesting to see an analysis that compares the grades of properties in the REIT with those of SHC's remaining portfolio. Agreed. That type of store-by-store analysis is going to take a lot of time. In true SHC fashion, when they listed the stores they only provided the city, state, and size, not even whether it is a Kmart or Sears. Lots of legwork for us... some things never change. Link to comment Share on other sites More sharing options...
BTShine Posted April 1, 2015 Share Posted April 1, 2015 From a real estate valuation perspective does it matter if the space was formerly a Kmart, Sears, Borders, Circuit City, etc? Does the former use of each property materially affect the property's future use and value? Link to comment Share on other sites More sharing options...
peridotcapital Posted April 1, 2015 Share Posted April 1, 2015 From a real estate valuation perspective does it matter if the space was formerly a Kmart, Sears, Borders, Circuit City, etc? Does the former us of each property materially affect the property's future use and value? Yes, the Kmart locations are worth materially less on a per square foot basis generally speaking. Relative to Sears mall locations, they are in worse locations, have had less money invested in upkeep, and would bring lower rents given less consumer traffic in the immediate areas. Link to comment Share on other sites More sharing options...
krazeenyc Posted April 1, 2015 Share Posted April 1, 2015 From a real estate valuation perspective does it matter if the space was formerly a Kmart, Sears, Borders, Circuit City, etc? Does the former us of each property materially affect the property's future use and value? Yes, the Kmart locations are worth materially less on a per square foot basis generally speaking. Relative to Sears mall locations, they are in worse locations, have had less money invested in upkeep, and would bring lower rents given less consumer traffic in the immediate areas. It's not that the former use is important, it just so happens most of the valuable locations are mall based Sears locations. The Kmarts in Manhattan at Penn Station and around NYU are of course very valuable (SHLD does not own these) but these are exceptions. There is a huge value discrepancy, for example, if the Portland Oregon location is the one at Washington Square Mall (it could very well be based on the square footage) or a random Kmart. And Peridot is right, there are some very nice properties and locations included in Seritage, but many of the trophy properties -- even ones that already have 3rd party tenants -- are not included in the REIT. Link to comment Share on other sites More sharing options...
BTShine Posted April 1, 2015 Share Posted April 1, 2015 Peridot and Krazee, Thank you for your insight. My thoughts are similar to yours. Link to comment Share on other sites More sharing options...
chetster Posted April 2, 2015 Share Posted April 2, 2015 I’m trying to get a handle on how the warrants will be effected by the REIT offering. From the prospectus for the warrants it appears that the exercise price will be reduced by a ratio related to the market value of the 2 securities at specific points in time: new exercise price = $28.41 * [(the market price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades the regular way without the right to receive the distribution) - (the amount of the fair market value of the securities to be so distributed)]/[(the market price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades the regular way without the right to receive the distribution)] Any help in clarifying this issue would be appreciated. I currently own both the common and the warrants and am trying to figure out if one class is more likely to benefit from this rights offering. Thanks! Link to comment Share on other sites More sharing options...
Sunrider Posted April 2, 2015 Share Posted April 2, 2015 From your quote - exactly that (and similar to the TARP warrants) - adjust the exercise down by the percentage amount that you take out of the stock by distributing a bit of it: x = Value of distribution new price = old price x (price before distribution - distribution)/price before distribution C. I’m trying to get a handle on how the warrants will be effected by the REIT offering. From the prospectus for the warrants it appears that the exercise price will be reduced by a ratio related to the market value of the 2 securities at specific points in time: new exercise price = $28.41 * [(the market price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades the regular way without the right to receive the distribution) - (the amount of the fair market value of the securities to be so distributed)]/[(the market price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades the regular way without the right to receive the distribution)] Any help in clarifying this issue would be appreciated. I currently own both the common and the warrants and am trying to figure out if one class is more likely to benefit from this rights offering. Thanks! Link to comment Share on other sites More sharing options...
Guest wellmont Posted April 4, 2015 Share Posted April 4, 2015 http://www.prnewswire.com/news-releases/sears-holdings-and-general-growth-properties-announce-5050-joint-venture-and-sale-leaseback-involving-12-sears-holdings-properties-located-at-ggp-malls-300059186.html JV with GGP as well as rights offering to Seritage. The real estate story continues.... The terms seem very realistic to me. The fair market value appraisal comes out to $60/sf. Given where diversified retail REIT comps trade, coupled with the overall condition of the SHC portfolio and the fact that SHC will be the tenant in 93% of the space, it seems like a reasonable discount to assign to the properties. Obviously over time as SHC's % declines, the valuation will move up towards other public REITs. Who knows where it will trade initially, but with a $2.5B purchase price, there is a good benchmark in place. A couple other tidbits after my initial skimming of the document: 1) Lots of good properties included, but not every crown jewel. For instance, South Coast Plaza is excluded. Also, a fair number of lesser properties, as 1/3 of the stores are Kmarts. I suspect they purposely created a good balance of properties so SHC could do this again when they need to raise a nice chunk of money in the future. 2) The gross and net book values of the properties are $2.4B and $1.5B, respectively. I took note of this because it allows one to back in to an estimated fair market value for the entire SHC real estate portfolio, which on 1/31/15 had a gross/net book value of $8.31B and $4.45B. This implies total RE value of $7.2B to $8.7B, so about $5.5B leftover at SHC post-deal. I am not going to venture a guess as to what E/V Seritage trades for initially (learned my lesson after underestimating the price of LE), but I am very interested to see what happens. I don't think a discount to the $2.5B is likely, so then it becomes a question of how much credit the market gives Seritage for future rent growth, which is inevitable but pretty far into the future at least in a material way. I would be a buyer at the right price, so I am hopeful that the market does not give the portfolio a big premium over the purchase price. Maybe the fact that everyone who wants to own it already will have their shares can make that hope a reality. Not sure who the marginal buyer would be post-closing, but the current owners could very well add to their stakes pretty substantially. The estimate in #2 is very useful. The risk I could see there is that even a small excess of A-grade properties in the REIT could inflate its valuation. Conversely, a relative deficit of A-grade properties in the REIT should mean that the value of SHC's remaining portfolio is greater than this analysis implies. It would be interesting to see an analysis that compares the grades of properties in the REIT with those of SHC's remaining portfolio. there is an article on SA which makes this exact point. it says the best properties will be in the reit. the implication is that the total value of SHLD real estate holdings is less than bullish estimates. "With as much as 70% of Sears's top properties in the REIT, it appears that a value of $3.6 to $5 billion is a good rough estimate of total value." http://seekingalpha.com/article/3047536-sears-the-majority-of-its-top-real-estate-is-in-the-reit Link to comment Share on other sites More sharing options...
InvestingOnSale Posted April 6, 2015 Share Posted April 6, 2015 Thanks Well. The article is better than nothing I suppose, but it is hard to take seriously some of the people on SA. At times, it feels like the author has done some good work, and at other times it feels like he is just trying to back into "Sears is going to zero". The comment section on SA is especially poor. Link to comment Share on other sites More sharing options...
merkhet Posted April 6, 2015 Share Posted April 6, 2015 FWIW, the tax assessment for 15 of the first 22 properties on the S-11 comes out to around $60 per square foot. (I couldn't find the assessments for the other 7.) Link to comment Share on other sites More sharing options...
Luke 532 Posted April 13, 2015 Share Posted April 13, 2015 Sears Holdings And Simon Property Group, Inc. Form A 50/50 Joint Venture To Unlock Real Estate Value At 10 Sears Holdings Properties At Simon Malls http://searsholdings.mediaroom.com/index.php?s=16310&item=137360 Link to comment Share on other sites More sharing options...
muscleman Posted April 13, 2015 Share Posted April 13, 2015 The SHLD story is finally getting interesting to me. I think the seeking alpha author is right. SHLD will initially have a lot of cash after the REIT offering, but will quickly burn through them with Eddie Lampert's terrible retail skills. :) Link to comment Share on other sites More sharing options...
benhacker Posted April 14, 2015 Share Posted April 14, 2015 Quoting myself from January: I think rational prices for the debt given information today would be (just some rough #'s from the gut): '17 SRAC --> $85-90 '18 HoldCo (secured) --> $90-95 '19 HoldCo (unsecured) --> $85-90 SRAC ('27+) --> $70-75 It looks like someone(s) stepped in and normalized this capital structure... HoldCo notes stronger than expected above, but common higher and all SRAC paper has been rallying strongly to near prices above, which I think are more reflective of reality, although still a bit to go. There was a great opportunity to sell 8% notes for, well, pretty much any other part of Sears structure. Link to comment Share on other sites More sharing options...
Scudbucket Posted April 15, 2015 Share Posted April 15, 2015 Anyone ever see this before? Thoughts? http://www.sec.gov/Archives/edgar/data/1310067/999999999715007890/filename1.pdf Link to comment Share on other sites More sharing options...
Sunrider Posted April 15, 2015 Share Posted April 15, 2015 Yes. Standard procedure. Buffet uses those two when he's (e.g.) preparing for an acquisition. Link to comment Share on other sites More sharing options...
InvestingOnSale Posted April 15, 2015 Share Posted April 15, 2015 Anyone ever see this before? Thoughts? http://www.sec.gov/Archives/edgar/data/1310067/999999999715007890/filename1.pdf The confidential treatment refers to a severance agreement from a few years ago. In that agreement, Sears listed its competitors, but redacted that list for some reason. See below. http://www.sec.gov/Archives/edgar/data/1310067/000119312512114869/d276653dex1039.htm [shadow=gray,left]The following companies (including affiliates and subsidiaries within the same controlled group of corporations) are included within the definition of “Sears Competitors”, as referred to under subsection 4©(ii)(1) of the Executive Severance Agreement: [*****] Confidential material redacted and filed separately with the Securities and Exchange Commission.[/shadow] It is unclear to me why. Perhaps there are competitors in there that signal Sears's intent to get into new and different businesses. Just a guess. Not much to infer from it. Link to comment Share on other sites More sharing options...
Scudbucket Posted April 15, 2015 Share Posted April 15, 2015 I had the same thought on the new/different businesses. I wonder if the Hadoop/Metascale business has anything to do with it. Link to comment Share on other sites More sharing options...
Luke 532 Posted April 15, 2015 Share Posted April 15, 2015 The warrants might be getting interesting again with IV down to around 50% from the 80% level a few months ago. Link to comment Share on other sites More sharing options...
fareastwarriors Posted April 15, 2015 Share Posted April 15, 2015 Poor Returns Weigh on Sears Pension Plan Weak performance threatens to necessitate additional contributions http://www.wsj.com/articles/poor-returns-weigh-on-sears-pension-plan-1429130235 Link to comment Share on other sites More sharing options...
benhacker Posted April 17, 2015 Share Posted April 17, 2015 Any equity holders have a strong opinion on how the value of RE is being split here with the REIT? Thoughts on REIT rights participation? Link to comment Share on other sites More sharing options...
JAllen Posted April 17, 2015 Share Posted April 17, 2015 Am I "big picture" correct that current shareholders of SHLD are going to have to invest $2.5B to buy the REIT? Link to comment Share on other sites More sharing options...
muscleman Posted April 17, 2015 Share Posted April 17, 2015 Am I "big picture" correct that current shareholders of SHLD are going to have to invest $2.5B to buy the REIT? Correct. SHLD has been monetizing from the shareholders for the entire past few years. I owned SHLD briefly twice as a trading position in the past two years. I am very interested in the REIT after the spin off. It may have a lot of potentials when GGP instead of SHLD is managing it, but I don't know the price yet. Link to comment Share on other sites More sharing options...
Picasso Posted April 17, 2015 Share Posted April 17, 2015 SHLD will be investing a lot less than $2.5 billion. Maybe a little over $1 billion since the rest is coming in the form of debt from the REIT. Link to comment Share on other sites More sharing options...
krazeenyc Posted April 18, 2015 Share Posted April 18, 2015 Am I "big picture" correct that current shareholders of SHLD are going to have to invest $2.5B to buy the REIT? Better guess is about $500-600MM -- $2B+ is likely to come in the form of debt. Link to comment Share on other sites More sharing options...
muscleman Posted April 18, 2015 Share Posted April 18, 2015 Does anyone know when the REIT will start trading? I would be interested to buy if the price is good enough. Link to comment Share on other sites More sharing options...
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