SHLDQ - Sears Holdings Corp

[BargainValueHunter]

http://fortune.com/2015/05/06/sears-lampert-shareholders/

 

Sears has been a pioneer on the digital front, offering in-store pickup for online orders years before the competition. And the Shop Your Way loyalty program it is banking on for its future is behind a growing percentage of its sales — last year, some 74% of its revenue came via the program, up from 69% a year earlier.

[wisdom]

http://www.bloomberg.com/news/articles/2015-05-06/sears-says-its-split-with-kardashians-was-part-of-fashion-shift

[OracleofCarolina]

Anyone go to the meeting today?

[wisdom]

https://blog.searsholdings.com/eddie-lampert/what-well-discuss-at-todays-annual-meeting-of-stockholders/

 

Maybe it is just me but this is the most optimistic blog/statement by ESL.

[Scudbucket]

I went to the annual meeting today.

 

Some thoughts:

- Keith Trauner from Goodhaven was there.  He was also at the Markel brunch with Larry (I'm pretty sure), FWIW.

- When asked if he would be CEO in 5 years, Lampert dodged.  He said he hopes the best person is CEO at that time.

- I got the impression he absolutely believes in the transformation 100% and will do everything possible to see it through.

- He said he structured the JVs and Seritage so there could be no doubt, even for the most pessimistic bears, that they don't have financial flexibility with their assets.

- A question was asked about closing stores and losing local scale advantages.  Lampert said they're just making the stores smaller so they shouldn't lose local scale advantages.  He did say, though, that this doesn't preclude them from closing some more under performing stores.

- The vision is to use technology to make a better experience for the customer/member.  They showed three videos.  The last being the goal.  It was a customer/member receiving tailored pricing/reminders based upon what Sears knows about the customer from their previous purchases.  I have to say that theoretically, the vision is awesome and has a lot of potential.  However, the practical implementation of it is going to be extremely hard because 1) Sears shoppers are older and the people who have smart phones and know how to use the apps are younger and don't shop at Sears (at least not yet) and 2) it will take a huge movement to transform how people behave and modify their shopping habits.

 

I can't think of any more.  I'll post more when I do.

[muscleman]

I went to the annual meeting today.

 

Some thoughts:

- Keith Trauner from Goodhaven was there.  He was also at the Markel brunch with Larry (I'm pretty sure), FWIW.

- When asked if he would be CEO in 5 years, Lampert dodged.  He said he hopes the best person is CEO at that time.

- I got the impression he absolutely believes in the transformation 100% and will do everything possible to see it through.

- He said he structured the JVs and Seritage so there could be no doubt, even for the most pessimistic bears, that they don't have financial flexibility with their assets.

- A question was asked about closing stores and losing local scale advantages.  Lampert said they're just making the stores smaller so they shouldn't lose local scale advantages.  He did say, though, that this doesn't preclude them from closing some more under performing stores.

- The vision is to use technology to make a better experience for the customer/member.  They showed three videos.  The last being the goal.  It was a customer/member receiving tailored pricing/reminders based upon what Sears knows about the customer from their previous purchases.  I have to say that theoretically, the vision is awesome and has a lot of potential.  However, the practical implementation of it is going to be extremely hard because 1) Sears shoppers are older and the people who have smart phones and know how to use the apps are younger and don't shop at Sears (at least not yet) and 2) it will take a huge movement to transform how people behave and modify their shopping habits.

 

I can't think of any more.  I'll post more when I do.

 

Sears is hiring senior software engineers in Seattle, so that definitely means they are determined to get this through. But I am really not positive about it. If you look at their website and see the bugs there. I won't shop there at all.

[InvestingOnSale]

Is anyone familiar with how the Operating Partnership will work in relation to the ownership of Seritage Growth?  It looks like those subscription rights above 10% ownership limits will be exchanged for the Operating Partnership and any over subscription will exclude those original rights.  Somehow Eddie and Bruce maintain the economic interest of the majority of Seritage but not directly?  Does the OP not count as an "entity" for REIT rules?  Am I right in thinking that "Operating Partnership" will own 70% plus of the REIT?

 

Also operating income is roughly going to equal if the debt service costs come in around 6-7% assuming there is a full subscription, which it appears there will be through the help of the OP.  So is the framework 1) cover the costs of the REIT structure, 2) issue new equity later to fund redevelopment, 3) use improved cash flows to support a lower cost of capital on the debt, 3) equity becomes more valuable as the spread of debt and FFO improves, 4) acquire new assets from Sears (or whoever) to continue expanding through equity issuance at (hopefully) better prices? 

 

Does anyone have any thoughts on this?  I am working my way through each property with the help of some outside experts and so any additional help would be appreciated.  I'll try and share what we get from the due diligence.

 

Picasso, take a look at page 3 of the attachment. It looks to me like a typical structure will have the Operating Partnership owning the properties, the REIT owning (part of) the OP, and the Contributors (Lampert and Berkowitz in this case?) owning the OP via OP Units. Maybe in this way, the large positions of Lampert and Berkowitz do not cause a violation of the REIT 5 and 50 rule, but they still get economic ownership of the properties.

 

I'm not sure of the tax consequences here or even if I'm correct.

REIT-roll-up-m-a-transactions-2013.pdf

[Picasso]

Is anyone familiar with how the Operating Partnership will work in relation to the ownership of Seritage Growth?  It looks like those subscription rights above 10% ownership limits will be exchanged for the Operating Partnership and any over subscription will exclude those original rights.  Somehow Eddie and Bruce maintain the economic interest of the majority of Seritage but not directly?  Does the OP not count as an "entity" for REIT rules?  Am I right in thinking that "Operating Partnership" will own 70% plus of the REIT?

 

Also operating income is roughly going to equal if the debt service costs come in around 6-7% assuming there is a full subscription, which it appears there will be through the help of the OP.  So is the framework 1) cover the costs of the REIT structure, 2) issue new equity later to fund redevelopment, 3) use improved cash flows to support a lower cost of capital on the debt, 3) equity becomes more valuable as the spread of debt and FFO improves, 4) acquire new assets from Sears (or whoever) to continue expanding through equity issuance at (hopefully) better prices? 

 

Does anyone have any thoughts on this?  I am working my way through each property with the help of some outside experts and so any additional help would be appreciated.  I'll try and share what we get from the due diligence.

 

Picasso, take a look at page 3 of the attachment. It looks to me like a typical structure will have the Operating Partnership owning the properties, the REIT owning (part of) the OP, and the Contributors (Lampert and Berkowitz in this case?) owning the OP via OP Units. Maybe in this way, the large positions of Lampert and Berkowitz do not cause a violation of the REIT 5 and 50 rule, but they still get economic ownership of the properties.

 

I'm not sure of the tax consequences here or even if I'm correct.

 

Makes sense.  But this gets kind of interesting.

 

We know that ESL has no problem investing into not-so-liquid securities such as these new Operating Partnership units.  But Fairholme manages retail capital and holds a lot of SHLD through mutual funds and other separately managed accounts that I am assuming may not all be okay with having illiquid units of the operating partnership?  I could see a situation where Fairholme limits his involvement to 9.8% to avoid that issue especially if investors are liquidating.  But that may explain some of the core position selling from his latest filings.  If he doesn't swap Seritage rights for OP unit rights on his entire position then that leaves more room for the rest of the investor base to oversubscribe.

 

Fairholme had this comment in the press release:

 

"In addition, Fairholme Capital Management, L.L.C. has advised the Company that it expects that its clients will exercise substantially all of the rights they receive, subject to the REIT ownership limitations imposed by the Company and regulatory considerations."

 

I don't know how he gets "substantially all" from 9.8% versus 25% or so.  Of course he could mean exercise all rights including ones swapped for OP units.  It looks like the OP units have to be held for at least 12-14 months in order to eventually be swapped out for Sertiage stock 1:1.  So Fairholme investors could sell their first tranche of Seritage, swap the rest for Sertiage, sell those and repeat.  Seems messy when you're talking about 25% of the shares outstanding.

 

Thanks for the link.

[txlaw]

Anybody come across any notes for the SHLD annual meeting?

[Picasso]

An interesting comment from the WP Glimcher conference call regarding Sears/Seritage.

 

Michael Glimcher - CEO

Sure. And to say specifically, with 57 Sears, roughly 11% of our GLA, only a little over 1% of our -- or 1.2% of our base rate, let's put that in perspective, it's probably not the highest rent paying space we have in the portfolio, and we own a little over a third of them. So I look at that as upside, I look at that as opportunity, if there were to be an issue. We have a great mix of anchors. We have been enhancing that mix. I talked about the junior anchors, the DICK's Sporting Goods, H&Ms things we're adding on top of the traditional department stores. Also, what we are doing a Fairfield Commons, where we said we have a department store here, we think it's more productive to do five restaurant deal. It will create more visits, better quality of customer and higher volume for that amount of space.

 

So I think our job is to actively manage these assets, reinvest in them and come up with the right uses. So if one day any of our anchors -- and this would be true to any of our peers, went away you have a lot of work to do. But the tremendous amount of opportunity you would have when its 10% of your space paying 1% of your rent give or take you do the math, if we can't find upside of that space, probably not the right people that do it. And I'm very confident we can find a tremendous amount of upside.

[davidoosnk]

Doesn't it sort of seem like a partnership with Amazon would be a no-brainer given all this tech talk?

 

 

[InvestingOnSale]

Doesn't it sort of seem like a partnership with Amazon would be a no-brainer given all this tech talk?

 

What does one party have that the other does not?

Sears has a brick and mortar presence that Amazon has stated they want.

Amazon has a major online presence, of course, and presumably better logistics than Sears.

 

Still, they are pretty direct competitors. What form do you think such a partnership would take?

 

 

 

[oddballstocks]

Doesn't it sort of seem like a partnership with Amazon would be a no-brainer given all this tech talk?

 

What does one party have that the other does not?

Sears has a brick and mortar presence that Amazon has stated they want.

Amazon has a major online presence, of course, and presumably better logistics than Sears.

 

Still, they are pretty direct competitors. What form do you think such a partnership would take?

 

Seems like this worked out really well for Borders...

[BargainValueHunter]

http://www.geekwire.com/2015/can-sears-innovate-retailer-aims-to-reinvent-home-services-from-new-seattle-tech-center/

 

A newly assembled Sears Home Services engineering team, operating from the company’s fledgling tech hub in Seattle, thinks it can do better. A dominant player in the world of home appliances and repair, Sears plans to use predictive algorithms — combined with its years of appliance and home-repair data — to diagnose problems before the service call takes place.

[BTShine]

Here are two video clips from the annual meeting

 

https://blog.searsholdings.com/eddie-lampert/video-highlights-of-our-2015-annual-meeting/

[Sunrider]

I see SHLD 2019 bonds are at .93 on the dollar today .. thats, what, another 93/100^(1/4.5) = 1.6% of yield? Are people looking at these? Do you think they are attractive?

 

Thanks - C.

[smj]

Leon Cooperman buys 868,752 shares of SHLD in 1Q.

 

http://www.benzinga.com/news/15/05/5515445/leon-coopermans-omega-advisors-sells-apple-gilead-buys-humana-gm-and-ibm

 

 

[adesigar]

Leon Cooperman buys 868,752 shares of SHLD in 1Q.

 

http://www.benzinga.com/news/15/05/5515445/leon-coopermans-omega-advisors-sells-apple-gilead-buys-humana-gm-and-ibm

 

Less than 1% of AUM, One of almost 100 stocks owned.

[BTShine]

Leon Cooperman buys 868,752 shares of SHLD in 1Q.

 

http://www.benzinga.com/news/15/05/5515445/leon-coopermans-omega-advisors-sells-apple-gilead-buys-humana-gm-and-ibm

 

Less than 1% of AUM, One of almost 100 stocks owned.

 

True. 

 

I still appreciated the info.  Thanks, smj.

[BargainValueHunter]

http://www.forbes.com/sites/jonathansalembaskin/2015/05/18/sears-could-disrupt-throwaway-tech-culture/

 

Much has been said about Sears and what seem like existential questions about the future of its retail stores, but what if it were quietly disrupting the very nature of consumer relationships with technology products?

 

I think that’s exactly what it’s doing.

[InvestingOnSale]

http://www.forbes.com/sites/jonathansalembaskin/2015/05/18/sears-could-disrupt-throwaway-tech-culture/

 

Much has been said about Sears and what seem like existential questions about the future of its retail stores, but what if it were quietly disrupting the very nature of consumer relationships with technology products?

 

I think that’s exactly what it’s doing.

 

From this quote in the article...

“We’ve built a continuous learning platform, so every service order is analyzed and distilled to probable causes, and then we can systematically address them,” explained Clarkson. “Our goal is to make the engagement utterly transparent, and democratize it for every customer,” added Robinson.

... it's unclear to me exactly what the team is doing. How does analyzing service orders (which, by definition, take place after something breaks down) help the consumer? I guess it could be something as simple as "customer A called about a broken washer, model XYZ, and 50% of service calls for that model involve a broken flux capacitor", but that seems a little simple.

[BargainValueHunter]

http://www.tennessean.com/story/money/2015/05/22/sears-close-bellevue-center-early-august/27786537/

 

Its unclear whether Sears' closing signals an agreement between the retailer and the owner of the bulk of the 1 million-square-foot Bellevue Center and its development partner, Crosland Southeast. Last fall, Crosland executive Tim Sittema said the Charlotte, N.C.-based retail and mixed-use developer hoped to negotiate with Sears to terminate its lease, relocate Sears' store within the project or try to work around its location during construction.

 

The 75-acre Bellevue Center mall site would be converted into the retail-driven, walkable multiuse One Bellevue Place. Components include 600,000 square feet of retail space, roughly 300 multifamily residential units, a hotel and 1,500 square feet of professional/medical office space.

[InvestingOnSale]

http://www.tennessean.com/story/money/2015/05/22/sears-close-bellevue-center-early-august/27786537/

 

Its unclear whether Sears' closing signals an agreement between the retailer and the owner of the bulk of the 1 million-square-foot Bellevue Center and its development partner, Crosland Southeast. Last fall, Crosland executive Tim Sittema said the Charlotte, N.C.-based retail and mixed-use developer hoped to negotiate with Sears to terminate its lease, relocate Sears' store within the project or try to work around its location during construction.

 

The 75-acre Bellevue Center mall site would be converted into the retail-driven, walkable multiuse One Bellevue Place. Components include 600,000 square feet of retail space, roughly 300 multifamily residential units, a hotel and 1,500 square feet of professional/medical office space.

 

Interesting development project. Like many other malls, it looks like Sears owns their store and perhaps their section of parking. News stories put the redevelopment at a $100mm project, and it looks like Sears was holding out on selling, perhaps to get the developer to pay up for the property. Presumably, Sears benefits above and beyond the assessed value of the property by holding up a $100mm redevelopment project.

 

What's most interesting about this project is that it has all the hallmarks of the bear case for Sears's real estate (a dying American mall in a rural location like Nashville), yet there is a developer who believes spending $100mm on redevelopment is worthwhile. I wonder how many cases there are like this, where, if one drives by the site, it appears to be dead and worthless but is actually not.

 

redeveloper's website: http://croslandsoutheast.com/project/one-bellevue-place/

"$100mm project": http://wkrn.com/2015/02/25/redevelopment-plans-for-bellevue-center-move-ahead/

Bellvue mall is "dead": http://www.deadmalls.com/malls/bellevue_mall.html

[Spekulatius]

Its unclear whether Sears' closing signals an agreement between the retailer and the owner of the bulk of the 1 million-square-foot Bellevue Center and its development partner, Crosland Southeast. Last fall, Crosland executive Tim Sittema said the Charlotte, N.C.-based retail and mixed-use developer hoped to negotiate with Sears to terminate its lease, relocate Sears' store within the project or try to work around its location during construction.

 

Interesting development project. Like many other malls, it looks like Sears owns their store and perhaps their section of parking. News stories put the redevelopment at a $100mm project, and it looks like Sears was holding out on selling, perhaps to get the developer to pay up for the property. Presumably, Sears benefits above and beyond the assessed value of the property by holding up a $100mm redevelopment project.

If the project stalls, it's not doing anybody any good. Furthermore, if they do this, the reputation in the industry will make developer think twice to work on Sears anchored malls. Reviving a dying mall is difficult enough, it seems near impossible if the key stakeholders don't work together.

[adesigar]

Its unclear whether Sears' closing signals an agreement between the retailer and the owner of the bulk of the 1 million-square-foot Bellevue Center and its development partner, Crosland Southeast. Last fall, Crosland executive Tim Sittema said the Charlotte, N.C.-based retail and mixed-use developer hoped to negotiate with Sears to terminate its lease, relocate Sears' store within the project or try to work around its location during construction.

 

Interesting development project. Like many other malls, it looks like Sears owns their store and perhaps their section of parking. News stories put the redevelopment at a $100mm project, and it looks like Sears was holding out on selling, perhaps to get the developer to pay up for the property. Presumably, Sears benefits above and beyond the assessed value of the property by holding up a $100mm redevelopment project.

If the project stalls, it's not doing anybody any good. Furthermore, if they do this, the reputation in the industry will make developer think twice to work on Sers anchored malls. Reviving a dying mall is difficult enough, it seems near impossible if the key stakeholders don't work together.

 

Sears should make its decision based on extracting maximum value for its shareholders and not whats best for XYZ developers project. If theres value in redevelopment it will get done. If not by XYZ developer then by another developer.