SHLDQ - Sears Holdings Corp

[Parsad]

Finally Eddie, finally you've woken up! 

 

http://finance.yahoo.com/news/sears-canada-names-concord-pacific-223200164.html

 

Let me explain this for those of you not familiar with Concord Pacific.  Concord has pretty much transformed Vancouver's downtown from 1986, and is currently responsible for a lot of those glass condos going up all over Toronto. 

 

As I mentioned earlier when the announcement of the Metrotown redevelopment project was announced, according to this article, my original guess of a billion dollar development was dead-on!  If Sears can do this to one property, think about all of the other core properties they can redevelop and make a killing off of over the next ten years! 

 

They are selling 50% of the land for $140M, and will not be responsible for raising the capital for the project.  They would be lucky if they made $140M net profit from that store over the next 15-20 years!  Cheers!

 

Sanjeev, I'm curious how many of SHLD's properties you think might have $1B+ potential?

 

Don't know.  But I can tell you that the three leased properties they sold (Vancouver, Toronto, Calgary) were Grade A location leases that were at one-third of market rates, so there is a lot of value in many of their older leased properties.  Then about four properties now, including the one in Burnaby, are each multi-tens of million dollar developments they are involved with, if not hundreds of millions like this Burnaby store. 

 

Assume that their real estate portfolio is worth $10B conservatively if sold as is...but 10% of those properties are worth 5-6 times what they are worth in redevelopment...you are now talking about real estate worth $15B conservatively if developed.  You would need to tear apart the leases and wholly-owned properties to get a good idea of fair market value and value based on redevelopment.  I'm guessing that's what attracted Lampert to Kmart and Sears in the first place.  And I'm pleased he's finally monetizing the assets!  Cheers!

 

So what would you estimate will the cost be for redeveloping each of these $1B valuable properties?

 

Sorry my misread. "The estimated cost to fully develop and build out the project as contemplated is currently in excess of $1 billion dollars in 2013 dollars."

It is still unclear to me who is paying for this $1B cost. It seems like Concord will pay this money to build the properties, and then Sears will have 50% interest in these properties?

If similar cases can happen to all the US grade A malls that Sears owns, and assume you are correct about the 15B value, then can I assume that Sears will have 7.5B in value in these properties?

 

I have no idea what the properties are worth, since I don't have access to all of the leases and documents.  Baker Street Capital gave an opinion on the analysis they did, which wasn't entirely conservative, but then again excluded valuation for redevelopment on the scale they are doing at Metrotown in Burnaby.  I don't know how many properties in Sears' portfolio have that ability, but I would suspect it's a heck of a lot more than the market says it is.  Cheers!

[Junto]

For those that were tracking, article on the Sears development in my backyard: "Sears seeking tenants for St. Paul site" http://finance-commerce.com/2013/10/sears-seeking-tenants-for-st-paul-site/

 

"Paul Mandell is anxious to learn more details about the planned redevelopment of the Sears site near the state Capitol building in St. Paul.

 

As the principal planner and zoning administrator for the Capitol Area Architectural and Planning Board, Mandell will play a key role in determining if those plans are appropriate for the historic district. But in recent months, according to Mandell, there have only been preliminary discussions about what kind of signage the developers might be planning to use.

 

“I check with them every one or two months and they’re just out there trying to round up tenants,” Mandell said...cont'd..."

 

Here are the site plans: http://finance-commerce.com/wp-files//searsblocksiteplanexcerpts.pdf

[bobp]

Sears negative in Barron's.

 

http://online.barrons.com/article/SB50001424053111903891504579121603785394482.html?mod=BOL_hpp_mag#articleTabs_article%3D1

[AchilliesValue]

Sears negative in Barron's.

 

http://online.barrons.com/article/SB50001424053111903891504579121603785394482.html?mod=BOL_hpp_mag#articleTabs_article%3D1

 

First feature in the paper version.  Less negative than the Journal piece earlier this week but seems like that Credit Suisse analyst is doing the rounds.

[plato1976]

Are these 3 leased properties by chance also their major stores which generated great revenue for them ? I always had a fear for Sears that their key real estate is also their main revenue sources. So

if they liquidate their real estate their retail business won't be there (and of course you also have

the massive layoff issues, etc.)

 

 

Finally Eddie, finally you've woken up! 

 

http://finance.yahoo.com/news/sears-canada-names-concord-pacific-223200164.html

 

Let me explain this for those of you not familiar with Concord Pacific.  Concord has pretty much transformed Vancouver's downtown from 1986, and is currently responsible for a lot of those glass condos going up all over Toronto. 

 

As I mentioned earlier when the announcement of the Metrotown redevelopment project was announced, according to this article, my original guess of a billion dollar development was dead-on!  If Sears can do this to one property, think about all of the other core properties they can redevelop and make a killing off of over the next ten years! 

 

They are selling 50% of the land for $140M, and will not be responsible for raising the capital for the project.  They would be lucky if they made $140M net profit from that store over the next 15-20 years!  Cheers!

 

Sanjeev, I'm curious how many of SHLD's properties you think might have $1B+ potential?

 

Don't know.  But I can tell you that the three leased properties they sold (Vancouver, Toronto, Calgary) were Grade A location leases that were at one-third of market rates, so there is a lot of value in many of their older leased properties.  Then about four properties now, including the one in Burnaby, are each multi-tens of million dollar developments they are involved with, if not hundreds of millions like this Burnaby store. 

 

Assume that their real estate portfolio is worth $10B conservatively if sold as is...but 10% of those properties are worth 5-6 times what they are worth in redevelopment...you are now talking about real estate worth $15B conservatively if developed.  You would need to tear apart the leases and wholly-owned properties to get a good idea of fair market value and value based on redevelopment.  I'm guessing that's what attracted Lampert to Kmart and Sears in the first place.  And I'm pleased he's finally monetizing the assets!  Cheers!

[Parsad]

Are these 3 leased properties by chance also their major stores which generated great revenue for them ? I always had a fear for Sears that their key real estate is also their main revenue sources. So

if they liquidate their real estate their retail business won't be there (and of course you also have

the massive layoff issues, etc.)

 

 

Finally Eddie, finally you've woken up! 

 

http://finance.yahoo.com/news/sears-canada-names-concord-pacific-223200164.html

 

Let me explain this for those of you not familiar with Concord Pacific.  Concord has pretty much transformed Vancouver's downtown from 1986, and is currently responsible for a lot of those glass condos going up all over Toronto. 

 

As I mentioned earlier when the announcement of the Metrotown redevelopment project was announced, according to this article, my original guess of a billion dollar development was dead-on!  If Sears can do this to one property, think about all of the other core properties they can redevelop and make a killing off of over the next ten years! 

 

They are selling 50% of the land for $140M, and will not be responsible for raising the capital for the project.  They would be lucky if they made $140M net profit from that store over the next 15-20 years!  Cheers!

 

Sanjeev, I'm curious how many of SHLD's properties you think might have $1B+ potential?

 

Don't know.  But I can tell you that the three leased properties they sold (Vancouver, Toronto, Calgary) were Grade A location leases that were at one-third of market rates, so there is a lot of value in many of their older leased properties.  Then about four properties now, including the one in Burnaby, are each multi-tens of million dollar developments they are involved with, if not hundreds of millions like this Burnaby store. 

 

Assume that their real estate portfolio is worth $10B conservatively if sold as is...but 10% of those properties are worth 5-6 times what they are worth in redevelopment...you are now talking about real estate worth $15B conservatively if developed.  You would need to tear apart the leases and wholly-owned properties to get a good idea of fair market value and value based on redevelopment.  I'm guessing that's what attracted Lampert to Kmart and Sears in the first place.  And I'm pleased he's finally monetizing the assets!  Cheers!

 

The downtown Vancouver Sears store was struggling.  Nordstrom's has taken up the lease Sears sold back to Cadillac Fairview for about $80M.  Nordstroms is a very different retailer than Sears, and something the Vancouver market has been asking for a very long time.  They should do perfectly fine in that old Sears location...but a Sears there was not going to work, just like Eaton's failed there as well.  Cheers!

[Luke 532]

Assume that their real estate portfolio is worth $10B conservatively if sold as is...but 10% of those properties are worth 5-6 times what they are worth in redevelopment...you are now talking about real estate worth $15B conservatively if developed.

 

Thank you for this, Sanjeev.  I'm curious if you'd be willing to share your current conservative estimate of SHLD's value per share factoring in real estate, brands, inventory and of course stripping away liabilities?  Your comments on this thread are very much appreciated!

[Parsad]

Assume that their real estate portfolio is worth $10B conservatively if sold as is...but 10% of those properties are worth 5-6 times what they are worth in redevelopment...you are now talking about real estate worth $15B conservatively if developed.

 

Thank you for this, Sanjeev.  I'm curious if you'd be willing to share your current conservative estimate of SHLD's value per share factoring in real estate, brands, inventory and of course stripping away liabilities?  Your comments on this thread are very much appreciated!

 

I'd say conservatively, you are looking at $60-75 per share, but that depends on how quickly they can monetize the assets without burning capital in the retail stores.  Anything more than that, and you would really need to see all of the actual leases, property owned, intercompany affiliations, quality of inventory, hidden liabilities and then value them piece by piece.  But a broad view of the assets, brands, licenses, inventory, etc, I get $60-75 per share. 

 

In the past, they were way too slow monetizing the assets, and I felt they would burn through the cash before realizing the value...they probably did burn through about $4-6B that they could have utilized elsewhere in the last few years, if they started the selling process and redevelopment process much earlier and didn't do all of the buybacks at high prices.  Now they are monetizing it much quicker...hopefully fast enough and into other value-generating assets!  Cheers!

[phil_Buffett]

parsad are you still Long SHLD? because when you assume that conservative value is around 60-75$ it is not much margin of safety here, or?

 

baker street said value over 100$ per share.

[muscleman]

parsad are you still Long SHLD? because when you assume that conservative value is around 60-75$ it is not much margin of safety here, or?

 

baker street said value over 100$ per share.

 

I think that entirely depends on how much more cash they will burn through the transformation. :)

Baker assumed that the assets are unencumbered and can be spun off to shareholders at any time, so I think they didn't take into account the cash burn.

 

[Phaceliacapital]

Sunday October 13, 9:42 AM

Sears gets bearish Barron's treatment

The value of Sears' (SHLD) real estate could be far less than the bullish views of Baker Street (don't forget Bruce Berkowitz), writes Jacqueline Doherty. What's more, the company is selling some of its most profitable locations to raise cash to cover its massive losses - "burning the furniture to stay warm," says ISI's Matt McGInley, whose price target on the stock is just $25.

Relying on a price-per-square-foot analysis by Cushman & Wakefield - which got its comps from J.C. Penney sale prices - Credit Suisse has a price target of $20.

Part of the bullish real estate case relies on redeveloping certain stores, but that's easier said than done. Sears' Seritage Realty Trust has subleased "a number" of stores to other retailers, according to a spokesman, but Ubiquity Critical Environments - set up to convert locations into data centers - hasn't launched a fully operating one yet.

Barron's also takes a jab at Baker Street Capital - whose bullish report was the impetus in Sears' moonshot last month. The small operation - whose stock and options positions in Sears had been well under water - won't give detail on exactly which real estate experts led to such an outlier of an estimate on the value of the real estate holdings.

Sears gave back 14% of its big August/September gains last week. Monday morning might see even more selling.

[Parsad]

parsad are you still Long SHLD? because when you assume that conservative value is around 60-75$ it is not much margin of safety here, or?

 

baker street said value over 100$ per share.

 

I can't tell you if I'm long-term bullish, because it will depend on how they execute.  What I can say is that I believe it is selling at under conservative liquidation value of the assets, and I'm hoping they execute...tentatively it looks like they are trying to monetize those assets.  So, my thesis is that I'm long until it hits or goes above my conservative levels of liquidation value, and then I will reduce to a position which I would be comfortable holding under the presumption they may get this done. 

 

You compare buying something to below liquidation value compared to what is available in the markets today, and it is not a bad position to have if you are a student of Ben Graham's.  Things are not cheap...fully valued in most cases...stupid in others.  There are very tiny pockets of value in out of favor companies or industries, so that is unfortunately what we are left to buy.  I would much rather buy the stuff I bought in 2009 at greater than 30% valuations from then, but we probably aren't going to get that anytime soon.  Low interest rates have inflated all asset values, and we are stuck buying Ben Graham cigar butts!  Cheers!

[plato1976]

sadly true...

I am not a financial professional, but I feel the U.S. is still on a long way on deleveraging.

In such a world, low valuation only happens when you have big negative deflationary impact (like if US suddenly defaults). But as long as the deleveraging is well controlled, that usually means low inflation, low interest and slow growth - that will correspond to a high valuation world (d*mn)

 

Need to live with it; on the other hand, if surprise does hit, I will back my truck and load

Now 50% in cash...

 

parsad are you still Long SHLD? because when you assume that conservative value is around 60-75$ it is not much margin of safety here, or?

 

baker street said value over 100$ per share.

 

I can't tell you if I'm long-term bullish, because it will depend on how they execute.  What I can say is that I believe it is selling at under conservative liquidation value of the assets, and I'm hoping they execute...tentatively it looks like they are trying to monetize those assets.  So, my thesis is that I'm long until it hits or goes above my conservative levels of liquidation value, and then I will reduce to a position which I would be comfortable holding under the presumption they may get this done. 

 

You compare buying something to below liquidation value compared to what is available in the markets today, and it is not a bad position to have if you are a student of Ben Graham's.  Things are not cheap...fully valued in most cases...stupid in others.  There are very tiny pockets of value in out of favor companies or industries, so that is unfortunately what we are left to buy.  I would much rather buy the stuff I bought in 2009 at greater than 30% valuations from then, but we probably aren't going to get that anytime soon.  Low interest rates have inflated all asset values, and we are stuck buying Ben Graham cigar butts!  Cheers!

[phil_Buffett]

thank you parsad for your great answer. iam Holding my shld Shares, because iam thinking as you the same that when the execute the assets right the can make a lot of Money, and way more than todays market Price. iam a big believer in bruce berkowitz and iam 100% with him on sears.

[tombgrt]

Finally Eddie, finally you've woken up! 

 

http://finance.yahoo.com/news/sears-canada-names-concord-pacific-223200164.html

 

Let me explain this for those of you not familiar with Concord Pacific.  Concord has pretty much transformed Vancouver's downtown from 1986, and is currently responsible for a lot of those glass condos going up all over Toronto. 

 

As I mentioned earlier when the announcement of the Metrotown redevelopment project was announced, according to this article, my original guess of a billion dollar development was dead-on!  If Sears can do this to one property, think about all of the other core properties they can redevelop and make a killing off of over the next ten years! 

 

They are selling 50% of the land for $140M, and will not be responsible for raising the capital for the project.  They would be lucky if they made $140M net profit from that store over the next 15-20 years!  Cheers!

 

I like how the media is ignoring this significant fact while pounding the table on how wrong Baker Street MUST be with the experts' RE valuation.

 

 

Bought back some of those calls I sold for a third of the price.

[mbharadwaj]

I was in a Sears store over the weekend after a long time. There was a SYWM offer that sent out a coupon and we went shopping for dresses for the kids for an upcoming b'day celebration. There were some great deals in the Sears store and we picked up the dress. There was a fair amount of traffic - not as much to crowd the lines. The traffic was as much as a nearby JC Penny and Kohls (had stopped by all three).

 

We typically end up shopping at Kohls for dresses as the girls like going there, plus they have a frequent 30% off + bucks deals. The Sears trip was good enough to prompt more frequent trips.

[BTShine]

I was in a Sears store over the weekend after a long time. There was a SYWM offer that sent out a coupon and we went shopping for dresses for the kids for an upcoming b'day celebration. There were some great deals in the Sears store and we picked up the dress. There was a fair amount of traffic - not as much to crowd the lines. The traffic was as much as a nearby JC Penny and Kohls (had stopped by all three).

 

We typically end up shopping at Kohls for dresses as the girls like going there, plus they have a frequent 30% off + bucks deals. The Sears trip was good enough to prompt more frequent trips.

 

Anecdotally, I've noticed similar behavior on my stops to the mall.  It seems like Sears is getting more traction from families looking for value priced children's clothes.  Middle aged, to older men are in the shoe department.  Lands' End always has a shopper or two.  And appliances always has a few shoppers. 

 

Compared to JCP, Sears seems to be seeing similar traffic.  Kohl's in my area beats them both.  Macy's, too. 

 

But, I do see Sears selling more and more clothes when I stop by.  This makes sense, since they've announced 8 consecutive quarters of increased apparel sales at Sears Domestic.

[Luke 532]

Buffett: "I do not think companies should be run primarily to please Wall Street and largely shareholders who are going to sell. I believe in running Berkshire for the shareholders who are going to stay and not for the ones who are going to leave," he added.

http://finance.yahoo.com/news/buffett-debt-limit-weapon-mass-120657166.html

 

I would wager Lampert has a similar philosophy, given his affection for Buffett coupled with his track record.  Investors as business owners willing to hold for a decade or two vs. investors as long-term traders holding for a year or two.

[T-bone1]

Buffett: "I do not think companies should be run primarily to please Wall Street and largely shareholders who are going to sell. I believe in running Berkshire for the shareholders who are going to stay and not for the ones who are going to leave," he added.

http://finance.yahoo.com/news/buffett-debt-limit-weapon-mass-120657166.html

 

I would wager Lampert has a similar philosophy, given his affection for Buffett coupled with his track record.  Investors as business owners willing to hold for a decade or two vs. investors as long-term traders holding for a year or two.

 

+1

 

Anyone think SHLD will not outperform the market over the next decade? two?

[wisdom]

+1 it is a great opportunity to partner with Eddie at these prices. But, there arent many shares out there anymore.

[ragu]

I think that, in hindsight, we can certainly say that he probably shouldn't have bought so many shares back when he did -- but given the information he had at the time, it's sort of difficult for me to find fault with his decision-making process.

Thoughts?

 

merkhet,

 

I've been thinking about the buybacks for a while without any success. I seem to remember that Eddie mentioned (sorry, can't find a link) that the buybacks were based on "probable future earnings".  He's also been adamant that his plans for SHLD have been fairly open and well communicated. So, I decided to go back and see what he had to say around the time of the K-Mart/Sears merger.

 

From the March 2007 letter:

 

With 6.9% EBITDA margins, we have the second-lowest margins among the top ten - ahead of only Costco, whose membership-based business model is by design low-margin. Today, Lowe’s, Kohl’s, Home Depot, and Target all have EBITDA margins above 10%. We also lag many of our competitors on a sales and profit-per-square-foot basis. Narrowing these gaps in margins and space productivity represents a significant value-creation opportunity for Sears Holdings shareholders.

(emphasis added)

 

The odds are good that the repurchases were driven by the expectation that EBITDA margins would move up over time.

 

Best,

Ragu

[Luke 532]

http://www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?news_id=154129

Sears Canada named as top employer for young people

October 18, 2013 (Canada)

 

Sears Canada announced that it has been named to the list of "Canada's Top Employers for Young People" by the editors of Canada's Top 100 Employers project.

 

"Our Company takes pride in putting practices in place that work to provide an environment which makes Sears a great place to work and we thank the editors of Canada's Top 100 Employers project for recognizing our commitment to young Canadians," said Doug Campbell, President and CEO, Sears Canada.

 

"We are also proud to be a leader in Canada helping recent graduates create a long-term, potentially lifelong career, and we are pleased that Sears attracts young people to join our organization."

 

"We are investing in programs that develop the careers of young Canadians and consequently a growing percentage of Sears associates in our head office are under the age of 30," said Sam Pisani, Vice-President of Human Resources at Sears Canada.

 

"We offer paid internships, have launched the Sears Future Leaders and Analyst-In-Training program (AIT) and an in-depth orientation for new employees". AIT begins with a six-month immersion in a role to accelerate a young employee's understanding of business and skill development, offering concurrent formal training and work experience, followed by moving into a new role at Sears.

 

The Sears Future Leaders program (FLP), which develops young Canadians for a future in either a merchandising-based or store-based career will welcome its second class of students this Fall. FLP is a management training program that combines in-class instruction and on-the-job experience spread over several months of intense individual learning and group study.

 

Sears Canada is a multi-channel retailer with a network that includes 181 corporate stores, 246 hometown dealer stores, over 1,400 catalogue and online merchandise pick-up locations, 101 Sears Travel offices and a nationwide home maintenance, repair, and installation network.

[BTShine]

http://www.jsonline.com/business/sears-to-close-store-at-racines-regency-mall-in-january-b99122380z1-228194831.html

 

Sears is closing it's Racine, WI store in a CBL mall.  The mall seems to be healthy.  So....this smells to me like another sale to CBL, but none has been announced.  The mall is around 95% occupied, so there should be value in this mall.

[merkhet]

Can someone explain why most of the articles written about the Baker Street report say that they were unwilling to disclose their real estate appraisers when they list "Green Street Advisors" in their presentation? (I'm referring to page 56...)

[JAllen]

Can someone explain why most of the articles written about the Baker Street report say that they were unwilling to disclose their real estate appraisers when they list "Green Street Advisors" in their presentation? (I'm referring to page 56...)

 

 

The articles also say that the report caused the stock price to increase from $40-$60+.  Baker Street's report came out (at least it was emailed then, it may have been distributed to other people prior) September 9th, when the SHLD was already trading at $53+.