SHLD vs SPG - purely based on real estate values (256+ m sq ft vs 245m sq ft)

[berkshiremystery]

If Lampert compares SHLD vs SPG,...  it has become relative cheaper currently,... or better said the spread has widened !!!

 

If two companies have almost the same amount of real estate equally spread across the country, and if every other balance sheet item shouldn't be a concern, should their market values be similar ?

 

-------

Simon Property Group Inc. (SPG)

$49.32 billion market cap    = 245 million square feet of real estate

 

Sears Holdings Corporation (SHLD)

$4.75 billion market cap = 256+ million square feet of real estate

-------

 

So my provocative question as a novice,...

 

if Sears would be valued purely on their hidden real restate values, the same way as Simon Property Group,... shouldn't it trade at least above $50 billion or at $450 per share ?!?!?!

 

 

 

Any reasonable objections are welcome ?

 

 

 

--------

 

P.S.:

 

Somebody might want to study the slide show "Berkowitz: Case Study III" before submitting an answer to this poll.

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg99539/#msg99539

[compoundinglife]

I will repost the response I gave in the SHLD thread:

 

In the BB video I watched I think that is the point he is trying to make valuation wise. However SPG is a REIT that is earning a positive return and able to pay out its earnings to shareholders so its not an apples to apples comparison. So I don't object with the idea that it is possible but I felt like the way BB presented it in the video, he tried to make it sound as simple as the market just needs to realize that SHLD is like SPG and its not that simple. There is a lot of work that needs to be done to get it there.

 

When you look at the project in St. Paul and some of the other stuff going on it seems like the RE group at SHLD might be slowly making the transformation to operating more like a SPG.  If they did a decent job then we might start to see the multiple that BB speaks of.

 

The way I look at SHLD is that you don't need to know a mans weight to know he is fat, its obvious. I don't know the exact future value of SHLD to know its cheap, I just know that it is  much greater than what I can buy it for today.

 

So in 5-10 years if things play out well you could see a bunch of things come together in a lollapalooza type affect between monetizing real estate (not necessarily liquidating), leveraging the KCD brands, retail turn around or housing recovery, progress in the online business and the chance for ESL to actually have some CF coming in the door that he can use for investments. I don't think its that far of a stretch.

[hyten1]

spg are prime malls which command higher $ per sq ft etc.

 

can't just look at sq ft #

[berkshiremystery]

spg are prime malls which command higher $ per sq ft etc.

 

can't just look at sq ft #

 

Hyten1,...

 

You might be right,... and therefore I also made this outrageous and provocative assumption of $50 billion. I asked an outrageous question to make board members think. The real values are hard to validate, but the multiples are definitly higher than today. Would Lampert put his net worth on the table for many years without a hidden margin of safety.

 

[BargainValueHunter]

If I am a big developer and I want to develop land that has a Sears location on it is it cheaper for me to buyout the SHLD real estate, tear it down and then start building or is it cheaper to buy the lease @ current market prices, sublease the space, maintain the retail structure and build around it (e.g. a new concert arena next to the mall)?

[motownsf]

I'd be willing to bet that 20-30% of Sears real estate makes up a great majority of the RE value.

[value-is-what-you-get]

If Lampert compares SHLD vs SPG,...  it has become relative cheaper currently,... or better said the spread has widened !!!

 

If two companies have almost the same amount of real estate equally spread across the country, and if every other balance sheet item shouldn't be a concern, should their market values be similar ?

 

-------

Simon Property Group Inc. (SPG)

$49.32 billion market cap    = 245 million square feet of real estate

 

Sears Holdings Corporation (SHLD)

$4.75 billion market cap = 256+ million square feet of real estate

-------

 

So my provocative question as a novice,...

 

if Sears would be valued purely on their hidden real restate values, the same way as Simon Property Group,... shouldn't it trade at least above $50 billion or at $450 per share ?!?!?!

 

 

 

Any reasonable objections are welcome ?

 

 

 

--------

 

P.S.:

 

Somebody might want to study the slide show "Berkowitz: Case Study III" before submitting an answer to this poll.

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg99539/#msg99539

 

The problem is that Sears can't be valued purely on it's hidden real estate values because it is a machine that lost about $800 million last year.  If the real estate assets were held in a separate publicly traded company that just collected rent from their tenants then yes it maybe should be valued the same as a company that does that only.

 

Should two identical apartment buildings across the street from each other be valued the same for investment purposes if one is rented out to tenants for the last 10 years with modestly increasing rents, low turnover and able and effective superintendant and the other one loses money every year due to insufficient rent or problem tenant or damages or turnover or poorly run by the superintendant?  As an investor buying income, the former commands a premium.

[berkshiremystery]

If Lampert compares SHLD vs SPG,...  it has become relative cheaper currently,... or better said the spread has widened !!!

 

If two companies have almost the same amount of real estate equally spread across the country, and if every other balance sheet item shouldn't be a concern, should their market values be similar ?

 

-------

Simon Property Group Inc. (SPG)

$49.32 billion market cap    = 245 million square feet of real estate

 

Sears Holdings Corporation (SHLD)

$4.75 billion market cap = 256+ million square feet of real estate

-------

 

So my provocative question as a novice,...

 

if Sears would be valued purely on their hidden real restate values, the same way as Simon Property Group,... shouldn't it trade at least above $50 billion or at $450 per share ?!?!?!

 

 

 

Any reasonable objections are welcome ?

 

 

 

--------

 

P.S.:

 

Somebody might want to study the slide show "Berkowitz: Case Study III" before submitting an answer to this poll.

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg99539/#msg99539

 

The problem is that Sears can't be valued purely on it's hidden real estate values because it is a machine that lost about $800 million last year.  If the real estate assets were held in a separate publicly traded company that just collected rent from their tenants then yes it maybe should be valued the same as a company that does that only.

 

Should two identical apartment buildings across the street from each other be valued the same for investment purposes if one is rented out to tenants for the last 10 years with modestly increasing rents, low turnover and able and effective superintendant and the other one loses money every year due to insufficient rent or problem tenant or damages or turnover or poorly run by the superintendant?  As an investor buying income, the former commands a premium.

 

 

 

I fully agree with you that identical buildings in the same street might be valued totally differently because they likely have a whole set of different variables governing them, but somehow it seems that Sears real estate is valued at the lowest edge currently. If I look at the following table, my gut feeling say to myself that the current valuation at $4.5b seems very modest. It might be only $15, 20 or 25b, what do I know about all their locations, but it's seems definitly higher than $4.5b.

 

 

 

http://static6.businessinsider.com/image/50533897ecad04e02e000018-900/.jpg

[Olmsted]

I voted for "Yes, there should be a divergence by almost 10x real estate valuations."

 

I do think the divergence is probably a little too wide - SPG is overvalued right now as are many REITs, and I think SHLD is a little undervalued.  But given the quality differences between the properties the price divergence should be meaningful.  Been to a random SPG location recently?  Been to a random Sears or Kmart? 

[BargainValueHunter]

http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy

 

Taking the models above, we calculate totals of $7.559 billion for the actual closed stores model, $26.925 billion for the five-city composite model, $39.6 billion for the Hudson's Bay model, and $50.66 billion for the GGP-Cadillac Fairview model. As you can see from the charts below, when these figures are averaged together, we estimate the value of Sears Holdings' retail commercial real estate to be $31.186 billion. This average increases dramatically when the outlier of the actual closed stores model is not factored into the analysis due to the weaknesses in its lack of distinction between owned and leased property prices. By including only the three more refined models of five-city composite, Hudson's Bay, and GGP-Cadillac Fairview in our average, we estimate the market valuation of Sears Holdings' retail commercial real estate to be worth $39.062 billion.

[muscleman]

I am reading George Soros' books again recently. What didn't make sense before started to make sense now.

SPG is in the boom/bust cycle but SHLD is not yet in it.

The low interest rate caused yield stocks like SPG to fly high. The more overvalued SPG becomes, the more shareholder value they can create simply by issuing new shares. I got that part figured out only recently. Yes. If they are trading at 2x book value, and they issue new shares, this will INCREASE intrinsic value per share. As the intrinsic value increases, if the share trades at the same premium, the share price will continue to fly high. If the premium increases and they issue more shares, that would create even more intrinsic value.

This is a perfect boom/bust cycle. SPG is in the middle of the cycle, but I am unclear if it is near the top yet.

 

If I had understood this a few years earlier, I would have bought SPG to participate in this boom/bust sequence. Right now there is no margin of safety to do this.

 

Note that even when George Soros wants to participate in a boom/bust cycle, he would like to get some downside protection.

I think this is quite similar to Buffet's buy a wonderful business at fair value philosophy. :)

 

Regarding SHLD, it actually belongs to another category of stocks that Soros may like, which is that the share price drop does not affect fundamentals, and it is extremely hated. Note that Soros believes normally share price DO affect fundamentals through various ways like buybacks, share issuance, credit rating agency's reports, company's morale etc.

 

Traditional value investors do not believe share price has anything to do with fundamentals, but that seems wrong to me.

[Guest wellmont]

soros probably likes companies that make money and not lose it. therefore sears would not be high on his list. He's not a stock picker. he's a macro analyst and master trader.

[muscleman]

soros probably likes companies that make money and not lose it. therefore sears would not be high on his list. He's not a stock picker. he's a macro analyst and master trader.

 

Right. Soros will likely not buy a struggling company with a liquidation thesis.

However he does pick stocks. If you read his books, you can see he mention individual company names. He only stopped picking stocks when his fund grows too large, and at that time, macro bets happens to be doable as the exchange rate starts to float freely. But he said that his record of currency bets is not as consistent as stocks.

 

On the other hand, Soros DOES look for margin of safety before he bets a stock.

[mcliu]

Apples vs. Oranges.

[Matson125]

Apples vs. Oranges.

 

In its current state I agree apples and oranges.  However there are signs that Sears is starting to unlock the value in their real estate.  On the Seritage website there are a few more development projects that were listed

"Seritage engages Mark Weiner Architecture to redesign a prominent intersection in Watchung, NJ"

"Seritage hires Atlantic Retail as Landlord Representative for New England redevelopment projects." http://www.atlanticretail.com/

 

One clue to view how the real estate arm of Sears will look in the future is to look at their trademarks.  In January they secured 2 trademarks related to their real estate. Seritage (website above) and Atrium Outlets (To view trademarks, a Google search of “Atrium outlets sears” will lead you in the right direction).  Atrium Outlets does not have a live website at the moment, nor has there been any talk or discussion on the company.  The only clue is there is an architecture firm that has posted the project online and based on the pictures this will be a mall base concept that will be leased to retail tenants.

http://ark-itecture.com/ark-itecture-projects-r-atrium-outlets.html

 

[Luke 532]

Atrium Outlets trademark has been "withdrawn before publication" as of two weeks ago (August 9th).

 

http://www.trademarkia.com/atrium-outlets-85818138.html