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  • Efforts To Get Back On Track Ensure J.C. Penney Still Worth Considering [View article]
    The high was a bit over $11 in 2014, wasn't it?
    May 20, 2015. 10:17 PM | Likes Like |Link to Comment
  • Why Another Equity Offering Makes Sense For J.C. Penney [View article]
    Hi John,

    I can't give personal investment advice, so I won't suggest what to do. However, I will discuss my own thoughts and investments in J.C. Penney below.

    JCP at $8 to $9 seems okay if one thinks it can get to $1.2 billion EBITDA in 2017. That seems fairly priced based on traditional multiples. I think they'll end up closer to $1 billion EBITDA in 2017, so I'm more negative about their common stock.

    However, I do own J.C. Penney bonds via KTP. Yields are close to 10% and I think that J.C. Penney has recovered enough to make the bankruptcy risk minimal for now.

    I've written about KTP before and so have others. http://seekingalpha.co...

    I'm not sure what Piper Jaffray is doing... I wouldn't say that they are less informed. However, I'm not sure how they justify the $15 target price. One red flag for me was that Piper's current EPS estimates for 2015 and 2016 for JCP are worse now than when it had a price target of $12 in I think January. I think they're too invested in the bull case. Raising price targets while lowering earnings expectations seems hard to justify.
    May 19, 2015. 02:19 PM | Likes Like |Link to Comment
  • J.C. Penney's Stock Is Priced For A Recovery, Not Bankruptcy [View article]
    That's true. I think KSS has over $1 billion in cash flow before dividends and stock repurchases. Macy's has over $1.5 billion. If JCP gets to $1.2 billion EBITDA it might have $300 million available.
    May 19, 2015. 01:55 PM | Likes Like |Link to Comment
  • J.C. Penney's Stock Is Priced For A Recovery, Not Bankruptcy [View article]
    JCP received an upgrade from BMO, which helped it rebound on Friday.

    You neglected to mention that JCP fell 7.7% post-earnings, so even after the upgrade it is still down 2% from pre-earnings.

    Note that the BMO target mentions the recovery premium too. BMO is increasingly confident that JCP will reach its $1.2 billion EBITDA target in 2017, but only increased its price target from $7 to $8.
    May 18, 2015. 09:01 PM | Likes Like |Link to Comment
  • J.C. Penney's Stock Is Priced For A Recovery, Not Bankruptcy [View article]
    Nope, I don't know who said that, but it wasn't me. I've mentioned many times that I expected JCP to end up recovering to around 37% or 37.5% gross margins.

    Here's what I said in May 2014 in an article dedicated to looking at JCP's gross margin expectations: "Gross margins in the 36% to 38% range appear achievable long term". I also talked about JCP getting $650 million to $700 million EBITDA in 2015. This is slightly more optimistic than JCP's current guidance for $600 million EBITDA.

    http://bit.ly/1S27fT6

    I think that article is worth a read if you want to understand JCP's gross margins. It's proven to be quite accurate (although slightly more optimistic than JCP management actually) in light of subsequent information such as 2015 guidance and the Oct 2014 Analyst Day.
    May 18, 2015. 02:16 PM | 1 Like Like |Link to Comment
  • Lumber Liquidators: Suspension Of Chinese Laminate Sales Necessary To Rebuild Business [View article]
    Probably some people saw that the Virginia AG was one of the people involved in the press conference and figured that LL was the company involved since it is headquartered there.

    However, I think the reason the Virginia AG is there is just because he's located close to the FTC headquarters in DC. The other state official is from South Carolina.

    The BBB representative is the head of its charity division, so I'm thinking the most likely target is fraudulent charities. The FTC has announced crackdowns on fake charities a couple times in mid-May before.

    http://1.usa.gov/1S1Y2KC
    May 18, 2015. 01:44 PM | 1 Like Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    No, go and read that again. I'll probably have to spell it out in another article in more detail since it seems a bit hard to understand...
    May 15, 2015. 09:23 PM | 2 Likes Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    If you're not willing to do any work, or back up what you say with evidence, just say so.

    I'm a bit tired of taking the time to dig up evidence to try to honestly respond to your questions, when you can't give me the courtesy of doing the same.

    Anyway, those points about mall grades are to show that Sears's mall footprint is not the type that has gone up over the past decade. Under 20% of Sears stores are in Grade A malls. More are in grade C malls than grade A malls.

    Grade B mall REITs have gone down in value from one decade ago. I'd imagine that grade C valuations have been hit even harder.

    Hence, given that 80% to 85% of Sears portfolio has gone down in value over the last decade. That's just for the Sears stores and K-Mart is even worse. Your comment that Sears's footprint is more valuable than a decade ago is on pretty darned shaky ground.
    May 15, 2015. 09:22 PM | 3 Likes Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    So if this is so wrong, tell me what anchor space rents for vs. in-line space rents should actually be.

    Here's my evidence for a roughly 30% ratio for anchor rents vs. in-line space rents.

    http://bit.ly/1QQA83d (see page 42).

    I can come up with more examples too. Where is your evidence to suggest I'm wrong? Or is this another case of you saying that you know I'm wrong, but have no evidence to back it up?

    It is quite simple to understand that I've been giving hard evidence to back up my points, but evidence for your points has been suspiciously hard to come by.
    May 15, 2015. 09:07 PM | 2 Likes Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    Ah, so once I call you out on some items (such as the percentage of Sears stores that are A grade, and the value of Grade B mall REITs over the last decade), you suddenly don't want to write any more.

    Guess that's how the game is played :)
    May 15, 2015. 08:55 PM | 4 Likes Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    I'll add that I've demonstrably proven some of your opinions to be incorrect. However, you appear to ignore my answers and still call my opinions misinformed and unsupported.

    Given how you've been proven wrong (with evidence) about several things, I believe the burden of evidence is on you to demonstrate where I am misinformed. And no, "I have no evidence to back up my statements that you're misinformed, but I trust that Eddie knows best" is not the greatest line of argument.
    May 15, 2015. 08:35 PM | 3 Likes Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    Anyway, you shouldn't go around selectively quoting things.... That can be misleading.

    My full quote was "I do think that Eddie had a good reason to think the real estate was valuable in the early-to-mid 2000s, but the recession and declining desirability of mid-and-lower tier malls threw a massive wrench into his plans."

    Note the part about mid-and-lower tier malls. Now tell me how much Grade B mall REITs such as CBL and PEI have gone up from a decade ago. Also tell me what percentage of Sears stores are in Grade A malls vs. Grade B and C malls. That's your assignment for tonight. In case you are unwilling to post that information since it undermines your position, I'll helpfully post it for you.
    May 15, 2015. 08:29 PM | 4 Likes Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    That would make sense and would seemingly be the best way to extract maximum value from Sears Holdings. Eddie is at least paying lip service to trying to make a go of the retail business though. Maybe he's just posturing. I think shareholders should hope that he's not serious about trying to spend billions more to achieve a retail turnaround though.
    May 15, 2015. 05:34 PM | 1 Like Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    Ah yes, back to the usual Eddie knows argument... Funny thing is that one of Berkowitz's arguments in favor of Sears's real estate value revolves around Eddie and his team botching the Ala Moana deal and missing out on $850 million in value creation as a result. Personally, I think the value that Sears got for Ala Moana was quite reasonable. But it shows how the Sears bull argument sometimes tries to have it both ways.

    Anyway, you're right in that I don't have the time to do a massively detailed valuation calculation. However, I'm pretty confident about being able to get a well-reasoned ballpark figure. As well, I don't have the intrinsic motivation that Eddie does to come up with a very favorable figure. I'm sure that if Sears wanted to put the question of its real estate value to rest, they could hire an independent third-party appraiser like Cushman & Wakefield to provide a number. However, that number would likely disappoint most Sears bulls, hence why it is better to keep things a bit mysterious and refer to hidden real estate value.

    I do think that Eddie had a good reason to think the real estate was valuable in the early-to-mid 2000s, but the recession and declining desirability of mid-and-lower tier malls threw a massive wrench into his plans.
    May 15, 2015. 05:31 PM | 4 Likes Like |Link to Comment
  • Sears: Reviewing Its Joint Venture With Simon Property Group [View article]
    So I take it that your comment that "everyone knows this" in conjunction with what stores are in the REIT is inaccurate, since you don't know what store #26 is...

    You do need to know which stores are which to begin the valuation exercise, and you can't even get to step one there.

    Given your lack of knowledge re: anchor store vs. in-line store valuations, I don't think you have much standing to criticize my valuation knowledge.

    Here's the deal with anchor store valuations:

    If it is going to be kept as an anchor store space, the value would be significantly less than in-line space since even at-market anchor rents would be approximately 30% of that of in-line stores. The value of the space is tied to the income it can generate, and if kept as an anchor store, the value is commensurately lower.

    Anchor space: NOI per square foot = $15 = $250 per square foot value at a 6% cap rate.

    In-line space: NOI per square foot = $50 = $833 per square foot value at a 6% cap rate.

    If you repurpose the space, the cost of repurposing has to be factored into the equation.

    200,000 square feet of in-line space would result in $10 million per year in net income in the previous example. Assuming that the REIT wants a 7% yield, it can spend $143 million to redevelop the anchor store space into in-line in order to meet that yield requirement. The cost of redeveloping that space may be $75 million (see Kings Plaza and Fayette Mall as a couple examples). That leaves $68 million available to by the anchor store space (or $340 per square foot).

    Either way (kept as an anchor store or repurposed), the value that someone would be willing to pay for the anchor store space is very likely to be much less than the in-line store space.
    May 15, 2015. 05:05 PM | 4 Likes Like |Link to Comment
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