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13% Off Sears Real Estate; 15% Off Their Stuff

May 18, 2016 8:03 PM ETSHLDQ, BPYU, SPG, MAC, SRG, EBAY7 Comments
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Sears (SHLD) spun-off some of their real estate into a REIT called Seritage (SRG) last year. It is made up of 235 properties, 93% of which are Sears and Kmarts. This is about 37 million square feet of retail space. SRG has 50% of JVs with General Growth Properties ( GGP), Simon ( SPG), and Macerich ( MAC) covering another 31 properties.

The key to SRG is the lease deal with Sears worth about $4.60 per square foot. The agreement gives a lot of valuable flexibility to SRG to release to third party tenants. The recapture rights allow SRG to reclaim as much as 50% of the gross leasable area of properties for releasing.

Based on the releasing opportunity, SRG is probably worth $60, give or take $10 within the next two years. This was a tremendous bargain at $35 and is still respectable at $40. Buffett read the small print and seized a mispriced opportunity. Today, SRG is worth at least 15% more than it costs

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You can also get 15% off of Sears gift cards on eBay. Some buyers will get as much as 23% off when combined with an eBay offer good until tomorrow (this eBay bucks offer is good for some customers but not others).

Analyst's Disclosure: I am/we are long SRG.

Chris DeMuth Jr and Andrew Walker are portfolio managers at Rangeley Capital. We invest with a margin of safety by buying securities at discounts to their intrinsic value and unlocking that value through corporate events. To maximize returns for our investors, we reserve the right to make investment decisions regarding any security without notification except where notification is required by law. We manage diversified portfolios with a multi-year time horizon. Positions disclosed in articles may vary in sizing, hedges, and place within the capital structure. Disclosed ideas are related to a specific price, value, and time. If any of these attributes change, then the position might change (and probably will).

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