valueinvestor123

Unseen Value in Sears' Brands

I can only hope this leads to a good back and forth on this discussion. Let's first take a look at SHLD's real estate. You may recall that a few years back when they were selling stores that some of the stores they had orginally sold to tenants like HD were later rejected. My guess is that the stores were rejected because upon closer inspection HD realized what was known by many then which was that Kmart had underinvested in their stores and therefore they were in bad condition. Therefore, for other tenants to even want to lease the stores, I hope that the stores have been greatly improved. I also believe, but can't prove that what Eddie did was sell only A locations to HD and I believe the other tenant was Toys R US. This means that those stores sold for much more per square foot than what the average Kmart store would sell for. Lets assume for a moment that the stores have been improved so they are avaliable to everyone. Now they could certainly lease the stores, but who is looking to lease stores today in a declining economy. I am not going to get into semantics on whether we are in a recession or not, I just hope we could both agree that at best growth is anemic. This anemic growth certainly creates less people looking to grow. However, lets assume we come out of this recession rather quickly (something I do not expect), very few tennats can occupy a free standing Kmart or Sears store because of the size. So SHLD has to hope that the potential tenants do not already have a store in the same area or that the store is in a better location say an "A" location vs say maybe HD has a "C" location in that area so they want to trade up location wise. My guess is that given the scope of HD, TGT, LOW, COST, BJ etc they already have a store in a similar location as SHLD so the only way they would want the SHLD store is if its in a better location. I am just guessing again, but I doubt many Kmart or Sears locations would be upgrades from what the companies I mentioned above already have. That is because Kmart and SHLD were not known to have the best real estate locations. Therefore, my guess is they would find the stores hard to lease.

In terms of investing through SHLD with SHLD's cash position, I still contend Eddie would be buying a stock through his hedge fund and not through SHLD. The reason I have this assumption is because Eddie was out not to long ago trying to raise more capital. I believe he was using GS to help. He must of looked at the math and said I would rather use GS to help me raise $ and then charge my fee rather than make those investments through the cash I have in SHLD. Eddie is a very smart guy and someone I respect tremendously so I assume he ran the math both ways to figure out what benefits him the most and in the end the decision was to retain GS to raise more capital.

Since you made a disclosure it is only fair I do the same. I have no position in this name so I am not bashing it as a short.