Sears Holdings: Total Value Of Stores In Macerich Malls Estimated At Nearly $500 Million

| About: Sears Holdings (SHLD)

Summary

Sears entered into a joint venture with Macerich that valued nine stores at $300 million.

These stores are top nine Sears owned locations in Macerich malls (measured by sales per square foot).

The seven remaining Sears owned stores are worth an estimated $60 million to $65 million.

Deal values Sears stores at 48% of the PSF value of Simon's bid for Macerich despite the nine malls involved having higher than average sales for Macerich.

Kings Plaza lease may have significant value (estimated at $50 million to $75 million) and is likely to be bought out by Macerich at some point.

Sears Holdings (NASDAQ:SHLD) announced another joint venture, this time with Macerich (NYSE:MAC). This joint venture involves nine stores, representing the best of the stores that Sears owns at Macerich malls. The transaction values the nine stores at $300 million, or $33 million per store. On a square foot basis, it appears the valuation is close to $200 per square foot, as the average store size appears a bit smaller than those involved in the GGP joint venture.

The remaining Sears stores at Macerich malls are worth considerably less in aggregate. I estimate the value of the remaining 17 stores (7 owned, 10 leased) at less than $200 million, bringing the total value of Sears stores in Macerich malls to approximately $487 million or $19 million per store. I'll go into more details about the stores below.

The JV transaction is another datapoint that indicates that Sears's real estate isn't worth as much as some had previously thought, due to the lower value of anchor store space. For example, Simon's bid for Macerich valued the company at approximately $415 per square foot. The JV transaction values the Sears stores at around 48% of that, despite the nine malls involved having a sales per square foot average that is 16% higher than Macerich's average.

Sears Locations In Macerich Malls

I've updated the table about Sears locations in Macerich malls with the latest information. The nine stores included in the JV are the top nine Sears owned stores in Macerich malls. Nearly all of the Sears owned properties are included in the REIT (either separately or through the JV), with the apparent exception of NorthPark Mall.

Macerich Rank

Property

Sales Per Square Foot (2014)

In REIT?

REIT #

In JV?

Owned?

2

Washington Square

$1,012

Yes

185

Yes

Yes

11

Los Cerritos Center

$720

Yes

39

Yes

Yes

12

Kings Plaza Shopping Center

$673

       

13

Arrowhead Towne Center

$673

Yes

27

Yes

Yes

16

Danbury Fair Mall

$643

Yes

77

Yes

Yes

17

Vintage Faire Mall

$633

Yes

50

Yes

Yes

18

Chandler Fashion Center

$606

   

Yes

Yes

21

Freehold Raceway Mall

$590

   

Yes

Yes

22

Green Acres Mall

$577

       

23

Stonewood Center

$544

       

26

Deptford Mall

$526

   

Yes

Yes

28

West Acres

$512

       

30

Victor Valley, Mall of

$492

       

32

South Plains Mall

$455

Yes

208

Yes

Yes

34

La Cumbre Plaza

$417

       

35

Inland Center

$409

Yes

2

 

Yes

36

Pacific View

$405

Yes

72

 

Yes

37

Northgate Mall

$392

       

40

Superstition Springs Center

$350

Yes

28

 

Yes

41

Flagstaff Mall

$340

Yes

26

 

Yes

42

Capitola Mall

$334

Yes

64

 

Yes

43

Towne Mall

$323

       

45

NorthPark Mall

$307

     

Yes

46

Desert Sky Mall

$302

Yes

29

 

Yes

47

Wilton Mall

$276

       

50

Paradise Valley Mall

n/a

       

I did not include in this list the Sears leased locations at Cascade Mall (closed in January 2015) and Southridge Center (classified as a community center).

Remaining Sears Owned Macerich Locations

There are seven remaining (not in the JV) Sears owned locations in Macerich malls. Six of these locations appear to be included in the REIT, with the only apparent exception being the NorthPark mall location. These remaining Sears owned locations are relatively weak performers, ranging from Inland Center (2014 mall sales of $409 per square foot) to Desert Sky Mall (2014 mall sales of $302 per square foot). I'd estimate the combined value of these seven locations at approximately $60 million to $65 million, with the NorthPark mall location (not included in the REIT) worth around $5 million.

As an example of the lower value of the weaker performing malls, Macerich purchased 50% of the 900,000 square foot Desert Sky Mall in 2011 for $27.6 million ($61 per square foot). Anchor store space is typically valued significantly less than in-line store space, due to the lower rents for the anchor store space and the significant costs needed to transform anchor store space into in-line store space to achieve higher rents. Desert Sky Mall's sales per square foot has increased by 11% since 2011, but the anchor store space is likely worth under $50 per square foot still.

Leased Macerich Locations

The jewel of the leased locations is Kings Plaza. This is a strong performing mall located in a valuable market (Brooklyn). Macerich has mentioned remerchandizing the Kings Plaza Sears location, so I'd expect Macerich to buy out the lease (which expires in 2023) at some point. The Sears at Kings Plaza is a large one at 289,215 square feet. I'd estimate that the Kings Plaza location would potentially be worth $100 million if it was owned by Sears. Since Sears leases the space, Macerich may be willing to pay Sears around $50 million to $75 million to buy out the lease. This would allow Macerich to make a decent return after accounting for the $65 million to $75 million estimated cost for the remerchandising of the space.

Other leased locations with high mall productivity (compared to national averages) include Green Acres Mall, Stonewood Center, West Acres and the Mall of Victor Valley. There is potential for Macerich to make an offer to buy out the leases at these locations, although they are suburban or secondary market malls with average productivity for a Macerich mall, so they may not be high priority. I'd estimate that the value of the leases for these four locations may be approximately $50 million to $70 million combined if Macerich was interested in redeveloping these locations. The amount that Macerich would be willing to pay for these locations could be considerably less if it didn't have a high level of interest in spending money to redevelop these locations in the near future.

The remaining leased locations such as La Cumbre Plaza and the malls ranked below it are probably worth zero to minimal amounts. It is hard to see Macerich paying a significant amount to buy Sears out of its leases at these malls, which are modestly performing and appear to be located in secondary or tertiary retail markets.

Valuation

Here's a table summarizing the estimated value of the various Sears properties in Macerich locations. The total value comes out to $487 million (including $60 million in potential value from the sale of leases other than Kings Plaza). The value of the stores included (or to be included) in the Seritage REIT is estimated at $207 million, including 50% of the JV value plus the value of the six other stores in the REIT.

 

# Of Sears Stores

$ Million

Joint Venture Locations

9

$300

Remaining Owned Stores In REIT

6

$57

NorthPark Mall

1

$5

Kings Plaza Lease

1

$65

Other Top Leased Locations

4

$60

Remaining Leased Locations

5

$0

Total

26

$487

Conclusion

Sears is moving quickly to monetize its best real estate. The REIT (including the 50% share of the Macerich JVP) will include nearly all of the Sears owned stores in Macerich malls. The total value of all the Sears locations (including leased) in Macerich malls is estimated at $487 million, of which Sears will have monetized 73% of that once Seritage purchases the stores for the REIT.

The Macerich JV is another data point to show how Sears's real estate doesn't appear to be worth quite as much as previous high-end estimates suggested. Owned anchor space appears to be valued at 40% of the mall average in this example, while leased space would be valued less than that.

Disclosure: The author is short SHLD.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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