Market participants have often failed to ascribe appropriate intrinsic value to conglomerates, and Sears Holdings Corporation (SHLD) (“SHC”, 7.1%) is no exception. For years, SHC has remained a misunderstood sum-of-parts story. Few have the inclination to examine all of the company’s pieces, which equate to a net asset value that we estimate to be multiples of current market prices.
SHC’s substantial portfolio of real estate is its most valuable component. The company’s 977 Kmart and 714 Sears properties total 195 million square feet of commercial retail space – more than Simon Property Group, the largest mall REIT with an enterprise value of $100 billion. The possibilities for SHC’s owned and leased properties are endless. Redevelopment is one feasible option that the company is actively pursuing, including: the transformation of its 162,000 square foot store at Janss Marketplace (Thousand Oaks, CA) into a mini-mall; the reorganization of a 14-acre site in St. Paul, Minnesota, with 111,000 square feet in adjacent structures including 130 units of housing; and the redevelopment of a 12.3-acre property at top-performing Aventura Mall in Florida into 251,250 square feet of high- end open-air retail and restaurant space, 43,802 square feet of office space, 128,737 square feet for a luxury hotel with 120 rooms, and 476,297 square feet of parking. At this proposed “Esplanade at Aventura,” Sears would retain a 20,000 square foot presence, effectively reducing its footprint by 90%. Subleasing to single and multiple tenants is another option: millions of square feet have already been subleased to tenants such as Ansar Gallery International, Dick’s Sporting Goods, Kroger, Nordstrom Rack, Primark, and Whole Foods. Finally, some stores will remain as-is: for example, “cash cow” locations throughout the Northeast corridor, Puerto Rico, and the U.S. Virgin Islands do not require any reconfiguration. Continue Reading »