Summary
This is the first article I have seen in the public media that recognizes what SHLD has become. It lists several well thought out reasons for their conclusions but the young author has overlooked a major item of concern that I have been writing about for the past year.
Conventional wisdom continues to portray SHLD as having a sizable collateral value in their store real estate. This is simply NOT THE CASE! As I have pointed out in prior GLG News analysis, there are several very clear and obvious reasons why Mr. Lampert's cupboard is bare when he goes there looking for real estate value.
The Washington Post reporter, Mr. David Cho, is totally unaware of what is most obvious to shopping center industry observers. Mr. Cho writes that "Mr. Lampert sold off some of K mart's poorest performing stores". This is simply not true! The K mart stores that were sold were those that would bring the highest price from Home Depot, regardless of how well or poorly they were performing.
He also mentions the value that could be unlocked by selling the Sears stores as well. This is also false! The vast majority of owned Sears stores are in regional malls. These stores are subject to carefully worded contract restrictions as to their use, size, hours of operation, etc. Unless they were to be bought by another department store, THEY HAVE LITTLE , IF ANY, VALUE.
Analysis
Mr. Cho is to be congratulated for his ability to see SHLD for what it has become, a Hedge Fund! However he did not go far enough. He failed to appreciate the lack of value he and other analysts are counting on to enrich Mr. Lampert's Hedge Fund when he finally gets around to selling his "untapped" value in real estate.
I want the readers of GLG News to understand that the reason this is untapped is because it is impossible to "tap" it. Before he can sell any of his owned Sears stores in regional malls (where the vast majority of his highest volume owned stores are located) he must first get permission not only from the mall owner but from all other department store anchors as well.
Depending upon who the buyer might be and what their use might be, his chances of quickly getting all necessary consents are between slim and none. With the continued shrinkage of available department stores looking for space in malls, the likelihood of finding a suitable replacement department store is becoming about as likely as finding a great merchant willing to go to work for Mr. Lampert.
If the replacement is to be anything other than a department store, each consent is likely to take forever. If ever approval is granted, it will likely be at a substantial cost to Mr. Lampert just to avoid having to continue to pay taxes and common area charges on empty Sears stores.
In other words, not only are these owned stores not valuable, they are more likely to be a liability after the dust settles.
