Charles Lewis Sizemore, CFA

About the Author Charles Lewis Sizemore, CFA

Charles Lewis Sizemore, CFA is the founder and principal of Sizemore Capital Management LLC, a registered investment advisor. Charles has been a repeat guest on CNBC, Bloomberg TV and Fox Business News, and has been quoted in Barron’s Magazine, The Wall Street Journal and The Washington Post. He is a contributor to Forbes Moneybuilder, and has been featured in numerous publications and well-reputed financial websites, including MarketWatch, SmarterAnalyst, TheStreet.com, InvestorPlace, GuruFocus, MSN Money, and Seeking Alpha. He is also the co-author, along with Douglas C. Robinson, of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008). Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar. He also maintains the Chartered Financial Analyst (CFA) designation in good standing.

What’s the Story With the Sears Holdings-Simon Properties Deal? (SHLD) (SPG)

Sears Holdings Corp (NASDAQ:SHLD) made news this week by partnering with mall REIT Simon Property Group Inc (NYSE:SPG), the largest REIT in the world by market cap.

Sears plans to bundle 10 properties worth about $228 million into the venture, which it will then lease back. Sears made a similar deal with rival mall REIT General Growth Properties Inc (NYSE:GGP) earlier this month, selling and leasing back 12 properties located in General Growth malls.

Of course, all of this pales in comparison to Sears’ most ambitious move: The planned spinoff of 254 properties worth $2.5 billion into Seritage Growth Properties, a real estate holding and development company. Sears currently owns Seritage, but it is widely believed that Chairman Eddie Lampert plans to list it as a standalone traded REIT.

So … what’s going on here?

Lampert Nears His Endgame

I’ve been following the developments at SHLD for years, and it appears that this is execution of Lampert’s long-term plan of essentially chopping up Sears — an old retailer that has been dying a slow death for decades — and selling its valuable pieces for spare parts.

Just last year, SHLD spun off its Lands’ End, Inc. (NADAQ:LE) brand. This followed the 2011 spinoff of Orchard Supply and assorted sales of real estate along the way.

Sears stores have been losing ground to more competitive big-box retailers like Wal-Mart Stores, Inc. (NYSE:WMT), The Home Depot Inc (NYSE:HD) and Target Corporation (NYSE:TGT) for longer than I have been alive. Yet, due to its age and longevity, Sears is sitting on choice retail sites across the country.

Of course, no shoppers visit these sites anymore, but they certainly might if they were rented by higher-quality tenants. At least this was Lampert’s thinking when he bought a controlling interest for $11 billion back in 2004. Though he has never admitted it publicly (it would be bad for business), it was pretty obvious that Lampert had no grand ambition for reviving the Sears retail empire. That would be ludicrous, and Lampert is too smart for that.

Lampert’s game plan was to invest whatever minimal amount was necessary to keep the company afloat long enough for him to extract the value out of it via spinoffs of its valuable brands and real estate assets.

As I wrote years ago in “Is Sears the Next Berkshire Hathaway?” Lampert’s plan probably would have worked well had he not started it immediately before the 2008 crisis and real estate crash.

Is there an investment play here?

Unfortunately, no.

Seritage, were it to go public, might very well turn out to be a decent investment. We’ll have to wait and see there. But the rump Sears Holdings — which today is trading at 2004 levels — is still struggling to turn a profit in a lousy environment for retailers.

When I compared Sears to Berkshire Hathaway years ago, I got a lot of raised eyebrows. But the comparison is completely valid. Warren Buffett has publicly admitted that buying Berkshire Hathaway Inc. (NYSE:BRK-A) was the worst investment of his career and one that probably cost him $200 billion in lost gains.

Once the Sears stores do eventually go out of business — and they will — SHLD, like Berkshire Hathaway, might be a great way for regular investors to invest in the holding company of one of the best managers in the business today.

But in the meantime, you’re looking at a slow bleed.

  • tempo150101

    “Lampert’s long-term plan of essentially chopping up Sears — an old retailer that has been dying a slow death for decades — and selling its valuable pieces for spare parts.”

    No it has not been “dying a slow death for decades”. In fact, shareholders have done quite well with Sears stock before Eddie “the next Warren Buffet” Lampert took over. Ask shareholder if they’re happy with their distributions of Allstate stock (now $77 a share) and Morgan Stanley. Lampert the genius took a company with $55 Billion in sales (now $30 Billion) and ran it into a ditch.

    DO THE MATH! At the time of the merger, both Kmart and Sears together were valued at $19 Billion. Kmart (now known as Sears Holdings) paid $11 billion alone for Sears. Eddie’s spinoffs of wrecked subsidiaries, ghetto real estate (largely due to his under investment) and other table scraps add up to nowhere near either dollar amount.

  • Daveed

    When it came about the Eddie Lambert was our new CEO of the company we all did our reading and looking in his past. We all knew he was in it for the money not the company. Eddie Lambert should be held accountable for the way the business was handled. We all talked about it it should be where all the money he is worth except $20,000 go back into the company and/or all the employees get a servence pay within reason.

    • TG

      hold accountable? Haha.