Anybody following Sears Holdings Corp (NASDAQ:SHLD) over the last few years knows that several major investors have proclaimed that the value of the real estate holdings vastly exceed the current stock valuation. The rub with Sears Holdings Corp (NASDAQ:SHLD) remains that the retail operations are difficult for the average investor to separate from the valuation of the assets that go far beyond the real estate holdings. Investor after investor proclaims the company worthless due to a lack of profits from the retail operation, but the company has a vast array of assets worth billions upon billions that are hidden.
In the last week, the stock has soared due to a massive 139-page research report by Baker Street Capital, which owns 1.5 million shares or over $80 million at recent prices. The investment theme hearkens back to the real estate holdings that most investors know haven’t led to stock market gains, but some of the research unearthed by Baker Street suggests now could be different.
Though the opinion that Sears Holdings Corp (NASDAQ:SHLD) is valued favorably to Simon Property Group Inc (NYSE:SPG) or General Growth Properties Inc (NYSE:GGP) is nothing new, the research by Baker Street actually unearthed a plethora of discoveries regarding real estate developments that aren’t being marketed by the company to investors.
Simon Property Group Inc (NYSE:SPG) and General Growth Properties Inc (NYSE:GGP)
One of the biggest outcomes from the advent of online shopping (and, in part, the financial crisis) was the supposed destruction of the mall shopping experience. As the theory goes, consumers were no longer interested in driving to malls to shop when it was so convenient to shop online. Ironically, the mall owners are now telling a different story. Not only are rental rates up at the major malls (ones where Sears Holdings Corp (NASDAQ:SHLD) owns stores), but also new malls aren’t being built. In essence, demand is at a five-year high while supply is at a 35-year low.
Simon Property Group Inc (NYSE:SPG) owns or has an interest in 324 retail properties comprising 241 million square feet. The stock is valued at an incredible $46 billion, further providing reason why Bruce Berkowitz and the Fairholme Fund invested so heavily in Sears Holdings Corp (NASDAQ:SHLD). Note that Sears Holdings Corp (NASDAQ:SHLD) has roughly 250 million square feet of real estate. In addition, Simon Property has over $22 billion in debt while Sears has the real estate assets virtually unencumbered. That places the enterprise value of Simon Property at over $67 billion while Sears has a market cap of only $6 billion with cash and inventory to cover any debt.