During the quarter ending March 31, American Tower reported a 15.2% increase in total revenue ($802.7 million), and a 9.2% increase in operating income ($299.7 million). American Tower reported a U.S. (domestic) rental and management segment operating profit margin of 78%. These are the kind of numbers that investors in Sears Holdings Corp (NASDAQ:SHLD) would like to see!
What could this mean for Sears earnings?
Ubiquity/Sears has over 2,000 urban and suburban sites in densely populated areas to evaluate and use to jumpstart this business segment. In contrast to American Tower, they do not have to pay out money to acquire or lease these locations. If we annualize the first quarter results for American Tower, and divide by 50,000 towers we get a metric of revenue per tower of about $64,000.
If Ubiquity/Sears could erect 1,000 towers, (about half of their existing locations), and lease them out in a fashion similar to AMT — that would infer a revenue figure of about $64 million per year. These new Ubiquity towers would all be built to the latest 4G standards, and that combined with the high population density around each of the sites might result in a higher per tower revenue figure. A tower at each location could contribute $128 million per year of revenue. My metric may have flaws, but it is intended to give investors a sense of the potential impact of communication towers for Sears moving forward.
In the U.S., necessary approvals by the Federal Aviation Authority and Federal Communications Commission can create time delays in the construction of new towers. Sears could choose to partner with some of the dominant players in this sector to reduce the amount of capital required and attempt to generate income at a faster pace.
“Eureka!” Or is it fools gold?
Given the scale of Sears Holdings, I believe that depends upon how quickly Seritage and Ubiquity will be able to “morph” from start-up boutiques into dynamic national development companies. An announcement of strategic partnerships and/or regional joint ventures with highly experienced and well capitalized development partners might go a long way to convince Wall Street that majority shareholder and CEO Eddie Lampert is serious about “reinvention and avoiding profitless prosperity.”
Investors need to see progress
Datacenters, communication towers, and real estate developments are all notoriously capital intensive. This may be Sears Holdings highest hurdle to overcome. Sears Holdings Corp (NASDAQ:SHLD) current market valuation is only $5 billion. Investors should look closely at Sears operating results for the quarter ended in June. Will the trend of operating losses and lower year over year same store sales finally come to a halt? Will CEO Lampert offer any forward guidance or make a significant announcement regarding the monetization of Sears’ valuable real estate assets? Time is of the essence.
The article Can This Retailer “Build” a Profitable Future? originally appeared on Fool.com and is written by Bill Stoller.
Bill Stoller has no position in any stocks mentioned. The Motley Fool recommends American Tower . The Motley Fool owns shares of American Tower. Bill is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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