When Sears Holdings Corp (NASDAQ:SHLD) +3.87% struggles, it has a knack for turning from a retail turnaround story into a real-estate play. So once again, the notion has arisen that there’s gold in them thar malls.A recent report from hedge fund Baker Street Capital Management, which owns a 1.4% stake in Sears, argues its real estate is “conservatively worth over $8.6 billion,” which compares with a current market value for the entire company of $5.9 billion. About $7.3 billion, or $69 a share, of that rests in Sears’s top 350 owned sites and top 50 leases—assets it reckons would be relatively easy to sell in an environment where high-quality mall assets are scarce. Throw in the value of Sears’s brands such as Kenmore, its Lands’ End operations and so on, and the firm says the company is worth $13.9 billion, or $131 a share.The report has resonated, helping drive Sears shares about 25% higher this month to around $56. But it is also out of whack with other sum-of-the-parts analyses. Wednesday, Credit Suisse analyst Gary Balter struck back, arguing Baker Street wildly overvalued Sears’s real-estate holdings, while putting too high a price on the rest of the company, as well.Consider: Baker Street says Sears’s top 350 stores are worth $98 a square foot. Contrast that to a May presentation J.C. Penney JCP gave to lenders, where it provided appraisal values for its stores from real-estate firm Cushman & Wakefield. The going-dark value of Penney’s stores in A-grade malls—what the retailer could get for its best locations if it shut down—was $55 a square foot.A real reason to buy Sears shares would be signs that it was shoring up sales, not its real estate.
“Going dark” is not what the Sears Holdings Corp (NASDAQ:SHLD) valuation at Baker Street was about. “Going dark” implies an empty location most likely due to a Sears Chapter 11 or wholesale forced asset liquidation. Sears is not that case. The Baker St analysis was about Sears Holdings Corp (NASDAQ:SHLD) transitioning good properties for other uses. Think of it more like the 2012 transaction with General Growth Properties Inc (NYSE:GGP) when Sears sold 11 sites at General Growth Properties Inc (NYSE:GGP) malls to GGP for $150sqft.
But lets dig a bit deeper. Here is the applicable slide from the J.C. Penney Company, Inc. (NYSE:JCP) presentation to lenders:
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