Wall St. Media, NetFlix, Housing, Gphone, Google
– Thank you for the mention
– Streaming growth is exploding
– Still to high
– Am anxious to see this
– Breakup?
Disclosure (“none” means no position):
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Did anyone really think he was just going to go away? Target (TGT) us in for a battle whether they know it or not.
In a just released 13D/A Filing
As of February 26, 2009, as reflected in this Amendment No. 5, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 58,390,835 shares of Common Stock (approximately 7.8% of the outstanding shares of Common Stock), which include shares of Common Stock and shares subject to certain stock-settled American-style call options. The Reporting Persons also have economic exposure to approximately 1,250,766 notional shares of Common Stock subject to certain cash settled call options, bringing their total economic exposure to 59,641,601 shares of Common Stock (approximately 7.9% of the outstanding shares of Common Stock).
Item 4. Purpose of Transaction.
Item 4 of the Schedule 13D is hereby amended and restated in its entirety, as follows:
The Reporting Persons hold Common Stock and options for investment purposes. The Reporting Persons continue to believe in their fundamental investment case for Target, and that the Company’s Common Stock is undervalued at current market prices.
Representatives of the Reporting Persons have met and may in the future meet with management and/or representatives of the Issuer to engage in discussions that may include matters relating to the strategy, business, assets, operations, governance, management, capital structure, financial condition and/or future plans of the Issuer in an effort to enhance shareholder value. The Reporting Persons have engaged, and may engage additional, advisors to assist it, including consultants, accountants, attorneys, financial advisors or others, and may contact other shareholders of the Issuer and/or other relevant parties to discuss any and all of the above.
Without limiting the generality of the foregoing, the Reporting Persons are currently engaged in discussions with the Issuer regarding the consideration by the Board of Directors of the Issuer of certain candidates proposed by the Reporting Persons as directors of the Issuer.
Depending on various factors, including, without limitation, the Issuer’s financial position and strategic direction, the outcome of discussions referenced above, actions taken by the Issuer, and trading price levels of the Common Stock, the Reporting Persons may in the future take such actions with respect to their investments in the Issuer as they deem appropriate including, without limitation, purchasing additional shares of Common Stock or related financial instruments or selling some or all of their respective beneficial and economic holdings, engaging in any hedging or similar transaction with respect to such holdings and/or otherwise changing their intention with respect to any and all matters referred to in paragraphs (a) through (j) of Item 4 of Schedule 13D. The Reporting Persons may change their beneficial or economic holdings depending on additions or redemptions of capital. The Reporting Persons’ are in the business of trading — buying and selling — securities and other financial instruments. Consequently, the Reporting Persons’ beneficial ownership as reported on this Schedule 13D will vary over time depending on various factors, with or without regard to the Reporting Persons’ views of the Issuer’s business, prospects or valuation (including the market price of Common Stock), including without limitation, other investment opportunities available to the Reporting Persons, concentration of positions in the portfolios managed by the Reporting Persons, conditions in the securities market and general economic and industry conditions.
Disclosure (“none” means no position):Rooting for Ackman
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This is a fascinating letter. Lampert addresses “mark-to-market”, short sellers, regulation, Lehman, Bear Sterns, AIG, Banks, the Austrian School ,Hyaek and more. He also addresses critics who chastised him for not spending more as today competitors liquidate, drastically cut back plans and he sits on $1.3 billion in cash.
Edward Lampert’s Letter to Shareholders 2/2009
Disclosure (“none” means no position):Long SHLD
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Read it and weep…..
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Stumbled across this yesterday and the more I look at it, the more I like it.
If I told you I had a company you could by a pieces of for 7 times earnings that was growing EPS >50% a year, would you be interested? Me too..
True Religion Apparel, Inc. (True Religion) designs, markets, distributes, and sells apparel under the brand name True Religion Brand Jeans to consumers in more than 50 countries on six continents: North and South America, Asia, Africa, Europe and Australia. The Company’s products are sold in the United States in national premium stores, including Bloomingdale’s, Neiman Marcus, Nordstrom, Saks Fifth Avenue, and in over 2,000 boutique and specialty stores. Its products can be categorized as denim, knit and non-denim, and most come in tops and bottoms. Knit styles include hoodies, t-shirts and sweats, and non-denim fabrics include corduroy and twill. The Company sells men’s women’s and kid’s styles for its products. True Religion operates in four segments: United States Wholesale, International Wholesale, Consumer Direct and Corporate, which includes licensing activity.
Here is a look at earnings since inception:
Now, the argument against the company would be: “In a recession. who will spend $200 for a pair of jeans?” Valid point. Let’s look at the jean market.
Who is their customer?:
Looking forward:
Think of True Religion and their product a bit like Starbucks (SBUX). They have a similar demographic. The difference is that True is not trying to sell their products through 14,000 locations. While Starbucks is finding that a large percentage of the millions of customers they need to serve in order to grow have become very price conscious, True is still small enough that there is plenty of folks who will spend $200 on jeans at the 42 locations they currently have. This will not avoid a slowdown but will buffer them against deterioration.
Why the discount then?
Due to the recession, for fiscal 2009 selling jeans in specialty boutiques and major department stores such as Saks (SKS) and Nordstrom Inc (JWN), expects to earn between $1.73 and $1.81 a share (essentially flat over 2008) on revenue between $290 million and $297 million (vs $273 in 2008). Dept. store sales are expected t fall 17% to 19%. Still, at $11 a share, that means at the low end you are paying 6.3 times 2009 earnings for shares.
Key assumptions embedded in the Company’s full year 2009 guidance, as compared to the full year 2008, are identified below:
· Forecasted net sales growth within the Company’s consumer direct segment of 60% to 65% will be driven by the addition of 25 new branded retail stores in 2009 and the 27 stores opened in 2008.
· Net sales in the U.S. wholesale segment is expected to decline by 17% to 19% driven by a sharp reduction in sales to boutiques and a mid-single digit decline in sales to Majors and off-price retailers.
· The Company’s International segment is forecasted to increase its net sales by low single digits, driven by an increase in net sales to Japanese wholesale customers.
What does it all mean? True gives up plenty of downside protection. With $57 million in the bank, True provides investors with $2.38 a share in cash on the books. This means 22% of the share price is just the cash in the bank. What about debt you say? There is none. The cash is free and clear.
At its current market cap, True is valued at just under 1 times 2009 sales and just over 1 times 2008’s. Too low.
What if the recession deepens and profits actually fall? Say they fall 10%? Will the stock then trade for 5 times those earnings? Or is it likely the current price reflects a general feeling profits may fall more than currently projected and any shortfall in results will be met with a stagnant share price? Who knows but my impression is that the latter is most likely.
Think about it. If you owned the company outright and someone offered you $8.62 for it ($11 share price – the $2.38 per share you have in the company’s bank account) would you take it or tell the potential buyer where to stick it? Me too. Now reverse it. If someone owned it and offered the company for $11 and included in the price was the $2.38 in the bank would you jumo at it? Me too.
That is essentially what is happening right now with the share price. Should you rush out and buy shares? No. I’m not but they are high up on the watch list. I want a bit more clarity on the macro environment before I buy. This isn’t to say I see shares cratering anytime soon, just that they could remain flat as the economy sours more. Should the maco environment show no visibilty as the year progresses, one would assume True shares mirror that.
But, as soon as I see strength in the macro condition, assuming I have not missed a huge run up, if shares sit near where they are now they would be almost irresistable…
It would be a “sin” not to buy them in that case….Sorry, had to do it…
Disclosure (“none” means no position):None
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The Administration, Chicago Tea Party, Dodd, Robin Hood
– So, they don’t pay taxes and don’t pay their bills……nice
– Check it out here
– Ouch
There is a very interesting sentence in there about ESL and Eddie Lampert.
The applicable sentence is highlighted by me below…
In January 2009, our Board of Directors authorized and approved letter agreements with certain automotive manufacturers in order to, among other things, eliminate any potential adverse consequences under our framework agreements with those manufacturers in the event that ESL Investments, Inc. and certain of its investment affiliates (together, “ESL”) acquires 50% or more of our common stock. The letter agreements with American Honda Motor Co., Inc. (“Honda”) and Toyota Motor Sales, U.S.A., Inc. (“Toyota”) also contain governance-related and other provisions as described below. Also a party to both the Honda and Toyota Agreements is ESL, our largest shareholder. As of February 6, 2009, ESL beneficially owned approximately 45% of the outstanding shares of our common stock.
Under the terms of the Honda Agreement, Honda has agreed not to assert its right to purchase our Honda and Acura franchises and/or similar remedies under the manufacturer framework agreement between Honda and the Company in the event that ESL acquires 50% or more of our common stock. If ESL acquires more than 50% of our common stock, ESL has agreed to vote all shares in excess of 50% in the same proportion as all non-ESL-owned shares are voted. In addition, we have agreed to ensure that a majority of our Board is independent of both the Company and ESL under existing New York Stock Exchange (“NYSE”) listing standards. Furthermore, the Honda Agreement provides that Honda’s consent does not apply to a “going private” transaction under Rule 13e-3 of the Securities Exchange Act of 1934. The terms and conditions of the Honda Agreement will only apply at such time and for so long as ESL owns more than 50% of our common stock.
Under the terms of the Toyota Agreement, Toyota has agreed not to assert its right to purchase our Toyota and Lexus franchises and/or similar remedies under the manufacturer framework agreement between Toyota and the Company in the event that ESL acquires 50% or more of our common stock. If ESL acquires more than 50% of our common stock, ESL has agreed to vote all shares in excess of 50% in the same proportion as all non-ESL-owned shares are voted. Furthermore, we have agreed that a majority of our Board will be independent from both the Company and from ESL under existing NYSE listing standards. We have also agreed not to merge, consolidate, or combine with any entity owned or controlled by ESL unless Toyota consents thereto. In addition, the Toyota Agreement provides that in the event that we appoint a Chief Operating Officer who, in the good faith judgment of our Board, does not have sufficient breadth and depth of experience, a relevant, successful automotive track record, and extensive successful automotive experience, ESL shall be required to divest its shares in excess of 50% within nine (9) months or its voting interest will be limited to 25%, and if ESL does not divest such shares within eighteen (18) months, it will lose all voting rights until it divests such shares. The terms and conditions of the Toyota Agreement will only apply at such time and for so long as ESL owns more than 50% of our common stock and will terminate on December 31, 2009 with respect to future stock acquisitions by ESL, provided that ESL may seek successive annual one-year extensions, and Toyota may not unreasonably withhold or delay its consent thereto.
In connection with the Toyota and Honda agreements described above, in January 2009, our Board authorized and approved a separate letter agreement between the Company and ESL in which ESL has agreed to vote shares of our common stock owned by ESL in excess of 45% in the same proportion as all non-ESL-owned shares are voted. The ESL Agreement expires on January 28, 2010, unless extended by mutual agreement of the parties.
This is the first time I have seen in a filing the thought that AutoNation may be “merged with another entity”. hmmmmmm
Readers here know that for a while now I have thought Lampert’s end game is an AutoNation (AN), Sears Holdings (SHLD) and AutoZone (AZO). The reason can be found here.
Share Repurchases:
On October 23, 2007, our Board of Directors approved a share repurchase program (the “Share Repurchase Program”), which authorized AutoNation to repurchase up to $250 million in shares of our common stock. The Share Repurchase Program does not have an expiration date. During the fourth quarter of 2008, we did not repurchase any shares of our common stock. As of December 31, 2008, up to $142.7 million in shares may yet be repurchased under the Share Repurchase Program.
Sales:
Interesting statistic. Luxury sales were down 16% vs 29% for domestic for the company. In 1999, AN was 70% domestic 30% import/luxury. In 2009 those numbers will be almost 80% import/luxury vs just over 20% domestic.
Disclosure (“none” means no position):Long AN
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Still more on the subject. Lost in the debate is those of us who want alterations to the policy, so not want it eliminated, just adjusted. There are options that would better reflect the value of these securities.
Brian Wesbury on the subject:
Past posts on “mark to market“
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Racism, Racism, Santelli, Santelli, Acorn
– Best repudiation of the “racism in America” junk we keep hearing about
– More thoughts on the “real racism”…..though it will not be popular
– Talk about timing….this summer is new contract time for Rick…Congrats
– Listen to his radio interview
– The rest of the story
Disclosure (“none” means no position):
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Berkowitz is one of the best. He goes into to details on each of their investments. This is a must read for any value investor.
Regarding Sears Holdings (SHLD):”Well, we – Eddie Lampert’s overall record is still quite deep and I don’t know you know that paper trail is important, but what’s most important to us is studying, see his balance sheet, its liquidation value. I have a whole bunch of more question on Sears that are coming a little – that – (of to an) answer and we go into a bit more detail. But we’ve always shares based upon its
liquidation values and always thought that we were buying below liquidation values and we shall see. I still believe that Sears is quite reminiscent of Berkshire Hathaway’s days with the – with Warren Buffet’s days, I should say, with the Berkshire Textile Mills and that inflection point, that point when we decided it was time to move on and reallocate the cash to more productive uses. There’s nothing I see at this point which tells me that will not happen at Sears.”
Question, can Sears pay off their debt? Can they refinance at reasonable terms?
“I think – I think the answer to both questions is yes and if Eddie Lampert has any difficulties I think he should call Fairholme cause we would be willing to help him at the right price.
There is a whole section on Sears. please read it.
Fairholme 2008 Year End Conference Call
Disclosure (“none” means no position):Long SHLD
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He has a very valid point, there is no talk of valuation out there currently. That both creates tremendous markets swings and for the patient of us, tremendous opportunity.,
I thought that these charts (below) told the story of the credit freeze. I think the Traders rule at the moment. Valuation for the moment does not carry much weight. The forecasted earnings yield of ~8.6% 12mo forward for SP500 seems to stimulate some to forecast worse earnings than this in order to get their 20 secs on CNBC. I interpret these charts to indicate that it appears that earnings are forecasted to be well below the long term trend. I do have a chart that takes the earnings trend back to the late ‘40’s with what appears to be the same variance within the same channel at ~6% compounded for the entire period. Today forecasts are well out side the historical range.
To get a similar collapse of valuations in the past required a high rate of inflation, 1974 and 1982 both had 7 P/E’s and 12%-14% earnings yield range. This was required. I have observed that since 1978 when we have reasonably good data that the market requires a return that provides just over 3% Real Rate of Return. In 1982 with core inflation (see Dallas Fed trimmed mean PCE data 1982 inflation at ~9%-11% + ~3% Real Rate of Return = 12%-14%) in the 11%-12% range the SP500 earnings yield was in the 12%-14% range.
Over the past few months 12mos forward earnings yields have ranged over 11% to the current ~8.6%. The market appears to be pricing inflation in the next few years at the 5.5%-8% range or a period of earnings well below that which has been in place since the 1940’s.
I cannot forecast the future any better than the many professionals who are paid handsomely to do this. But, I do not think our national productivity, our willingness to work our desire put our kids through school and our general improvement of our condition has not changed from last year to this. My view is that the SP500 which represents some 90%+ of US public companies mirrors the results of these efforts. We can measure this with some certainty since the ‘40’s. We have certainly had many issues along the way. We have always recovered.
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A closer look reveals things are far better than the market assumes and for those who enjoy irony, the “worse case scenario”, may actually be the best….
General Growth (GGP) currently has ownership interest in, or management responsibility for, over 200 regional shopping malls in 44 states, as well as ownership in master planned community developments and commercial office buildings. The Company’s portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide.
Results from the Press Release:
• FFO was $222.2 million in the fourth quarter of 2008 as compared to $190.4 million in the fourth quarter of 2007, an increase of approximately $31.8 million. FFO was significantly impacted by items as detailed in the attached supplemental schedule. Excluding such items, FFO declined in the fourth quarter of 2008 as compared to the fourth quarter of 2007 as a result of lower comparable NOI in the retail and other segment and higher interest expense.
• EPS were zero in the fourth quarter of 2008 compared to $0.24 in the fourth quarter of 2007, substantially all of which was due to the items listed in the attached supplemental schedule and the matters affecting Core FFO and FFO described above.
2009 Maturing debt and liquidity concerns
We are primarily focused on our near and intermediate term loan maturities. The refinancing market remains at a standstill. We are considering all strategic alternatives and are continuing our discussions with our lenders. In addition, we have suspended our cash dividend, halted or slowed nearly all of our development and redevelopment projects, systematically engaged in certain cost reduction or efficiency programs, reduced our workforce by over 20% and sold certain non-mall assets. We currently have approximately $1.179 billion of past due debt and approximately $4.09 billion of debt that could be accelerated. However, our lenders have not yet exercised any of their remedy rights with respect to such debt. In addition, we have $1.44 billion of consolidated mortgage debt and approximately $595 million of unsecured bonds scheduled to mature in the balance of 2009 that remains to be refinanced, repaid or extended. In the event that we are unable to extend or refinance our near and intermediate term loan maturities, we may be required to seek legal protection from our creditors.
Here is the debt maturity schedule:
Debt Covenant Ratios:
SEGMENT RESULTS
• Comparable NOI from consolidated properties decreased 4.1% in the fourth quarter of 2008 versus the fourth quarter of 2007.
• Comparable NOI from unconsolidated properties at the Company’s ownership share for the fourth quarter of 2008 declined by approximately 10.0% compared to the fourth quarter of 2007. Declines in termination income in 2008 (due to certain individually large terminations in 2007) and foreign currency translation rate differences between periods caused the comparable NOI decline for unconsolidated properties to be significantly larger than that of the comparable consolidated properties.
• Revenues from consolidated properties declined approximately 3.2% for the fourth quarter of 2008, or approximately $27.5 million, to $840.5 million as compared to $868.0 million for the same period in 2007 primarily due to declines in overage rent and other income.
• Revenues from unconsolidated properties at the Company’s ownership share declined slightly for the fourth quarter 2008 as compared to the fourth quarter of 2007, to $162.2 million from $163.2 million, as increased minimum rents from certain expansions and renovations opened since late 2007 and certain ownership increases in properties owned through our international joint ventures were more than offset by overage and other income declines across the segment.
• Comparable tenant sales, on a trailing twelve month basis, decreased 3.8% compared to the same period last year.
• Sales per square foot, on a trailing twelve month basis, decreased 4.2% compared to the same period last year.
• Retail Center occupancy decreased to 92.5% at December 31, 2008 from 93.8% at December 31, 2007.
Now much has been said about the property that GGP holds and how it has deteriorated in value. BUT, if we look at recent land sales from their planned communities, we see the opposite is happening:
Here are the top ten tenants in Retail Operations:
None of these large tenants are in danger of leaving avoid in a Chapter 11 proceeding. GGP derives 60% of rents from anchor stores and 40% from the remainder.
Breakdown by region:
So, no two ways around it. The debt is crushing them but operations are performing just fine, very well actually given the current climate. Also, the value of the real estate on the books is clearly below it actual value. The more one looks at it, one has to hope they file Chapter 11, clear the debt and start over.
The opportunity here is really impressive…
This is very interesting. From the author of the classic “Barbarian’s at the Gate”. I have not read this work yet, but based on past efforts, I am sure it is more than readable.
Here are the books:
Here is the author talking about his latest work:
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Bailout mascot, Geithner & Summers, Banks, Banks
– Classic
– Insider are buying
– Cheap as tech stocks were after the crash?
Disclosure (“none” means no position):
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I am buying shares of General Growth Properties (GGP) today as I feel there is deep value in them.
Where is the value? General Growth is a U.S. based, publicly traded Real Estate Investment Trust. The Company currently has an ownership interest in or management responsibility for a portfolio of more than 200 regional shopping malls in 44 states, as well as ownership in master planned community developments and commercial office buildings. The Company portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide. The Company is listed on the New York Stock Exchange under the symbol “GGP”. For more information, visit the Company Web site at www.ggp.com.
GGP carries it’s real state holding at cost and according to its 2007 annual report, the total is $28 billion. If we take the 200 million sq. feet of retail space they have, the cost basis is $140 a sq. foot.
Now, let’s look at the MIT Transaction based cost index for the 2008 year. This matters because it takes into account what sold for what, not an estimated value.
Retail Current Cost
Using the $195 a sq. foot price from MIT, we get a real estate value for GGP of $39 billion. GGP has a current market cap of $115 million meaning it sells for .3% of its real estate value, that is point 3% not 3%. With $27 billion of debt outstanding and due in 4 years, if we subtract that from the current property value there is still $12 billion or $36 a share of value left in the properties (based on 331 million shares outstanding as of last 8K). Now, of course the actual amount will vary depending on what properties are sold where but we have a good indication by using national numbers because GGP does have holdings nationally.
To further boost a valuation, we can look at the age of the properties. Starting on F-61 of the above linked annual report we see that only $3 billion of the $28 billion total has been acquired since 2007. These properties one could argue were purchased at inflated prices and perhaps worth only equal too or slightly below carrying cost. The majority of the properties are 2002 and earlier giving a large boost to the “carry coast being far less than market value” theory.
Perhaps this is why Bill Ackman has taken a stake in 25% of the company.
The Loans:
On Feb. 12th GGP said:
On February 13, 2009, General Growth Properties, Inc. (the “Company”) and certain of its subsidiaries, including Oakwood Shopping Center Limited Partnership (collectively with the Company, the “Company Parties”), Citicorp North America, Inc., as a lender and as administrative agent for the other lenders party thereto, and certain additional lenders (collectively, the “Lenders”), entered into a First Amendment to Loan Agreement (the “Amendment”) which amended the Loan Agreement dated as of January 30, 2006 by and among the Company Parties and the Lenders for the mortgage loan secured by the Company’s Oakwood Shopping Center located in Gretna Louisiana (the “Loan”). Pursuant and subject to the terms of the Amendment, the maturity date of the Loan was extended to March 16, 2009. The Loan’s original maturity date of February 9, 2009 had previously been extended pursuant to agreements between the Company Parties and the Lenders.
The Company is currently in default under certain of its loans. As previously announced, the Company has entered into forbearance agreements with certain of its lenders pursuant to which such lenders have agreed to forbear from exercising certain of their default related rights and remedies under such loans. However, the forbearance agreements related to mortgage loans secured by the Company’s Fashion Show and Palazzo shopping centers located in Las Vegas, Nevada expired on February 12, 2009. The expiration of these forbearance agreements permitted the lenders under the Company’s 2006 Credit Facility and 2008 secured portfolio facility to terminate the previously announced forbearance agreements related to these loan facilities. However, the Company has not received notice of any such termination, as required by the terms of such forbearance agreements. In addition, the Company has also been unable to enter into or extend forbearance or similar agreements for its other mature secured mortgage loans, and there can be no assurance that it will be able to do so. The Company continues to work with its lenders with respect to loans under which it is in default or may be in default in the near future.
What does it all mean. Simply, even if GGP were forced into bankruptcy, the actual value of it exceeds the debt meaning there is still large value for shareholders. At $.43 cents a share, the upside is stunning and the downside is limited to your investment, $.43 cents.
What will the lenders do? Think about it. Do the lenders really want to start writing down commercial real estate loans for one of the largest property owners in the US by forcing it into bankruptcy? No. Why? In our “mark to market” world we now live in, this would mean that debt on other strapped REIT’s would then have to be “marked down” also causing more billion dollar losses for banks. Not good.
This is the reason for the various debt extensions for GGP.
Earnings come out today after being delayed for two weeks. One has to expect some news to accompany them. I am buying shares ahead of it
Disclosure (“none” means no position):Long GGP
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