Mr. Kenneth Leonard

GLG News by Mr. Kenneth Leonard, Principal

GLG News is now G+ Insights

G+ is a community for professionals, academics and entrepreneurs to connect through online discussions and in-person meetings. You will continue to see G+ Insights (formerly GLG News) here as well as on the G+ website, where you can share and discuss the G+ Insights you read.

Why Is This Bailout Different From All Other Bailouts?

September 29, 2008

Analysis of:This Is Not Your Father's Bailout | thegroundfloor.typepad.com

I am sure that I am not the only one who thought that the lessons learned from the RTC experience could provide a suitable short cut and timesaving prototype for the requisite documentation to set the stage for this bailout. After reading this article I now realize why I was wrong and I wanted to share my learning curve with GLG News readers.

Unraveling Accelerates Due To Financial Storm

September 24, 2008

Analysis of:Financial crisis kicks Sears while it's down | www.chicagobusiness.com

SHLD reported a 98% drop in net income for the first half of its fiscal year while comp sales drops 7.4%. B of A reduced SHLD's line of credit to $5 million from $1 billion.  On Friday Fitch Ratings downgraded their debt rating.  Last week the rate Sears pays on its 30-day commercial paper hit 3.69%. It appears the financial community has finally realized what the retail industry observers have known for a long time----Sears is following the exact same path that its twin sister, Montgomery Wards, followed several years ago.

THE DOMINOS HAVE STARTED TO FALL

September 19, 2008

Analysis of:Steve & Barry's begins closing 103 stores | cbs4denver.com

Bay Harbour Management and York Capital Management, who acquired the 276 store Steve & Barry's operation presumably to take advantage of their "below market leases" and to show both Steve and Barry, the two young former owners, that they knew more about how to turn their company around than they did. They have now announced the closing of 103 unprofitable stores and the intent to operate the remaining stores. It is interesting to note that not one of the 103 stores were able to be subleased at "market rates" giving Bay Harbour and York a profit on the difference between market and below market rents. ----So much for the myth of intrinsic value in "below market leases". Even more important to GLG readers is the likely repercussions of wht these closings will do to the REIT industry.

An Indicator Of Things To Come

September 18, 2008

Analysis of:Discount retailer Steve & Barry's closing 5 Chicago-area stores | www.chicagotribune.com

Whenever a troubled shopping center loses an anchor store there are far more repercussions than most hedgefund analysts realize. Steve & Barry's which until recently has been the replacement anchor of choice for troubled malls, is now being seen as the first major anchor failure that could sound the death knell of many of the 100 troubled mall properties it has announced it will be vacating as the result of its' recent bankruptcy. Everyone of these shopping centers have had a serious shock when the original department store anchor vacated the premises. As we now know, these shopping center owners quickly chased down Steve & Barry's and shoved millions of dollars into their pockets to "bribe" them to open a replacement store in the vacant anchor position. Now the malls are again facing a major vacancy with NO REPLACEMENT ON THE HORIZON and very little incentive to "buy" another anchor.

Fannie & Freddie & Common Sense

September 15, 2008

Analysis of:ULI Looks At Fannie-Freddie Implications | blog.retailtrafficmag.com

While this topic has been written about from almost every possible angle, I have not seen anything as appropriate as the following summary from this nations leading real estate trade group.

WAKE UP AND SMELL THE OVERSATURATION

September 12, 2008

Analysis of:MALL GLUT TO CLOG MARKET FOR YEARS | online.wsj.com

In 1983 there was 29 square feet of retail space for every single person in the 54 largest U S markets. Today there is 38 square feet for every person in those same markets. One billion square feet have been added since 2000 driven in large measure by artificially cheap money and too much money chasing real estate deals. Now developers are facing one of the worst declines in shopping center occupancy rates since the 1990-1991 recession. However, because of the saturation levels it is generally agreed that this increase in vacancy rates will last long after the current recession has ended. 

The Myth Of "Hidden" Real Estate Values

September 8, 2008

Analysis of:Mervyn's Sues Ex-Owners, Charges They "Stripped" It | online.wsj.com

As more private-equity-backed companies file for bankruptcy protection, creditors and the companies themselves are expected to increase attacks on the financial structures used in the buyout deals.

THEY ARE BOTH RIGHT FOR THE WRONG REASONS

September 8, 2008

Analysis of:Longs Property Is A Wild Card | online.wsj.com

Might the $2.61 billion CVS purchase of LDG come undone due to a dispute over real estate values? How does one gauge the value of LDG's real estate? GLG readers want to know.

What Am I Missing?

August 29, 2008

Analysis of:Sear's Profits Fall 62% In Second Quarter | www.chicagobusiness.com

Sears continues to lose money at an ever increasing rate. However its stock continues to sell at a substantial premium over far better positioned and profitable retailers such as Wal Mart and Target.  What the heck is going on? SHLD is up over 23% above its recent low on 7/15/08 showing continued losses while the major retailers who are showing only slightly lower profits continue their drift downward in price !

WHAT ARE STRIP CENTER REITs REALLY WORTH?

August 29, 2008

Analysis of:Centro Takes Another Hit | retailtrafficmag.com

THIS ARTICLE PROVIDES ENOUGH INFORMATION TO ALLOW AN ASTUTE OBSERVER TO MAKE SOME PRETTY ACCURATE ASSUMPTIONS ABOUT THE CURRENT MARKET VALUES OF MOST OF THE STRIP CENTER REITs. 

Their Ignorance Is Our Success

August 22, 2008

Analysis of:Cash Flow More Volatile but Still Stable: Fitch CMBS Study | www.cpnonline.com

As Mr. Kanter has pointed out, the rating agencies have a very poor track record of predicting even tomorrow's results, much less the next ten years.  However, I submit that this is not a bad thing! I would appreciate him not drawing attention to their lousy track record because the worse they get, the more attractive GLG's services become to people who need more accurate information. I think that in a very real sense Mr. Kanter is doing GLG a disservice by getting the rating agencies to clean up their act. If they ever do it will reduce the need for people like us. 

IS THE SKY FALLING?

June 26, 2008

Analysis of:U.S. RETAIL STORE CLOSURES FLIRTING WITH SIX-YEAR HIGH | retailtrafficmag.com

This analysis, as is the case with most of my analyzes for GLG News, could properly be classified under several different overly restrictive GLG News "Subjects".  It involves important impacts in "Retailing", "Finance",Stock Market Activity, and Shopping Center Real Estate(which as yet is not a separate category). Instead I chose to label it under the REITs category.  However, whichever category the GLG reader is interested in, the primary import of this article remains the same: ALL RETAILERS ARE NOT CREATED EQUALLY AND RETAILERS ARE NOT COMMODITIES! The author, who should know better but has been previously found guilty of spicing up headlines to increase her readership, treats the closing of a 1000 sq. ft. store in a strip center with the same import as the closing of a 150,000 sq. ft. department store anchor in a regional mall.  Therefore the meaning becomes garbled. I will attempt to clarify. 

ANOTHER EXAMPLE OF HOW CHEAP MONEY CORRUPTS

June 25, 2008

Analysis of:Steve & Barry's Faces Cash Crunch | online.wsj.com

This article is important for at least three reasons. The first and most important is the "Domino" affect the restructuring or demise of Steve & Barry's will have on most, if not all, Mall REITs. The vast majority of their 270 existing stores are in former anchor stores that, if returned to their former vacant status, would have profound negative impact on the entire "wing" of the regional mall they would be vacating. The second and equally negative monetary impact will be on the bottom line of "inline" specialty retailers who have been depending upon the customer traffic generated by Steve & Barry's as a replacement for the vacant department store anchor. The third impact is the further verification of the "MYTH" of DEPARTMENT STORE REAL ESTATE VALUES". If the SHLD investors needed any additional proof that Messrs. Lampert and Ackman were totally misguided in their claims of between $15 & $20 Billion in real estate value, this is it. 

Hey Eddie, The Iceberg Is Dead Ahead!

May 29, 2008

Analysis of:Sears Reports a Loss, Citing Gas and Food Prices | www.nytimes.com

Sears stores sales down 9.8%, Kmart down 7.1%, and comp stores down 8.6%, all supposedly due to the price of gas and food. Q1:08 EPS -$0.53 v. consensus of +$0.15.   While the interim CEO, Bruce Johnson, blames outside events for the poorer-than-expected showing, he also makes a puzzling comment that he "expects higher EBITDA for the full year". This comment alone will provide fodder for the faith of all the SHLD supporters to hold onto until the next crisis. It will also provide some interesting commentary from observers like me who have questioned the veracity of almost every pronouncement  of Sears management since the merger with Kmart.

Ho Hum, Rising Tide Lifts All Boats & Vice Versa

May 22, 2008

Analysis of:Less Shopping = Fewer Malls | online.wsj.com

This is a perfect example of my often repeated notion that what passes for news in today's 24/7 news-hungry environment is mostly just a rehash of old and obvious observations.   This WSJ reporter obviously was given the assignment to write something newsworthy about the annual shopping center industry's trade show currently being held in Vegas. In a failed attempt to address the various (and often conflicting) concerns that are voiced each year in this (and probably every other industry trade show since time began), this reporter tried to grab attention by crafting a catchy headline. Unfortunately the headline bore no relationship to the recycled information contained in the article.   In an effort to save the GLG News reader some time and effort I will allow my Commentary to summarize the essence of the trade show.

ARE ALL THE BANK ANALYSTS BLIND?

May 7, 2008

Analysis of:Sears Holdings price cut by Deutsche Bank | www.reuters.com

While I realize that the Title is somewhat provocative and the Subject somewhat misleading, both are well deserved.   As my Commentary will show, those analysts who have been following SHLD and singing the praises of Eddie at every opportunity, are finally becoming disenchanted with his efforts. However they continue to blindly repeat their mantra about the stock having an "intrinsic collateral value" based solely upon some uninformed and ludicrous calculation of leased and owned real estate values.

Some Very Creative Excuses For Lousy Management

May 6, 2008

Analysis of:Sears Braces For Spending Slump | online.wsj.com

Eddie Lampert came up with about a half dozen excuses for lousy performance that in 40 years of listening to retailers use excuses about the weather, fashions, the weather, early or late holidays, the weather, and many other tired cliches, I had not heard before. While in this annual meeting he almost sounded as if he knew something about retailing, he spent most of his time backpeddling on comments he had made in previous meetings.   I found it facinating that he seemed to take some comfort in the fact that many of his competitors had added debt to their balance sheets in order to modernize their stores and add new units. Eddie on the other hand was pleased that they would not modernize their stores or take on more debt so that they could "weather any financial storm that comes our way". 

Was It The Recession Or Was It Bed, Bath & Beyond?

May 5, 2008

Analysis of:Linens 'n Things to Close Mag Mile Store, files Ch.11 | www.chicagorealestatedaily.com

Another hedge fund-owned retailer bites the dust! As readers of GLG News know by now, this writer has a thing against retailers using deceptive PR practices to deflect blame from lousey management. This is not a recession related bankruptcy!  In an effort to provide a more realistic context for GLG News readers to interpret this latest retail bankruptcy, and to counteract some of the recent hysteria about how the current recession is devastating the retail world, my commentary will provide a brief historical perspective.

IS THE SKY REALLY FALLING?

May 1, 2008

Analysis of:Spacing Out | retailtrafficmag.com

I think this article is important because it spreads a false sense of what is really happening in the industry. While I realize that many reporters exaggerate their premise to make for more interesting reading, this article crosses the line. In my opinion it is irresponsible to dress up an old hag that has been hanging around for over 40 years and pretend that she is a brand new lady worthy of our attention.  The uninitiated reader or analyst could be easily misled and this article could serve to "add fuel to the fire" of the speculation about the extent of the trouble supposedly surrounding commercial real estate.  

Why Not Eliminate All Overhead And Let The Stores Run Themselves?

April 21, 2008

Analysis of:Sears cut 100 more jobs at retailer's headquarters | www.chicagotribune.com

I have (had) many friends working at Sears' Hoffman Estates headquarters,(most now gone) and to the man, (or woman) they have some of the scariest horror stories I have ever heard, about the conditions that prevail under Mr. Lampert's leadership. This latest round of layoffs is just one more indication of how desperate conditions have become. It was revealed in this latest article that the three most important departments required for a successful turnaround, bore the brunt of the layoffs. Operations, Store-Support and Logistics have historically been Sears "neediest" areas. Store management and trade journal writers  have long compared these areas unfavorably to the superior workings of comparable departments at Wal-Mart. Most observers in the Chicago area, many with close ties to Sears or to Sears employees, are unified in their belief that not only has Eddie started cutting into the muscle, but is actually now cutting the bone.

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