Berkowitz said in conference call on the fund’s third-quarter update that it was sticking with Sears because of its internal valuations regarding Sears’ net assets. He said when the firm first started investing in Sears, it estimated a valuation of over $250 a share, but then that estimate was reduced to $150 a share due to the cash burn rate. “We still believe tremendous value still exists,” he said, noting the assets Sears still owns.
The format of the call had Berkowitz responding to queries sent in by investors prior to the start of the call. As for Sears, he said the fund, on behalf of all its clients, owns 26 percent of Sears’ common stock and 31 percent of outstanding warrants to purchase shares of the common stock. The fund also owns notes.
Berkowitz said he expects the investment in Sears to be lucrative for all investors over time, adding that his Sears’ board seat restricts his ability to buy more shares of Sears’ stock.
Sears stock currently trades at about $12.50 a share.
He also said in response to a submitted query that his worse scenario would be that “estimates of the net asset value of the company continue to decline towards current market prices.” Berkowitz said he would sell his stake in Sears “when the market price exceeds our intrinsic value,” a criteria that is no different from that applied to other Fairholme holdings.
There was a query about Seritage Growth, the real estate investment trust spun off with former real estate holdings owned by Sears in mid-2015, and Berkowitz said he was “satisfied with the progress at Seritage,” noting the different redevelopment projects that are underway.
Sears is due to report third-quarter results in the next week or two. It has been focused on trying to effect a turnaround of its retail business model through a Shop Your Way member-centric program.