Deep Value Kohls Analysis Transcript

Business vs. Real Estate Value:

• The business itself is slightly profitable and likely worth about its current stock market value.

• The real estate portfolio is an additional, substantial asset.

Real Estate Holdings:

• Kohl’s owns 406 locations outright, totaling approximately 45.6 million square feet of store space.

• An additional 247 locations are on long-term ground leases (50+ years).

• Including warehouses and distribution centers, the total rentable area is approximately 55.7 million square feet.

Market Valuation:

• As of the report's date (February 11), the market cap was $1.3 billion, with a total valuation (including debt) of $2.5 billion.

• Kohl’s bonds are trading at a discount, and the company could record significant gains by repurchasing them instead of paying dividends.

Rental Income Estimate:

• At $10 per square foot (a conservative estimate for retail and warehouse spaces), the total potential rental income is $557 million per year.

• Deducting $57.5 million in ground lease costs leaves $499.5 million in net rental income.

Implied Cap Rate:

• Based on these figures, the implied capitalization rate is approximately 20%, which is extremely high and suggests significant undervaluation.

• A more typical valuation would be at a 7-10% cap rate, implying a share price of $342 to $454—substantially above the current trading price.

Strategic Opportunities:

• Kohl’s could enhance shareholder value by cutting dividends and repurchasing their discounted bonds.

• Alternatively, spinning off the real estate into a REIT could unlock further value.

Investment Thesis:

• The report argues that Kohl’s real estate is significantly undervalued, with the stock price not reflecting the true market value of their holdings.

• The potential for a short squeeze exists, given the substantial short interest in Kohl’s shares.