Author Topic: SRG - Seritage Growth Properties  (Read 270761 times)

koshigoe

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Re: SRG - Seritage Growth Properties
« Reply #790 on: October 16, 2018, 10:33:52 AM »

The current E/V at $42 is $3.3B. Using the numbers above, after they spend (borrow) another $900M (taking the E/V to $4.2B), the leading 102 assets would be worth $3.8B. Sure, the undiscounted net value of everything is more than $42/share, but Schall's figures don't make me want to buy at that price. Not to mention, who knows what cap rate he is using despite rising rates.

EV more like 4.1 B now.

I offer different conclusion, that is way cheap. They're basically fairly valued now, maybe a bit expensive for current income once lease-up and dev are finished depending on cap rate you select (Schall et al estimate based on mid-to-high 5s, see response to candyman below).

But then that leaves 25-30 million sq ft to get 3x-4x re-rate. Even if commercial real estate goes haywire, they can sell off 5 mil of garbage properties (prob current plan anyway) for more than they paid (see past sales this year for podunk Kmarts) and lease the remaining 25m at min 3x rents. (current avg is 4.xx a sq ft...come on)

I struggle to see worse outcome than that. And that outcome will produce something like 15% per annum for a decade for long term holder, and a triple from current stock price on something like 600 mil net income (give or take a hundred million, no need to be precise).



 
« Last Edit: October 16, 2018, 10:50:56 AM by koshigoe »


koshigoe

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Re: SRG - Seritage Growth Properties
« Reply #791 on: October 16, 2018, 10:49:38 AM »
Hmmm interesting ... so since the last SRG presentation (Sept 2018) the average rent has gone down from $17.5 per sq foot to $16.5 per sq foot. Maybe a typo ...

Lets see how that $3.4 billion squares up to the rent. If I go with the last Q number, I get 7.8 million sq feet completed or under development. Lets assume there are no cost to running the SRG real estate and the rent stays $17.5 per sq foot. Also lets assume that the cap rate is 5%. So 7.8 million sq feet times (17.5/0.05) gets me $2.73 billion. That is for 78 projects, not the 79 listed by BS in his letter. I guess that last project is worth 670 million.

I hope you don't get banned any time soon for being a (0/10) troll, refuting your statements has helped me organize my own thoughts.

values are based on "...and the projects have been stabilized" rents that are estimated at avg $23 a foot for first 73 projects (per the latest supplement pg 14)

The latest presentation says those 73 projects should be worth 3.170B, so we can figure the assumed cap rate.

23* 7.915mil = 182 mil / .057 = something like 3.190B

so Schall assumes something like 5.7 cap rate.

add in the 6 new projects and the JV cut, and you've got near the 3.8 as stated.


« Last Edit: October 16, 2018, 02:17:07 PM by koshigoe »

beaufort

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Re: SRG - Seritage Growth Properties
« Reply #792 on: October 16, 2018, 01:05:39 PM »
42 SRG stores are part of the 142 stores that SHLD will shut down in bankruptcy.  There were 102 stores left with a SHLD presence for end of Sept 2018.  The happy result is 60 stores out of the SRG portfolio will remain with a SHLD tenant. 

TwoCitiesCapital

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Re: SRG - Seritage Growth Properties
« Reply #793 on: October 16, 2018, 01:30:11 PM »

I like this part:
Quote
We estimate that the 79 projects that we’ve completed or commenced solely on the Seritage platform will be worth upwards of $3.4 billion ($3.1 billion at share) once the remaining $940 million ($880 million at share) of investment capital has been deployed and the projects have been stabilized. We have 23 assets in joint ventures with the three largest mall owners with a basis of $370 million at our share. Just with those 102 assets, our portfolio would be worth almost $3.8 billion. The remainder of the portfolio provides meaningful value creation opportunity, including some of our top locations and at least three dozen sites with potential for significant densification.

The current E/V at $42 is $3.3B. Using the numbers above, after they spend (borrow) another $900M (taking the E/V to $4.2B), the leading 102 assets would be worth $3.8B. Sure, the undiscounted net value of everything is more than $42/share, but Schall's figures don't make me want to buy at that price. Not to mention, who knows what cap rate he is using despite rising rates.

Correct me if I'm wrong, but the $3.8B was only for projects currently under development which wouldn't include current property that isn't under development and the Sears stores that are part of the bankruptcy.

So, total EV of $4.1B for a portfolio value of $3.8B plus whatever value you place on the undeveloped properties they get. I haven't run the numbers myself (maybe someone with more at stake could opine on wish that "plus" figure is), but seems like the current developments come close to putting a a floor on your downside and any new projects add to the upside scenarios.

peridotcapital

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Re: SRG - Seritage Growth Properties
« Reply #794 on: October 17, 2018, 08:30:37 AM »

I like this part:
Quote
We estimate that the 79 projects that we’ve completed or commenced solely on the Seritage platform will be worth upwards of $3.4 billion ($3.1 billion at share) once the remaining $940 million ($880 million at share) of investment capital has been deployed and the projects have been stabilized. We have 23 assets in joint ventures with the three largest mall owners with a basis of $370 million at our share. Just with those 102 assets, our portfolio would be worth almost $3.8 billion. The remainder of the portfolio provides meaningful value creation opportunity, including some of our top locations and at least three dozen sites with potential for significant densification.



The current E/V at $42 is $3.3B. Using the numbers above, after they spend (borrow) another $900M (taking the E/V to $4.2B), the leading 102 assets would be worth $3.8B. Sure, the undiscounted net value of everything is more than $42/share, but Schall's figures don't make me want to buy at that price. Not to mention, who knows what cap rate he is using despite rising rates.

Correct me if I'm wrong, but the $3.8B was only for projects currently under development which wouldn't include current property that isn't under development and the Sears stores that are part of the bankruptcy.

So, total EV of $4.1B for a portfolio value of $3.8B plus whatever value you place on the undeveloped properties they get. I haven't run the numbers myself (maybe someone with more at stake could opine on wish that "plus" figure is), but seems like the current developments come close to putting a a floor on your downside and any new projects add to the upside scenarios.

Agree about the floor. I just struggle to see enough upside over the next, say, 3 years, to warrant getting excited at current prices. Do I think the stock slowly trends higher over the long term? Sure. Do I think it does a 15% CAGR over the next decade? Not at all. And I don't buy a normalized cap rate in the 5's either.

Shane

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Re: SRG - Seritage Growth Properties
« Reply #795 on: October 17, 2018, 10:00:44 AM »

I like this part:
Quote
We estimate that the 79 projects that we’ve completed or commenced solely on the Seritage platform will be worth upwards of $3.4 billion ($3.1 billion at share) once the remaining $940 million ($880 million at share) of investment capital has been deployed and the projects have been stabilized. We have 23 assets in joint ventures with the three largest mall owners with a basis of $370 million at our share. Just with those 102 assets, our portfolio would be worth almost $3.8 billion. The remainder of the portfolio provides meaningful value creation opportunity, including some of our top locations and at least three dozen sites with potential for significant densification.



The current E/V at $42 is $3.3B. Using the numbers above, after they spend (borrow) another $900M (taking the E/V to $4.2B), the leading 102 assets would be worth $3.8B. Sure, the undiscounted net value of everything is more than $42/share, but Schall's figures don't make me want to buy at that price. Not to mention, who knows what cap rate he is using despite rising rates.

Correct me if I'm wrong, but the $3.8B was only for projects currently under development which wouldn't include current property that isn't under development and the Sears stores that are part of the bankruptcy.

So, total EV of $4.1B for a portfolio value of $3.8B plus whatever value you place on the undeveloped properties they get. I haven't run the numbers myself (maybe someone with more at stake could opine on wish that "plus" figure is), but seems like the current developments come close to putting a a floor on your downside and any new projects add to the upside scenarios.

Agree about the floor. I just struggle to see enough upside over the next, say, 3 years, to warrant getting excited at current prices. Do I think the stock slowly trends higher over the long term? Sure. Do I think it does a 15% CAGR over the next decade? Not at all. And I don't buy a normalized cap rate in the 5's either.

Do you question the 15% CAGR primarily because of the cap rate or are there other reasons?  Would be helpful for me (and other longs) to understand your reasoning.

peridotcapital

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Re: SRG - Seritage Growth Properties
« Reply #796 on: October 18, 2018, 07:25:12 AM »


Do you question the 15% CAGR primarily because of the cap rate or are there other reasons?  Would be helpful for me (and other longs) to understand your reasoning.

Hard to comment on that. For a base case 15% CAGR scenario I don't know what the underlying assumptions are.

Actually, I see that he said $600M net income in a decade. I would take the under on that as well.
« Last Edit: October 18, 2018, 07:48:51 AM by peridotcapital »

GCA

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Re: SRG - Seritage Growth Properties
« Reply #797 on: October 19, 2018, 10:06:22 AM »

I like this part:
Quote
We estimate that the 79 projects that we’ve completed or commenced solely on the Seritage platform will be worth upwards of $3.4 billion ($3.1 billion at share) once the remaining $940 million ($880 million at share) of investment capital has been deployed and the projects have been stabilized. We have 23 assets in joint ventures with the three largest mall owners with a basis of $370 million at our share. Just with those 102 assets, our portfolio would be worth almost $3.8 billion. The remainder of the portfolio provides meaningful value creation opportunity, including some of our top locations and at least three dozen sites with potential for significant densification.



The current E/V at $42 is $3.3B. Using the numbers above, after they spend (borrow) another $900M (taking the E/V to $4.2B), the leading 102 assets would be worth $3.8B. Sure, the undiscounted net value of everything is more than $42/share, but Schall's figures don't make me want to buy at that price. Not to mention, who knows what cap rate he is using despite rising rates.

Correct me if I'm wrong, but the $3.8B was only for projects currently under development which wouldn't include current property that isn't under development and the Sears stores that are part of the bankruptcy.

So, total EV of $4.1B for a portfolio value of $3.8B plus whatever value you place on the undeveloped properties they get. I haven't run the numbers myself (maybe someone with more at stake could opine on wish that "plus" figure is), but seems like the current developments come close to putting a a floor on your downside and any new projects add to the upside scenarios.

Agree about the floor. I just struggle to see enough upside over the next, say, 3 years, to warrant getting excited at current prices. Do I think the stock slowly trends higher over the long term? Sure. Do I think it does a 15% CAGR over the next decade? Not at all. And I don't buy a normalized cap rate in the 5's either.

It's fairly easy to put together an estimate of EV based on what Schall gave us in his letter (recent 8K). 
+$3.1B at share for the project under development (so this includes the one off JVs like Santa Monica and La Jolla)
- 880MM in money they need to spend to complete these projects
+370MM for their share of the mall JVs
= $2.29 B
Then
+ 1.0 B for all the properties remaining (those without projects that haven't been sold).  This is the sum off the lowest appraisal for each of these properties.
= $3.3 B EV
or ~$40 a share

So where is the upside?
1)  Their 3 mega projects (Valley View, Redmond, and to a lesser extent, Hicksville) will provide a lot of upside.  In the above analysis they're valued at the ridiculous low appraisal values, about $66MM total.  Construction costs on Valley View alone are going to be ~$800MM.
2)  Redevelopment of the properties that don't have a project yet.  Again I've valued these at appraisal in the above.
3)  FURTHER redevelopment of the properties that are already included in the top $3.1B number.  Many of these projects only took back half of the Sears space.  That means there is another half to take back and redevelop.  The $3.1B number does not include this potential number.
4)  Densification of projects in the $3.1B number.  I put this in a separate category from 3) above.  3 should be (relatively) easy... you kick out the SHLD, put a new sign on, and find an elusive big box tenant.  In this category I'm talking about doing something like Putting another building in the parking lot of the Santa Monica redevelopment project.