Author Topic: SRG - Seritage Growth Properties  (Read 257055 times)

Spekulatius

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Re: SRG - Seritage Growth Properties
« Reply #530 on: March 10, 2018, 11:09:17 AM »
As cap rates rise it gets harder to see where the value in SRG is.

Kimco owns 67.9M sf, gets $16 rent/sf, and trades at an E/V of $12.0B ($176/sf)

Seritage owns 37.3M sf, gets $7 rent/sf, and trades at an E/V of $3.3B ($89/sf)

At 2017 leasing velocity the portfolio is Sears-free in 10 years and SRG equity goes from $35 to $70 per share. Assuming it happens as planned, investors will earn 7%/year plus dividends, so call it 10%/year. Why not just buy Kimco with its 7.7% dividend yield and probably earn roughly same return without having to rely on the company finding new tenants for 60% of its GLA over the next decade?

Good points.  Is Kimco the cheapest REIT of this kind that you know of or are there other cheap options as well?

Depends on how you define cheap .KIM peers are DDR, KRG, BRX. All of them are either cheap or well disguised value traps. I would rate KIM to be the highest quality of the bunch

The big issue are deflationary trends on rents over the long run due to online gaining share.
« Last Edit: March 10, 2018, 05:45:02 PM by Spekulatius »
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BTShine

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Re: SRG - Seritage Growth Properties
« Reply #531 on: March 10, 2018, 04:38:32 PM »
The factor Iím most concerned with is will humans find a use for space outside the home going forward?   Our civilization has repurposed real estate many times in our history and I believe this retail space will be repurposed, too.  What will the rents be?  Thatís the only question I care about.

 My guess is much of that depends upon construction costs.  Replacement costs and cost of construction in general, since the cost of constructing other buildings will always compete against vacant space. 

Mega churches.  Restaurants.  Universities.  Office space.  All of those users are candidates in the future (for any failed properties, of course).  What will they pay? 

Retailers getting beat by Amazon are not the only candidates to tenant this type of property. 
« Last Edit: March 10, 2018, 06:51:24 PM by BTShine »

Spekulatius

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Re: SRG - Seritage Growth Properties
« Reply #532 on: March 11, 2018, 09:17:38 AM »
Repurposing of retail space will happen,  but I think not all the retail space can be repurposed. In some cases, the cost of tear down and rebuild may be very high and will result in a huge economic loss for the owner
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scorpioncapital

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Re: SRG - Seritage Growth Properties
« Reply #533 on: March 11, 2018, 11:06:44 AM »
They need to convert their thinking. Yes, I heard about the office space in the Santa Monica property and the mixed use project in Texas BUT SRG needs to become say 60% of this and 40% retail/entertainment/services. From what I see of the tenant roster, it's too much shift from SRG to just pure retail again. Sure it's better but the real reason SRG or any REIT like this would be a killer investment is the pivot away from retail into more productive uses. Even 'other' retail is not as productive as it could be.

DTEJD1997

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Re: SRG - Seritage Growth Properties
« Reply #534 on: March 11, 2018, 01:50:49 PM »
Hey all:

Unless ALL of SRG's properties are "super prime" I have a hard time seeing how they will be valued higher than other retail REIT's.

Just look at all the carnage going on with the retail REIT sector, and none of that is going to effect SRG?

Add on top of that their huge need for capital to redo/re-purpose their properties.  That is an added layer of complexity/risk.

Then you've got a rising interest rate environment.  Rising rates should hit 5% cap rate properties/projects high than it hits 10% cap rates.

I think SRG could do OK in the long run, I just think they are overpriced currently in relation to the RISK and some of their other competitors.

Spekulatius

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Re: SRG - Seritage Growth Properties
« Reply #535 on: March 11, 2018, 06:05:22 PM »
Hey all:

Unless ALL of SRG's properties are "super prime" I have a hard time seeing how they will be valued higher than other retail REIT's.

Just look at all the carnage going on with the retail REIT sector, and none of that is going to effect SRG?

Add on top of that their huge need for capital to redo/re-purpose their properties.  That is an added layer of complexity/risk.

Then you've got a rising interest rate environment.  Rising rates should hit 5% cap rate properties/projects high than it hits 10% cap rates.

I think SRG could do OK in the long run, I just think they are overpriced currently in relation to the RISK and some of their other competitors.

If the properties were super prime (or even prime), the newlly redeveloped properties would generate more than $17/sqft. $17/sqft is a B-mall Rents, no less and no more. So, I think we can safely assume that Sears properties are on average B-mall properties.
i think the rents for B-mallet DDR and KIM are around $16/sqft but that includes properties with below market rents. KIM and DDR are B-mall Reits.
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koshigoe

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Re: SRG - Seritage Growth Properties
« Reply #536 on: March 12, 2018, 08:16:07 AM »
37 mil x $17 = 629

629 / 0.06 = 10,483

2 to 10.4 in 10 years is ~18%

if takes 10 years to do it, that's 18% CAGR, if it takes more, worse cap rate, etc that's lets say 15% a year. But, SRG predicts average $25 square foot when stabilized, so worst case is 15-18 CAGR, better case...20+?

peridotcapital

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Re: SRG - Seritage Growth Properties
« Reply #537 on: March 12, 2018, 02:26:24 PM »
37 mil x $17 = 629

629 / 0.06 = 10,483

2 to 10.4 in 10 years is ~18%

if takes 10 years to do it, that's 18% CAGR, if it takes more, worse cap rate, etc that's lets say 15% a year. But, SRG predicts average $25 square foot when stabilized, so worst case is 15-18 CAGR, better case...20+?

You are saying SRG equity is worth $10.5B in 10 years? You seem to be assuming they have zero debt right now and never raise capital ever again.

peridotcapital

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Re: SRG - Seritage Growth Properties
« Reply #538 on: March 12, 2018, 02:28:47 PM »

Good points.  Is Kimco the cheapest REIT of this kind that you know of or are there other cheap options as well?

There are cheaper REITs (WPG as an example) but Kimco's rents are nearly identical to what SRG is doing on redevelopments, so its my preferred comp.

rb

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Re: SRG - Seritage Growth Properties
« Reply #539 on: March 12, 2018, 02:56:25 PM »
37 mil x $17 = 629

629 / 0.06 = 10,483

2 to 10.4 in 10 years is ~18%

if takes 10 years to do it, that's 18% CAGR, if it takes more, worse cap rate, etc that's lets say 15% a year. But, SRG predicts average $25 square foot when stabilized, so worst case is 15-18 CAGR, better case...20+?

You are saying SRG equity is worth $10.5B in 10 years? You seem to be assuming they have zero debt right now and never raise capital ever again.
Another issue is whether current rent levels are sustainable. What happens if another Sears like department store goes out of business? That's not exactly a crazy idea. If a lot of supply comes to market will there be enough tenants to fill the space? And if there are would the rents hold at current levels given the new sopply?