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General Category => Investment Ideas => Topic started by: accutronman on February 11, 2016, 06:34:24 AM

Title: SRG - Seritage Growth Properties
Post by: accutronman on February 11, 2016, 06:34:24 AM
With all the board discussion concerning Sears, there wasn't a dedicated thread regarding Seritage. I've held shares for awhile as I believe the property play is the endgame for Lampert and Berkowitz. Be interested in thoughts regarding Seritage.
Title: Re: SRG - Seritage Growth Properties
Post by: Sionnach on February 11, 2016, 08:22:12 AM
http://valueinvestorsclub.com/idea/SERITAGE_GROWTH_PROPERTIES/137107

http://ir.seritage.com/Presentations

I think these two links summarize the thesis pretty nicely. Its a very interesting situation.

SRG is pretty similar to RSE which BAM bought not to long ago. So you have to figure there is some opportunity in redeveloping these beaten down properties.
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on February 11, 2016, 09:42:26 AM
I'm a shareholder. The things I saw which led me to invest:

Significant ability to raise rents in next 3-10 years. Part of the knock on the stock is that pessimists argue you have to wait to raise rents (I've seen bullish projections that account for 100% recapture in 3 years which is dumb). But since the industry is based on P/FFO or NAV metrics there tends to be significant discounting of future growth in the current price.

Supply / Demand: malls aren't what they used to be as far as demand, but sales / sf have increased since recession (it's not all doom and gloom like you would be led to believe). Better than that however no one is building more malls really, but there is tenant demand and Sears spaces are huge and can be partitioned. Which leads me to my last point.

Large outlot / parking / standalone development opportunity and pipeline. Sears automotive units can be partitioned into in line outlets as shown in presentation above. Large standalone sites can be sold as dev opportunities (Santa Monica, St. Paul, Chicago) or developed in house. Since SRG already owns all the sites they can value add through entitlement process or complete development in house.

Lastly, major mall REIT JVs will, imo, be bought back by the partner at substantial premium as major mall reits have little area for inorganic growth.
Title: Re: SRG - Seritage Growth Properties
Post by: Sionnach on February 11, 2016, 10:16:18 AM
can you explain that last point a little further moneyball? Are you saying GGP is going to buy back their seritage JV for example?

How long do you think it might to get the 50% recapture? Is 3-10 years the ballpark to get all 50% recaptures?

If you look at the VIC writeup - lets say they get to avg $9.05 /sqft in 5 years. They estimate that's a stock price of ~53, which is only 40% above todays price. Which wouldn't be the greatest CAGR if it took 5 years.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on February 11, 2016, 10:18:18 AM
You know, I'm wondering if a mall tenant to replace Sears could be a large grocery chain like whole foods.
Title: Re: SRG - Seritage Growth Properties
Post by: accutronman on February 11, 2016, 11:18:25 AM
I'm a shareholder. The things I saw which led me to invest:

Significant ability to raise rents in next 3-10 years. Part of the knock on the stock is that pessimists argue you have to wait to raise rents (I've seen bullish projections that account for 100% recapture in 3 years which is dumb). But since the industry is based on P/FFO or NAV metrics there tends to be significant discounting of future growth in the current price.

Supply / Demand: malls aren't what they used to be as far as demand, but sales / sf have increased since recession (it's not all doom and gloom like you would be led to believe). Better than that however no one is building more malls really, but there is tenant demand and Sears spaces are huge and can be partitioned. Which leads me to my last point.

Large outlot / parking / standalone development opportunity and pipeline. Sears automotive units can be partitioned into in line outlets as shown in presentation above. Large standalone sites can be sold as dev opportunities (Santa Monica, St. Paul, Chicago) or developed in house. Since SRG already owns all the sites they can value add through entitlement process or complete development in house.

Lastly, major mall REIT JVs will, imo, be bought back by the partner at substantial premium as major mall reits have little area for inorganic growth.

I agree the Sears auto center/outlot/parking provides some of the more intriguing possibilities. Additionally, the point made in the Value Investors Club article pertaining to what would occur in the event of a SHLD bankruptcy I hadn't thought about but is another positive for Seritage.

Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on February 11, 2016, 05:46:01 PM
can you explain that last point a little further moneyball? Are you saying GGP is going to buy back their seritage JV for example?

How long do you think it might to get the 50% recapture? Is 3-10 years the ballpark to get all 50% recaptures?

If you look at the VIC writeup - lets say they get to avg $9.05 /sqft in 5 years. They estimate that's a stock price of ~53, which is only 40% above todays price. Which wouldn't be the greatest CAGR if it took 5 years.

I think there is value accretion sooner than 5 years. I have been led to believe (by an executive at one of the jv partners) that the malls make a natural acquisition target that they would have to look at in the right scenario. Reading between the lines and considering that these jv assets were formed during the spin off, I think there's a good chance that after an initial safe harbor period that these assets get bid upon by the sponsor. Right now it seems that they are investing into these assets and repositioning the Sears space so that it can be leased. The big 3 mall reits now trade at something like  4.3 caps. I imagine they would add jump on the opportunity to add the SRG space to their portfolio at a 5 cap and own even more sf.

Then I think that longer term Sears will eventually file for bankruptcy / liquidate and the master lease will be rejected and all properties will revert back to SRG. The longer this takes to happen the better, as until then SRG has a robust pipeline were they can pick and choose which sites they want to redevelop. There are currently 21 properties were SRG has 100% recapture rights + 31 JV properties so a robust pipeline. I imagine SRG will continue to pick their spots and execute asset sales were appropriate. A portion of the non jv malls are still owned by Starwood, GGP and Simon. Plus you then have the standalones which are a different animal altogether. Note though some of the k mart spots are duds and probably completely worthless.
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on February 11, 2016, 06:01:03 PM
You know, I'm wondering if a mall tenant to replace Sears could be a large grocery chain like whole foods.

It's not likely across a ton of the portfolio IMO, but there are instances where it is happening check link below:

http://www.seritage.com/retail/property/4588-virginia-beach-blvd/3312644/landing
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on February 11, 2016, 06:08:20 PM
Also quickly to answer the question about the rents... by having the master lease in place we will see the highly opportunistic projects taken first (outparcel redevelopment at best malls, space reconfiguaration at malls with 99% occupancy, smaller spaces etc.) These opportunities can drive rents higher SRG quoted as being able to achieve ~25 per foot - 45 per foot at some of their developments. These move the needle only slightly when looking at overall rent psf basis across the portfolio, but if they are able to be sold off or recapped, then we see the needle move.
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on February 11, 2016, 09:36:02 PM
moneyball, jw how much do you account for redevelopment costs? Sears and Kmart stores aren't well maintained at all so with increased rents would come capex spend.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on February 12, 2016, 08:25:36 AM
You know, I'm wondering if a mall tenant to replace Sears could be a large grocery chain like whole foods.

It's not likely across a ton of the portfolio IMO, but there are instances where it is happening check link below:

http://www.seritage.com/retail/property/4588-virginia-beach-blvd/3312644/landing

Good find. My idea is that one criticism is whether malls would be able to find more big time retailers - or even small time retailers in an age of belt-tightening or another recession. Food never goes out of style and I do know several malls that have food stores - access is key, sometimes people want to be able to get to it quickly without going through the whole mall though.
Title: Re: SRG - Seritage Growth Properties
Post by: accutronman on February 12, 2016, 10:03:35 AM
Interesting to see how this shakes out: http://www.bizjournals.com/southflorida/blog/morning-edition/2016/01/department-store-owner-s-lawsuit-seeks-to-block.html?ana=yahoo

http://www.bizjournals.com/southflorida/news/2014/11/10/sears-proposes-redevelopment-of-aventura-mall.html#i1
Title: Re: SRG - Seritage Growth Properties
Post by: WeiChiLoh on February 13, 2016, 01:17:31 PM
i did a rough valuation on SRG and got to a $40 fair value. Seems like the market is pricing this appropriately.
Title: Re: SRG - Seritage Growth Properties
Post by: WeiChiLoh on February 13, 2016, 01:25:02 PM
i did a rough valuation on SRG and got to a $40 fair value. Seems like the market is pricing this appropriately.

Dependent on 3rd party rental rates though. I used 8.50
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on February 13, 2016, 01:25:31 PM
I always like to try to think about what Buffett saw in this. I think it's the ability to reinvest large sums of cash-flow back into capex via the rebuilding and re-leasing at higher prices. This is a pattern he's doing at Berkshire say with the utilities, railroad, etc.. A leveraged business that reinvests most of its profits can be a good business as inflation rises. The debt provides part of the excess return. Furthermore, being a REIT having to distribute 90% of profits, no wonder it's called 'growth properties'. I wonder if in fact the dividend may be very low because they can take all the money and use it. Using money in a business (with the exception of capital investment that only accrues to consumers such as seat upgrades on airplanes or even tech upgrades in cable companies) is quite tax efficient and is sort of like issuing shares for growth, it's the opposite of distributions because you can't find anything to invest in. Self-funded deployment of capital to earn a higher return. In the case of SRG, potentially 2x higher rent.
Title: Re: SRG - Seritage Growth Properties
Post by: accutronman on February 16, 2016, 06:46:00 AM
For reference purposes:

Link to S-11 registration document:
http://edgar.sec.gov/Archives/edgar/data/1628063/000119312515216579/d836914ds11a.htm

Link to Master Lease: http://edgar.sec.gov/Archives/edgar/data/1628063/000119312515216579/d836914dex103.htm
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on March 10, 2016, 03:56:00 PM
Seritage released their Q4 earnings this evening.

http://ir.seritage.com/file/Index?KeyFile=30193007
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on March 13, 2016, 10:31:03 AM
Ya'll do know that Buffett has an 8% stake in this right? You should feel pretty good about that if you saw this before.

I think it speaks to what Bruce says on the values of SHLD RE.
Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on March 13, 2016, 10:54:52 AM
Actually a lot less than 8%.  There's a bunch of operating units not included in the share count.
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on March 13, 2016, 11:20:02 AM
Yeah the 8% of the stockholders equity would work out to be ~4% of total diluted equity
Title: Re: SRG - Seritage Growth Properties
Post by: Green King on March 13, 2016, 12:09:53 PM
Yeah the 8% of the stockholders equity would work out to be ~4% of total diluted equity

can you show me how you are doing the equity please ?

TIA
GK
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on March 13, 2016, 05:43:43 PM
Yeah the 8% of the stockholders equity would work out to be ~4% of total diluted equity

can you show me how you are doing the equity please ?

TIA
GK

Yeah so from YE 10-k

Outstanding shares (class A & C) = 31.4k
Operating Partnership units = 24.2 k

So common shares end up being 56.5% of the equity of the company.

As a bit of background Operating Partnership units are common in reit ownership structures as it allows for a seller of a property to the reit to gain control of a security that will pay them dividends, but the taxable capital gain only occurs when the OP unit is converted into equity in the reit. So it becomes a tax deferral instrument. ESL owns all of the OP units not owned by by Seritage.

See the attached org chart for clarification
Title: Re: SRG - Seritage Growth Properties
Post by: Green King on March 13, 2016, 07:17:40 PM
Yeah the 8% of the stockholders equity would work out to be ~4% of total diluted equity

can you show me how you are doing the equity please ?

TIA
GK

Yeah so from YE 10-k

Outstanding shares (class A & C) = 31.4k
Operating Partnership units = 24.2 k

So common shares end up being 56.5% of the equity of the company.

As a bit of background Operating Partnership units are common in reit ownership structures as it allows for a seller of a property to the reit to gain control of a security that will pay them dividends, but the taxable capital gain only occurs when the OP unit is converted into equity in the reit. So it becomes a tax deferral instrument. ESL owns all of the OP units not owned by by Seritage.

See the attached org chart for clarification

Thank you for the info
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on March 27, 2016, 02:30:36 PM
There's a write up on VIC that came out recently (on 45 day delay) if anyone is interested.
Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on March 27, 2016, 03:33:40 PM
moneyball, what do you think of aviclara's comments on the original VIC writeup?  He/she is pretty good about looking at the short end of things so I'm curious to your thoughts.  I'm not that worried about fraudulent conveyance risk but that risk may pop up in the future if SRG purchases new assets from SHLD. 

I sort of look at SRG like a low cost funding vehicle for SHLD, except SRG has a lot of low hanging fruit to capture over the next few years.  I don't think Lampert cares as much about the value of SHLD these days except from the standpoint of keeping them out of bankruptcy.  He's going to have an easier time creating new value for himself in SRG and having SHLD as a cheap call option on the retail business that he seems so fond of being overly involved with.  I haven't looked at the numbers lately but I believe he has more net worth tied up in SRG if you exclude SHLD debt.

You almost have to marvel at the financial engineering here and say it might be worth taking another close look at SHLD.  I mean SHLD owners didn't have to put up a lot of capital to buy the assets at $29 (given the difference was made up in debt) and it's already being valued at $49 with Buffett buying stock for his personal account.  I don't think it's a stretch to say SRG could be worth $75 or more in a few years. 

If you exclude the way out of the money warrants, SHLD only has a $1.6 billion market cap and can pull this maneuver again if they can keep themselves out of bankruptcy.  I don't know if Lampert has the capital to do it, but another rights offering for more real estate sales could send SHLD back up to $30 within a week of the announcement.  When you look at the current liquidity picture for SHLD it's almost given that they'll need to do that.  What else can they sell at this point now that store closures aren't turning the business cash flow positive?

But the bearish side of me knows that Lampert is sitting majority position fulcrum in the 2019 bonds so maybe he just wants to get outside the fraudulent conveyance window given how little capital he has left after the last several rights offerings.  I don't get that vibe off his actions but it's a possibility.
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on March 29, 2016, 09:03:25 AM
moneyball, what do you think of aviclara's comments on the original VIC writeup?  He/she is pretty good about looking at the short end of things so I'm curious to your thoughts.  I'm not that worried about fraudulent conveyance risk but that risk may pop up in the future if SRG purchases new assets from SHLD. 

I sort of look at SRG like a low cost funding vehicle for SHLD, except SRG has a lot of low hanging fruit to capture over the next few years.  I don't think Lampert cares as much about the value of SHLD these days except from the standpoint of keeping them out of bankruptcy.  He's going to have an easier time creating new value for himself in SRG and having SHLD as a cheap call option on the retail business that he seems so fond of being overly involved with.  I haven't looked at the numbers lately but I believe he has more net worth tied up in SRG if you exclude SHLD debt.

You almost have to marvel at the financial engineering here and say it might be worth taking another close look at SHLD.  I mean SHLD owners didn't have to put up a lot of capital to buy the assets at $29 (given the difference was made up in debt) and it's already being valued at $49 with Buffett buying stock for his personal account.  I don't think it's a stretch to say SRG could be worth $75 or more in a few years. 

If you exclude the way out of the money warrants, SHLD only has a $1.6 billion market cap and can pull this maneuver again if they can keep themselves out of bankruptcy.  I don't know if Lampert has the capital to do it, but another rights offering for more real estate sales could send SHLD back up to $30 within a week of the announcement.  When you look at the current liquidity picture for SHLD it's almost given that they'll need to do that.  What else can they sell at this point now that store closures aren't turning the business cash flow positive?

But the bearish side of me knows that Lampert is sitting majority position fulcrum in the 2019 bonds so maybe he just wants to get outside the fraudulent conveyance window given how little capital he has left after the last several rights offerings.  I don't get that vibe off his actions but it's a possibility.

Picasso are you asking about my opinion on fraudulent conveyance, specifically? As far as financial engineering goes, I believe the market is just pricing in the fact that the real estate is actually being monetized. I don't view that as financial engineering just more the fact that people think the real estate is worth more under new ownership and is now pricing in future development yield. I for one think it would be insane for a court to believe that SRG's assets are worth a 6 cap on current income under SHLD ownership and I think the appraisals would support that. I mean these projects are highly capital intensive and require years of planning and operational expertise.
Title: Re: SRG - Seritage Growth Properties
Post by: accutronman on March 29, 2016, 11:27:05 AM
Superb performance today
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on March 29, 2016, 12:02:22 PM
Superb performance today

I'm just happy I'm finally making some gains on WPG
Title: Re: SRG - Seritage Growth Properties
Post by: accutronman on May 06, 2016, 06:51:04 AM
A great quarter! And this is why Eddie was so brilliant at creating this stock: "During the first quarter, we signed 214,000 square feet of new leases at average base rents of $32.65 PSF compared to the $6.00 PSF paid by Sears Holdings on a same space basis."
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on May 06, 2016, 10:06:40 AM
A great quarter! And this is why Eddie was so brilliant at creating this stock: "During the first quarter, we signed 214,000 square feet of new leases at average base rents of $32.65 PSF compared to the $6.00 PSF paid by Sears Holdings on a same space basis."

Yes, it was an excellent quarter.  They are definitely starting with the lowest hanging fruit, which is logical. At some point in the future their psf lease rates will not be this high, but the point where we are signing leases at $10 psf instead of $30 seems pretty far off.

Title: Re: SRG - Seritage Growth Properties
Post by: mateo999 on May 06, 2016, 01:11:29 PM
I'm just happy I'm finally making some gains on WPG
+1
Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on May 06, 2016, 01:20:47 PM
I'm just happy I'm finally making some gains on WPG
+1

+1
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on May 18, 2016, 12:28:00 PM
I'm a bit late to the party here, but I have a few thoughts/questions/whatever.

First, on average rent/sf.  I've seen a few people in this thread say that they're valuing SRG based on an increase in the average base rent/sf to about $8 or $9.  Is this not way too low? Looking at Simon Property Group and GGP respectively, their portfolios run at $49.70 and $61.89 average rent/sf respectively.  Is there that much of a difference in the quality of the assets/locations that justifies the 80% discount to rent that people are assigning?  Or am I just dumb and missing something here?

Second - carrying cost of the portfolio.  Does anyone have a handle on this?  If SHLD ends up going into bankruptcy and is able to reject their leases, SRG is suddenly stuck with a few hundred non-cash flow producing properties that they have to carry.  Do we have any idea on the cost just to carry these properties?  While their leverage isn't exceptionally high for a REIT, it does put them in dangerous situation if they lose the cash flow from SHLD.  This is essential in understanding how long they'd be able to survive on their own while retenanting the old SHLD properties.  Not to mention they almost certainly wouldn't be able to pay their dividend under this scenario.

Third - what's the cost involved with recapturing and retenanting existing SHLD space?  If they don't spend the requisite money to redevelop the space does it have a negative impact on the rent/sf they're able to attain?

These are all very valid questions in my opinion and it doesn't seem that they're being contemplated.  I think the value creation here is enormous if the plan goes off without a hitch. But there are some drastically negative scenarios that I think need to be considered and discounted in the price.  Would appreciate input.
Title: Re: SRG - Seritage Growth Properties
Post by: Own The Rails on May 18, 2016, 03:39:33 PM
I'm a bit late to the party here, but I have a few thoughts/questions/whatever.

First, on average rent/sf.  I've seen a few people in this thread say that they're valuing SRG based on an increase in the average base rent/sf to about $8 or $9.  Is this not way too low? Looking at Simon Property Group and GGP respectively, their portfolios run at $49.70 and $61.89 average rent/sf respectively.  Is there that much of a difference in the quality of the assets/locations that justifies the 80% discount to rent that people are assigning?  Or am I just dumb and missing something here?

Second - carrying cost of the portfolio.  Does anyone have a handle on this?  If SHLD ends up going into bankruptcy and is able to reject their leases, SRG is suddenly stuck with a few hundred non-cash flow producing properties that they have to carry.  Do we have any idea on the cost just to carry these properties?  While their leverage isn't exceptionally high for a REIT, it does put them in dangerous situation if they lose the cash flow from SHLD.  This is essential in understanding how long they'd be able to survive on their own while retenanting the old SHLD properties.  Not to mention they almost certainly wouldn't be able to pay their dividend under this scenario.

Third - what's the cost involved with recapturing and retenanting existing SHLD space?  If they don't spend the requisite money to redevelop the space does it have a negative impact on the rent/sf they're able to attain?

These are all very valid questions in my opinion and it doesn't seem that they're being contemplated.  I think the value creation here is enormous if the plan goes off without a hitch. But there are some drastically negative scenarios that I think need to be considered and discounted in the price.  Would appreciate input.

+1
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on May 18, 2016, 04:34:17 PM
I'm a bit late to the party here, but I have a few thoughts/questions/whatever.

First, on average rent/sf.  I've seen a few people in this thread say that they're valuing SRG based on an increase in the average base rent/sf to about $8 or $9.  Is this not way too low? Looking at Simon Property Group and GGP respectively, their portfolios run at $49.70 and $61.89 average rent/sf respectively.  Is there that much of a difference in the quality of the assets/locations that justifies the 80% discount to rent that people are assigning?  Or am I just dumb and missing something here?

Second - carrying cost of the portfolio.  Does anyone have a handle on this?  If SHLD ends up going into bankruptcy and is able to reject their leases, SRG is suddenly stuck with a few hundred non-cash flow producing properties that they have to carry.  Do we have any idea on the cost just to carry these properties?  While their leverage isn't exceptionally high for a REIT, it does put them in dangerous situation if they lose the cash flow from SHLD.  This is essential in understanding how long they'd be able to survive on their own while retenanting the old SHLD properties.  Not to mention they almost certainly wouldn't be able to pay their dividend under this scenario.

Third - what's the cost involved with recapturing and retenanting existing SHLD space?  If they don't spend the requisite money to redevelop the space does it have a negative impact on the rent/sf they're able to attain?

These are all very valid questions in my opinion and it doesn't seem that they're being contemplated.  I think the value creation here is enormous if the plan goes off without a hitch. But there are some drastically negative scenarios that I think need to be considered and discounted in the price.  Would appreciate input.

I'll be quick because I'm on mobile, but I think that these issues have been addressed here and on the SHLD thread.

I'll address one by one:
1.) SRG is not SPG, MAC or GGP. Their assets are more eclectic than the three major A mall reits. Sure they own assets at some of the big three malls, but this comprises only a portion of their assets. See the JPM credit prospectus that I posted a few pages back for details. Looking at a lot of b class malls, standalones, and community shopping centers. Rents here will not be as high esp for anchor tenant spots.
2.) Harder question. If SHLD went bankrupt it would be negative for the REIT as operating costs for the properties don't drop to zero if vacant. (Taxes, maintenance, electricity etc.) But as SRG continues to execute their plan more rents will come from 3rd parties. Look at how much already does. Also in bankruptcy all leases are voided SHLD cannot pick and choose.
3.) I would advise you look at company report and look at development yields. These have been talked about a lot and I think it would be beneficial to look over company presentations and then to look at people's opinions on how yields will play out over time. I think they will fall, cherry picking, a VIC write up from Feb was very optimistic (but maybe too much imo)

Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on May 19, 2016, 08:32:07 AM
"In each of the initial and first two renewal terms, annual base rent will be increased by 2.0% per annum for each lease year over the rent for the immediately preceding lease year. For subsequent renewal terms, rent will be set at the commencement of the renewal term at a fair market rent based on a customary third-party appraisal process, taking into account all the terms of the Master Lease and other relevant factors, but in no event will the renewal rent be less than the rent payable in the immediately preceding lease year."

Does this mean that in year #3, Seritage and Sears will apply a 3rd party fair market valuation to the leases (assuming Sears is still in business)? Wouldn't that imply a potentially large increase in base rents just for trudging along?




Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on May 19, 2016, 09:05:02 AM
I'll be quick because I'm on mobile, but I think that these issues have been addressed here and on the SHLD thread.

I'll address one by one:
1.) SRG is not SPG, MAC or GGP. Their assets are more eclectic than the three major A mall reits. Sure they own assets at some of the big three malls, but this comprises only a portion of their assets. See the JPM credit prospectus that I posted a few pages back for details. Looking at a lot of b class malls, standalones, and community shopping centers. Rents here will not be as high esp for anchor tenant spots.
2.) Harder question. If SHLD went bankrupt it would be negative for the REIT as operating costs for the properties don't drop to zero if vacant. (Taxes, maintenance, electricity etc.) But as SRG continues to execute their plan more rents will come from 3rd parties. Look at how much already does. Also in bankruptcy all leases are voided SHLD cannot pick and choose.
3.) I would advise you look at company report and look at development yields. These have been talked about a lot and I think it would be beneficial to look over company presentations and then to look at people's opinions on how yields will play out over time. I think they will fall, cherry picking, a VIC write up from Feb was very optimistic (but maybe too much imo)

1) So what are the appropriate comps here? Anyone have a resource for how to determine accurate market rents? While maybe they can't achieve $50/sf, it still seems to me that $8 or $9 is way too low.  Look at their most recent quarter - SNO leases came in around $24. Any reason that's not sustainable going forward?

2) They still have over 70% of their base rent from Sears.  At the current rate, they need Sears to stay solvent for at least a few more years before I'd feel comfortable with the level of diversification of the portfolio. This is my biggest concern currently, as I have no idea what the cost is to carry those properties if Sears goes bankrupt in the next year or so (which is likely).

3) I've spent a lot of time going through the presentations. The redevelopments seem pretty expensive to me.  The big concern I have is that it looks like they're quoting yield on cost based on (Incremental Revenue/Cost).  Shouldn't they be using NOI? Otherwise costs aren't taken into account. Unless they're purely triple-net with zero costs associated? Possible. But again, I just don't have the information to make the determination.
Title: Re: SRG - Seritage Growth Properties
Post by: namo on May 19, 2016, 11:22:37 AM
"In each of the initial and first two renewal terms, annual base rent will be increased by 2.0% per annum for each lease year over the rent for the immediately preceding lease year. For subsequent renewal terms, rent will be set at the commencement of the renewal term at a fair market rent based on a customary third-party appraisal process, taking into account all the terms of the Master Lease and other relevant factors, but in no event will the renewal rent be less than the rent payable in the immediately preceding lease year."

Does this mean that in year #3, Seritage and Sears will apply a 3rd party fair market valuation to the leases (assuming Sears is still in business)? Wouldn't that imply a potentially large increase in base rents just for trudging along?
Not at all. You missed the text right above this:
Quote
The Master Lease has an initial term of 10 years and contains three options for five-year renewals of the term and a final option for a four-year renewal.
So what you describe would happen in 20 years.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on May 19, 2016, 11:37:48 AM
It did seem too good to be true. In 20 years, it's almost certain the US dollar will be halved!
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on May 19, 2016, 01:24:01 PM

1) So what are the appropriate comps here? Anyone have a resource for how to determine accurate market rents? While maybe they can't achieve $50/sf, it still seems to me that $8 or $9 is way too low.  Look at their most recent quarter - SNO leases came in around $24. Any reason that's not sustainable going forward?


There are plenty of retail REIT comps that trade publicly. Class B malls like WP Glimcher. Strip centers like Kimco. We are talking average rents in the high teens to mid 20's. That is what you can expect from the average non-Sears tenant.

Make some assumptions about the amount of space that SRG can redevelop every year and you can come up with a good approximation of what level of FFO Seritage is going to be looking at 5 or 10 years from now. Then pick a multiple, discount it back to today's dollars and see how it compares with the current price.

Another helpful exercise is to assume you wake up tomorrow and Sears has been replaced completely. How would you value SRG if portfolio-wide they were 95% leased at $25/sf tomorrow? Then figure out how many years it will take to get there (hint: a lot) and discount that value back to today.

My personal calculations show that while SRG at current prices is not a terrible investment on an annualized basis, it is not a home run either.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on May 19, 2016, 05:30:00 PM
Traditional retailers have been performing poorly lately and plan to close stores (GAP, M, plenty of others). I have seen arguments in the media that mall space in particular, and physical retail locations in general, are overbuilt in the US. Anecdotally, my limited experience from observing malls in the Nashville area is that malls can fall into downward spirals very quickly once things start to move in the wrong direction.....sort of an anti-lollapalooza effect. Any thoughts?

I don't follow SRG or SHLD closely, so apologies in advance if this has been covered already.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on May 26, 2016, 07:57:19 AM
Reading through the 10-k, apparently lease termination fees for the Type 1 properties are capitalized and depreciated over the life of the new lease. Is this typical accounting treatment for a lease termination fee?

If so, is the depreciation expense related to the lease termination fees included in the real estate depreciation add-back in calculating FFO?
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on May 31, 2016, 02:20:54 PM
This may be a stupid question.

But the value creation in the SRG portfolio appears to be a no-brainer. The real risk is a SHLD bankruptcy before SRG is able to transition most of their portfolio to 3rd party tenants.  So shouldn't it be pretty easy to hedge out the SHLD risk by purchasing long-dated out of the money puts on SHLD? 
Title: Re: SRG - Seritage Growth Properties
Post by: benhacker on May 31, 2016, 02:44:02 PM
Quote
So shouldn't it be pretty easy to hedge out the SHLD risk by purchasing long-dated out of the money puts on SHLD?

What do you think you would be willing to pay for this insurance?

$13 '18 puts on SHLD are ~$4.50 / share to buy.  So for >30% of the value of SHLD, you can protect a drop for price a bit below the current price.

The problem with hedging this is *everyone* wants to be hedging this.  The cost is very high.  borrow on the stock is in the teens, holdco debt yields 15% annually, etc etc etc.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on May 31, 2016, 02:50:20 PM
You might want to look at the single stock future market for this. True, you have to roll over every 6 months but it may be a better deal - https://www.onechicago.com/?p=1018
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 01, 2016, 06:14:44 AM

What do you think you would be willing to pay for this insurance?

$13 '18 puts on SHLD are ~$4.50 / share to buy.  So for >30% of the value of SHLD, you can protect a drop for price a bit below the current price.

The problem with hedging this is *everyone* wants to be hedging this.  The cost is very high.  borrow on the stock is in the teens, holdco debt yields 15% annually, etc etc etc.

I don't agree with you on this. Why would you buy the $13 puts?  The real risk is a SHLD bankruptcy, so you'd want to buy very far out of the money puts.  You could mostly hedge out the risk by buying $5 Jan '18 puts.  That costs about $67k per $1mm of exposure, which isn't too terrible.  You wouldn't have to roll the position either, because by 2018 enough of the SRG portfolio should be redeveloped that the risk of SHLD blowing them up would be greatly diminished.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 01, 2016, 07:12:21 AM
This may be a stupid question.

But the value creation in the SRG portfolio appears to be a no-brainer. The real risk is a SHLD bankruptcy before SRG is able to transition most of their portfolio to 3rd party tenants.  So shouldn't it be pretty easy to hedge out the SHLD risk by purchasing long-dated out of the money puts on SHLD?

Or maybe that risk is muted once SRG leases out enough 3rd party space that the profit from those leases covers their interest payments, corporate overhead, and the carry costs of the Sears space. As long as SRG could be at cash flow break-even the day after a Sears liquidation began, I doubt their stock would take that large of a hit given the underlying value of the real estate. Given the rent spreads, that point in time will be here well before they have reached a 50/50 square footage split between Sears and third parties.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 01, 2016, 07:25:39 AM

Or maybe that risk is muted once SRG leases out enough 3rd party space that the profit from those leases covers their interest payments, corporate overhead, and the carry costs of the Sears space. As long as SRG could be at cash flow break-even the day after a Sears liquidation began, I doubt their stock would take that large of a hit given the underlying value of the real estate. Given the rent spreads, that point in time will be here well before they have reached a 50/50 square footage split between Sears and third parties.

I put together a pretty comprehensive model. My model concludes that SRG needs to have fully half of their portfolio recaptured in order to have any sort of margin of safety.  The timeline for this to happen, at the current redevelopment pace, is the next year and a half. At that point, SRG should have enough of the portfolio turned over that a SHLD bankruptcy wouldn't doom them.  But that still puts you at the end of 2017.  Which is why my thought was to buy the Jan '18 puts for a hedge.  At a cost of $67k per $1mm of SHLD exposure the cost is not significant.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 01, 2016, 07:36:01 AM


I put together a pretty comprehensive model. My model concludes that SRG needs to have fully half of their portfolio recaptured in order to have any sort of margin of safety.  The timeline for this to happen, at the current redevelopment pace, is the next year and a half. At that point, SRG should have enough of the portfolio turned over that a SHLD bankruptcy wouldn't doom them.  But that still puts you at the end of 2017.  Which is why my thought was to buy the Jan '18 puts for a hedge.  At a cost of $67k per $1mm of SHLD exposure the cost is not significant.

Last quarter they signed new third party leases totaling 214,000 square feet. How on earth can SRG recapture 50% of all the Sears space over the next 18 months?
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 01, 2016, 07:48:00 AM

Last quarter they signed new third party leases totaling 214,000 square feet. How on earth can SRG recapture 50% of all the Sears space over the next 18 months?

On an ABR basis, not a Sq Ft basis. If you're measuring on Sq Footage you're basically missing the entire investment thesis.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 01, 2016, 08:00:18 AM

Last quarter they signed new third party leases totaling 214,000 square feet. How on earth can SRG recapture 50% of all the Sears space over the next 18 months?

On an ABR basis, not a Sq Ft basis. If you're measuring on Sq Footage you're basically missing the entire investment thesis.

Exactly, but that's not what you said.
Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on June 01, 2016, 08:07:08 AM
SRG needs about $190 million of NOI to stay within their mortgage covenants.  It's not enough to simply cover their interest expense and overhead in the bear case. 
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 01, 2016, 08:14:41 AM
SRG needs about $190 million of NOI to stay within their mortgage covenants.  It's not enough to simply cover their interest expense and overhead in the bear case.

They don't earn $190mm of NOI now...
Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on June 01, 2016, 08:32:11 AM
Sorry, $125 million of NOI.  I had the wrong amount of mortgage debt. 
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 01, 2016, 09:47:07 AM
Operating expenses plus interest is roughly at a $160M run-rate. At $20/sf they would need to lease about 8 million of space to third parties to get there. Halfway there already.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on June 01, 2016, 11:04:44 AM
Yeah I did a rough comp too (I mean rough w/r/t my computation) based on the NOI generated by 3rd parties and leases signed but not yet in force and came up with about half of the break even run rate needed.  At some point in the next couple of years it seems like Lampert will have set himself up a neat little sort of "hedged position" on the future of the SHLD (at least brick and mortar) retail ops.   Sort of fascinating for me follow (during breaks in flailing myself for owning GM and reading the WSJ month long expose on how shitty my BAC/the banking bidness is now).
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 01, 2016, 11:45:39 AM
One thing I am a little curious about, and something that IR wasn't able to answer, is why property operating expenses and taxes have both been increasing pretty significantly over the last few quarters.  Not sure if it's a function of the renovated properties or not, but in order to get an accurate NOI figure, we really need to know where property operating expenses and taxes cap out. Do they increase forever as properties are redeveloped or should that expense growth taper off at some point? Any ideas?
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 01, 2016, 01:21:27 PM
One thing I am a little curious about, and something that IR wasn't able to answer, is why property operating expenses and taxes have both been increasing pretty significantly over the last few quarters.  Not sure if it's a function of the renovated properties or not, but in order to get an accurate NOI figure, we really need to know where property operating expenses and taxes cap out. Do they increase forever as properties are redeveloped or should that expense growth taper off at some point? Any ideas?

Since the tenants are paying them it should not really be material to SRG's NOI. The company's net property operating expenses have held steady at under $1 million per quarter during that time.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 02, 2016, 01:43:32 PM
Since the tenants are paying them it should not really be material to SRG's NOI. The company's net property operating expenses have held steady at under $1 million per quarter during that time.

Oh man. I totally disagree. I think it's absolutely critical information when contemplating the downside risk.  If Sears goes bankrupt then SRG is responsible for all of those expenses that were previously being reimbursed by Sears.  So the big question is why are those expenses increasing drastically? If they're driven by the redevelopments then that's something we need to know. If not, then it's related to Sears and makes SRG's exposure to SHLD even more risky than it already was.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 03, 2016, 06:28:29 AM
Since the tenants are paying them it should not really be material to SRG's NOI. The company's net property operating expenses have held steady at under $1 million per quarter during that time.

Oh man. I totally disagree. I think it's absolutely critical information when contemplating the downside risk.  If Sears goes bankrupt then SRG is responsible for all of those expenses that were previously being reimbursed by Sears.  So the big question is why are those expenses increasing drastically? If they're driven by the redevelopments then that's something we need to know. If not, then it's related to Sears and makes SRG's exposure to SHLD even more risky than it already was.

Of course it's due to the redevelopments. If you make improvements to a building, or expand on existing lots, the county is going to reflect that in their assessments. All county property records are public record and most are archived online. Subdividing space also increases operating expenses. Also, don't forget that Seritage bought the properties from Sears so those transactions will help local governments get their assessments as close to fair market value as possible. Those higher tax payments will flow through over the first 12 months as the new assessments come out.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 05, 2016, 09:18:37 AM
Of course it's due to the redevelopments. If you make improvements to a building, or expand on existing lots, the county is going to reflect that in their assessments. All county property records are public record and most are archived online. Subdividing space also increases operating expenses. Also, don't forget that Seritage bought the properties from Sears so those transactions will help local governments get their assessments as close to fair market value as possible. Those higher tax payments will flow through over the first 12 months as the new assessments come out.

Ok, property taxes show up in a different line item than property operating expenses. So taxes are not the thing I'm talking about here. I'm talking about ongoing, recurring property operating expenses which seem to be spiking upwards very quickly.

How does subdividing space increase operating expenses that significantly? That's what I'm trying to find out, and is a question that IR was not able to answer for me.

And in an investment that involves the potential bankruptcy of their main tenant, it is an absolutely integral piece of information.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 06, 2016, 07:29:34 AM

Ok, property taxes show up in a different line item than property operating expenses. So taxes are not the thing I'm talking about here. I'm talking about ongoing, recurring property operating expenses which seem to be spiking upwards very quickly.

How does subdividing space increase operating expenses that significantly? That's what I'm trying to find out, and is a question that IR was not able to answer for me.

And in an investment that involves the potential bankruptcy of their main tenant, it is an absolutely integral piece of information.

From the Seritage 10-K:

"Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance, ground lease costs and utilities."

I would expect that subdividing space would increase every cost listed there, except the in-place ground leases.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 06, 2016, 09:21:07 AM
Yes, I understand they classify real estate taxes as an operating expense. My point is that on the income statement, real estate taxes are split out as their own line item. My concern lies with the specific line item "Property Operating Expenses".

As a percent of rental revenue, property operating expenses have risen from 6.8% just two quarters ago (3Q15) to 15.7% in the most recent quarter. That's a significant increase and something that definitely raises questions for me.  Maybe I'm dumb, but I can't seem to figure out how that much of a cost increase has resulted from a few redevelopments.

And even if that is the "right" level of operating expenses, then the redevelopments aren't adding nearly as much value as I would have thought, considering costs are flying upwards with the redevelopments.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 07, 2016, 01:21:36 PM
Does anyone have any idea what an appropriate cap rate would be for Class B malls currently? I've dug through the supplementals and the conference calls of a bunch of different class B REITS (PEI, CBL, RSE, WPG) and it appears that none of them release cap rates on their properties/acquisitions/dispositions.
Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on June 07, 2016, 01:49:26 PM
It's all over the map since the lines on what denotes a "B mall" are pretty blurred. Cap rates can go anywhere from 7% to 18% on "B mall" transactions over the past year. BAM paid a 7% cap rate for RSE, PEI trades at around 7% as well, but certain disposals have been going at 15% or higher. Those disposals are more in the C mall category. It really depends on the demographics around some of the B malls.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 07, 2016, 09:20:07 PM
15%? That's nutty. Rarely see transactions that high.
Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on June 08, 2016, 06:01:24 PM
After going through all the real estate investments Buffett has made, I believe his batting average in real estate is 100%. Below you will find that Buffett is attracted to assets with under market rent (Seritage Growth Properties and NYC real estate), merger arbitrage, liquidations as well as REITS that are simply very undervalued. Enjoy!


Past REIT investments by Buffett in the 1999 - 2000 time frame:


First Industrial Real Estate Trust:

Purchased by Buffett around December of 2001. See VIC report attached. It was just extremely cheap.

Here is my analysis of First Industrial Realty Trust. I wrote this when I was in 8th grade back in 2007 so please don't have high expectations.
http://alexbossert.blogspot.com/2007/07/reverse-engineering-of-warren-buffetts.html

http://www.wsj.com/articles/SB977873157860554052

http://www.bizjournals.com/southflorida/stories/2001/09/24/focus5.html

http://www.wsj.com/articles/SB945379359638447587

Laser Mortgage Management:

See Value Investors Club report. It was trading at a large discount to likely liquidation proceeds when Buffett purchased shares.

See page 150 in attached book "Trade Like Warren Buffett."

JDN Realty:

See Value Investors Club report.  This is interesting because fraud was uncovered. Buffett invested after the shares cratered on that news.

See page 151 in attached book "Trade Like Warren Buffett"

http://www.nashvillepost.com/home/article/20446872/buffett-takes-51-stake-in-jdn-realty

https://www.thestreet.com/story/916949/1/the-latest-in-buffetts-reit-buffet.html

PMC Capital:     

See Value Investors Club report.

http://www.crenews.com/general_news/general/warren-buffett-reports-holding-5.1-stake-in-pmc-capital.html

Burnham Pacific Properties


See attached Value Investors Club report. This is another liquidating REIT.

See page 153-4 in attached book "Trade Like Warren Buffett"

http://www.nytimes.com/2001/12/27/business/company-news-buffett-holds-5.1-percent-of-burnham-pacific.html

Baker Fentress & Co.

See the Value Investors Club report on Baker Fentress spin off BKR Capital

http://www.nytimes.com/1999/11/28/business/investing-a-quick-bet-perhaps-for-the-sage-of-omaha.html

http://articles.orlandosentinel.com/1999-08-20/business/9908190444_1_fentress-warren-buffett-tomoka

http://articles.orlandosentinel.com/1999-08-11/business/9908100468_1_fentress-buffett-tomoka

MGI Properties:

See page 154 in attached book "Trade Like Warren Buffett"

http://www.wsj.com/articles/SB910120794439808000
http://www.bizjournals.com/boston/stories/1999/03/29/daily8.html

Tanger Factory Outlets:

See page 151-2 in attached book "Trade Like Warren Buffett"

http://www.barrons.com/articles/SB924303618950490210

Aegis Realty:

http://boards.fool.com/new-york-march-14-bloomberg-billionaire-14564860.aspx
http://www.marketwatch.com/story/warren-buffet-files-a-5-percent-stake-in-aegis-realty
http://www.wsj.com/articles/SB98503199894924071

Town & Country:

http://www.forbes.com/forbes/1999/0531/6311280a.html

HRPT Properties Trust:

See page 152-3 in attached book "Trade Like Warren Buffett"

Purchase of New York real estate in 1993:

There are a lot of similarities to Seritage with this investment:

"Here, too, the analysis was simple. As had been the case with the farm, the unleveraged current yield from the property was about 10%. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant — who occupied around 20% of the project’s space — was paying rent of about $5 per foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere."

http://fortune.com/2014/02/24/buffetts-annual-letter-what-you-can-learn-from-my-real-estate-investments/

Other interesting reading:

Buffett's personal holdings over the years: http://secgems.com/c/0000315090/buffett-warren-e

This doesn't have to do with REITs. It's an analysis of Buffett's partnership investments:  http://bovinebear.blogspot.com/2015/04/warren-buffett-partnership-investments.html.

Link to the book: Trade Like Warren Buffett: http://www.mycfaspace.com/downloads/Trade_Like_Warren_Buffett.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on June 08, 2016, 06:09:31 PM
I remember him auctioning off a pick for charity one time that was PCL.  Maybe in the 90s?  Probably after they spun from whatever rail road it was.


Alex, would you recommend the Trade Like Buffett book?  Not a huge Altucher fan.  I mean he can be provocative but...
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 09, 2016, 06:50:21 AM
I've spent a healthy chunk of time analyzing this and have taken a position.

By my best and most conservative estimates, Sears would have to both declare bankruptcy and reject all of the leases in the portfolio within the next 6 to 8 quarters in order to put Seritage in a bad situation. And even then, as long as SRG could access external financing at a reasonable rate of funding, they should be able to survive without too much trouble.  Beyond 8 quarters, the company should be able to generate positive cash flow even if Sears suddenly disappears off the face of the Earth - the one large assumption here is that they're able to continue to recapture and redevelop properties at the same rate that they have been for the last few quarters.  If that suddenly drastically slows then it's a different story.  So that's the downside scenario.

The upside is massive, and I think will happen more quickly than most people expect. A complete turnover of the portfolio (meaning Sears completely gone and new tenants brought in) gets me a price target of ~$224 using an FFO model and $204 using an NAV model.  By my estimates this should take somewhere around 15 years, giving us an annual return of ~11%.  This doesn't take into account any rental inflation, any growth in the portfolio, or really any other sort of excess return that could be generated by the management team.  This is a pure, steady-state portfolio turnover.  So I think there's probably upside even to my estimates.

For anyone who is concerned about the near term Sears bankruptcy risk, it is somewhat cost effective to hedge a position in SRG by buying long-dated SHLD puts.  The Jan '18 expiration covers most of the risk, as by my estimates the risk should be greatly diminished past that point and an investment should no longer need a SHLD hedge after that date.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 09, 2016, 07:07:58 AM
I've spent a healthy chunk of time analyzing this and have taken a position.

By my best and most conservative estimates, Sears would have to both declare bankruptcy and reject all of the leases in the portfolio within the next 6 to 8 quarters in order to put Seritage in a bad situation. And even then, as long as SRG could access external financing at a reasonable rate of funding, they should be able to survive without too much trouble.  Beyond 8 quarters, the company should be able to generate positive cash flow even if Sears suddenly disappears off the face of the Earth - the one large assumption here is that they're able to continue to recapture and redevelop properties at the same rate that they have been for the last few quarters.  If that suddenly drastically slows then it's a different story.  So that's the downside scenario.

The upside is massive, and I think will happen more quickly than most people expect. A complete turnover of the portfolio (meaning Sears completely gone and new tenants brought in) gets me a price target of ~$224 using an FFO model and $204 using an NAV model.  By my estimates this should take somewhere around 15 years, giving us an annual return of ~11%.  This doesn't take into account any rental inflation, any growth in the portfolio, or really any other sort of excess return that could be generated by the management team.  This is a pure, steady-state portfolio turnover.  So I think there's probably upside even to my estimates.

For anyone who is concerned about the near term Sears bankruptcy risk, it is somewhat cost effective to hedge a position in SRG by buying long-dated SHLD puts.  The Jan '18 expiration covers most of the risk, as by my estimates the risk should be greatly diminished past that point and an investment should no longer need a SHLD hedge after that date.

I think a fully redeveloped share value in the $200 range that you put out there is entirely reasonable. The 15-year timeframe might be optimistic. Getting there would require both Sears and Kmart to be completely gone by then, and it would imply a redevelopment pace of roughly 2.4 million square feet per year (about 2.5 times their current run-rate). Given the secular trends in bricks and mortar retail (we have too many stores already), I think that is much more of a challenge than dealing with the Sears solvency risks. That said, it's pretty easy to see why Buffett liked this at $36 per share.
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on June 09, 2016, 07:08:20 AM
I've spent a healthy chunk of time analyzing this and have taken a position.

By my best and most conservative estimates, Sears would have to both declare bankruptcy and reject all of the leases in the portfolio within the next 6 to 8 quarters in order to put Seritage in a bad situation. And even then, as long as SRG could access external financing at a reasonable rate of funding, they should be able to survive without too much trouble.  Beyond 8 quarters, the company should be able to generate positive cash flow even if Sears suddenly disappears off the face of the Earth - the one large assumption here is that they're able to continue to recapture and redevelop properties at the same rate that they have been for the last few quarters.  If that suddenly drastically slows then it's a different story.  So that's the downside scenario.

The upside is massive, and I think will happen more quickly than most people expect. A complete turnover of the portfolio (meaning Sears completely gone and new tenants brought in) gets me a price target of ~$224 using an FFO model and $204 using an NAV model.  By my estimates this should take somewhere around 15 years, giving us an annual return of ~11%.  This doesn't take into account any rental inflation, any growth in the portfolio, or really any other sort of excess return that could be generated by the management team.  This is a pure, steady-state portfolio turnover.  So I think there's probably upside even to my estimates.

For anyone who is concerned about the near term Sears bankruptcy risk, it is somewhat cost effective to hedge a position in SRG by buying long-dated SHLD puts.  The Jan '18 expiration covers most of the risk, as by my estimates the risk should be greatly diminished past that point and an investment should no longer need a SHLD hedge after that date.

Thanks for sharing your opinion. How much are you counting for redevelopment spending in your estimate? Like on per sqft basis?
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on June 09, 2016, 07:10:18 AM
After going through all the real estate investments Buffett has made, I believe his batting average in real estate is 100%. Below you will find that Buffett is attracted to assets with under market rent (Seritage Growth Properties and NYC real estate), merger arbitrage, liquidations as well as REITS that are simply very undervalued. Enjoy!



Thanks Alex, some great reading material there !
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 09, 2016, 07:48:46 AM

Thanks for sharing your opinion. How much are you counting for redevelopment spending in your estimate? Like on per sqft basis?

I'm using $164 psf for redevelopment.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 09, 2016, 07:51:31 AM

I think a fully redeveloped share value in the $200 range that you put out there is entirely reasonable. The 15-year timeframe might be optimistic. Getting there would require both Sears and Kmart to be completely gone by then, and it would imply a redevelopment pace of roughly 2.4 million square feet per year (about 2.5 times their current run-rate). Given the secular trends in bricks and mortar retail (we have too many stores already), I think that is much more of a challenge than dealing with the Sears solvency risks. That said, it's pretty easy to see why Buffett liked this at $36 per share.

Thanks for the input. I actually thought 15 years was relatively conservative.  A 15 year time frame assumes they can redevelop about 550k sq ft per quarter.  It is elevated from current levels but as they generate excess cash from the completed redevelopment properties it should allow them to plow more back in to additional redevelopments at a faster pace.
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on June 09, 2016, 09:34:55 AM

Thanks for sharing your opinion. How much are you counting for redevelopment spending in your estimate? Like on per sqft basis?

I'm using $164 psf for redevelopment.

Is there a specific way you get to $164? It seems within reason. We would be looking at rents of $19.68 on new leases assuming yields remain ~12%. Though I think we may see costs that are elevated for a while as SRG continues to look at converting auto centers. Though they have been able to flip some of those at costs lower than  $164
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on June 09, 2016, 10:06:27 AM
Is there a reason they are paying a dividend at all if they use 90% of rental income for redevelopment? Or perhaps that would be the next move if there is some short-term distress?
Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on June 10, 2016, 07:29:39 PM
1. Management confirmed to me that they expect future redevelopment costs to average $100 PSF. It's been higher so far because the King of Prussia Mall is one of the best malls in the country and they demolished the property and rebuilt it. The $100 PSF number doesn't include Santa Monica or the Aventura Mall which will cost more but will also have higher rents.

2. This might give a good framework to think about what future signed lease rates may be for the mall properties that SRG ownes. SRG's mall properties are A- on average and are in malls that average sales of $500 PSF. Most the properties are in malls that average sales in the $400-$600 PSF range. This was all confirmed by management. Not counting the JV real estate, SRG has 21.6m in mall sq ft out of a total of 39m sq ft.


                                  GGP         US Avrg*       Simon Property      Macerich        Taubman Centers       Seritage
Sales PSF                   $588        $400              $620                      $635              $800                         $500
Base Rent PSF            $73          $38                $49                        $54.32           $60.38                        ?
Rent as % of sales      12.4%     10%               8%                         8.6%              7.5%                          ?


Source:

Page 29:
http://api40.10kwizard.com/cgi/convert/pdf/GGP-20160219-10K-20151231.pdf?ipage=10756987&xml=1&quest=1&rid=23&section=1&sequence=-1&pdf=1&dn=1

US average mall rents: http://therealdeal.com/issues_articles/the-malls-are-all-right/

Simon Property annual report page 51: http://investors.simon.com/phoenix.zhtml?c=113968&p=irol-reportsAnnual

Macerich Annual Report page 11:http://investing.macerich.com/phoenix.zhtml?c=80539&p=irol-reportsAnnual&section=Annual%20Reports%20%26%20Proxy

Taubman Annual Report: http://investors.taubman.com/investors/financial-information/sec-filings/default.aspx

*Data from 2010
Title: Re: SRG - Seritage Growth Properties
Post by: Deepdive on June 10, 2016, 11:51:24 PM
Yea, it attracts a certain dividend-focused shareholder base, which will allow SRG to use equity as a currency.
Title: Re: SRG - Seritage Growth Properties
Post by: Packer16 on June 11, 2016, 04:54:29 AM
This does sound interesting but isn't a portion of the segment they are playing in (B locations) on the edge of obsolescence?  In speaking with Bruce Flatt, his strategy has been to stay away from B malls (malls you go to just buy stuff versus the A malls which are destinations) as these are the ones that will not survive Amazon and the other online players.  The destination malls are the ones that will continue to do well.  In looking at the mall list, the King of Prussia mall from what I remember from the 1990s is an A mall, however, in the Rochester area mall Greece Ridge is a B mall.  Has anyone gone through the mall list and determined how these malls split out between A & B malls?  TIA.

Packer
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 11, 2016, 07:59:20 AM
1. Management confirmed to me that they expect future redevelopment costs to average $100 PSF. It's been higher so far because the King of Prussia Mall is one of the best malls in the country and they demolished the property and rebuilt it. The $100 PSF number doesn't include Santa Monica or the Aventura Mall which will cost more but will also have higher rents.

2. This might give a good framework to think about what future signed lease rates may be. SRG's properties are A- on average and are in malls that average sales of $500 PSF. Most the properties are in malls that average sales in the $400-$600 PSF range. This was all confirmed by management.


                                  GGP         US Avrg*       Simon Property      Macerich        Taubman Centers       Seritage
Sales PSF                   $588        $400              $620                      $635              $800                         $500
Base Rent PSF            $73          $38                $49                        $54.32           $60.38                        ?
Rent as % of sales      12.4%     10%               8%                         8.6%              7.5%                          ?



Let's not forget that 35% of the locations are Kmarts. Developing those is not going to result in tenant sales of $500/sf. The idea that base rent across the entire SRG portfolio will average roughly $40/sf (8% of $500) upon redevelopment seems overly optimistic to put it mildly.
Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on June 11, 2016, 10:39:28 AM
1. Management confirmed to me that they expect future redevelopment costs to average $100 PSF. It's been higher so far because the King of Prussia Mall is one of the best malls in the country and they demolished the property and rebuilt it. The $100 PSF number doesn't include Santa Monica or the Aventura Mall which will cost more but will also have higher rents.

2. This might give a good framework to think about what future signed lease rates may be. SRG's properties are A- on average and are in malls that average sales of $500 PSF. Most the properties are in malls that average sales in the $400-$600 PSF range. This was all confirmed by management.


                                  GGP         US Avrg*       Simon Property      Macerich        Taubman Centers       Seritage
Sales PSF                   $588        $400              $620                      $635              $800                         $500
Base Rent PSF            $73          $38                $49                        $54.32           $60.38                        ?
Rent as % of sales      12.4%     10%               8%                         8.6%              7.5%                          ?



Let's not forget that 35% of the locations are Kmarts. Developing those is not going to result in tenant sales of $500/sf. The idea that base rent across the entire SRG portfolio will average roughly $40/sf (8% of $500) upon redevelopment seems overly optimistic to put it mildly.


You're right Peridotcapital. In my post I was referring to just the mall real estate which is 21.6m sq ft out of 39m in total non JV sq ft. I updated my post to make this more clear.

The K-Marts are mostly if not all free standing locations that will end up with lower rent then the mall real estate. Sure many of the K-Marts are probably duds. Even if you assume these properties are never re-leased and rent remains at $4.29 PSF, the remaining real estate leaves a lot of upside. However, many of the free standing locations are very high quality as well. Take a look at the free standing Sears location on Colorado Avenue in Santa Monica just a couple blocks from the water. This is an incredibly valuable property.

There is 21.6m in mall real estate (not counting the JV real estate) that is very high quality. This 21.6m sq ft of mall real estate is in malls that are generating average sales of over $500 PSF. Seritage's mall property is class A quality. Seritage owns sq ft in 27 of the top 144 malls in the United States according to the 2016 Goldman Sachs Top Mall List (see page 19 of the Sears presentation attached and the Goldman top mall survey attached). Some of these top malls are the Aventura Mall in Aventura FL, King of Prussia Mall in Pennsylvania, Oakbrook Shopping Center in Oakbrook IL, Natick Mall in Natick MA, Memorial City Mall in Houston TX, Freehold Raceway Mall in Freehold NJ, Town Center at Boca Raton, Yorktown Center in Lombard IL to name a few. Seritage has the right to recapture 50% of the sq ft in all of these properties.

I think a rational way to think about what range PSF rents will be after redevelopment is to look at what peers are getting in similar malls which I did in a previous post.

The overall portfolio is generating rent of just $5 PSF which is far under market rates. Class B mall properties go for $20 PSF. And we know Seritage's properties are class A on average based on the mall sales PSF. Of course they need to spend a lot on redevelopment to be able to charge these higher rents. Seritage's current stock price implies very little to no value to the under priced leases. So even even if all future real estate goes for $20 PSF, the stock will be a home run. As Buffett says, "I want to be roughly right not precisely wrong."

So far they have signed close to one million sq ft at $32.65 PSF. When I became interested a couple months ago when the stock was at $37, that implied a cap rate in the upper 6% range based on current NOI + signed but not yet opened leases. Over time these under priced leases will be recaptured from Sears Holdings as Seritage exercises their recapture rights and Sears cancels leases on unprofitable stores. Those recaptured properties will be redeveloped and re-leased to third parties at higher rates. This is certain to provide a boost to earnings as they re-lease this real estate at higher rates. I'm not paying much of a premium for this opportunity. With reasonable assumptions of recapture, redevelopment costs and re-leasing the real estate at market rates it's not hard to get to the $150+ stock price cited in the Value Investor Club report in 5-7 years.

Alex
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 11, 2016, 04:03:22 PM

You're right Peridotcapital. In my post I was referring to just the mall real estate which is 21.6m sq ft out of 39m in total non JV sq ft. I updated my post to make this more clear.

The K-Marts are mostly if not all free standing locations that will end up with lower rent then the mall real estate. Sure many of the K-Marts are probably duds. Even if you assume these properties are never re-leased and rent remains at $4.29 PSF, the remaining real estate leaves a lot of upside. However, many of the free standing locations are very high quality as well. Take a look at the free standing Sears location on Colorado Avenue in Santa Monica just a couple blocks from the water. This is an incredibly valuable property.

There is 21.6m in mall real estate (not counting the JV real estate) that is very high quality. This 21.6m sq ft of mall real estate is in malls that are generating average sales of over $500 PSF. Seritage's mall property is class A quality. Seritage owns sq ft in 27 of the top 144 malls in the United States according to the 2016 Goldman Sachs Top Mall List (see page 19 of the Sears presentation attached and the Goldman top mall survey attached). Some of these top malls are the Aventura Mall in Aventura FL, King of Prussia Mall in Pennsylvania, Oakbrook Shopping Center in Oakbrook IL, Natick Mall in Natick MA, Memorial City Mall in Houston TX, Freehold Raceway Mall in Freehold NJ, Town Center at Boca Raton, Yorktown Center in Lombard IL to name a few. Seritage has the right to recapture 50% of the sq ft in all of these properties.

I think a rational way to think about what range PSF rents will be after redevelopment is to look at what peers are getting in similar malls which I did in a previous post.

The overall portfolio is generating rent of just $5 PSF which is far under market rates. Class B mall properties go for $20 PSF. And we know Seritage's properties are class A on average based on the mall sales PSF. Of course they need to spend a lot on redevelopment to be able to charge these higher rents. Seritage's current stock price implies very little to no value to the under priced leases. So even even if all future real estate goes for $20 PSF, the stock will be a home run. As Buffett says, I want to be roughly right not precisely wrong.

So far they have signed close to one million sq ft at $32.65 PSF. When I became interested a couple months ago when the stock was at $37, that implied a cap rate in the upper 6% range based on current NOI + signed but not yet opened leases. Over time these under priced leases will be recaptured from Sears Holdings as Seritage exercises their recapture rights and Sears cancels leases on unprofitable stores. Those recaptured properties will be redeveloped and re-leased to third parties at higher rates. This is certain to provide a boost to earnings as they re-lease this real estate at higher rates. I'm not paying much or any premium for this opportunity. With reasonable assumptions of recapture, redevelopment costs and re-leasing the real estate at market rates it's not hard to get to the $150+ stock price cited in the Value Investor Club report in 5-7 years.

Alex

Alex,

How do you come to the conclusion that the "non-JV" locations average over $500/sf? Given that the GS Top 100 list is entirely $500/sf and up, and more than half of the SRG stores on that list are in the JVs (which are of very high quality), it is hard for me to imagine that the non JV malls could average $500. There are plenty of $300-$400/sf properties included in the lot. Aren't there over 100 non-JV mall locations? You are saying that more than half of those are above $500/sf?

Thanks!

Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on June 11, 2016, 06:12:18 PM
You know, how bad can owning Seritage be? It's a bit of an inflation play too. I mean you could buy a highly leveraged bank (and Buffett has bought banks too), anything stuffed with financial assets - or you could try for some real estate. Even at 165sq development cost and a $8/sq foot average rent (to be ultra conservative), it's a return of 5%. Use leverage at 2:1 and you are hoping to get something like 10%. If inflation picks up a bit, rents go up but you've redeveloped now when those capital costs have not yet taken off. It's a bit of an invest in today's dollars when those dollars will be worth much less tomorrow. The balancing act with the Sears bankruptcy is a shorter-term hurdle and it'd be interesting to see what kind of a tantrum the market throws. Like they say, you have another good idea at this size and relative safety?
Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on June 12, 2016, 12:56:44 PM
The data points came from the CEO Ben Schall. If you'd like to verify the numbers you're welcome to reach out to him.

I was told by the CEO that the mall properties in Seritage's portfolio are in malls that average sales PSF of $500. The majority of these malls have sales PSF in the $400-$600 range. Seritage owns 21.6m in mall sq ft. The 21.6m sq ft that I referenced in the above post is taken directly from the annual report and it does include their proportional interest in the JVs. I used the correct square feet but referenced it incorrectly. This number comes from page 12 of the Q1 supplement (attached below).

It's not hard to independently verify what the CEO is telling me. I count 24 mall properties on the top 100 list that Seritage owns square feet in. The list of top 100 malls is attached and the properties Seritage owns sq ft in are highlighted. The simple average sales per square foot of those 24 malls is $703. The CEO said over the portfolio of 133 malls, the majority of them are malls with $400-$600 in sales PSF. So as I mentioned in the above post, it seems very reasonable that across the mall portfolio of 21.6m sq ft that sales per sq ft average $500.

I think the quality of real estate that Seritage owns is higher quality than the market appreciates.

Now that I'm on this topic. Through redevelopment, the amount of square feet can and will increase. There is a significant amount of excess acres and oversized parking lots in the portfolio. This is already happening with a planned McDonalds that will go in the parking lot of one of their properties.

Alex

 
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on June 12, 2016, 02:22:25 PM
The data points came from the CEO Ben Schall. If you'd like to verify the numbers you're welcome to reach out to him.

I was told by the CEO that the mall properties in Seritage's portfolio are in malls that average sales PSF of $500. The majority of these malls have sales PSF in the $400-$600 range. Seritage owns 21.6m in mall sq ft. The 21.6m sq ft that I referenced in the above post is taken directly from the annual report and it does include their proportional interest in the JVs. I used the correct square feet but referenced it incorrectly. This number comes from page 12 of the Q1 supplement (attached below).

It's not hard to independently verify what the CEO is telling me. I count 24 mall properties on the top 100 list that Seritage owns square feet in. The list of top 100 malls is attached and the properties Seritage owns sq ft in are highlighted. The simple average sales per square foot of those 24 malls is $703. The CEO said over the portfolio of 133 malls, the majority of them are malls with $400-$600 in sales PSF. So as I mentioned in the above post, it seems very reasonable that across the mall portfolio of 21.6m sq ft that sales per sq ft average $500.

I think the quality of real estate that Seritage owns is higher quality than the market appreciates.

Now that I'm on this topic. Through redevelopment, the amount of square feet can and will increase. There is a significant amount of excess acres and oversized parking lots in the portfolio. This is already happening with a planned McDonalds that will go in the parking lot of one of their properties.

Alex

 

Okay, including the JVs I think the $500 average makes a lot more sense. It just did not seem plausible that it could be that high without those 31 stores, given how high quality the JV properties are.

I'm interested in getting long this stock and admittedly missed an opportunity already when it was in the 30's. I agree that the portfolio is better than many believe. I am just trying to get comfortable with the current multiple (~21x FFO including all signed leases). I am hesitant because that is at/slightly above the current multiples for MAC/GGP/SPG and I feel like I want to get some sort of discount to those best in class mall owners. Of course, SRG will likely be growing NOI faster than that trio. So then it really comes down to whether I think they can grow NOI at a fast enough rate to compensate for the fact that multiple expansion from here would seem unwarranted (and if rates rise and/or mall traffic starts to fall faster, the mall companies would likely see multiples contract across the board).

Anyway, I'll stop rambling... thanks for the insight!
Title: Re: SRG - Seritage Growth Properties
Post by: handycap5 on June 13, 2016, 10:29:23 AM
Has anyone confirmed there is no risk of fraudulent conveyance if Sears goes bankrupt?

Thanks.
Title: Re: SRG - Seritage Growth Properties
Post by: accutronman on June 13, 2016, 06:06:48 PM
Read the VIC article referenced in the second post of the first page of this thread regarding fraudulent conveyance
Title: Re: SRG - Seritage Growth Properties
Post by: Steven B on June 15, 2016, 11:33:43 AM
Thanks for the analysis guys.

I think it's not a question if Seritage will be worth substantially more, it's just a matter of when. However the when is pretty important. I'm not sure what the gross absorption numbers are or how fast they can redevelop these things but I'd venture to say this will be a pretty long project. It seems like the run rate is 1-2M sqft annually. Couldn't get much more from management than "we're committed to realizing the value of our portfolio", so I'm not exactly sure what the timeline is. 

This seems much different than Buffet's NYC RE venture in the 90s. 10% unlevered yields (don't think he's referring to Cap Rate), mismanaged building with quick ways to add value, 20% of rent will be boosted almost 10x within ten years without putting in a penny, not having a bankruptcy risk as your main tenant and oh did I mention the building is in NYC (adjacent to NYU)? That sounds like a no-brainer. This, while I won't say is a no-brainer, should yield a very decent 8-12% return for a long time, with possible upside depending on timelines and such. It makes a ton of sense for someone like Buffett.

How are they financing all these redevelopments? Don't think it has been discussed but curious to get everyone's take.

Alex, thanks for sending me into a one hour rabbit hole with those links a few pages back. Very enjoyable!
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 15, 2016, 12:15:56 PM
Steven B - I'd caution you on calling it a no-brainer.  SRG is currently reimbursed by Sears for all property operating expenses and real estate taxes.  If Sears goes bankrupt, those costs get directly passed to SRG. They're not insignificant. By my estimates, having to cover those costs would immediately cause SRG to be generating negative cash flow.
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on June 28, 2016, 06:07:14 PM
This does sound interesting but isn't a portion of the segment they are playing in (B locations) on the edge of obsolescence?  In speaking with Bruce Flatt, his strategy has been to stay away from B malls (malls you go to just buy stuff versus the A malls which are destinations) as these are the ones that will not survive Amazon and the other online players.  The destination malls are the ones that will continue to do well.  In looking at the mall list, the King of Prussia mall from what I remember from the 1990s is an A mall, however, in the Rochester area mall Greece Ridge is a B mall.  Has anyone gone through the mall list and determined how these malls split out between A & B malls?  TIA.

Packer

Just a quick counter point as Brookfield did buy Rouse (Firmly B-Class Malls) by buying the portion of the company they didn't own.
Title: Re: SRG - Seritage Growth Properties
Post by: moneyball on June 28, 2016, 06:08:51 PM
Is there a reason they are paying a dividend at all if they use 90% of rental income for redevelopment? Or perhaps that would be the next move if there is some short-term distress?

Just REIT regulations. Just because they reinvest the cash does not mean they do not have to pay out dividends. 90% of all net income (read not cash flow which is better approximated by FFO/AFFO) has to be paid out in the form of dividends.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on June 28, 2016, 07:22:13 PM
Is there a reason they are paying a dividend at all if they use 90% of rental income for redevelopment? Or perhaps that would be the next move if there is some short-term distress?

Just REIT regulations. Just because they reinvest the cash does not mean they do not have to pay out dividends. 90% of all net income (read not cash flow which is better approximated by FFO/AFFO) has to be paid out in the form of dividends.

I looked at Seritage financial supplement for the last 4 quarters (sine July 2015) and they have not had any net income at all. It's been a cumulative net loss of $30 million. Yet they are paying $1 per share dividend. Does this mean this is a voluntary dividend from cash-flow or cash on hand that is not legally required to be paid?
Title: Re: SRG - Seritage Growth Properties
Post by: thinkpad on June 28, 2016, 11:02:19 PM
As far as I understand the legal details for REITs, SRG don't have to pay a dividend.
As a shareholder I would prefer they keep this cash to redevelop their properties...
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on June 29, 2016, 05:56:34 AM
Re: the dividend discussion - REITs generally have to strike a fine line. Often they have no net income, so legally they're not required to pay a dividend. However, if they pay out nothing, REIT investors shun the company and they lose out both in terms of liquidity and share price, which significantly increases their cost of equity.  Much of the time it is beneficial to pay a dividend just in order to keep the investor base satisfied.

I wish they could retain all cash as well, as I think it would be best for the company. However if they were to do this I believe a lot of shareholders would disappear, negatively impacting their share price and cost of equity.
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on June 29, 2016, 07:24:24 AM
Re: the dividend discussion - REITs generally have to strike a fine line. Often they have no net income, so legally they're not required to pay a dividend. However, if they pay out nothing, REIT investors shun the company and they lose out both in terms of liquidity and share price, which significantly increases their cost of equity.  Much of the time it is beneficial to pay a dividend just in order to keep the investor base satisfied.

I wish they could retain all cash as well, as I think it would be best for the company. However if they were to do this I believe a lot of shareholders would disappear, negatively impacting their share price and cost of equity.

In this case, it's majority owned by shareholders who I'm sure would rather have them retain the money as well - and would love the stock to go down. So I don't get why they need to have the dividend.
Title: Re: SRG - Seritage Growth Properties
Post by: benhacker on June 29, 2016, 07:40:58 AM
REITs payout rules are based on taxable income (IRS) and not GAAP net income. 

I'm not sure without some expertise here, that you could tease out what their payout is required to be...
Title: Re: SRG - Seritage Growth Properties
Post by: alpha asset strategies on July 01, 2016, 05:25:57 AM
http://seekingalpha.com/article/3985666-sears-almost-checkmate-must-pawn-stores-stay-game

Brad Thomas - a top-rated financial blogger / analyst who specializes in REITs - is actually advising to short SRG.  The primary issue of course is the highly uncertain future of its main tenant, SHLD.  Also, SRG has had a very nice run since Buffett's investment was made public.

I'm not sure what to make of this recommendation, but Brad Thomas does have an excellent track record:

https://www.tipranks.com/bloggers/brad-thomas
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on July 01, 2016, 05:38:44 AM
I've followed Brad Thomas for quite a long time. I have been very unimpressed. He doesn't seem to have any deep or critical thinking ability. He's very good at analyzing REITs based on their financial metrics, but when it comes to anything even remotely complex, he's totally lost.

There have been numerous examples where he's recommended REITs but completely and utterly missed important red flags. If you read his articles he almost NEVER does any of his own modeling or analysis. He simply copies and pastes stuff from either sell-side reports or other third party research. He tends to take things at face value, and simply parrots them back to his readers. (note, all of his exhibits in the SRG article are from B&S Research)

His decent track record comes from the fact that he almost exclusively writes about very conservative safe REIT investments, and started making his picks at the end of 2010.  Very hard to lose money over that time frame in REITs especially when focusing on safety/preservation of capital rather than absolute return.

He doesn't have a very strong background. IMO he's exceedingly average and has no real specialized knowledge in the space. So take that for what it's worth.
Title: Re: SRG - Seritage Growth Properties
Post by: alpha asset strategies on July 01, 2016, 07:03:37 AM
I've followed Brad Thomas for quite a long time. I have been very unimpressed. He doesn't seem to have any deep or critical thinking ability. He's very good at analyzing REITs based on their financial metrics, but when it comes to anything even remotely complex, he's totally lost.

There have been numerous examples where he's recommended REITs but completely and utterly missed important red flags. If you read his articles he almost NEVER does any of his own modeling or analysis. He simply copies and pastes stuff from either sell-side reports or other third party research. He tends to take things at face value, and simply parrots them back to his readers. (note, all of his exhibits in the SRG article are from B&S Research)

His decent track record comes from the fact that he almost exclusively writes about very conservative safe REIT investments, and started making his picks at the end of 2010.  Very hard to lose money over that time frame in REITs especially when focusing on safety/preservation of capital rather than absolute return.

He doesn't have a very strong background. IMO he's exceedingly average and has no real specialized knowledge in the space. So take that for what it's worth.

glorysk87-

I have not researched SRG much at all and have no position.  As such, I have a few questions:

1.  Do you think SRG will face a funding gap - as Brad Thomas indicates?

2.  If there is a funding gap, do you think they will handle it via additional borrowing or by issuing equity?

Thanks!
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on July 01, 2016, 08:15:11 AM
I mean. Brad's whole "analysis" is based on the assumption that SHLD will put the maximum allowable properties to SRG every year.

He's saying that he thinks SHLD will vacate 7mm sq ft and put the properties back to SRG *next month*. If you operate under that assumption then of course they'll face a funding gap.  But that's an extreme assumption and I'm not sure it's based in reality.

I dunno. The whole article is rife with this whacked out doomsday assumptions. It's not a rational way to look at the company.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on July 01, 2016, 08:16:20 AM
Man, is English his first language?  In first three sentences we have: Sears "needs to sale the stores..."; and "Although we are not typically akin to shorting..."

He also has many references to some Lambert gentleman.
Title: Re: SRG - Seritage Growth Properties
Post by: alpha asset strategies on July 01, 2016, 08:46:18 AM
He's saying that he thinks SHLD will vacate 7mm sq ft and put the properties back to SRG *next month*. If you operate under that assumption then of course they'll face a funding gap.  But that's an extreme assumption and I'm not sure it's based in reality.


This is a good point that I hadn't considered.  SHLD announced in April, 2016 that they would be closing 78 more stores this summer - 68 Kmarts & 10 Sears locations.  In order to vacate 7mm sq ft and put the properties back to SRG this summer, that would imply that the large majority of the announced store closures would be SRG properties - which seems highly unlikely.

I now see your point with regard to some of the assumptions that Brad Thomas was using.  It appears that he was analyzing the company under almost a "worst case" scenario, which probably has a low probability of actually coming to fruition.
Title: Re: SRG - Seritage Growth Properties
Post by: thinkpad on July 03, 2016, 01:21:31 PM
Hello
If I remember correctly a list of the stores to be closed was given earlier this year. I can not find it again but I remember I checked each of these stores and no one belongs to SRG.

Edit: here is the list http://fortune.com/2016/04/22/sears-kmart-stores-close-where/
Title: Re: SRG - Seritage Growth Properties
Post by: shhughes1116 on July 05, 2016, 07:12:47 AM
He doesn't have a very strong background. IMO he's exceedingly average and has no real specialized knowledge in the space. So take that for what it's worth.

Your comment is a bit unfair.  If you have been following his articles, as you indicated in your message, you'd know that his background is in commercial real estate and more specifically in commercial real estate development.  So yes, I would argue that he does have some specialized knowledge in the space.  Are his articles a bit superficial?  Yes, but I would make the same argument about some of the analysis on this message board.  Take a look at the NXRT thread...I dinged someone for exactly this point.  When it comes to real estate, I believe you need to be willing to look under the hood (i.e. on an individual property basis) in order to be successful on a consistent basis.  However, people generally don't share that type of granular information/analysis for free, hence why you get the superficial stuff on Seeking Alpha.  You get what you pay for...       
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on July 05, 2016, 07:33:42 AM
Your comment is a bit unfair.  If you have been following his articles, as you indicated in your message, you'd know that his background is in commercial real estate and more specifically in commercial real estate development.  So yes, I would argue that he does have some specialized knowledge in the space.  Are his articles a bit superficial?  Yes, but I would make the same argument about some of the analysis on this message board.  Take a look at the NXRT thread...I dinged someone for exactly this point.  When it comes to real estate, I believe you need to be willing to look under the hood (i.e. on an individual property basis) in order to be successful on a consistent basis.  However, people generally don't share that type of granular information/analysis for free, hence why you get the superficial stuff on Seeking Alpha.  You get what you pay for...       

Agree to disagree. Experience in real estate development is just that. It doesn't necessarily translate very well into valuing a security.  A company could have the best properties in the world or the worst properties in the world - I'm sure Brad would be able to determine that very well. But the price you pay for the company that owns those properties is the most important factor in the decision to invest in that company. And that's where I think Brad falls way way way short.  If you read his articles, almost all of the analysis and valuation is simply parroted back from either the company's investor presentation or from third-party research.  His own personal analysis doesn't get too far past P/FFO and Dividend Yields.
Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on July 05, 2016, 07:46:13 AM
Your comment is a bit unfair.  If you have been following his articles, as you indicated in your message, you'd know that his background is in commercial real estate and more specifically in commercial real estate development.  So yes, I would argue that he does have some specialized knowledge in the space.  Are his articles a bit superficial?  Yes, but I would make the same argument about some of the analysis on this message board.  Take a look at the NXRT thread...I dinged someone for exactly this point.  When it comes to real estate, I believe you need to be willing to look under the hood (i.e. on an individual property basis) in order to be successful on a consistent basis.  However, people generally don't share that type of granular information/analysis for free, hence why you get the superficial stuff on Seeking Alpha.  You get what you pay for...       

Agree to disagree. Experience in real estate development is just that. It doesn't necessarily translate very well into valuing a security.  A company could have the best properties in the world or the worst properties in the world - I'm sure Brad would be able to determine that very well. But the price you pay for the company that owns those properties is the most important factor in the decision to invest in that company. And that's where I think Brad falls way way way short.  If you read his articles, almost all of the analysis and valuation is simply parroted back from either the company's investor presentation or from third-party research.  His own personal analysis doesn't get too far past P/FFO and Dividend Yields.

+1.  His articles are just a copy/paste job from company presentations. 
Title: Re: SRG - Seritage Growth Properties
Post by: rogermunibond on July 11, 2016, 07:51:04 AM
http://www.wsj.com/articles/mall-owners-push-out-department-stores-1468202754

Nice WSJ piece on malls repurposing department store space.
Title: Re: SRG - Seritage Growth Properties
Post by: buylowersellhigh on August 05, 2016, 08:19:24 AM

10-Q:

http://archive.fast-edgar.com//20160805/A22BE22IZZ2RMJZ222Z62ZXKCE6GZZ22N286/
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on August 05, 2016, 09:35:42 AM
Just wondering how do people value SRG? I get the conversion of real estate. I estimate if all the property is converted we could see base rents of perhaps $300-$350m in 4-5 years. How would one think about the mortgage rate and valuation for this income stream for a REIT? There are 57m shares out and debt is about 1 billion. So the current value (@ $48/share) is $2.7 billion equity + $1 billion debt. If all goes according to plan this would be a P/E of around 8-9x and a return of maybe 11-12% on your investment. Since this is the minimum return I'd like to get, is there a reason this would be worth more than ~$50/share to get that return in a few years? Obviously if rates stay at very low levels the market might value it more and if rates go back to somewhat more normal, it would be dangerous to overpay. But neither of these considerations change the return that an initial investor would demand on purchase price. Is real estate somehow valued at higher multiples - like a utility - due to being safer?

Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on August 05, 2016, 11:27:36 AM
Just wondering how do people value SRG? I get the conversion of real estate. I estimate if all the property is converted we could see base rents of perhaps $300-$350m in 4-5 years. How would one think about the mortgage rate and valuation for this income stream for a REIT? There are 57m shares out and debt is about 1 billion. So the current value (@ $48/share) is $2.7 billion equity + $1 billion debt. If all goes according to plan this would be a P/E of around 8-9x and a return of maybe 11-12% on your investment. Since this is the minimum return I'd like to get, is there a reason this would be worth more than ~$50/share to get that return in a few years? Obviously if rates stay at very low levels the market might value it more and if rates go back to somewhat more normal, it would be dangerous to overpay. But neither of these considerations change the return that an initial investor would demand on purchase price. Is real estate somehow valued at higher multiples - like a utility - due to being safer?

Base rent of $300-$350mm seems way way too low for me.  If you assume $14/sq ft in rent on redeveloped properties that gets you to $552mm, and there's likely upside to that number down the road.

When I did my analysis (both NAV and FFO analyses) I calculated an intrinsic value of about $60-$65 2 years down the road.  Upside past that is much higher as the properties continue to be redeveloped.

My analysis also concluded that it will take 2-3 years for SRG to diversify their portfolio enough away from Sear's to be safe.  I have long dated puts on Sears as a hedge through that time frame. Past that, it should be able to survive even if Sears disappears off the Earth.
Title: Re: SRG - Seritage Growth Properties
Post by: FCharlie on August 05, 2016, 10:02:04 PM


Base rent of $300-$350mm seems way way too low for me.  If you assume $14/sq ft in rent on redeveloped properties that gets you to $552mm, and there's likely upside to that number down the road.

When I did my analysis (both NAV and FFO analyses) I calculated an intrinsic value of about $60-$65 2 years down the road.  Upside past that is much higher as the properties continue to be redeveloped.

My analysis also concluded that it will take 2-3 years for SRG to diversify their portfolio enough away from Sear's to be safe.  I have long dated puts on Sears as a hedge through that time frame. Past that, it should be able to survive even if Sears disappears off the Earth.

The big question for me is:

Beyond restricted cash, how will Seritage fund the renovations required to bring the rent up? Will they issue shares? Will they borrow? It's easy to see this stock being very valuable, but that's assuming they don't issue millions of shares to fund the redevelopment of stores.

Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on August 30, 2016, 04:59:36 PM
This might be a stupid question, but what is the top line # in the VIC valuation representative of? It increases along with increases in $/sqft, so is it some revenue multiple or something like that? 
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on August 30, 2016, 05:59:53 PM
This might be a stupid question, but what is the top line # in the VIC valuation representative of? It increases along with increases in $/sqft, so is it some revenue multiple or something like that?

Looks like he's calculating an NAV based off rent psf.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on August 30, 2016, 06:20:56 PM
Looks like he's linking the total market capitalization of shares + operating partnership units from page 4 of the supplement that would result from the completion of redevelopment at various base rents for the entire portfolio.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on August 30, 2016, 07:54:29 PM
Looks like he's linking the total market capitalization of shares + operating partnership units from page 4 of the supplement that would result from the completion of redevelopment at various base rents for the entire portfolio.

I'm not following you here.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on August 30, 2016, 08:18:25 PM
I looked at it again but I'm not entirely sure how he's discounting rent per square foot to gross asset value. If you divide the net investment in real estate on the b/s by total gross square feet it comes out to about 10x the rent per square foot.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on August 31, 2016, 05:36:37 AM
I looked at it again but I'm not entirely sure how he's discounting rent per square foot to gross asset value. If you divide the net investment in real estate on the b/s by total gross square feet it comes out to about 10x the rent per square foot.

It seems like an odd detail to leave out considering it's the biggest piece of his valuation?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on August 31, 2016, 05:40:37 AM
Looks like he's linking the total market capitalization of shares + operating partnership units from page 4 of the supplement that would result from the completion of redevelopment at various base rents for the entire portfolio.

But how do you go from base rate to market cap? Market cap should reflect an increase in earnings/asset value, not the other way around. 
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 01, 2016, 05:59:27 AM
Just wondering how do people value SRG? I get the conversion of real estate. I estimate if all the property is converted we could see base rents of perhaps $300-$350m in 4-5 years. How would one think about the mortgage rate and valuation for this income stream for a REIT? There are 57m shares out and debt is about 1 billion. So the current value (@ $48/share) is $2.7 billion equity + $1 billion debt. If all goes according to plan this would be a P/E of around 8-9x and a return of maybe 11-12% on your investment. Since this is the minimum return I'd like to get, is there a reason this would be worth more than ~$50/share to get that return in a few years? Obviously if rates stay at very low levels the market might value it more and if rates go back to somewhat more normal, it would be dangerous to overpay. But neither of these considerations change the return that an initial investor would demand on purchase price. Is real estate somehow valued at higher multiples - like a utility - due to being safer?

Base rent of $300-$350mm seems way way too low for me.  If you assume $14/sq ft in rent on redeveloped properties that gets you to $552mm, and there's likely upside to that number down the road.

When I did my analysis (both NAV and FFO analyses) I calculated an intrinsic value of about $60-$65 2 years down the road.  Upside past that is much higher as the properties continue to be redeveloped.

My analysis also concluded that it will take 2-3 years for SRG to diversify their portfolio enough away from Sear's to be safe.  I have long dated puts on Sears as a hedge through that time frame. Past that, it should be able to survive even if Sears disappears off the Earth.

So is your top line estimate just "total sq ft * avg annual rent per sq/ft"? And then you back out costs/expenses to get to your AFFO?

This is my first time valuing a REIT/Real estate so I know that the valuation models tend to be a little bit different.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on September 01, 2016, 06:43:53 AM
As I said, I'm pretty sure he's calculating NAV.  He doesn't write out the actual calculation there, but he's using some assumptions to get from rent psf to NAV. The actual calculation is relatively simple.  Rent psf > rental revenue - operating expenses = NOI / Cap Rate = Real estate value.  Then he subtracts the liabilities to get NAV.

I could be wrong, but I'm pretty sure that's what he's doing.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 01, 2016, 07:44:19 AM
As I said, I'm pretty sure he's calculating NAV.  He doesn't write out the actual calculation there, but he's using some assumptions to get from rent psf to NAV. The actual calculation is relatively simple.  Rent psf > rental revenue - operating expenses = NOI / Cap Rate = Real estate value.  Then he subtracts the liabilities to get NAV.

I could be wrong, but I'm pretty sure that's what he's doing.

Sorry, I should have been more clear. I meant what are you doing for your valuation? I've seen DCFs, NAV, FFO, and AFFO for SRG and since I don't have a ton of experience analyzing REITs, just wanted to be sure I was looking at it the right way.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on September 01, 2016, 08:26:56 AM
Ohh.

I have two valuations, one based on NAV and one based on FFO.  For both I have a "downside" scenario, which calculates the valuation if Sears were to go bankrupt and immediately vacate all the properties (ie. pay no rent past the day of declaring bankruptcy).
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 01, 2016, 09:01:46 AM
Ohh.

I have two valuations, one based on NAV and one based on FFO.  For both I have a "downside" scenario, which calculates the valuation if Sears were to go bankrupt and immediately vacate all the properties (ie. pay no rent past the day of declaring bankruptcy).

Gotcha. So you're just looking at multiples/comps or are you making estimates each year on recapture rates/annual rent per sq ft and then discounting?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on September 01, 2016, 10:51:42 AM
You can also do a straight up DCF analysis on http://www.gurufocus.com/fair_value_dcf.php

Just make sure to adjust the starting earnings/share for the 31.6m (56.5% of the total reported figures in the supplement). Also I'm not sure if one should use FFO or NOI as the starting figure.

My assumptions where a requirement of 2x the rate of return on the anticipated 30 year bond. Currently it's 2.2% and I assumed it will be 4.5-5% and that you demand 9-10% as the cap rate.

Another assumption you'll have to make is what you see as the ultimate base rent per square foot and the time to achieve that. It's a decent clip...So far, they are 'mining' in place Sears base rents to non-Sears at a run-rate of about 10.6% per year.

While the large amount of square footage does suggest quite a bit of un-mined potential, just like in a gold mine, you have proved reserves and probable+inferred reserves. I would say that a % of the total square footage is probable+inferred. If you use the Pareto principle, there will always be 20% of anything that you might want to cut out as being largely unproductive. Not sure if their square footage includes parking space and auto centers and those might be considered last or much later in the development process. First they are going after the gold nuggets just lying around on the ground :)

(Btw, using those assumptions above gets you at or above current market price. But I see it much simpler. If redevelopment return is 12% and DCF shows a number even 1 cent higher than today's price with a cap rate of 9-10%, then you are going to get your 10-12% return.

The 4  variables you might want to answer are,
-will base rents be higher in 10 years by a factor of at least 2.
-will a recession increase your return greater than 12% by waiting for said recession and consequent drop in price.
-will the long bond experience a freak inflation accident and go above 5% in the next decade.
-will SRG require more dilutive capital/debt due to a recession or over budget costs.)
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on September 01, 2016, 11:11:40 AM
Ohh.

I have two valuations, one based on NAV and one based on FFO.  For both I have a "downside" scenario, which calculates the valuation if Sears were to go bankrupt and immediately vacate all the properties (ie. pay no rent past the day of declaring bankruptcy).

Gotcha. So you're just looking at multiples/comps or are you making estimates each year on recapture rates/annual rent per sq ft and then discounting?

The model I put together uses the following inputs:

- Sq Ft redeveloped per quarter
- SNO Rent PSF for recaptured space
- Redevelopment cost per sq ft
- Usable life of the asset (for amortization of redevelopment costs)

I also have a full financial model and the inputs above generally influence both the rental revenue and the expenses.

From there I have a cap rate sensitivity table for my NAV outputs and I have a comp multiple table for my FFO output.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 02, 2016, 05:23:12 AM
You can also do a straight up DCF analysis on http://www.gurufocus.com/fair_value_dcf.php

Just make sure to adjust the starting earnings/share for the 31.6m (56.5% of the total reported figures in the supplement). Also I'm not sure if one should use FFO or NOI as the starting figure.

My assumptions where a requirement of 2x the rate of return on the anticipated 30 year bond. Currently it's 2.2% and I assumed it will be 4.5-5% and that you demand 9-10% as the cap rate.

Another assumption you'll have to make is what you see as the ultimate base rent per square foot and the time to achieve that. It's a decent clip...So far, they are 'mining' in place Sears base rents to non-Sears at a run-rate of about 10.6% per year.

While the large amount of square footage does suggest quite a bit of un-mined potential, just like in a gold mine, you have proved reserves and probable+inferred reserves. I would say that a % of the total square footage is probable+inferred. If you use the Pareto principle, there will always be 20% of anything that you might want to cut out as being largely unproductive. Not sure if their square footage includes parking space and auto centers and those might be considered last or much later in the development process. First they are going after the gold nuggets just lying around on the ground :)

(Btw, using those assumptions above gets you at or above current market price. But I see it much simpler. If redevelopment return is 12% and DCF shows a number even 1 cent higher than today's price with a cap rate of 9-10%, then you are going to get your 10-12% return.

The 4  variables you might want to answer are,
-will base rents be higher in 10 years by a factor of at least 2.
-will a recession increase your return greater than 12% by waiting for said recession and consequent drop in price.
-will the long bond experience a freak inflation accident and go above 5% in the next decade.
-will SRG require more dilutive capital/debt due to a recession or over budget costs.)

Thanks, this helps to clarify my thinking a bit more.

Quote
Just make sure to adjust the starting earnings/share for the 31.6m (56.5% of the total reported figures in the supplement). Also I'm not sure if one should use FFO or NOI as the starting figure.

What's the 31.6m figure? Do you mean the starting #s were only for a half year so adjust those for a full year? Or are you referring to one time acq/startup costs?

And are you using the fully diluted share #count (I think it was 53.3m?)
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on September 02, 2016, 07:35:38 AM
31.6mm shares outstanding of SRG stock. 55.8 million total including OP units.
I just find it easier to compare to market cap of SRG as that's publicly traded.

Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 02, 2016, 10:20:23 AM
Gotcha. I noticed the VIC write up includes OP units.

I'm not too familiar with REIT structures, so is it common to exclude these?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on September 02, 2016, 10:48:42 AM
I think how you parcel it out doesn't make a big difference.

E.g. Let's say SRG has $130m in FCF today and in 5 years will have $300m of FCF. That's on 55.7m shares. So on SRG as a stock it'd be 56.7% of 300m = $170m. SRG market cap today is 1.4 billion.

My rule of thumb is internal reinvestment rate is the attractor that pulls up or down all starting yields. Was it Munger who said eventually all your investments converge to internal rate of return on investment given enough time? However, this is probably no argument against LBOs which start at a high initial yield and even if it drops over time, whether you converge from the top or the bottom, I rather converge from above to below than below to above. However, if the attractor was a very high number with debt included, you're converging from below in 90% of the cases except some freak world accident...the real problem is very few investments provide certainty of return on investment project. Most companies don't even break it down, making what investors call investments, speculations most of the time. Not even management knows what they are getting. With SRG, I sort of see what Buffett might be seeing, a capped return of 12-13% (maybe a speculative upside on top of that if inflation picks up) and a measured, achievable reinvestment path to get there by retooling and making pretty old commercial retail buildings.
If you want 15% instead of 12% with high probability, I'd wait until the stock was $40 or lower. But if it you are happy with 12% and a potential kicker then no time like the present.





Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 04, 2016, 05:29:22 AM
So is it fair to say that NAV is essentially an adjusted BV and NOI is adjusted net income? In other words, NAV is the implied value of the real estate you'd expect a buyer (e.g. Private Equity, Brookfield Asset Manager, etc.) to pay based for the properties given a certain cap rate?

And the alternative—whether NOI or AFFO—is more or less a traditional DCF valuation but excluding certain charges like depreciation and interest?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on September 04, 2016, 09:25:13 AM
Also if you will value SRG on cash-flows, I'm thinking their character should change due to the difference between maintenance capex vs growth capex. Growth capex should be higher in the next few years capped only by available cash and rate of redevelopment, but maintenance capex should dominate thereafter so I would bake in a higher FFO to NOI fraction in the end years.

Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 04, 2016, 10:17:40 AM
Also if you will value SRG on cash-flows, I'm thinking their character should change due to the difference between maintenance capex vs growth capex. Growth capex should be higher in the next few years capped only by available cash and rate of redevelopment, but maintenance capex should dominate thereafter so I would bake in a higher FFO to NOI fraction in the end years.

Makes sense. What do you estimate for growth capex, maintenance capex, and annual depreciation charges?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on September 04, 2016, 11:02:08 AM
I haven't dived in to all the details but I took the (potentially too conservative) approach of assuming average rent per sq = 2x current rent and that if the stated return of 12% is accurate and terminal cash flow is 320m (Sears in place rent: 80% of 150m * 2 - 150m) and today total rent is 200m, then 120m of incremental fcf cash flows @ 12% = 1 billion growth capex.

I'm not sure how to measure maintenance capex. Funny, in the supplement on pg. 9 maintenance capital expenditures has a '-' in both 3 & 6 month periods of 2016. For July to Dec 2015 it's 21m. My suspicion is that if you could separate it out in a few years it won't be large enough to affect the valuation too much but that may not be true.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 05, 2016, 10:32:42 AM
I haven't dived in to all the details but I took the (potentially too conservative) approach of assuming average rent per sq = 2x current rent and that if the stated return of 12% is accurate and terminal cash flow is 320m (Sears in place rent: 80% of 150m * 2 - 150m) and today total rent is 200m, then 120m of incremental fcf cash flows @ 12% = 1 billion growth capex.

I'm not sure how to measure maintenance capex. Funny, in the supplement on pg. 9 maintenance capital expenditures has a '-' in both 3 & 6 month periods of 2016. For July to Dec 2015 it's 21m. My suspicion is that if you could separate it out in a few years it won't be large enough to affect the valuation too much but that may not be true.

I've spent more time on Seritage this weekend, and so far I really like what I see. I've tried "killing" it a number of ways, and even with very conservative estimates, 12%-13% per/yr return seems very attainable.

One thing I'm looking for more clarification on: I read that management estimates $100/sqft for recapturing/capex costs. The model I built has them recapturing ~2m sqft/yr for the next 10 years, but that would require ~$200m/yr in capex costs. AFFO would then be negative for the first ~5 years. Are my cost estimates too high?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on September 05, 2016, 11:00:04 AM
Maybe someone can chime in on the last question, but pg 14 of the sup (dec 2015) shows the current projects at 1 million square feet at $160m or so cost. (June shows 350k sq ft, ~50m, ~10m revenue). Even higher redevelopment cost at 160/sq ft. However, they seem to project cash flow of $33 sq ft. ($20 sq ft June 2016)
 On the face of it, it appears they are going for their highest value developments first and then will move down to lower cost ones.
But I see no requirement to complete this in 1 year. They seem to have 70m fcf so this could take 2-3 years for 1 m square feet. On the other hand, they do have some cash on hand of $250m to dip into. I hope they can self-sustain but I can see the counter-argument that to speed this process up they might need more cash. It's like your own business. If you don't have enough cash you can wait until your bank account builds up or you can go and get a loan if you are in a hurry to do something.

However I'm totally stumped why they pay a $1 dividend at all which doesn't make any sense to me other than a vague thought that they want to pay shareholders for "waiting around". This doesn't strike me as entirely rational. I'm not too clear on REIT laws though and whether they must pay out based on NOI or based on free cash flow after all capex. They could easily engineer to have zero or close to zero fcf if that allowed them to avoid paying a dividend and develop faster. On the other hand, Seritage appears to be a low cost supplier pushing large new supply into the retail real estate market. Perhaps there is also an argument to be made that too fast development would depress prices and the goal is a measured, steady supply coming online in conjunction with economic recovery.



Title: Re: SRG - Seritage Growth Properties
Post by: notorious546 on September 06, 2016, 03:28:47 PM
RBC Initiation report attached. might be of interest.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on September 06, 2016, 05:21:30 PM
"To that end, Seritage has the opportunity to
re-imagine that space with an eye toward adding other elements that may be
missing including entertainment, residential units, office space or even a hotel. "

This is interesting, I've seen a number of these mall/hotel/office hybrids popping up with great success in my suburb. Likewise, atop rail/metro lines. If this goes through, the upside above and beyond just stores redesign could be understated.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on September 07, 2016, 06:06:01 AM
One comment on the RBC piece - they barely touched on the potential for a Sears bankruptcy...
Title: Re: SRG - Seritage Growth Properties
Post by: merkhet on September 07, 2016, 09:02:12 AM
If Sears goes bankrupt, then the maximum amount of time that they can extend the time to decide on assuming or rejecting the lease is 210 days. (Starts at 120 days with the option to petition the court for an extra 90 days, but that's it.)

Alternatively, in theory, if Sears vacates those stores, then isn't that better for Seritage as they now can reclaim significantly more square footage (and release at a higher rent) than originally thought under the current agreement?

What's the main worry if Sears goes bankrupt? It's not like they can force Seritage to re-lease the properties to them for $1 per square foot from $4 per square foot.

Are the main considerations here (A) absorption of the additional square footage and (B) possible loss of rent during that period and/or low recovery prospects for 210 days of rent as an unsecured claimant?
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on September 07, 2016, 10:08:46 AM

Alternatively, in theory, if Sears vacates those stores, then isn't that better for Seritage as they now can reclaim significantly more square footage (and release at a higher rent) than originally thought under the current agreement?

What's the main worry if Sears goes bankrupt? It's not like they can force Seritage to re-lease the properties to them for $1 per square foot from $4 per square foot.

Are the main considerations here (A) absorption of the additional square footage and (B) possible loss of rent during that period and/or low recovery prospects for 210 days of rent as an unsecured claimant?

My understanding is that since SHLD accounts for 79% of SRG's rental income, and since it's a triple net lease, a bankruptcy would leave SRG not only with a huge lost income stream, but all the maintenance and tax expenses that go with the properties. Sure they can reclaim 100% of the property but before they re-lease it they would need to re-purpose which would require a massive amounts of cash that they don't have yet, while paying all the expenses/loss of income.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on September 07, 2016, 10:09:18 AM
If Sears goes bankrupt, then the maximum amount of time that they can extend the time to decide on assuming or rejecting the lease is 210 days. (Starts at 120 days with the option to petition the court for an extra 90 days, but that's it.)

Alternatively, in theory, if Sears vacates those stores, then isn't that better for Seritage as they now can reclaim significantly more square footage (and release at a higher rent) than originally thought under the current agreement?

What's the main worry if Sears goes bankrupt? It's not like they can force Seritage to re-lease the properties to them for $1 per square foot from $4 per square foot.

Are the main considerations here (A) absorption of the additional square footage and (B) possible loss of rent during that period and/or low recovery prospects for 210 days of rent as an unsecured claimant?

Someone has to pay the property level expenses if Sears goes bankrupt. Property taxes, utilities, etc...

SRG doesn't have much cash to pay those properties for too long...
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on September 07, 2016, 10:12:48 AM
Now, they aren't that leveraged so they can set up a larger line of credit and more borrowings and perhaps JV more of their stores as a precaution against a SHLD bankruptcy so I don't see it as a huge risk.

I also don't see SHLD going bankrupt anytime soon as they still have the inventory, KCD and the rest of the real estate that they can monetize.
Title: Re: SRG - Seritage Growth Properties
Post by: FCharlie on September 07, 2016, 04:10:20 PM
People have been claiming Sears and Kmart would be bankrupt for over a decade.

Also, even if they filed bankruptcy, unless it was a liquidation, wouldn't Sears have to continue to honor the leases at least in the beginning?

Finally, I know everyone thinks Eddie Lampert is an idiot and is going to ride his SHLD stock to zero, but let's refresh our memory about how aggressively Eddie dumped his Orchard Supply shares when it because obvious they were going bankrupt.....  All we have ever seen from Eddie regarding SHLD is accumulation of stock, repurchase of stock, paying himself in stock, loaning money to SHLD personally and/or through his hedge fund etc...    In other words... I think bankruptcy fears are WAY overblown.



https://www.sec.gov/Archives/edgar/data/860585/000118143113031604/xslF345X03/rrd381721.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113029487/xslF345X03/rrd380748.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113027478/xslF345X03/rrd379615.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113026292/xslF345X03/rrd379043.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113025302/xslF345X03/rrd378531.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113023855/xslF345X03/rrd377827.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113023324/xslF345X03/rrd377473.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113022019/xslF345X03/rrd376720.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113020660/xslF345X03/rrd376025.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113019420/xslF345X03/rrd375413.xml

https://www.sec.gov/Archives/edgar/data/860585/000118143113018648/xslF345X03/rrd375066.xml



Title: Re: SRG - Seritage Growth Properties
Post by: eclecticvalue on September 07, 2016, 05:02:53 PM
Let's not fool ourselves the share performance hasn't been great for SHLD in the past 10 years. And how long it will be until Eddie and company create value?
Title: Re: SRG - Seritage Growth Properties
Post by: FCharlie on September 07, 2016, 06:24:31 PM
Creating value and share performance are one thing.... But the worries among some of the posters here that SHLD will go bankrupt and dump all their leases on Seritage makes no sense to me. Even if eventually SHLD is bankrupt, it won't be soon. They have been figuring out a way to get by for half a decade. Net inventory, asset sales, loans from Eddie & Bruce... people under appreciate those things....

My SHLD bonds are at 88 cents on the dollar right now. Look at Chesapeake Energy, a lot of their debt was at 15 cents on the dollar and they are still around. People over simplify things and forget that corporations are capable of doing many things to stay afloat.

Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on September 07, 2016, 09:23:02 PM
Anyone interested in this should look at the CMBS sponsored by Seritage in conjunction with the spinoff last year, originated by JPM.  The annex file for the CMBS issue contains property level financial data for almost all the properties that Seritage owns, including rent coverage (EBITDAR/Rent) on a store-level.  The data is obviously a year old at this point but I still think it paints a really interesting picture.  The large majority of the properties they own have significant rent coverage, indicating that even in a bankruptcy situation the chances of Sears rejecting their lease is relatively low (keep in mind they can't pick and choose which stores to reject leases for considering they signed one master lease with SRG, so it's all or nothing).  Chances are even in a worst case scenario Sears would look to restructure their lease rather than simply dump the properties, since most of them are cash flow positive even after rent payment. Anyone interested it's CUSIP 46645CAA5.
Title: Re: SRG - Seritage Growth Properties
Post by: Mjs3382 on September 25, 2016, 06:02:57 PM
Anyone interested in this should look at the CMBS sponsored by Seritage in conjunction with the spinoff last year, originated by JPM.  The annex file for the CMBS issue contains property level financial data for almost all the properties that Seritage owns, including rent coverage (EBITDAR/Rent) on a store-level.  The data is obviously a year old at this point but I still think it paints a really interesting picture.  The large majority of the properties they own have significant rent coverage, indicating that even in a bankruptcy situation the chances of Sears rejecting their lease is relatively low (keep in mind they can't pick and choose which stores to reject leases for considering they signed one master lease with SRG, so it's all or nothing).  Chances are even in a worst case scenario Sears would look to restructure their lease rather than simply dump the properties, since most of them are cash flow positive even after rent payment. Anyone interested it's CUSIP 46645CAA5.

Could you post a link? Having trouble finding the document. Thanks.
Title: Re: SRG - Seritage Growth Properties
Post by: literally_it on September 26, 2016, 08:48:00 AM
Here's the CMBS Annex file. Not sure how to get these aside from a Bloomberg terminal.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on September 27, 2016, 05:04:14 AM
Here's the CMBS Annex file. Not sure how to get these aside from a Bloomberg terminal.

Thanks for sharing, this is really good info.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on October 01, 2016, 08:33:09 AM
http://seekingalpha.com/article/4009166-seritage-expensive-reit-failing-tenants
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on October 06, 2016, 05:46:30 AM
So just did some quick back of the envelope calculations, adjusted for proportion of JV and for operating partnership units:

SQFT: 39.67 million
Cash: $161.14 million
Debt: $1,145.10 million
Shares: 55.6 million
Stock price: $50
EV: $3,762.31

EV/SQFT is roughly $95. If they spend $100/SQFT on renovations, that's about $200/SQFT implied valuation. Latest signed but not open leases are $23/SQFT for next quarter.

If you assume $23 average rent for the entire 39.67 million SQFT, including all the Class A Sears and POS Kmarts, it's a 10% implied cap rate. So 3 questions:

1) Is $23 a fair assumption for average rent across their portfolio?
2) Is $100 across the board capex reasonable?
3) Is 10% a fair cap rate for the Kmarts but cheap for Sears?
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on October 06, 2016, 06:02:08 AM
So just did some quick back of the envelope calculations, adjusted for proportion of JV and for operating partnership units:

SQFT: 39.67 million
Cash: $161.14 million
Debt: $1,145.10 million
Shares: 55.6 million
Stock price: $50
EV: $3,762.31

EV/SQFT is roughly $95. If they spend $100/SQFT on renovations, that's about $200/SQFT implied valuation. Latest signed but not open leases are $23/SQFT for next quarter.

If you assume $23 average rent for the entire 39.67 million SQFT, including all the Class A Sears and POS Kmarts, it's a 10% implied cap rate. So 3 questions:

1) Is $23 a fair assumption for average rent across their portfolio?
2) Is $100 across the board capex reasonable?
3) Is 10% a fair cap rate for the Kmarts but cheap for Sears?


1) I'm using a more conservative view, and assuming that going forward all new tenants will be signed at around $14 psf. I think $23 may be a little high, as SRG is likely picking off the high-quality long hanging fruit first. But I could be wrong. I'd rather be conservative with it though.

2) Management has indicated that $100 psf for redevelopment is a good number to use going forward

3) I don't think 10% is fair for any of the properties. It's much higher than anything comparable you'll find. Espescially after redevelopment and re-tenanting.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on October 06, 2016, 09:51:58 AM
A rule of thumb I like to think about with RE is:

Low inflation - development is cheaper. Building while debt costs and rates are low are like storing food in the summer for the winter.

Moderate-high inflation - you reap the rewards of your previous development because what you build in the past is now going to be much more expensive to redevelop, in fact, that is a competitive advantage you have by using up all - or even more of your free cash flow while rates were low. Actually this applies to all companies, those that are investing today when nobody is investing to sustain or improve their earning power in a future environment will reap benefits while others may go bankrupt or struggle immensely.

So essentially it's a balancing act. The more they can get done in this environment the better. In fact, an ideal scenario would be very low rates for maybe 5 more years. I think they'll have achieved a big chunk of their mission by then.

Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on October 13, 2016, 09:10:11 AM
New short thesis on VIC: https://www.valueinvestorsclub.com/idea/SERITAGE_GROWTH_PROPERTIES_9583B/138911
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on October 14, 2016, 01:28:54 PM
An even more negative short thesis I suppose -
http://seekingalpha.com/instablog/22912651-daniel-jennings/4923635-seritage-growth-properties-worst-reit-america

Although I would debate some of the points made such as 'No cash from operations according to ycharts.'
Clearly they have cash from operations, virtually all companies do!


Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on October 14, 2016, 01:51:17 PM
An even more negative short thesis I suppose -
http://seekingalpha.com/instablog/22912651-daniel-jennings/4923635-seritage-growth-properties-worst-reit-america

Although I would debate some of the points made such as 'No cash from operations according to ycharts.'
Clearly they have cash from operations, virtually all companies do!

I'm all for hearing alternate arguments, but this is probably the weakest short thesis on SRG I've come across. Doesn't seem like this guy has done his homework, and his argument of "more dividends = better" doesn't give me much confidence in his ability to analyze a business.
Title: Re: SRG - Seritage Growth Properties
Post by: wellmont on October 14, 2016, 10:33:34 PM
 No cash from operations according to ycharts is all I need to know about that pitch.
Title: Re: SRG - Seritage Growth Properties
Post by: mcliu on October 15, 2016, 07:21:30 PM
What about a Sears bankruptcy? Isn't that a huge risk here?
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on October 15, 2016, 10:25:36 PM
What about a Sears bankruptcy? Isn't that a huge risk here?

You might want to read back through the thread. I believe this prospect has been extensively discussed.
Title: Re: SRG - Seritage Growth Properties
Post by: FCharlie on October 16, 2016, 06:09:08 AM
People have been saying Sears is going bankrupt since Sears (Kmart) came out of bankruptcy thirteen years ago.

This has me fascinated as SHLD seems to pollute practically everything it touches.

Since it keeps coming up, I wonder what everyone's opinion is on either of the following scenarios.

1) What would be the value of SRG if SHLD were not losing money and had stable sales?

2) Ignoring time being a factor, what would be the value of SRG after they upfit all of their existing real estate, with a variety of tenants, none of which being SHLD?

I suppose enterprise value is the most appropriate measure.



Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on November 07, 2016, 09:59:36 PM
Does anyone have the recent Boenning & Scattergood report on Seritage?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on November 07, 2016, 10:17:07 PM
Have you seen this one from April?
http://www.boenningib.com/pdfs/Research_Disclosures/SRG.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: aceskc on November 09, 2016, 10:18:08 AM
The capital raise concerns and equity dilution baked into their model seem considerably overblown...Berkowitz/Buffett/Lampert all have sizable stakes in SRG and wont allow it...besides SRG's growing NOI/FFO  seems adequate to fund recap expenditures all of which have been sized in their Q3 Earnings release
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on November 10, 2016, 07:59:34 PM
The capital raise concerns and equity dilution baked into their model seem considerably overblown...Berkowitz/Buffett/Lampert all have sizable stakes in SRG and wont allow it...besides SRG's growing NOI/FFO  seems adequate to fund recap expenditures all of which have been sized in their Q3 Earnings release

I'm inclined to agree with you. They are making substantial progress transforming the portfolio and should be able to raise more cash on decent terms given their existing pipeline (see attached - Q4 2015 to Q3 2016) of signed leases.

Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 13, 2016, 05:55:02 PM
Seems like Seritage adds back D&A, G&A, and acquisition-related expenses to operating income to get to NOI. But this seems like a legitimate operating expense to me?
Title: Re: SRG - Seritage Growth Properties
Post by: BG2008 on December 13, 2016, 09:31:26 PM
Seems like Seritage adds back D&A, G&A, and acquisition-related expenses to operating income to get to NOI. But this seems like a legitimate operating expense to me?

I've found that this is the norm in the real estate space.  Almost all RE assets trade on this NOI figure with D&A, SG&A, and acquisition related expense.  The truth is that that's how private buyers will price each individual asset in arms length transaction.  Depending on the asset type, some D&A will be true expenses while others won't.   
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 14, 2016, 06:14:58 AM
Seems like Seritage adds back D&A, G&A, and acquisition-related expenses to operating income to get to NOI. But this seems like a legitimate operating expense to me?

I've found that this is the norm in the real estate space.  Almost all RE assets trade on this NOI figure with D&A, SG&A, and acquisition related expense.  The truth is that that's how private buyers will price each individual asset in arms length transaction.  Depending on the asset type, some D&A will be true expenses while others won't.

Should have clarified that I meant the G&A was an operating expense (I understand the reasoning for adding back D&A and Acq-relate charges). I just don't see how G&A isn't an operating expense...

"Our primary cash expenses consist of our property operating expenses, general and administrative expenses, interest expense and construction and development related costs. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is primarily on our mortgage loan payable."
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on December 14, 2016, 06:37:50 AM
Seems like Seritage adds back D&A, G&A, and acquisition-related expenses to operating income to get to NOI. But this seems like a legitimate operating expense to me?

I've found that this is the norm in the real estate space.  Almost all RE assets trade on this NOI figure with D&A, SG&A, and acquisition related expense.  The truth is that that's how private buyers will price each individual asset in arms length transaction.  Depending on the asset type, some D&A will be true expenses while others won't.

Should have clarified that I meant the G&A was an operating expense (I understand the reasoning for adding back D&A and Acq-relate charges). I just don't see how G&A isn't an operating expense...

"Our primary cash expenses consist of our property operating expenses, general and administrative expenses, interest expense and construction and development related costs. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is primarily on our mortgage loan payable."

I assume you mean they are adding back the "general and administrative expenses" referred to in your quote, but not the "property operating expenses."  As BG mentioned, you see this alot with RE companies.  They ask investors to focus on NOI (which only includes property-level expenses, not corporate) because assets are bought and sold based on NOI, and ignore the significant corporate expenses that skim off the top and ultimately create a significant drag on investor returns if the underlying RE assets aren't sold in a relatively short period of time. 

The companies are not alone in this.  Many investment pitches for RE companies do the same thing -- they purport to value the company's assets, but ignore significant corporate overhead.  That's understandable if the thesis is the company is going to be sold (and thus G&A eliminated by the buyer), but it doesn't make sense to me if there's no reasonable expectation of a sale.  The lengthy recent writeups of FRP Holdings are an example of this. 
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on December 14, 2016, 07:11:40 AM
Should have clarified that I meant the G&A was an operating expense (I understand the reasoning for adding back D&A and Acq-relate charges). I just don't see how G&A isn't an operating expense...

"Our primary cash expenses consist of our property operating expenses, general and administrative expenses, interest expense and construction and development related costs. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is primarily on our mortgage loan payable."

G&A is an operating expense of course, but NOI is a measure of property level income. It allows for investors to get an idea of the performance of the portfolio at the property level, insulating the performance of the actual real estate from the impacts of corporate expenses. It's not intended to be used to value the company as a whole. Make sense?
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on December 14, 2016, 08:59:44 AM
In the case of SRG, they have significantly increased their employee count to help in the leasing and redevelopment of properties, which is appropriate to remove in their calculation of stable NOI. 

In a company where all properties are stable they would require less manpower, thereby having a lower S,G&A.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 14, 2016, 11:53:02 AM
Should have clarified that I meant the G&A was an operating expense (I understand the reasoning for adding back D&A and Acq-relate charges). I just don't see how G&A isn't an operating expense...

"Our primary cash expenses consist of our property operating expenses, general and administrative expenses, interest expense and construction and development related costs. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is primarily on our mortgage loan payable."

G&A is an operating expense of course, but NOI is a measure of property level income. It allows for investors to get an idea of the performance of the portfolio at the property level, insulating the performance of the actual real estate from the impacts of corporate expenses. It's not intended to be used to value the company as a whole. Make sense?

Thanks for clarifying. Yeah, I think this makes sense if someone were to acquire the company but I still feel more comfortable valuing it as if I were buying an operating business. SGA costs are costs that have to be paid, and the buildings aren't going to rent themselves out.

I'm long SRG and keep trying to "kill" it, and this generally means using very conservative assumptions. I do have a few more questions on SRG (and REITs in general):


Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on December 14, 2016, 12:10:12 PM
Thanks for clarifying. Yeah, I think this makes sense if someone were to acquire the company but I still feel more comfortable valuing it as if I were buying an operating business. SGA costs are costs that have to be paid, and the buildings aren't going to rent themselves out.

I'm long SRG and keep trying to "kill" it, and this generally means using very conservative assumptions. I do have a few more questions on SRG (and REITs in general):

  • What are you guys estimating for maintenance Capex for AFFO? $20m?
  • If we assume SRG reclaims 2m sqft/yr and it costs $100/sqft to do so, FCF doesn't support current valuations. Is FCF flawed with REITs?
  • I've seen a lot of various ways to get to a NAV (balance sheet-based vs inferring it from a given cap rate). Any preference here?

You're free to value the company as you see fit. I just wanted to clarify the definition of NOI.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 14, 2016, 12:27:24 PM
Thanks for clarifying. Yeah, I think this makes sense if someone were to acquire the company but I still feel more comfortable valuing it as if I were buying an operating business. SGA costs are costs that have to be paid, and the buildings aren't going to rent themselves out.

I'm long SRG and keep trying to "kill" it, and this generally means using very conservative assumptions. I do have a few more questions on SRG (and REITs in general):

  • What are you guys estimating for maintenance Capex for AFFO? $20m?
  • If we assume SRG reclaims 2m sqft/yr and it costs $100/sqft to do so, FCF doesn't support current valuations. Is FCF flawed with REITs?
  • I've seen a lot of various ways to get to a NAV (balance sheet-based vs inferring it from a given cap rate). Any preference here?

You're free to value the company as you see fit. I just wanted to clarify the definition of NOI.

Sorry, wasn't saying you're wrong or anything, and I do sincerely appreciate the definition.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 14, 2016, 03:52:47 PM
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on December 14, 2016, 06:31:07 PM
They likely would be able to access mortgage financing for much of their existing property.  They're not very leveraged.
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on December 15, 2016, 12:36:24 AM
I'm new to this space & am interested in your thoughts on the following:

https://www.lowenstein.com/files/Publication/cf50b2ab-8d73-4835-920b-614a2e3f5802/Presentation/PublicationAttachment/68a5ceb7-9efc-4d2d-b7d9-d559c1168054/Will%20Innovative%20Moves%20Reverse%20the%20'Death%20Spiral'%20of%20Malls.pdf

I know that General Growth & Seritage are two different companies & was just wondering if mall operators were likely to start being their own customers more & more?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 15, 2016, 09:35:17 AM
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

Yeah I think your comparison to cable companies is spot on. So probably best way of looking at SRG in the short-medium term would be to conservatively estimate out NOI, and then back into a NAV using comp cap rates?
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on December 15, 2016, 09:47:54 AM
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

Yeah I think your comparison to cable companies is spot on. So probably best way of looking at SRG in the short-medium term would be to conservatively estimate out NOI, and then back into a NAV using comp cap rates?

How are you accounting for the money and time it will take to get to your stabilized NOI?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 15, 2016, 12:35:16 PM
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

Yeah I think your comparison to cable companies is spot on. So probably best way of looking at SRG in the short-medium term would be to conservatively estimate out NOI, and then back into a NAV using comp cap rates?

How are you accounting for the money and time it will take to get to your stabilized NOI?

My model uses a bunch of different inputs/assumptions to play with so feel free to check it out. I'll be the first to admit it's still plenty rough around the edges, but I'm still new to valuing REITs so I'd love any suggestions/criticisms about the model, assumptions used, formulas, etc.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 15, 2016, 04:53:02 PM
This is the definition of investing: Laying out a dollar today in the hopes of getting back more than a dollar tomorrow.
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on December 15, 2016, 05:19:22 PM
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

Yeah I think your comparison to cable companies is spot on. So probably best way of looking at SRG in the short-medium term would be to conservatively estimate out NOI, and then back into a NAV using comp cap rates?

How are you accounting for the money and time it will take to get to your stabilized NOI?

My model uses a bunch of different inputs/assumptions to play with so feel free to check it out. I'll be the first to admit it's still plenty rough around the edges, but I'm still new to valuing REITs so I'd love any suggestions/criticisms about the model, assumptions used, formulas, etc.

Thanks for posting this.  I may be misunderstanding your spreadsheets, but I don't think the changes in cash & cash equivalents on your projected cash flow statements match up with your projected balance sheets.

Also, I understand you to be projected SRG to recapture and re-rent at higher rates 2 million sq ft per year.  I also understand you to project $100 million per year in CapEx.  Can you explain the math behind the $100 million per year in CapEx in light of 2 million sq ft annual recapture and the maintenance CapEx needs of the other square footage? 
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 15, 2016, 06:58:57 PM
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

Yeah I think your comparison to cable companies is spot on. So probably best way of looking at SRG in the short-medium term would be to conservatively estimate out NOI, and then back into a NAV using comp cap rates?

How are you accounting for the money and time it will take to get to your stabilized NOI?

My model uses a bunch of different inputs/assumptions to play with so feel free to check it out. I'll be the first to admit it's still plenty rough around the edges, but I'm still new to valuing REITs so I'd love any suggestions/criticisms about the model, assumptions used, formulas, etc.

Thanks for posting this.  I may be misunderstanding your spreadsheets, but I don't think the changes in cash & cash equivalents on your projected cash flow statements match up with your projected balance sheets.

Also, I understand you to be projected SRG to recapture and re-rent at higher rates 2 million sq ft per year.  I also understand you to project $100 million per year in CapEx.  Can you explain the math behind the $100 million per year in CapEx in light of 2 million sq ft annual recapture and the maintenance CapEx needs of the other square footage?

No you're 100% right. I haven't setup all the formulas between the balance sheet and cash flows yet.

The understated CapEx is just me messing around with different inputs. But yes, the CapEx number should be a product of the estimated 2million sqft/yr and $100 sq/ft redevelopment costs. So yep, should be $200m/yr.

Other than that, any glaring errors/omissions? I feel like I'm not properly account for the JV income (just add to NOI?).
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 19, 2016, 06:12:51 AM
Made some more updates to my model:
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 19, 2016, 08:32:12 AM
I also think SRG is a play on the wildcard of much higher inflation than expected down the road. For example, one scenario is a long period of low rates like now, perhaps continuing forward for a while longer. This is a good environment for the redevelopment because you are getting nice new renovated properties at prices that - eventually, when the inflation comes will cost much more to build to maintain the high rental prices of properties of that "new" calibre. Conversely, if inflation does not happen, or not as quickly, then you can control the development cost nice and slow, and do it with lower wages. But I think this wildcard factor is one reason I do want some exposure to real estate. Between precious metals, art, TIPS, and businesses, real estate has shown to be a strong hedge of inflation. The low to high rent differential at SRG is icing on the cake for the low inflation scenario while possibly putting upward pressure on the share price if the history of the world repeats itself - namely higher inflation. Inflation is certainly not good, it is in fact, an economic failure, but people want pleasure today and pain tomorrow and some problems are so big that politicians may dictate to central banks to create it despite the fact that it will end badly.
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on December 19, 2016, 08:48:40 AM
Made some more updates to my model:

As you work toward connecting your projected cash flow statement to your projected balance sheet, you'll have to make some assumptions about where the capital is going to come from.  Once you decide that, you can then project actual interest expense (with an interest rate assumption), rather than using a percentage of revenue for interest expenses.  That will also help you understand how dependent the company is (or is not) on external funding sources and determine whether access to capital is a risk to your thesis.

SRG is a REIT.  Will the tax rules require it to start paying a dividend at some point?  If so, will that require additional external capital?

It also may be useful to try this exercise with another real estate company that has a long pathway for reinvesting capital into existing projects/assets, such as Howard Hughes, to see whether the returns and risks in SRG are attractive to you relative to other, similar investments.
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on December 19, 2016, 08:58:39 AM
Made some more updates to my model:


SRG is a REIT.  Will the tax rules require it to start paying a dividend at some point?  If so, will that require additional external capital?



Unfortunately, they already pay a dividend, even though they don't have to and even though they need all of the capital they can get. I think it's because the management owns restricted shares which they can't monetize for some time, except for when it pays dividends.
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on December 19, 2016, 10:41:51 AM
Made some more updates to my model:

As you work toward connecting your projected cash flow statement to your projected balance sheet, you'll have to make some assumptions about where the capital is going to come from.  Once you decide that, you can then project actual interest expense (with an interest rate assumption), rather than using a percentage of revenue for interest expenses.  That will also help you understand how dependent the company is (or is not) on external funding sources and determine whether access to capital is a risk to your thesis.

SRG is a REIT.  Will the tax rules require it to start paying a dividend at some point?  If so, will that require additional external capital?

It also may be useful to try this exercise with another real estate company that has a long pathway for reinvesting capital into existing projects/assets, such as Howard Hughes, to see whether the returns and risks in SRG are attractive to you relative to other, similar investments.

Also, what amount of maintenance CapEx is necessary, beyond the $200 million of recapture CapEx you include in  your model?
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on December 19, 2016, 01:53:10 PM
Made some more updates to my model:

Thanks for sharing. Just taking a look at the NOI valuation - not a REIT expert, but won't adding the cumulative discounted NOI from FY2017-FY2024 overstate the value of the assets as that NOI needs to be plowed back into redevelopment in order to reach terminal NOI? Wouldn't this be analogous to overstating a FCF valuation by not including growth CapEx during an abnormal growth period?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 20, 2016, 09:51:02 AM
Made some more updates to my model:

As you work toward connecting your projected cash flow statement to your projected balance sheet, you'll have to make some assumptions about where the capital is going to come from.  Once you decide that, you can then project actual interest expense (with an interest rate assumption), rather than using a percentage of revenue for interest expenses.  That will also help you understand how dependent the company is (or is not) on external funding sources and determine whether access to capital is a risk to your thesis.

SRG is a REIT.  Will the tax rules require it to start paying a dividend at some point?  If so, will that require additional external capital?

It also may be useful to try this exercise with another real estate company that has a long pathway for reinvesting capital into existing projects/assets, such as Howard Hughes, to see whether the returns and risks in SRG are attractive to you relative to other, similar investments.

Yeah I haven't seen too many SRG write ups that factor in additional capital needs (aside from the short ones). I do think they'll need to raise some money and don't really see how they won't be able to unless they can keep the $20+ leases coming. But if memory serves correctly, SNO are around $19/sqft now, which is actually down from a few quarters ago when it was $23/sqft. Could've just been one or two projects skewing it higher though.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 20, 2016, 10:23:28 AM
Made some more updates to my model:

Thanks for sharing. Just taking a look at the NOI valuation - not a REIT expert, but won't adding the cumulative discounted NOI from FY2017-FY2024 overstate the value of the assets as that NOI needs to be plowed back into redevelopment in order to reach terminal NOI? Wouldn't this be analogous to overstating a FCF valuation by not including growth CapEx during an abnormal growth period?

I'm also fairly new to REITs so take my model and everything I say with a grain of salt.... there are far more knowledgable people here who can probably better answer, but from what I've learned, there are 4 main ways of valuing REITs: NOI, FFO, AFFO and NAV.

Think of NOI as the same as EBITDA on the property level, but not on a company level. My understanding is that the whole point of NOI is to value the operating profit of individual properties, rather than that of the entire company. Took me a while to wrap my head around since I'm not a real estate expert, but that's my understanding of it at least.

FFO/AFFO are more or less variants of a DCF model, with certain charges included/excluded. If you're concerned about the treatment of growth CapEx, AFFO is probably going to be the best one. 

And NAV is sorta/kinda a variant of book value (though one based on current market values rather than historical cost) and can be calculated by taking NOI and dividing it by the comp cap rates. This will give you a rough idea of how much a buyer would be willing to pay for the property(ies).

(again, might want to wait for someone else here to chime in before taking anything I say as gospel)
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 20, 2016, 10:34:05 AM
All good points, one additional metric that is very important in investing is how much money do I get on my investment? While the initial yield may be lower, eventually it moves up or down to the ROIC. So for example, if Seritage invests $1 and earns $1.13 on that investment and Seritage current yield is 5%, then the next year the yield increases to 5.65%. You have a bond but with an expanding coupon. That coupon is part inflation protection and part real return. Eventually if all things are equal, an investor who is patient enough should be getting the full 13% return on purchase price after some number of years. But this is a good question...many stocks/companies start with a yield far lower than the internal return on capital. This may be because this is a cash-cow so has a base starting rate. Any other ideas why initial yields are never the return on invested capital - except possibly in a crash, when yields also dip but a long-sighted investor might assume it will normalize again in the future?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 20, 2016, 10:55:48 AM
All good points, one additional metric that is very important in investing is how much money do I get on my investment? While the initial yield may be lower, eventually it moves up or down to the ROIC. So for example, if Seritage invests $1 and earns $1.13 on that investment and Seritage current yield is 5%, then the next year the yield increases to 5.65%. You have a bond but with an expanding coupon. That coupon is part inflation protection and part real return. Eventually if all things are equal, an investor who is patient enough should be getting the full 13% return on purchase price after some number of years. But this is a good question...many stocks/companies start with a yield far lower than the internal return on capital. This may be because this is a cash-cow so has a base starting rate. Any other ideas why initial yields are never the return on invested capital - except possibly in a crash, when yields also dip but a long-sighted investor might assume it will normalize again in the future?

Yeah the more time I spend on it, the more I think you kind of have to look at SRG in stages. No one valuation model or method does it justice.

If you aggressively assume SRG redevelops 100% of the remaining 34.5m/sqft of their GLA at an average redevelopment cost of $100/sqft, then you're looking at an additional $3.4b capital outlay. If they can charge $15sqft across the portfolio, you're looking at a ~14%-16% yield at some later point ($470m NOI/$3.4b). Maintenance CapEx probably won't be huge at this point either.

The tricky part is figuring out if those assumptions are reasonable, and how long it will take to achieve them. And as you mentioned, am I okay with a 5% yield today that will expand over time?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 20, 2016, 11:20:27 AM
From what I've observed the starting initial yield has two components:

1. Pure mispricing, misunderstanding of risk, etc.. where value investors make a living.
2. The real or perceived quality, safety, and long-term stability of the earning stream. Basically the higher the quality of the business, the lower the starting yield. Think maybe Coca Cola vs Dow Chemicals. Perhaps both make the exact same amount of free cash flow at some point in time but one may be cyclical, another less so. One might have less conviction that the earnings will be stable, not change, or materialize in 50 years, the other might not.

Seritage it's hard to say the quality of the earnings but if the value of the real estate is there and the land and development is good I can't see why it can't last a long time.
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on December 20, 2016, 11:26:04 AM
Any other ideas why initial yields are never the return on invested capital - except possibly in a crash, when yields also dip but a long-sighted investor might assume it will normalize again in the future?

The "initial yield" you appear to be referring to is the current earnings or FCF yield of the security at the investor's purchase price.  Holding future growth constant, that "initial yield" is inversely related to the company's anticipated future ROIC.  The reason for this is that the higher a company's future ROIC is -- i.e., return on incremental invested capital -- the more valuable its future growth is.  This is another way of saying that, holding growth constant, higher ROIC companies deserve higher P/Es.  The math behind this is laid out in many articles on ROIC and in McKinsey's Valuation treatise. 
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on December 20, 2016, 12:19:53 PM
The company has stated they expect an 11-12% un-levered yield on future developments.  These developments will be levered at some point, which means they'll pay about 5% on the debt and see excess returns of 6 or 7%.  If they're doing this at $100/sqft on 2 million sq/ft of property each year, then we'd see about an extra $200 million in equity value created.  How?   

The two million square feet will see levered returns of around $14 million per year (as shown above).  With a conservative cap rate of 7% this means the value of this development is $200 million ($14 million / 7% = $200 million). 

With these round, yet fairly accurate numbers, we can assume every 1 million square feet that is redeveloped creates $100 million in value for SRG shareholders.  Spread over 55 million shares it's about $2/share. 


Title: Re: SRG - Seritage Growth Properties
Post by: muscleman on December 22, 2016, 09:39:16 PM
http://www.debtwire.com/info/2016/12/16/sears-hit-cash-advance-requests-vendors/

In 3Q, Sears also terminated the leases of 17 underperforming stores owned by Seritage Growth Properties, a publicly traded REIT.


SHLD's market cap just crossed below 1bn. The pace of lease termination may accelerate.
Title: Re: SRG - Seritage Growth Properties
Post by: thinkpad on December 27, 2016, 06:13:37 AM
hello

http://ir.seritage.com/file/Index?KeyFile=37276443

200m$ to fund redevelopment (debt issued by ESL)

Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 27, 2016, 07:13:44 AM
Cool, but you know in math we have something called order of operations. Is there a reason you get a loan first instead of stopping the dividend and getting a loan? It's like a bathtub you are putting some water in but also taking some water out :)
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on December 27, 2016, 07:29:32 AM
Cool, but you know in math we have something called order of operations. Is there a reason you get a loan first instead of stopping the dividend and getting a loan? It's like a bathtub you are putting some water in but also taking some water out :)

From the 10-k:

In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). Restricted shares that do not vest are forfeited. Dividends on restricted shares and share units with time-based vesting are paid to holders of such shares and share units and are not returnable, even if the underlying shares or share units do not ultimately vest. Dividends on restricted shares with performance-based vesting are accrued when declared and paid to holders of such shares on the third anniversary of the initial grant subject to the vesting of the underlying shares.

Unvested restricted shares at end of period

         221,484             $   30.81    
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on January 03, 2017, 06:20:25 AM
In four months RBC has gone from initiating coverage on SRG as a "Top Pick" to downgrading it twice. That was fast.

I don't have access to the report, but my guess is that they are concerned about the risk of a SHLD bankruptcy.
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on January 04, 2017, 07:57:45 AM
New 8K - Sears terminating leases on 19 stores or 1.9m sqft. Anyone know if this is incremental to the terminations announced in September, or an updated number? Any idea how to get lookthrough into which locations were terminated?
Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on January 04, 2017, 08:25:22 AM
Seems likely that SRG will do some kind of rights offering to buy more assets off SHLD.  I'll be curious if Buffett participates in that kind of situation.

It will be hard for anyone else to buy SHLD properties ahead of the potential for massive supply hitting the market.  SRG has some interest in keeping SHLD as a viable tenant for a couple more years so I imagine they would be the highest bidder for anything getting peeled off SHLD.

That loan to SRG was surprisingly expensive too.  These cash commitments from ESL are really adding up...
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on January 04, 2017, 09:23:38 AM
Quote
The aggregate annual base rent at these stores is approximately $5.9 million, or 2.7% of the Company’s total annual base rent
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on January 04, 2017, 10:33:56 AM
Seems likely that SRG will do some kind of rights offering to buy more assets off SHLD.  I'll be curious if Buffett participates in that kind of situation.

It will be hard for anyone else to buy SHLD properties ahead of the potential for massive supply hitting the market.  SRG has some interest in keeping SHLD as a viable tenant for a couple more years so I imagine they would be the highest bidder for anything getting peeled off SHLD.

That loan to SRG was surprisingly expensive too.  These cash commitments from ESL are really adding up...

Yeah the loan was puzzling to me too.  They couldn't arrange more attractive (or equivalent) financing from an unrelated party?  I don't get what he's playing at.  You would think he wouldn't be that eager to lend even more $$$, especially if it wasn't required.  Agree, sort of always figured some dilution was coming down the pike (perhaps a couple of tranches) and waiting for that and/or SHLD filing to really look at getting long. 
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on January 04, 2017, 11:15:41 AM
"You would think he wouldn't be that eager to lend even more $$$, especially if it wasn't required."

My guess is that the money is required.  We just don't know it yet.

Title: Re: SRG - Seritage Growth Properties
Post by: Picasso on January 04, 2017, 11:17:48 AM
I actually think there's a way for SRG to issue equity and buy SHLD properties in a way that is good for both SRG and SHLD.  If it's done in a way similar to the current master lease, then I'd say maybe not that great.  But if they're getting the ability to take 100% instead of 50% with various termination fees on better development yields, then you could say that SRG is an entity that can pay a bit more for these assets.  1) it would drive returns at SRG (and Lampert would benefit through his portion of a rights offering), 2) it would give SRG more time to work on the existing redevelopment (they clearly need more time to avoid triggering debt yield covenants), 3) anything credit positive at SHLD (such as large asset sales) is a positive for SRG (at least for the next couple or few years).  So say Lampert puts up a block of assets for sale, SRG could easily be the highest bidder, it's very possible that SRG would react favorably to this, any rights offering would be oversubbed and Lampert wouldn't need to foot the bill for another $1 billion on his own.

It might better explain the harsh unsecured loan to SRG.  Without ESL backstopping with asset sales or redevelopment capital it's hard to get anyone else to participate or jump in the water first.  Part of me thinks this unsecured loan would make me nervous as an equity holder of SRG, the other part of me thinks its just the first step to a more positive transaction.

Plus Lampert's incentives are now moving closer into the debt of SHLD and equity of SRG.  SHLD equity has become a call option (just based on $ value at ESL) and it's clear that he's got much more capital in other assets that are more reliant on the passing of time and slowing the bleed.  Will be interesting to see what happens.
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on January 04, 2017, 11:31:46 AM
I actually think there's a way for SRG to issue equity and buy SHLD properties in a way that is good for both SRG and SHLD.  If it's done in a way similar to the current master lease, then I'd say maybe not that great.  But if they're getting the ability to take 100% instead of 50% with various termination fees on better development yields, then you could say that SRG is an entity that can pay a bit more for these assets.  1) it would drive returns at SRG (and Lampert would benefit through his portion of a rights offering), 2) it would give SRG more time to work on the existing redevelopment (they clearly need more time to avoid triggering debt yield covenants), 3) anything credit positive at SHLD (such as large asset sales) is a positive for SRG (at least for the next couple or few years).  So say Lampert puts up a block of assets for sale, SRG could easily be the highest bidder, it's very possible that SRG would react favorably to this, any rights offering would be oversubbed and Lampert wouldn't need to foot the bill for another $1 billion on his own.

I guess the question would be how much SRG can pay before it gets dilutive, and how much debt they can put on the assets they would be buying and at what cost. The problem would be that they would need capital not just to buy the assets but also to redevelop the assets immediately if they recapture 100% immediately.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on January 04, 2017, 11:47:44 AM
I think in any investment if you don't invest , you are returning capital, eventually it catches up and you're in run-off. Guess what we have here is at least the possibility of an opportunity to invest in development,  somewhere where large amounts of capital can be put to work. I see it as no sin to raise money to invest, depending on the price of the offering and the prospects of the investment. It may be that in the final analysis all will hinge on the success of redeveloping large amounts of space in former malls and retail spots and the new properties being successful, whether they end up being retail or something else. Apparently it was worth a bet of about 1/10th of 1% of Buffet's wealth...Is it worth your bet?
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on January 04, 2017, 02:50:42 PM
CBRE gave an update on U.S. Retail Real Estate last month:

http://www.cbre.us/research/2016-U-S-Reports/Pages/Q3-2016-US-Retail-MarketView-Snapshot.aspx
----

Q3 2016 U.S. Retail MarketView Snapshot

December 8, 2016

Despite the highest GDP growth recorded in two years, consumer sentiment showed a slight decline in Q3. This drop, though small, is partly attributed to uncertainty during the run-up to November’s presidential election.

Total retail and food service sales increased by 2.5% year-over-year in Q3 2016. Core sales, which exclude gasoline stations and motor vehicle & parts dealers, grew at a higher 3.5%. However, both indices showed a slight deceleration from the growth seen in Q2.

Demand for retail space throughout the nation remained steady in Q3, with 16.9 million sq. ft. of positive net absorption. Year-to-date, absorption totals 55.7 million sq. ft. —8% higher than the same period in 2015.

Retail completions remain subdued since the recession nearly eight years ago. However, the rolling 12-month total had been on a continuous upward trend between Q1 2011 and Q1 2016.

The overall U.S. retail market has seen availability either drop or stay the same for 23 consecutive quarters. The last time overall availability increased was in Q1 2011 when it was near the peak of 10.1%.

The U.S. has now experienced 11 consecutive quarters of positive year-over-year rent growth. Net asking retail rent averaged $16.44 per sq. ft. nationally in Q3—up 4.1% from Q3 2015 and 7.3% from the cycle low of $15.32 per sq. ft. in Q4 2013.

Acquisitions of U.S. retail properties remained very active in Q3, but at slightly lower levels compared with last year and earlier in 2016.

The healthy labor market and increased traction in wage and income growth are boosting consumer confidence, which bodes well for continued improvement in U.S. retail market fundamentals.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on January 04, 2017, 04:47:10 PM
It seems like Macys and BAM are going to be dumping a lot of SF on the market too.  I really can't see why a department store would exist anymore unless it is in a convenient urban location (you know like they were originally).
Title: Re: SRG - Seritage Growth Properties
Post by: Gregmal on January 04, 2017, 05:25:49 PM
It seems like Macys and BAM are going to be dumping a lot of SF on the market too.  I really can't see why a department store would exist anymore unless it is in a convenient urban location (you know like they were originally).

Yup. I've long loved and followed the SHLD story. SRG was basically the crux of the story being put into a safety asset. I've wanted to own this forever but the things you mentioned and the overall secular decline for the entire retail sector makes this hard to really leap at. It long been my personal take that the day SHLD files for bankruptcy will be within a 6 month window of when the optimal time to initiate a SRG position occurs. But the developments with M & Co could mean even more of the same type of asset coming to market all around the same time, which gives me further pause.
Title: Re: SRG - Seritage Growth Properties
Post by: dutchman on January 13, 2017, 07:19:24 AM
Peridotcalital you were regretting having missed this in the 30s.  Are you buying here?  I guess shld bankruptcy could introduce some unknown unknowns.
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on January 13, 2017, 07:36:04 AM
Why do people like this more than/why does it generate so much more interest than Howard Hughes? 

Put another way, why are people more interested in the opportunity to invest a lot of capital into Sears' collection of real estate, as opposed to Howard Hughes' assets, e.g., Ward Village, the South Street Seaport, the Woodlands and Columbia, MD?
Title: Re: SRG - Seritage Growth Properties
Post by: KCLarkin on January 13, 2017, 07:45:08 AM
Why do people like this more than/why does it generate so much more interest than Howard Hughes?

I'm not a fan of real estate plays. But isn't the thesis for SRG pretty simple? Sears is paying below market rents. Eventually, these assets will be re-let at market rates. A bit similar to buffett's real estate near NYU?

HHC might be more attractive, but the thesis is more complicated.

--
Quote
Here, too, the analysis was simple. As had been the case with the farm, the unleveraged current yield from the property was about 10%. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant -- who occupied around 20% of the project’s space -- was paying rent of about $5 per foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere.
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on January 13, 2017, 07:56:14 AM
I don't see SHLD going bankrupt any time soon. Lampert will continue with asset sales/provide financing which will keep it afloat for the medium term, by when hopefully SRG has enough in commitments to be break even without the SHLD rent.

The big risk imo is the simultaneous closings of stores across the country: SHLD, Macy's, Kohl's, WMT, everything. It's likely that the class B and C properties of SRG will suffer quite a bit as a result. The real value is in the class A properties which are still very strong.
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on January 13, 2017, 08:07:31 AM

I'm not a fan of real estate plays. But isn't the thesis for SRG pretty simple? Sears is paying below market rents. Eventually, these assets will be re-let at market rates. A bit similar to buffett's real estate near NYU?

HHC might be more attractive, but the thesis is more complicated.

--

That may be a concise statement of the SRG thesis, but it glosses over significant complexity.

Both SRG and HHC are development plays that will stretch over decades.  So, at a very high level, what's actually easier to assess:  (i) the effects of a potential SHLD bankruptcy and estimating demand and "market rents" for Sears-type assets sprinkled all over the country over the next 10-20 years, or (ii) whether, over the next 20 years, there will be continued demand for housing and office/retail space in Honolulu, a high-end Houston suburb (which is entirely controlled by HHC), a very high-end Las Vegas suburb, and a small city midway between Baltimore and DC, along with continued demand for access to the South Street Seaport?

I think (ii) is actually easier to understand and assess than (i).  I'm not saying HHC will definitely turn out to be a better investment than SRG.  I'm just surprised that people interested in long-term development plays aren't more interested in the company that appears to have much better assets.

EDIT:  Also, regarding your Buffett example, aren't HHC's assets more like being "next to NYU" than the Sears/SRG assets? 

And you may be right that all real estate plays are somewhat dubious, because the underlying return to investors depends in part of how fast the assets are developed, which is impossible to predict accurately when you're talking about developments/land sales over decades.  But given that fact, isn't it even more important to favor the assets that are most likely to continue to appreciate over time ( e.g., oceanfront land in Honolulu, South Street Seaport) versus real estate assets in flux (malls)?
Title: Re: SRG - Seritage Growth Properties
Post by: KCLarkin on January 13, 2017, 08:29:31 AM
Both SRG and HHC are development plays that will stretch over decades.

I think the issue is that the HHC portfolio is more eccentric. Mixed-use. Suburbs. Downtowns. Hawaii. Vegas. The Seritage portfolio is more uniform and therefore simpler to understand.

So, back to your original question. Why does SRG generate more interest than HHC? Because it is easier to understand. With HHC, you need to analyze property by property. With SRG, I think you could get pretty far just making some portfolio-level assumptions.

--
The other obvious reason why SRG attracts interest is that Buffett bought it in his PA.
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on January 13, 2017, 08:39:51 AM

I think the issue is that the HHC portfolio is more eccentric. Mixed-use. Suburbs. Downtowns. Hawaii. Vegas. The Seritage portfolio is more uniform and therefore simpler to understand.

So, back to your original question. Why does SRG generate more interest than HHC? Because it is easier to understand. With HHC, you need to analyze property by property. With SRG, I think you could get pretty far just making some portfolio-level assumptions.

--
The other obvious reason why SRG attracts interest is that Buffett bought it in his PA.

Fair enough.  It may indeed take five spreadsheets rather than one for some investors to feel comfortable with HHC, and the Buffett point is undoubtedly true.  But I do believe the "portfolio-level assumptions" being made for SRG are sweeping a fair amount of complexity under the rug, and that HHC's assets are better. 
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on January 13, 2017, 10:53:32 AM
It feels like loans to SHLD are subsidizing SRG via the rental income. If that stops, then the loans that were given to SHLD can shift to SRG and indeed we see that happening with the 200m loan @ 6.5% to SRG directly.

The only issue with the argument of below market rents moving to market rents is that this opportunity would be available to anyone who decides to start a REIT, close their retail operations and redevelop their properties (e.g. Macy's/Brookfield). The $4/square foot benefit would seem to only occur if Seritage was sold those properties at a valuation that reflected that low price, otherwise with the redevelopment cost (which presumably others will have to pay as well) then everyone is aiming for higher rents...Also the $4/square foot or $150m per year seems such a small amount compared to the 2-3x higher market rent that the real cost is the redevelopment. Let's hope interest rates stay low enough so that construction costs don't skyrocket.

However commercial real estate is a decent inflation hedge and provides current income.
If disinflation is the status quo, concentration costs should be reasonable and if inflation takes hold the asset value should increase but not sure if it will increase faster than the construction costs.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on January 13, 2017, 11:21:28 AM
Peridotcalital you were regretting having missed this in the 30s.  Are you buying here?  I guess shld bankruptcy could introduce some unknown unknowns.

Funny you should ask... I began initiating positions yesterday when it dipped below $40. Lots of moving parts to the story that require close observation (obviously), so I am not diving in too aggressively, but with a "3" handle it starts to get interesting (~15x FFO based on signed leases).
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on January 13, 2017, 11:45:42 AM
Why do people like this more than/why does it generate so much more interest than Howard Hughes? 

Put another way, why are people more interested in the opportunity to invest a lot of capital into Sears' collection of real estate, as opposed to Howard Hughes' assets, e.g., Ward Village, the South Street Seaport, the Woodlands and Columbia, MD?

I think the higher level of interest on this site is just due to SRG being related to the Sears/Eddie Lampert story, which many here find so remarkable/fascinating/shocking/disturbing/etc.

I have owned HHC since 2013 and I would certainly not say that SRG has better assets... I'm not sure anyone would claim that. SRG is easier to analyze because we know exactly what the properties are and they are quite similar. So we take a $15 or $20 average rent, or whatever you want to use, and it's pretty simple to discount back cash flows over 10 or 20 years.

HHC is different because we really don't know what they are going to build in the future. What will HHC's operating asset NOI be in 10 years? Who the heck knows. Sure, some people are assuming they build 1 condo tower a year for a decade in Ward Village (or whatever they plug into their DCF model), but the degree of confidence in that sort of guesswork is probably quite low given the outside factors that will influence build-out plans.

But I guess your main question is, if HHC has better assets, a great balance sheet, and what appears to be a solid management team, why even bother with SRG if you are interested in long-term real estate development stories? To me, it's the valuation. I might be willing to pay up a little for HHC's assets, but at the right price, SRG might look attractive too even if the assets are worse. It's all about what you are getting and what price you paying, right?

SRG: $2.2B equity/$3.3B E/V

HHC: $4.3B equity/$5.9B E/V

Including signed leases, Seritage's annualized FFO  is pushing $150M.

Howard Hughes is projecting 2019 NOI of $220M ex-SSSP. Let's call it $300M all-in. You would get roughly the same FFO ($150M) in 2019 using current interest and G&A run-rates.

So there's a clear valuation gap between the two. I would argue that is due to the asset quality differential. So at current stock prices, SRG might outperform even with less desirable assets.
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on January 13, 2017, 01:15:24 PM

 SRG is easier to analyze because we know exactly what the properties are and they are quite similar. So we take a $15 or $20 average rent, or whatever you want to use, and it's pretty simple to discount back cash flows over 10 or 20 years.

HHC is different because we really don't know what they are going to build in the future. What will HHC's operating asset NOI be in 10 years? Who the heck knows. Sure, some people are assuming they build 1 condo tower a year for a decade in Ward Village (or whatever they plug into their DCF model), but the degree of confidence in that sort of guesswork is probably quite low given the outside factors that will influence build-out plans.

But I guess your main question is, if HHC has better assets, a great balance sheet, and what appears to be a solid management team, why even bother with SRG if you are interested in long-term real estate development stories? To me, it's the valuation. I might be willing to pay up a little for HHC's assets, but at the right price, SRG might look attractive too even if the assets are worse. It's all about what you are getting and what price you paying, right?

SRG: $2.2B equity/$3.3B E/V

HHC: $4.3B equity/$5.9B E/V

Including signed leases, Seritage's annualized FFO  is pushing $150M.

Howard Hughes is projecting 2019 NOI of $220M ex-SSSP. Let's call it $300M all-in. You would get roughly the same FFO ($150M) in 2019 using current interest and G&A run-rates.

So there's a clear valuation gap between the two. I would argue that is due to the asset quality differential. So at current stock prices, SRG might outperform even with less desirable assets.

That's fair.  I'm just less sanguine about the SRG/Sears assets.

Your HHC numbers don't include cash margin on land/condo sales, right?  I realize those are very difficult to predict the timing of. 
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on January 13, 2017, 01:40:01 PM

That's fair.  I'm just less sanguine about the SRG/Sears assets.

Your HHC numbers don't include cash margin on land/condo sales, right?  I realize those are very difficult to predict the timing of.

Correct, I excluded the net proceeds from one-time property sales. That money will obviously help fund development in the sense that debt financing requirements will be lower, which should hold interest expenses in check. But the more detailed way of valuing it would be to separate the operating properties (FFO multiple) and the undeveloped land (DCF) and sum the two.

It might seem like apples to oranges to ignore it in my post, but SRG also has a lot of embedded real estate value that is not included in the FFO figure I used (below market leases on Sears locations they continue to use).
Title: Re: SRG - Seritage Growth Properties
Post by: KJP on January 13, 2017, 02:48:48 PM

That's fair.  I'm just less sanguine about the SRG/Sears assets.

Your HHC numbers don't include cash margin on land/condo sales, right?  I realize those are very difficult to predict the timing of.

Correct, I excluded the net proceeds from one-time property sales. That money will obviously help fund development in the sense that debt financing requirements will be lower, which should hold interest expenses in check. But the more detailed way of valuing it would be to separate the operating properties (FFO multiple) and the undeveloped land (DCF) and sum the two.

It might seem like apples to oranges to ignore it in my post, but SRG also has a lot of embedded real estate value that is not included in the FFO figure I used (below market leases on Sears locations they continue to use).

You've clearly been paying attention to HHC, so perhaps there are many others like you that have analyzed it/are following it and it just doesn't generate the same number of posts on this board that SRG/SHLD do because of all the hubbub surrounding Sears. 

For newcomers to the area who are interested in long-term real estate development stories, though, I would encourage them to look at both.  I would also throw in Dream Unlimited for the Canadian crowd, but that's even more of a grabbag than HHC. 
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on January 13, 2017, 04:47:40 PM
anybody thinking there might be short squeeze coming up with low valuation and 28% of shares short? It is one of most shorted stocks on NYSE, and with small float could move up quickly like last spring. lots of value hands in this however low it goes...

http://www.wsj.com/mdc/public/page/2_3062-nyseshort-highlites.html
Title: Re: SRG - Seritage Growth Properties
Post by: cmlber on January 13, 2017, 06:14:50 PM
anybody thinking there might be short squeeze coming up with low valuation and 28% of shares short? It is one of most shorted stocks on NYSE, and with small float could move up quickly like last spring. lots of value hands in this however low it goes...

http://www.wsj.com/mdc/public/page/2_3062-nyseshort-highlites.html

Cost to borrow SHLD is like 65%, so it's being used as a cheaper way to short SHLD I guess. 

I have two problems with this one, 1) the fraudulent conveyance risk seems pretty high to me, given that the long thesis is essentially "the assets SHLD transferred to SRG are worth way more than the price paid" and 2) 10-20 years from now, who is going to use all of the empty boxes left by Sears, Macys, Dillards, JC Penney, etc.?  On a relative basis, it looks pretty cheap, but would anyone long SRG actually consider buying REIT comps?
Title: Re: SRG - Seritage Growth Properties
Post by: dutchman on January 14, 2017, 07:22:48 AM
Thanks for your reply peridot.   Looks like Berkowitz bought another 140k shares fwiw.
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on January 14, 2017, 01:05:45 PM
anybody thinking there might be short squeeze coming up with low valuation and 28% of shares short? It is one of most shorted stocks on NYSE, and with small float could move up quickly like last spring. lots of value hands in this however low it goes...

http://www.wsj.com/mdc/public/page/2_3062-nyseshort-highlites.html

Cost to borrow SHLD is like 65%, so it's being used as a cheaper way to short SHLD I guess. 

I have two problems with this one, 1) the fraudulent conveyance risk seems pretty high to me, given that the long thesis is essentially "the assets SHLD transferred to SRG are worth way more than the price paid" and 2) 10-20 years from now, who is going to use all of the empty boxes left by Sears, Macys, Dillards, JC Penney, etc.?  On a relative basis, it looks pretty cheap, but would anyone long SRG actually consider buying REIT comps?

1) Is fraudulent conveyance risk still in play if they lap the 2 year anniversary on the rights offering without a significant credit event?

2) This is the thematic issue that bothers me, however a mitigating factor is that there is always going to be a use for centralize real estate the question is just what the economics will be on whatever ends up being the first and best use 10 years from now. Worst case scenario, some of the boxes turn into warehouses, distribution centers, etc, right? It's not like the downside is them being left empty, the downside is now getting a $20-40/sqft tenant, but perhaps you can balance the economics by spending less on redevelopment. Would be interested to hear other's thoughts on this though as it is a big overhang with the amount of real estate that might come on the market if traditional retail continues to falter.
Title: Re: SRG - Seritage Growth Properties
Post by: stevevri on January 14, 2017, 02:23:40 PM
http://www.santacruzsentinel.com/business/20170113/sears-proposed-makeover-raises-questions-about-capitola-malls-future
Title: Re: SRG - Seritage Growth Properties
Post by: globalfinancepartners on January 15, 2017, 07:50:19 AM
FWIW - Bruce is adding this week -
https://www.sec.gov/Archives/edgar/data/1214344/000091957417000504/xslF345X03/p7394173.xml
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on January 15, 2017, 09:51:15 AM
It was maximum buying rate too, about 10-20% of the volume on each of the three days.
Title: Re: SRG - Seritage Growth Properties
Post by: cmlber on January 16, 2017, 10:57:27 AM
1) Is fraudulent conveyance risk still in play if they lap the 2 year anniversary on the rights offering without a significant credit event?

2) This is the thematic issue that bothers me, however a mitigating factor is that there is always going to be a use for centralize real estate the question is just what the economics will be on whatever ends up being the first and best use 10 years from now. Worst case scenario, some of the boxes turn into warehouses, distribution centers, etc, right? It's not like the downside is them being left empty, the downside is now getting a $20-40/sqft tenant, but perhaps you can balance the economics by spending less on redevelopment. Would be interested to hear other's thoughts on this though as it is a big overhang with the amount of real estate that might come on the market if traditional retail continues to falter.

1) I'm not a lawyer, but I believe the look back period is 4 years under Illinois state law.  And I believe a case can be made that each time SHLD gives back space, that is a new transfer with it's own 4 (or 2) year clock.

2) I'm sure there will be some use for these boxes, but how valuable will those uses be?  There may be lower rent / lower redevelopment cost options, but it's a big unknown.  At this price, if you were comfortable with 1), it's probably not a huge risk though.   Especially since some of SRG's properties are high end centers that will likely always exist.
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on January 16, 2017, 12:22:14 PM
1) I'm not a lawyer, but I believe the look back period is 4 years under Illinois state law.  And I believe a case can be made that each time SHLD gives back space, that is a new transfer with it's own 4 (or 2) year clock.

2) I'm sure there will be some use for these boxes, but how valuable will those uses be?  There may be lower rent / lower redevelopment cost options, but it's a big unknown.  At this price, if you were comfortable with 1), it's probably not a huge risk though.   Especially since some of SRG's properties are high end centers that will likely always exist.

Thanks - that's an interesting point on the nuanced mechanics of SHLD putting back space. Not a lawyer either, but I would imagine that wouldn't count as a new transfer since ownership has already transferred and SHLD is just putting back space under the master lease. The argument could definitely be made either way and I'm not sure how the law would look at such a situation.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on January 16, 2017, 02:59:54 PM
Investors in SRG should be rooting for a fraudulent conveyance case since it would suggest they got a good deal. If the case won't pay out much, shareholders may have overpaid and not be so happy :)
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on January 17, 2017, 07:39:59 AM
http://www.businesswire.com/news/home/20170117005459/en/Seritage-Growth-Properties-Announces-Leasing-Development-Activity
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on January 30, 2017, 03:00:25 PM
So I just did some semi-anecdotal research and thought I'd share with you guys. As of 3Q16, SRG has developed or began working on 25 projects totalling 2 million square feet. This doesn't include the 15 projects that commenced prior to the SHLD spinoff. They've spent $286,500,000 on these 2 million sq ft, which is about $150 PSF. Incremental NOI PSF is $16.35, for a 11.4% yield.

What surprised me was the modest quality of these 25 properties. First of, 9 of the projects are in B or C rated malls at $250 to $400 PSF in sales. Only half of the projects are in malls. The other half are in freestanding/shopping centers for which I don't have the PSF information, except the Park North Shopping Center in San Antonio, which has $760 PSF in sales (auto center being redeveloped there). Overall, 5 of the properties are class A rated including this one shopping center. I'm assuming the rest of the non-malls are B rated at best. 5 of the properties are Kmarts, with the balance being Sears and/or Auto Centers.

What struck me is that 3 of the Kmarts are earning hefty rents upon redevelopment - $15, $17, $29 incremental PSF, based on reverse engineering the 11.4% incremental yield. What is also interesting is the site densification. For instance, the King of Prussia Auto Center is being redeveloped into a 29,100 square feet project, while the former Sears auto center occupied only 21,260 SF of space.

I guess the takeaway from this, for me atleast, is that (1) they're not necessarily working on their very best properties first, (2) Freestanding/Shopping centers/Kmarts are not all duds, (3) Class C/B do have very good potential, (4) Don't ignore the use of all the land/acres where they can build more.

This is 2 million out of 40 million SF of space, so about 5%, not exactly indicative of the entire company but can't be ignored either. Also they announced 680,500 SF of new activity at a cost of $166 PSF in 8 projects during 4Q16 at 14-15% incremental yield..should be very interesting to see which properties these are when they release earnings.



Title: Re: SRG - Seritage Growth Properties
Post by: negative alpha on January 31, 2017, 10:14:55 AM
These are also unlevered yields; add a bit of debt and the ROI gets really interesting.
Title: Re: SRG - Seritage Growth Properties
Post by: BargainValueHunter on February 02, 2017, 11:53:34 AM
FWIW - Bruce is adding this week -
https://www.sec.gov/Archives/edgar/data/1214344/000091957417000504/xslF345X03/p7394173.xml
Berkowitz is up to 3,649,550 shares as of yesterday. He probably should have traded out of his large SHLD position 18 months ago and into SRG then.
Title: Re: SRG - Seritage Growth Properties
Post by: argonaut on February 02, 2017, 05:28:50 PM
Has anyone confirmed that WEB Stills owns his block from 2015?
Title: Re: SRG - Seritage Growth Properties
Post by: sleepydragon on February 02, 2017, 08:29:31 PM
Just found out Berkowitz voted for Trump...

Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on February 03, 2017, 09:20:43 AM
Any chance that anybody here attended the 2016 AGM?
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on February 03, 2017, 09:41:27 AM
Has anyone confirmed that WEB Stills owns his block from 2015?

I think he's got till Feb 15 to report the updated form. He usually waits until the last day on this stuff. He could have sold in the 50s last spring and then bought back, but you wouldn't know until Feb 2018!

There was a time in the early 2000s, I think Bell Industries, and he bought in Dec and sold in Jan for 50%! Then bought back in when it went down again. Could be hazardous if one just goes off of his formal SEC reports for his personal account.

http://articles.latimes.com/2000/nov/09/business/fi-49227
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on February 03, 2017, 10:02:14 AM
I'm not sure the Bell thing is the same situation.in October 1999 there was a takeover proposal,

 "Bell Industries Inc., an electronics and computer-products maker and distributor based in El Segundo, said it rejected as inadequate a $5.30-a-share offer by Steel Partners II. Bell told the New York-based investment fund that it would consider a higher offer. Bell's shares, which reached a 52-week high of $6 last month, rose 31 cents, or 7%, to close at $4.88. The shares have jumped 21% during the past year. Steel Partners is Bell's largest shareholder, with a stake of 15%, as of last March."

"An investment group disclosed that it sold about two-thirds of its Bell Industries Inc. holdings after company shares soared on reports that billionaire investor Warren Buffett had acquired a stake in the El Segundo-based systems integrator. Steel Partners sold more than 1.1 million common shares from Monday through Wednesday for $5.76 to $6.37 apiece, according to an amended Schedule 13D filed with the Securities and Exchange Commission. The shares were worth about $7.1 million."

My theory is that if Buffett went in for a sort of merger arbitrage then if the stock spikes 50% past any reasonable buy-out price, it's like getting the cash settlement in a merger closing without having to wait for any regulatory closing or even to find a buyer! Steel Partners did it for the same reason most likely.

I can't prove it, but my feeling is that SRG is a slower, more long-term development and growth of a REIT with regular dividends along the way with a larger payoff still to come down the road. RBC put out a report with an intrinsic value of $75+ per share. Of course if it got way ahead, like maybe at $57 in April 2016, why not sell it?
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on February 14, 2017, 03:33:34 PM
It looks like Uncle Warren is still keeping the faith, I haven't seen a 13 G amendment yet...
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on February 28, 2017, 04:44:23 PM
http://www.businesswire.com/news/home/20170228006795/en/Seritage-Growth-Properties-Reports-Fourth-Quarter-Full

For the three months ended December 31, 2016:
For the year ended December 31, 2016:
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on March 07, 2017, 01:31:31 PM
I don't seem to recall them breaking this out before. Possible I missed it, but helpful with understanding how redevelopments are being prioritized:

(http://i.imgur.com/SvewrqU.png)
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on March 15, 2017, 02:22:07 PM
Today's SCHEDULE 14A says the annual meeting is in NY on April 25th.  Is anyone going?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on March 15, 2017, 02:55:02 PM
Today's SCHEDULE 14A says the annual meeting is in NY on April 25th.  Is anyone going?

Maybe I'll try if I can get out of work
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on March 15, 2017, 03:26:09 PM
Today's SCHEDULE 14A says the annual meeting is in NY on April 25th.  Is anyone going?

Was anyone at last year's?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 15, 2017, 06:28:26 PM
Will Buffett go?
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 15, 2017, 09:09:22 PM
Today's SCHEDULE 14A says the annual meeting is in NY on April 25th.  Is anyone going?

I'm interested in going, but will have to fly in from Chicago. I'm guessing it won't be a dog and pony show like a Coke meeting considering the below the radar nature, maybe we can ask about why they pay the dividend?!
Found this helpful guide while researching http://www.concernedshareholders.com/CCS_ShareholderQuestions.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on March 16, 2017, 08:32:49 AM
Today's SCHEDULE 14A says the annual meeting is in NY on April 25th.  Is anyone going?

I'm interested in going, but will have to fly in from Chicago. I'm guessing it won't be a dog and pony show like a Coke meeting considering the below the radar nature, maybe we can ask about why they pay the dividend?!
Found this helpful guide while researching http://www.concernedshareholders.com/CCS_ShareholderQuestions.pdf

Someone on this board called management and asked them the dividend question. They basically said some bullshit like "all REITs pay dividends".

I believe the real reason is because dividends vest immediately on their restricted stock whereas the stock doesn't vest unless it's above a certain price by a certain date.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on March 16, 2017, 10:35:54 AM
EQC pay no divvy.  Is buying back stock tho.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 16, 2017, 10:46:55 AM
There's some truth that all REITs pay dividends. Aren't they by law required to pay out 90% of profits each year? I.e. they can't have retained earnings? But I wasn't clear if this is net income or NOI. For example, SRG shows a net loss figure of $51 millionn in 2016 but if you back out certain non-cash charges and look at the cash-flow statement,  it is in fact earning an operating profit of $92 million for 2016.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on March 16, 2017, 11:02:47 AM
There's some truth that all REITs pay dividends. Aren't they by law required to pay out 90% of profits each year? I.e. they can't have retained earnings? But I wasn't clear if this is net income or NOI. For example, SRG shows a net loss figure of $51 millionn in 2016 but if you back out certain non-cash charges and look at the cash-flow statement,  it is in fact earning an operating profit of $92 million for 2016.

I'd be surprised if they were required to pay out 90% of a non-GAAP number? But I don't really know one way or the other
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 16, 2017, 11:37:24 AM
Yes I think you're right. I read that it is taxable income that should be distributed to not be taxed. And depreciation expense is deducted from taxable income. However, some websites write, "REITs also distribute money from operating profits that are currently tax sheltered by depreciation and other deductions. These payments are considered a return of capital that lowers one's cost basis. If an investor holds the REIT for more than one year, it is fair to assume that the return-of-capital adjustments to basis give rise to long-term gains taxed at a favorable rate. In 2013, return-of-capital distributions constituted 14% of REIT payments". I'm now wondering if the SRG dividend is in fact an income taxable dividend or adjusts the cost basis of your shares.

Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on March 16, 2017, 11:56:57 AM
Yes I think you're right. I read that it is taxable income that should be distributed to not be taxed. And depreciation expense is deducted from taxable income. However, some websites write, "REITs also distribute money from operating profits that are currently tax sheltered by depreciation and other deductions. These payments are considered a return of capital that lowers one's cost basis. If an investor holds the REIT for more than one year, it is fair to assume that the return-of-capital adjustments to basis give rise to long-term gains taxed at a favorable rate. In 2013, return-of-capital distributions constituted 14% of REIT payments". I'm now wondering if the SRG dividend is in fact an income taxable dividend or adjusts the cost basis of your shares.

Hmm interesting. I found this:

"What determines the breakdown of each distribution? Put simply, the REIT's earnings and profits and its business activities in general. A REIT generates earnings and profits. To the extent that it makes distributions out of these earnings and profits, this portion is taxable to unit holders at their ordinary income levels. To the extent that the REIT makes distributions that result from the sale of capital assets -- such as buildings -- this portion will be taxable to unit holders at long term capital gains rates. Finally, to the extent that the REIT makes distributions in excess of earnings and profits, this portion constitutes a return of capital. Why would a REIT make a distribution in excess of earnings and profits? There are a variety of reasons. A REIT that suffered a sharp decline in funds from operations, for example, might make a distribution with an unusually large "return of capital" component. REITs tend to avoid cutting back on distributions. As a result, a REIT facing a fairly unprofitable year but with a traditionally high distribution rate would necessarily need to draw on investors' capital to make the distributions."

I guess because GAAP income is negative, dividends are in excess and therefore considered return of capital? Odd since I my brokerage doesn't treat it as such.

I've got SRG in a rIRA so I think I'll need to figure this out. If memory serves me correctly, return of capital and Roth IRAs have some weird rules.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 16, 2017, 12:51:34 PM
The reit.com website has the dividend classification, looks like ordinary income for seritage and not return of capital, but I'm not sure why.

https://www.reit.com/data-research/data/year-end-tax-reporting-data/2016/seritage-growth-properties
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 16, 2017, 02:06:58 PM
Yeah same here and I did see on bogleheads wiki (https://www.bogleheads.org/wiki/Return_of_capital_distribution):

"In the case of equity REIT funds, the return of capital distribution mainly reflects the accounting value of real estate depreciation (operating earnings are in excess of earnings including depreciation). As most dividends distributed by equity REITS are non-qualified dividends, taxed at marginal rates, the return of capital dividend serves, for taxable account investors, to both defer taxation and to switch the taxation of the distribution from marginal rates to usually lower capital gains rates"

Maybe there's an esoteric reason one can ask at the AGM - or you have to make a special election?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on March 20, 2017, 11:29:50 AM
Another new VIC writeup

https://valueinvestorsclub.com/idea/SERITAGE_GROWTH_PROPERTIES/139715
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on March 20, 2017, 04:22:42 PM
I think the latest VIC write up captures the current situation very well.

As a shareholder, I am also encouraged by the reported significant short interest.  This will fuel the fire for gains eventually.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on March 20, 2017, 04:46:07 PM
Statistically, historically, (in the academic literature and elsewhere) high short interest is a correlated with underperformance, right?

<Edited to clarify>
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on March 20, 2017, 04:54:28 PM
I think I understand the question. 
My anecdotal perspective is that short interest has always been bigly, but it has gone up somewhat.
Title: Re: SRG - Seritage Growth Properties
Post by: aalexa1225 on March 21, 2017, 09:57:38 AM
Can someone share the VIC investor write up?

AOA
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on March 21, 2017, 10:30:56 AM
This part of that latest VIC writeup is important:
Quote
at some point, it will be highly accretive to Seritage if Sears vacates all of the space in the SRG portfolio (either voluntarily or in bankruptcy). In the very short term, the loss of operating income might prove challenging. In the long run, however, if you believe in the redevelopment proposition and the value of the underlying real estate, it would be far more valuable to be able to reclaim 100% of the Sears GLA than just 50% at most locations where Sears is paying rent that is meaningfully below market rates.

It is kind of related to a point made in today's https://www.wsj.com/articles/surprise-outlet-malls-are-hot-1490094007 article:
Quote
The strong performance is partly due to the lack of department stores such as Macy’s, Sears or J.C. Penney in outlet centers, which cater to individual brands such as Coach Inc.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 21, 2017, 11:01:32 AM
It's interesting that arguably one the best investment ideas in the current market could also be one of the most highly shorted stocks on the entire NYSE.

Sort of smells like the Wash Po opportunity in the mid 1970s when everyone knew it was worth 4x but no one bought except for those like Buffett and Berkshire
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on March 21, 2017, 11:11:41 AM
I am not familiar with academic literature on short interest correlations.  I will paraphrase Buffett and say that we pay a hefty price for a cheerful consensus. 
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 23, 2017, 08:19:33 AM
Looks like Seritage has improved their website and added more details on development plans at a few locations. Has anyone participated in a stock yield enhancement program, loaning out their shares to shorts?
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on March 24, 2017, 12:09:20 PM
The updated website looks great.  Not sure about lending out shares because IB won't let me do it in Canada.

I am also wondering whether we might see Seritage buy the next 1B in RE that Sears says it is shopping around.  The timeline would presumably be in the next year or so given Sears' cash burn.
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on March 24, 2017, 01:26:06 PM
The updated website looks great.  Not sure about lending out shares because IB won't let me do it in Canada.

I am also wondering whether we might see Seritage buy the next 1B in RE that Sears says it is shopping around.  The timeline would presumably be in the next year or so given Sears' cash burn.

I doubt it. They already have I think ~$500 million, going off of memory of development costs in the pipeline that they will need to fund. And you can bet Sears will be closing 100s more stores that they will have on their lap in the next year or two. Don't really have the capital to take on more stores.
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on March 24, 2017, 01:34:46 PM
The updated website looks great.  Not sure about lending out shares because IB won't let me do it in Canada.

I am also wondering whether we might see Seritage buy the next 1B in RE that Sears says it is shopping around.  The timeline would presumably be in the next year or so given Sears' cash burn.

I doubt it. They already have I think ~$500 million, going off of memory of development costs in the pipeline that they will need to fund. And you can bet Sears will be closing 100s more stores that they will have on their lap in the next year or two. Don't really have the capital to take on more stores.

I think they will raise equity fairly soon. SRG will do a rights offering and Eddie will backstop it. I actually think they should do it now, before SHLD goes belly up.
Title: Re: SRG - Seritage Growth Properties
Post by: muscleman on March 31, 2017, 09:08:57 AM
https://www.wsj.com/articles/short-sellers-pounce-on-sears-landlord-1490912176
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on March 31, 2017, 12:23:09 PM
Shorting a stock that Buffett owns... ¯\_(ツ)_/¯
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on March 31, 2017, 12:40:57 PM
Shorting a stock that Buffett owns... ¯\_(ツ)_/¯

It makes no sense to me either. This stock is owned by deep pocketed investors, not retail. I think folks short this as a derivative play of an SHLD short, because the borrow is way cheaper and there is more liquidity. It's appears a pretty stupid play, because a Sears bankruptcy will in my opinion not impact the investment thesis and in fact even may accelerate the value creation. I would laugh if SRG on the day of SHLD bankruptcy announcement gaps down $3 and then recovers the losses before the day is over. Wouldn't surprise me the least and I don't think there are quite a few in investors willing to step in when SRG shares fall, but what do I know.

disclosure: I don't own SRG
Title: Re: SRG - Seritage Growth Properties
Post by: tylerdurden on March 31, 2017, 12:50:45 PM
Shorting a stock that Buffett owns... ¯\_(ツ)_/¯

It makes no sense to me either. This stock is owned by deep pocketed investors, not retail. I think folks short this as a derivative play of an SHLD short, because the borrow is way cheaper and there is more liquidity. It's appears a pretty stupid play, because a Sears bankruptcy will in my opinion not impact the investment thesis and in fact even may accelerate the value creation. I would laugh if SRG on the day of SHLD bankruptcy announcement gaps down $3 and then recovers the losses before the day is over. Wouldn't surprise me the least and I don't think there are quite a few in investors willing to step in when SRG shares fall, but what do I know.

disclosure: I don't own SRG

Don't you think SRG still needs some time to develop more properties to have the cash flows to stand by its own? If we see a Sears bankruptcy too soon, SRG might have to hold the bag with too many undeveloped properties and their existing costs etc. Perhaps you think SRG is already pass this point, not sure...
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on March 31, 2017, 01:00:24 PM
Shorting a stock that Buffett owns... ¯\_(ツ)_/¯

It makes no sense to me either. This stock is owned by deep pocketed investors, not retail. I think folks short this as a derivative play of an SHLD short, because the borrow is way cheaper and there is more liquidity. It's appears a pretty stupid play, because a Sears bankruptcy will in my opinion not impact the investment thesis and in fact even may accelerate the value creation. I would laugh if SRG on the day of SHLD bankruptcy announcement gaps down $3 and then recovers the losses before the day is over. Wouldn't surprise me the least and I don't think there are quite a few in investors willing to step in when SRG shares fall, but what do I know.

disclosure: I don't own SRG

Don't you think SRG still needs some time to develop more properties to have the cash flows to stand by its own? If we see a Sears bankruptcy too soon, SRG might have to hold the bag with too many undeveloped properties and their existing costs etc. Perhaps you think SRG is already pass this point, not sure...

I think they will be fine, even if SHLD were to go bankrupt tomorrow. For one, SHLD going bankrupt does not mean that all the stores will close and stop paying rent at the same time. They will have to close some and probably keep others open to liquidate properly, especially if they are cash positive on a store basis. I also think SRG would raise funds easily with a rights offering. Sure, the stock might go down a little, but even that is not a sure thing. I think Eddie would be happy to pump money into this business and WEB would not have an issue either.
Title: Re: SRG - Seritage Growth Properties
Post by: NBL0303 on March 31, 2017, 01:00:33 PM
Shorting a stock that Buffett owns... ¯\_(ツ)_/¯

It makes no sense to me either. This stock is owned by deep pocketed investors, not retail. I think folks short this as a derivative play of an SHLD short, because the borrow is way cheaper and there is more liquidity. It's appears a pretty stupid play, because a Sears bankruptcy will in my opinion not impact the investment thesis and in fact even may accelerate the value creation. I would laugh if SRG on the day of SHLD bankruptcy announcement gaps down $3 and then recovers the losses before the day is over. Wouldn't surprise me the least and I don't think there are quite a few in investors willing to step in when SRG shares fall, but what do I know.

disclosure: I don't own SRG

Don't you think SRG still needs some time to develop more properties to have the cash flows to stand by its own? If we see a Sears bankruptcy too soon, SRG might have to hold the bag with too many undeveloped properties and their existing costs etc. Perhaps you think SRG is already pass this point, not sure...

That is a good point - a Sears bankruptcy would likely impact the short term finances of Seritage and would likely force Seritage to more aggressively obtain funds for development but SRG has many levers it can pull to finance development.  There would be any number of potential joint venture partners who could finance the re-development, that would, of course, entail SRG giving up some of the upside of these but these JV re-development projects would still generate significant value for SRG.  The point is I think the funding concerns that I've heard some institutional investors mention about SRG are not fully warranted.
Title: Re: SRG - Seritage Growth Properties
Post by: tylerdurden on March 31, 2017, 02:01:24 PM
I might be wrong but If Sears goes bankrupt tomorrow, SRG might end up getting many properties from Sears right away rather than gradually as the way it is set up now. I think they have to pay the costs of all these properties like utilities, property taxes perhaps etc. so that was a potential concern for some contributors on this forum before. In that type of scenario it might also be tougher to find JV partners as well since there will be a lot of properties going into a market which might be already oversupplied because of what's going on with the retail these days.

I agree that they'd do a rights issuing if they need to so long-term it could be still fine even under that scenario. Personally I think Lampert and Berkowitz will play around with Sears and float the company as long as they need in order to make sure SRG becomes independent at the end. Only at that time they'd pull the plug on Sears I think...
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 31, 2017, 03:58:14 PM
Sears rental income is estimated to be 50% of total rents by end 2017, so extrapolating ... 36% by 2018, 22% by 2019. That would put it at 33 million by then. If total SRG NOI is estimated to be around a 10% yield at the end of this process ($2.4 billion market cap, $240m noi) then 330m or ~$6/share of permanently lost rental income...but the diversification of the end portfolio I think will add more than $330m of value. According to their latest presentation, they show that $64m of incremental 3rd party rents would translate to $481m net value creation. So half of that or 32m would be $250m. $80m difference...or $1.43/share loss.
could take longer. could require more leverage. could be more expensive.

two thoughts -
-the current environment is killer. Would you rather develop at 2% rates or 5%? The more they develop faster the better, as the cost will be somewhat lower.
-if you knew the end result, would you prefer a volatile stock with lots of noise or one that moves up very slowly? Would you prefer to have lots of short sellers who sometimes get their day, and sometimes get clobbered? Buffett I think said at the AGM that SRG will NOT do as well as Berkshire. But here's the difference. Berkshire doesn't have 10-15% down days or even a week. But I've seen SRG go down that amount a few times in just 1.5 years. So even if it may not do as well, I wonder if someone who can play the volatility could in fact do just as well.
Title: Re: SRG - Seritage Growth Properties
Post by: NBL0303 on March 31, 2017, 05:31:31 PM
I might be wrong but If Sears goes bankrupt tomorrow, SRG might end up getting many properties from Sears right away rather than gradually as the way it is set up now. I think they have to pay the costs of all these properties like utilities, property taxes perhaps etc. so that was a potential concern for some contributors on this forum before. In that type of scenario it might also be tougher to find JV partners as well since there will be a lot of properties going into a market which might be already oversupplied because of what's going on with the retail these days.


According to Simon and Macerich they are just waiting on SRG to do more joint ventures and they are very pleased with the current SRG JVs (the CEOs of both have commented on this publicly) so I don't believe there is a lack of interest from JV partners for SRG re-development projects.  I believe that SRG is trying to avoid going that route and is trying to hold on to all of as many properties as they can.
Title: Re: SRG - Seritage Growth Properties
Post by: tylerdurden on April 04, 2017, 10:33:05 AM
I might be wrong but If Sears goes bankrupt tomorrow, SRG might end up getting many properties from Sears right away rather than gradually as the way it is set up now. I think they have to pay the costs of all these properties like utilities, property taxes perhaps etc. so that was a potential concern for some contributors on this forum before. In that type of scenario it might also be tougher to find JV partners as well since there will be a lot of properties going into a market which might be already oversupplied because of what's going on with the retail these days.


According to Simon and Macerich they are just waiting on SRG to do more joint ventures and they are very pleased with the current SRG JVs (the CEOs of both have commented on this publicly) so I don't believe there is a lack of interest from JV partners for SRG re-development projects.  I believe that SRG is trying to avoid going that route and is trying to hold on to all of as many properties as they can.

Understood. Good point. JV partners would be interested with higher quality assets anyways so as long as SRG provides them those better quality assets, they'd be happy campers I suppose.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on April 07, 2017, 07:35:08 AM
The Aventura Mall (Miami/Bal Harbour) Development is going through.  Here are some pieces of an article on it.  As many know this is a valuable piece of dirt for Seritage.

The South Florida Business Journal has confirmed that the Sears near the Aventura Mall will begin its liquidation sale April 28 and close for business in mid-July.

The site at 19505 Biscayne Blvd. in Aventura will be the location of a major project as the property owner, Seritage Growth Properties (NYSE: SRG), begins construction on Esplanade at Aventura, a large mixed-use development.


A Kmart on property that Seritage also owns at 1460 W. 49th St. in Hialeah will begin its liquidation sale April 27 and also close in mid-July.

Seritage has not yet revealed its plans for the Kmart site, but aims to start construction by the end of the year on Esplanade at Aventura, which the real estate investment trust bills as a "world-class shopping and dining destination."

The first phase of Esplanade at Aventura will total approximately 215,000 square feet of retail, restaurant and entertainment venues and is expected to break ground later this year. There is not yet information available about how many jobs the project would create.

"The Esplanade at Aventura is poised to deliver long-term value to the community through an enhanced retail experience and the creation of a substantial number of jobs," said Jason Chudoba, a spokesman for Seritage. "We appreciate the support we have received from the city of Aventura and the community, and look forward to sharing further updates in the near future."

Aventura officials granted Seritage site plan approval for the project in December 2016. Recapturing the lease from Sears was a step forward for the Esplanade project.

Earlier this year, Sears Holdings Corp. (Nasdaq: SHLD) announced the completion of a sale of 235 Sears- and Kmart-branded stores to Seritage along with other holdings, effectively spinning off the properties into Seritage, which began trading on the New York Stock Exchange on July 6, 2015.

Under that agreement, Seritage has the right recapture some properties, and did so with both Sears in Aventura and Kmart in Hialeah.
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on April 07, 2017, 08:31:27 AM
Could you link the article?
Title: Re: SRG - Seritage Growth Properties
Post by: globalfinancepartners on April 07, 2017, 08:33:04 AM
http://www.bizjournals.com/southflorida/news/2017/04/06/sears-store-near-aventura-mall-kmart-in-hialeah.html

Could you link the article?
Title: Re: SRG - Seritage Growth Properties
Post by: BargainValueHunter on April 22, 2017, 04:13:56 AM
Barron's turns bullish on Lampert:

http://www.barrons.com/articles/lamperts-seritage-strategy-could-lead-to-long-term-gains-1492836691

Quote
Pabrai doesn’t think an equity raise is likely; he says Seritage will have no trouble lining up private capital. In addition to Lampert, he ticks off a list of potential investors that could include Berkshire Hathaway, Bill Ackman’s Pershing Square, and Cascade Investment, Bill Gates’ investment vehicle.

He puts the maximum capital raise at $1 billion, followed by $1 billion over a few years for redevelopment projects. The big risk for current shareholders would be the extent of any potential dilution. That, too, could lower the long-term stock opportunity.

Title: Re: SRG - Seritage Growth Properties
Post by: tylerdurden on April 24, 2017, 06:54:22 AM
According to this week's Barron, Mohnish Pabrai sold all SRG shares.

My conviction on this name quadrupled now just based on this development:-)

I think he sold Southwest in a short period of time too so I guess he is losing his patience a little bit these days...
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on April 24, 2017, 07:15:10 AM
According to this week's Barron, Mohnish Pabrai sold all SRG shares.

My conviction on this name quadrupled now just based on this development:-)

I think he sold Southwest in a short period of time too so I guess he is losing his patience a little bit these days...

reading between the lines it seems that he plans on buying back in once SHLD files and SRG ostensibly gets hit hard.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on April 24, 2017, 07:16:25 AM
Buffett still holds.
Title: Re: SRG - Seritage Growth Properties
Post by: tylerdurden on April 24, 2017, 07:26:30 AM
According to this week's Barron, Mohnish Pabrai sold all SRG shares.

My conviction on this name quadrupled now just based on this development:-)

I think he sold Southwest in a short period of time too so I guess he is losing his patience a little bit these days...

reading between the lines it seems that he plans on buying back in once SHLD files and SRG ostensibly gets hit hard.

"I might take another bite at the apple" that's what he says so if SHLD files before 2019-2020 according to his estimates he might get a better deal. If not, perhaps no mo SRG apple for Mr Pabrai.
Title: Re: SRG - Seritage Growth Properties
Post by: Gamecock-YT on April 24, 2017, 09:19:32 AM


I think he sold Southwest in a short period of time too so I guess he is losing his patience a little bit these days...

Maybe he did a bit of research and realized their talk of flying to Europe was an absolute pipe dream.
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on April 25, 2017, 10:49:34 AM
If anyone attends the annual meeting and can post notes, I would appreciate it.
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on May 03, 2017, 08:16:00 PM
https://www.sec.gov/Archives/edgar/data/1628063/999999999717005898/filename1.pdf

ORDER GRANTING CONFIDENTIAL TREATMENT UNDER THE SECURITIES EXCHANGE ACT OF 1934

excluded information from the following exhibit will not be released to the public for the time period specified: Exhibit 10.4 through July 7, 2025
Title: Re: SRG - Seritage Growth Properties
Post by: johnny on May 04, 2017, 03:26:29 PM
Is there an obvious set of possible implications here or is it a Total Mystery?

Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on May 04, 2017, 04:46:58 PM
https://www.sec.gov/Archives/edgar/data/1628063/000156459017008851/srg-ex991_6.htm
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on May 04, 2017, 06:09:01 PM
by my math, SRG is a mere 3 quarters of redevelopment activity away from being "safe" from a worst case scenario, assuming they continue to redevelop at the same pace. by that, i mean that by the beginning of 2018, even if Sears declares bankruptcy, ceases all rent payments immediately, and SRG is on the hook for all costs associated with old Sears properties, they'll be cash flow positive.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 04, 2017, 07:02:09 PM
It's exciting that La Jolla and Carson are now both 100% recapture.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on May 04, 2017, 09:04:57 PM
pg 9 has the layout for the new orlando build. Phase 2 includes residential. It seems like the old enclosed mall concept really is dying and transitioning into a community feel with lots of pads in the parking lots.

http://www.cityoforlando.net/greenworks/wp-content/uploads/sites/27/2016/11/MPBStaffReport2016-11_MPL2016-00048.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: tylerdurden on May 05, 2017, 06:45:48 AM
by my math, SRG is a mere 3 quarters of redevelopment activity away from being "safe" from a worst case scenario, assuming they continue to redevelop at the same pace. by that, i mean that by the beginning of 2018, even if Sears declares bankruptcy, ceases all rent payments immediately, and SRG is on the hook for all costs associated with old Sears properties, they'll be cash flow positive.

Interesting. thanks for sharing. According to the recent Barron's article, Pabrai thinks they are safe early 2019 or late 2018 I believe.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on May 05, 2017, 07:45:07 AM
From my read of the shareholders letter, the CEO expects to start over $500 million of development in the next 12 months.  Assuming they'll only start developments that currently have, or will soon have,  tenants for the space, and assuming they're only  doing redevelopments with an expected 12% return on new capital, then we can expect $60+ million in additional annual rent from this $500+ million investment.   

They'll likely raise some capital for this via a financing package.  But, with Lambert, Buffett and Berkowitz as shareholders I'm not worried about satisfying this capital need. 
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 25, 2017, 03:06:06 PM
I'm trying to figure out how long it will take to cover key expenses without relying on Sears.

The 2017 Q1 supplemental shows key expenses for the first quarter:
($ thousands)
  $4,472 Property Operating
$12,422 Real estate taxes
  $6,274 General and administrative
$16,592 Interest expense
---------
$39,760

Annualizing brings the total to about $160 million per year.

The supplemental breaks down Third-Party rent:
Annual     PSF        GLA
Rent
$44,528   $12.97   3,432   In-Place Third-Party

$47,194   $18.21   2,591   SNO Third-Party
---------
$91,722 thousand

The remaining Third-Party rent needed is around $160 million - $92 million or $68 million

The supplemental shows that over the last 4 quarters SRG has leased 2.4 million square feet at an average of $16.06 per sf:
Quarter   GLA     A_Rent    PSF
Q2 2016   422     $7,240   $17.15
Q3 2016   543     $7,470   $13.74
Q4 2016   891   $14,900   $16.72
Q1 2017   535     $8,780   $16.41
             ------   ---------   --------
             2,391   $38,390   $16.06

If they keep going at the same pace then $68 million/$16.06 means they need to lease about another 4.2 million square feet.

If they keep re-leasing 2.4 million sf per year then they'll re-lease another 4.2 million sf within 2 years, right?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on May 25, 2017, 03:19:14 PM
I'm trying to figure out how long it will take to cover key expenses without relying on Sears.

The 2017 Q1 supplemental shows key expenses for the first quarter:
($ thousands)
  $4,472 Property Operating
$12,422 Real estate taxes
  $6,274 General and administrative
$16,592 Interest expense
---------
$39,760

Annualizing brings the total to about $160 million per year.

The supplemental breaks down Third-Party rent:
Annual     PSF        GLA
Rent
$44,528   $12.97   3,432   In-Place Third-Party

$47,194   $18.21   2,591   SNO Third-Party
---------
$91,722 thousand

The remaining Third-Party rent needed is around $160 million - $92 million or $68 million

The supplemental shows that over the last 4 quarters SRG has leased 2.4 million square feet at an average of $16.06 per sf:
Quarter   GLA     A_Rent    PSF
Q2 2016   422     $7,240   $17.15
Q3 2016   543     $7,470   $13.74
Q4 2016   891   $14,900   $16.72
Q1 2017   535     $8,780   $16.41
             ------   ---------   --------
             2,391   $38,390   $16.06

If they keep going at the same pace then $68 million/$16.06 means they need to lease about another 4.2 million square feet.

If they keep re-leasing 2.4 million sf per year then they'll re-lease another 4.2 million sf within 2 years, right?

Yeah I put them being "home free" from Sears in ~6-8 quarters.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on May 25, 2017, 03:20:56 PM
Yes, but there are some assumptions in that.

-$16.06 is the correct average to use. I think in their documents they show a chart on their ROI and so forth and I estimate it only implies getting $11 or so per square feet. Needless to say this would extend the time frame to freedom from Sears.

-That the leases signed now and shown are actually collected now. I'm not entirely clear but doesn't the revenue they show in the supplement only flow when tenants actually start paying? Are SNO leases signed but not yet paying?

-Interest expense may rise if it's variable. 65 to 100m in interest expense could make some modest difference.

Probably best to build in a margin of safety.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 25, 2017, 03:24:09 PM
Yeah I put them being "home free" from Sears in ~6-8 quarters.

Cool, it's nice to hear what others think about the numbers.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 25, 2017, 03:27:12 PM
Yes, but there are some assumptions in that.

-$16.06 is the correct average to use. I think in their documents they show a chart on their ROI and so forth and I estimate it only implies getting $11 or so per square feet. Needless to say this would extend the time frame to freedom from Sears.

-That the leases signed now and shown are actually collected now. I'm not entirely clear but doesn't the revenue they show in the supplement only flow when tenants actually start paying? Are SNO leases signed but not yet paying?

-Interest expense may rise if it's variable. 65 to 100m in interest expense could make some modest difference.

Probably best to build in a margin of safety.
True, if it ends up being just $11 per sf then that extends the timeframe.

I think you're right about SNO, my understanding is that tenants have signed but not yet opened such that they haven't started paying.
Title: Re: SRG - Seritage Growth Properties
Post by: texual on May 25, 2017, 03:58:18 PM
I believe these properties would still be required to pay their rent in the event. I'm also certain that the same pockets that would feed SRG would also be invested in preventing the Sears subsidiary from bankruptcy.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on May 26, 2017, 06:09:22 AM
I'm trying to figure out how long it will take to cover key expenses without relying on Sears.

The 2017 Q1 supplemental shows key expenses for the first quarter:
($ thousands)
  $4,472 Property Operating
$12,422 Real estate taxes
  $6,274 General and administrative
$16,592 Interest expense
---------
$39,760

Annualizing brings the total to about $160 million per year.

The supplemental breaks down Third-Party rent:
Annual     PSF        GLA
Rent
$44,528   $12.97   3,432   In-Place Third-Party

$47,194   $18.21   2,591   SNO Third-Party
---------
$91,722 thousand

The remaining Third-Party rent needed is around $160 million - $92 million or $68 million

The supplemental shows that over the last 4 quarters SRG has leased 2.4 million square feet at an average of $16.06 per sf:
Quarter   GLA     A_Rent    PSF
Q2 2016   422     $7,240   $17.15
Q3 2016   543     $7,470   $13.74
Q4 2016   891   $14,900   $16.72
Q1 2017   535     $8,780   $16.41
             ------   ---------   --------
             2,391   $38,390   $16.06

If they keep going at the same pace then $68 million/$16.06 means they need to lease about another 4.2 million square feet.

If they keep re-leasing 2.4 million sf per year then they'll re-lease another 4.2 million sf within 2 years, right?

The situation is actually better than that because the rent does not include the reimbursements for taxes and insurance. As a result, your denominator in reality would be higher because the non Sears tenants are paying more than $16/foot.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 26, 2017, 08:00:46 AM
The situation is actually better than that because the rent does not include the reimbursements for taxes and insurance. As a result, your denominator in reality would be higher because the non Sears tenants are paying more than $16/foot.

Does SRG break out Sears reimbursements vs Third-Party reimbursements in any of the filings? In total Tenant reimbursement revenue dropped from $17,778 thousand in 2016 Q1 to $16,224 thousand in 2017 Q1. Is this drop because Third-Party leases are structured differently such that reimbursements are less of a factor?
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on May 26, 2017, 09:05:34 AM
When trying to predict SRG's year, and the additional SNO lease revenue they will bring in, it's important to note that the CEO estimates they will see over $60 million in leases or SNO leases from early '17 to early '18. $500 million of capital investment and over 12% unlevered returns on capital.   This means that one year from now he expects us to meet  that $68 million hurdle (or gap) mentioned above.  Therefore, I think the company will be fine barring any major economic catastrophe or drastic changes in SRG's marketplace. 
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 26, 2017, 09:11:50 AM
When trying to predict SRG's year, and the additional SNO lease revenue they will bring in, it's important to note that the CEO estimates they will see over $60 million in leases or SNO leases from early '17 to early '18. $500 million of capital investment and over 12% unlevered returns on capital.   This means that one year from now he expects us to meet  that $68 million hurdle (or gap) mentioned above.  Therefore, I think the company will be fine barring any major economic catastrophe or drastic changes in SRG's marketplace.
This is encouraging.

It is hard to reconcile this against what Mohnish Pabrai said in Barron's:
Quote
“If Sears doesn’t file until 2020, Seritage is fine,” he says. “It is possible they are fine if there is a late-2019 filing. Any filing before that means taking extraordinary measures.”

I wish Mohnish would have been more specific with the numbers and thoughts behind his timeline estimates.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on May 26, 2017, 12:38:01 PM
I find the argument in general that an investment will be alright if Sears bankrupts in 2019 but a disaster if bankrupts this summer a bit superficial. Perhaps the price will drop alot for srg but I see either a positive outcome either way or a negative one, independent of what happens to Sears or when.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on May 26, 2017, 09:32:41 PM
Agreed.  If it happened in 2020 instead of 2017 there would be a difference of approximately $500m in cash flowing into SRG over the 3 years (much paid out via mandatory dividends).  $500 million dollars is significant for a company with an enterprise value of $3.5 billion, but shouldn't be a life changing factor for the business.   

It all boils down to if they continue to re-purpose and re-lease this space at 4X current rents.  If they do, this investment will be very profitable.  If they can't find new tennants in size, then the investment will be a big loss in one way or another.

In the May '17 presentation they show that the 38 redevelopments in process will be worth 1.3 Billion when finished.  This value essentially covers SRG's mortgage debt.  From here on out everything else is gravy. 

By SRG's calculations every 1 million square feet of redevelopment creates $160 million of net new value to equity.  An additional $110 million is also retained; this is existing value based upon acquisition value of RE.  The last 4 quarters they've signed 2.4 million sq ft of space.  If they get to 3 million a year, they'll create net new value to equity of $480 million, or about $8.75/share.  They'll also retain $330 million of existing value (think of what value exists w/ SHLD as a tennant) when leasing 3 million sqft. 

Overall, this example of redeveloping 3 million sqft per year means the company will lock in value of $810 million ($480m  + $330m).  If SHLD went bankrupt tomorrow we'd still have the $1.3 Billion of value in place from current redevelopments.   Then every year we'd see $810 million of value locked in, which brings us back to current enterprise value in 3 years.  From there, the company increase in value of $810m per year would give us a 33% return based upon a market cap of $2.2 Billion.

It all boils down to the market demand for this space continuing at it's current pace and price.

I think this company could redevelop and lease all of its 40 million sqft in the next 10 years, which would make shares worth about $200 and that doesn't include the dividends we'd collect along the way. 

Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on May 27, 2017, 02:12:05 AM
Some nice visuals - http://www.businessinsider.com/this-is-what-sears-stores-will-look-like-in-the-future-2017-5/#a-birds-eye-view-of-the-area-shows-the-120000-square-foot-sears-store-built-in-1965-surrounded-by-a-parking-lot-with-its-former-auto-center-nearby-3

Sears is still a tiny little retailer there. But to be honest, and who knows what Buffett was thinking doesn't this look remarkably similar to what he did as a young kid,

"Buffett started selling Juicy Fruit chewing gum packs. When asked for 1 piece, he would not sell as he thought he may be left with 4 pieces he could not sell. He made 2 cents profit per pack.

Buffett would also purchase Coca-Cola six packs for 25 cents from his grandfather’s grocery store – Buffett and Son. He would sell each Coke for 5 cents. Profit of 5 cents per pack."

Seems these complexes are being divided up like a pizza. Instead of 1 giant Sears piece you now got Sears as one slice of a multi-flavoured pizza...Which makes sense considering nobody wanted the Sears slice but perhaps there are a few oddballs who might want a small slice once in a while :)
 
The premise of the investment is the success of some retail in general, not necessarily the success or failure of Sears. I still think that other retail operators have more to worry about. Imagine you have a giant supply of retail space and the others who did not have Sears tenants were renting out for $50 or $60 per square foot. I think if you look at the competitors that's the current number for top locations and malls. So if you are a tenant in those areas and you see these new developments for the bargain price of "only $15 per square foot", maybe you'd be tempted to switch or renegotiate lower with your current tenant. That means competitors could be pressured lower in relation to current prices. But this is not going to happen overnight.
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on May 27, 2017, 06:37:40 AM
Agreed.  If it happened in 2020 instead of 2017 there would be a difference of approximately $500m in cash flowing into SRG over the 3 years (much paid out via mandatory dividends).  $500 million dollars is significant for a company with an enterprise value of $3.5 billion, but shouldn't be a life changing factor for the business.   

It all boils down to if they continue to re-purpose and re-lease this space at 4X current rents.  If they do, this investment will be very profitable.  If they can't find new tennants in size, then the investment will be a big loss in one way or another.

In the May '17 presentation they show that the 38 redevelopments in process will be worth 1.3 Billion when finished.  This value essentially covers SRG's mortgage debt.  From here on out everything else is gravy. 

By SRG's calculations every 1 million square feet of redevelopment creates $160 million of net new value to equity.  An additional $110 million is also retained; this is existing value based upon acquisition value of RE.  The last 4 quarters they've signed 2.4 million sq ft of space.  If they get to 3 million a year, they'll create net new value to equity of $480 million, or about $8.75/share.  They'll also retain $330 million of existing value (think of what value exists w/ SHLD as a tennant) when leasing 3 million sqft. 

Overall, this example of redeveloping 3 million sqft per year means the company will lock in value of $810 million ($480m  + $330m).  If SHLD went bankrupt tomorrow we'd still have the $1.3 Billion of value in place from current redevelopments.   Then every year we'd see $810 million of value locked in, which brings us back to current enterprise value in 3 years.  From there, the company increase in value of $810m per year would give us a 33% return based upon a market cap of $2.2 Billion.

It all boils down to the market demand for this space continuing at it's current pace and price.

I think this company could redevelop and lease all of its 40 million sqft in the next 10 years, which would make shares worth about $200 and that doesn't include the dividends we'd collect along the way.

+1 for putting the math on SRG value added developments here in writing.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 27, 2017, 10:40:40 PM
I find the argument in general that an investment will be alright if Sears bankrupts in 2019 but a disaster if bankrupts this summer a bit superficial. Perhaps the price will drop alot for srg but I see either a positive outcome either way or a negative one, independent of what happens to Sears or when.

Agreed.  If it happened in 2020 instead of 2017 there would be a difference of approximately $500m in cash flowing into SRG over the 3 years (much paid out via mandatory dividends).  $500 million dollars is significant for a company with an enterprise value of $3.5 billion, but shouldn't be a life changing factor for the business.   

Yeah, I think they have several options if the rent from Sears suddenly gets disrupted.

Between December 2015 and March 2017 the SNO Third-Party annualized rent has gone up by $34.3 million but the In-Place Third-Party annualized rent has only gone up by $8.8 million. I'm guessing this is one of the reasons why the timeline given by Mohnish is longer than the one I posted earlier.
Title: Re: SRG - Seritage Growth Properties
Post by: Omm on May 28, 2017, 12:22:59 PM
Buffett still holds.

How do you know Buffett still holds? Does he have to declare when he sells?
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 29, 2017, 06:08:46 PM
Looking at the 2017 q1 earnings call transcripts for Macerich and GGP, it sounds like 100% recaptures are preferred over 50% recaptures.

https://seekingalpha.com/article/4066979-macerichs-mac-ceo-art-coppola-q1-2017-results-earnings-call-transcript?part=single
Quote
Art Coppola

I never was looking to do 50% recaptures from any of the Sears stores. It was done in the early phases and I think it was a great move to put Primark in the half or so of the Sears box at Danbury and Freehold and that’s fine, that was a good idea. But honestly, I don’t see the economics makes sense to recapture 50% getting at the other seven locations and effectively pace Sears to them, shrink into the other half of the space. Because A, it costs too much money to do it and B, ultimately you're kicking the can down the road. So if and when Sears does fail, that the opportunity to redeploy the other half, probably doesn’t make a lot of sense. So at this point in time, I really don’t see anything happening on the development front of any of the other seven boxes.

https://seekingalpha.com/article/4067582-ggp-ggp-q1-2017-results-earnings-call-transcript?part=single
Quote
Floris van Dijkum - Boenning & Scattergood

Great. Good morning, guys. Question for you on your returns of your redevelopments. Sandeep, did you say that your returns from the Seritage redevelopments are lower than your wholly owned redevelopments?

Sandeep Lakhmi Mathrani - GGP, Inc.

Yes. At this moment in time, it's been and we've maintained – that's been 7%, and the large reason for that is obviously half the space is being leased back to Sears.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on May 30, 2017, 06:35:43 AM
I wish Mohnish would have been more specific with the numbers and thoughts behind his timeline estimates.

You shouldn't put so much weight on what Mohnish did or said. He has been wrong (very wrong) many times in the past.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 30, 2017, 10:20:06 AM
I wish Mohnish would have been more specific with the numbers and thoughts behind his timeline estimates.

You shouldn't put so much weight on what Mohnish did or said. He has been wrong (very wrong) many times in the past.

That's fair. I'm not saying his timeline is necessarily correct. However, it is something that interests me and I wish he would have been more specific in terms of the details leading up to the conclusion.

Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on May 30, 2017, 11:15:36 AM
Buffett still holds.

How do you know Buffett still holds? Does he have to declare when he sells?

I believe so.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on May 30, 2017, 11:42:59 AM
We'd find out through an update to his 13d filing, but he could have sold and we wouldn't know until mid Feb 2018.

Berkowitz has been buying almost every week/day since it's been in low 40s/high 30s. He's on the board of Sears too. It's probably impossible for anyone to predict future when Sears dies, even board members, but if he's buying and ostensibly knows the contingency plans, seems it's a good coattail bet.

Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on May 30, 2017, 11:59:18 AM
Buffett would need to file an amendment to his 13G filling if he sold or materially added to his Seritage stake:

Amendment Requirements for 13G Filers

Qualified institutional investors, including investment advisors registered with the SEC or a state, must amend their Schedule 13G within 10 days after the end of the first time their "beneficial ownership" exceeds 10% of the class of equity securities at month end.

After that, qualified institutional investors must amend their Schedule 13G within 10 days from when their "beneficial ownership" increases or decreases by more than 5% of the class of securities over the amount held at the previous month end.

Qualified institutional investors must also file a Schedule 13D within 10 calendar days after they cease being eligible to file a Schedule 13G rather than a Schedule 13D.

In addition, passive investors beneficially owning less than 20% of an equity security must amend their Schedule 13G promptly, within two business days, after acquiring beneficial ownership of more than 10% of the class of equity securities, and after that, within two business days of increasing or decreasing their ownership by more than 5%.

You must also file an annual amendment to the 13G if there have been any changes - immaterial or material - to your filed 13G. This must be done within 45 days of year end. You do not need to file an amendment if there have been no changes to the information filed or if the only change is to the percentage of securities owned resulting solely from a change in the number of shares outstanding.

Source:

https://ibkb.interactivebrokers.com/node/2654
https://www.sec.gov/Archives/edgar/data/315090/000119312515399523/0001193125-15-399523-index.htm
Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on May 30, 2017, 01:28:05 PM
Hey Alex, I was wondering if you can share a bit what's your view on the situation and how do you think about the valuation (or if you don't think about it at all), some info like how you see the future, what rate of return you expect for such "risk" and how do you calculate  if you will get it in this case ?
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on June 10, 2017, 01:48:04 PM
http://www.clearymawatch.com/2017/06/chancery-court-suggests-rights-offerings-may-limit-liability-transactions-controlling-stockholders/
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on June 10, 2017, 04:48:40 PM
Agreed.  If it happened in 2020 instead of 2017 there would be a difference of approximately $500m in cash flowing into SRG over the 3 years (much paid out via mandatory dividends).  $500 million dollars is significant for a company with an enterprise value of $3.5 billion, but shouldn't be a life changing factor for the business.   

It all boils down to if they continue to re-purpose and re-lease this space at 4X current rents.  If they do, this investment will be very profitable.  If they can't find new tennants in size, then the investment will be a big loss in one way or another.

In the May '17 presentation they show that the 38 redevelopments in process will be worth 1.3 Billion when finished.  This value essentially covers SRG's mortgage debt.  From here on out everything else is gravy. 

By SRG's calculations every 1 million square feet of redevelopment creates $160 million of net new value to equity.  An additional $110 million is also retained; this is existing value based upon acquisition value of RE.  The last 4 quarters they've signed 2.4 million sq ft of space.  If they get to 3 million a year, they'll create net new value to equity of $480 million, or about $8.75/share.  They'll also retain $330 million of existing value (think of what value exists w/ SHLD as a tennant) when leasing 3 million sqft. 

Overall, this example of redeveloping 3 million sqft per year means the company will lock in value of $810 million ($480m  + $330m).  If SHLD went bankrupt tomorrow we'd still have the $1.3 Billion of value in place from current redevelopments.   Then every year we'd see $810 million of value locked in, which brings us back to current enterprise value in 3 years.  From there, the company increase in value of $810m per year would give us a 33% return based upon a market cap of $2.2 Billion.

It all boils down to the market demand for this space continuing at it's current pace and price.

I think this company could redevelop and lease all of its 40 million sqft in the next 10 years, which would make shares worth about $200 and that doesn't include the dividends we'd collect along the way. 



Hi BT, thanks for the analysis. Where are you seeing the bolded parts? I can't find this information in any presentation.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on June 11, 2017, 10:40:24 AM
Agreed.  If it happened in 2020 instead of 2017 there would be a difference of approximately $500m in cash flowing into SRG over the 3 years (much paid out via mandatory dividends).  $500 million dollars is significant for a company with an enterprise value of $3.5 billion, but shouldn't be a life changing factor for the business.   

It all boils down to if they continue to re-purpose and re-lease this space at 4X current rents.  If they do, this investment will be very profitable.  If they can't find new tennants in size, then the investment will be a big loss in one way or another.

In the May '17 presentation they show that the 38 redevelopments in process will be worth 1.3 Billion when finished.  This value essentially covers SRG's mortgage debt.  From here on out everything else is gravy. 

By SRG's calculations every 1 million square feet of redevelopment creates $160 million of net new value to equity.  An additional $110 million is also retained; this is existing value based upon acquisition value of RE.  The last 4 quarters they've signed 2.4 million sq ft of space.  If they get to 3 million a year, they'll create net new value to equity of $480 million, or about $8.75/share.  They'll also retain $330 million of existing value (think of what value exists w/ SHLD as a tennant) when leasing 3 million sqft. 

Overall, this example of redeveloping 3 million sqft per year means the company will lock in value of $810 million ($480m  + $330m).  If SHLD went bankrupt tomorrow we'd still have the $1.3 Billion of value in place from current redevelopments.   Then every year we'd see $810 million of value locked in, which brings us back to current enterprise value in 3 years.  From there, the company increase in value of $810m per year would give us a 33% return based upon a market cap of $2.2 Billion.

It all boils down to the market demand for this space continuing at it's current pace and price.

I think this company could redevelop and lease all of its 40 million sqft in the next 10 years, which would make shares worth about $200 and that doesn't include the dividends we'd collect along the way. 



Hi BT, thanks for the analysis. Where are you seeing the bolded parts? I can't find this information in any presentation.

You're welcome.

It's a combination of their information on page 7 of the June '17 Investor presentation (link below), which relates to the 38 referenced projects.  This info was also in the May Presentation.  The sq ft of those projects is in the 10-Q (and was in the 10-K, etc) and is 3.275 million square feet.  To be clear they never explicitly stated the numbers of $160 and $110 per square foot.  I use their information and get there with some simple division, etc.

http://ir.seritage.com/Cache/1500100572.PDF?O=PDF&T=&Y=&D=&FID=1500100572&iid=4584761

Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on June 11, 2017, 11:19:30 AM
The June presentation has some encouraging info.

The percentage of annual base rent from leases signed by the Company from inception in July 2015 through March 31, 2017 on page 5 is helpful:
37% Entertainment, food & beverage
20% Value fashion
17% Home
14% Specialty
10% Everyday uses
  2% Other

The Entertainment, food & beverage category should be relatively safe over the next 10+ years imo.

It would be nice if they were more specific with the Everyday uses category. LA Fitness and 24 Hour Fitness are in this group and gyms should be safe over the next 10+ years imo. There are different types of business from other companies in this group like Lucky's Market that are apples to oranges with respect to gyms.
Title: Re: SRG - Seritage Growth Properties
Post by: texual on June 12, 2017, 05:14:41 AM
https://www.wsj.com/articles/german-discount-grocer-aldi-sets-u-s-expansion-plan-1497229200

https://www.bloomberg.com/news/articles/2017-06-12/european-grocery-rivalry-expands-to-u-s-as-aldi-lidl-bulk-up

Don't just focus on US store growth (although I do believe there is robust growth ahead for a number of up and coming retail upstarts including Amazon and small concepts like Design Within Reach as well as Equinox). There are many opportunities coming and Sears has the real estate. Not saying the above companies are taking over the SRG portfolio but there are signals. I've been a net buyer of SRG in the past weeks.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on June 12, 2017, 06:44:02 AM
So when Sears says it intends to raise an additional $1 billion via RE sales this year (right?), you guys conclude it is likely that SRG will bid on that and if successful fund with a rights issue?
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on June 12, 2017, 06:56:57 AM
No, not in my opinion.  Possible but not necessarily likely.
Title: Re: SRG - Seritage Growth Properties
Post by: merkhet on June 12, 2017, 06:59:55 AM
So when Sears says it intends to raise an additional $1 billion via RE sales this year (right?), you guys conclude it is likely that SRG will bid on that and if successful fund with a rights issue?

Apparently, SRG's management was asked this at the annual meeting and was quite coy about it.
Title: Re: SRG - Seritage Growth Properties
Post by: HJ on June 12, 2017, 07:04:54 AM
Let me ask a question:  How was the Seritage portfolio initially selected among all of Sears and Kmart locations?  Did Seritage get to cherry pick the better of the properties, or was there an objective criteria that resulted in this particular portfolio?
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on June 12, 2017, 07:19:43 AM
So when Sears says it intends to raise an additional $1 billion via RE sales this year (right?), you guys conclude it is likely that SRG will bid on that and if successful fund with a rights issue?

Apparently, SRG's management was asked this at the annual meeting and was quite coy about it.

This year or last?
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on June 12, 2017, 07:44:25 AM
So when Sears says it intends to raise an additional $1 billion via RE sales this year (right?), you guys conclude it is likely that SRG will bid on that and if successful fund with a rights issue?

Apparently, SRG's management was asked this at the annual meeting and was quite coy about it.

Thanks a lot.  Yeah seemed kind of telegraphed to me, but I don't follow any of it all that closely.  Just had it flagged to check in when (if) I see that announcement. 
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on June 12, 2017, 08:24:24 AM
Interesting SA story from the POV of a developer turned FinTwit and more

https://seekingalpha.com/amp/article/4080637-thrill-victory-worth-agony-defeat ;D
Title: Re: SRG - Seritage Growth Properties
Post by: merkhet on June 12, 2017, 08:25:11 AM
So when Sears says it intends to raise an additional $1 billion via RE sales this year (right?), you guys conclude it is likely that SRG will bid on that and if successful fund with a rights issue?

Apparently, SRG's management was asked this at the annual meeting and was quite coy about it.

This year or last?

This year. Note that this is second hand information. I heard it from a friend this year during Berkshire who was in attendance at the SRG meeting.
Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on June 12, 2017, 09:05:23 AM
Let me ask a question:  How was the Seritage portfolio initially selected among all of Sears and Kmart locations?  Did Seritage get to cherry pick the better of the properties, or was there an objective criteria that resulted in this particular portfolio?
from Bruce Berkowitz annual letter :
(https://i.imgur.com/T4Sa2Gw.png)
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on June 12, 2017, 05:58:45 PM
NAREIT interview with Benjamin Schall. He blinks a lot:
https://www.reit.com/news/videos/seritage-expected-approach-1-billion-new-development-year-end
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on June 13, 2017, 04:14:15 AM
Interesting SA story from the POV of a developer turned FinTwit and more

https://seekingalpha.com/amp/article/4080637-thrill-victory-worth-agony-defeat ;D

Brad Thomas writes a lot of articles on Reits and most of his analysis is somewhat shallow, imo. He also recommended at some point to swap SRG for WPG  (when WPG was much higher) and then later changed his opinion and put a sell on WPG.

He has a sell on SRG because of Sears exposure.
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on June 13, 2017, 06:34:13 AM
Interesting SA story from the POV of a developer turned FinTwit and more

https://seekingalpha.com/amp/article/4080637-thrill-victory-worth-agony-defeat ;D

Brad Thomas writes a lot of articles on Reits and most of his analysis is somewhat shallow, imo. He also recommended at some point to swap SRG for WPG  (when WPG was much higher) and then later changed his opinion and put a sell on WPG.

He has a sell on SRG because of Sears exposure.

Prob so.

I found the discussion re: development & re-development over the decades to be informative (but then, I'm quite uninformed about the supporting real estate.)
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on June 13, 2017, 07:51:30 AM
For those that are actively bearish and those that stay away (or are agnostic to SRG) because of some concerns,  what are your concerns or reasons to be bearish on SRG?
Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on June 13, 2017, 08:21:55 AM
For those that are actively bearish and those that stay away (or are agnostic to SRG) because of some concerns,  what are your concerns or reasons to be bearish on SRG?

I own a bit of SRG but unlike most of the people here I don't expect phenomenal results, I expect 7% if things go not that great or 18% if all the stars align.
I think the major reasons are : not being able to value the company with some sort of accuracy (impossible in my opinion), not liking the sector of retail property and being bearish on fixed  or near fixed income assets such as bonds and real estate (due to macroeconomics views on interest rates and so on).

edit : and of course the obvious one, Sears potential bankruptcy and SRG reliance on them.
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 09:18:00 AM
Interesting SA story from the POV of a developer turned FinTwit and more

https://seekingalpha.com/amp/article/4080637-thrill-victory-worth-agony-defeat ;D

Very interesting that the argument here for the sears/srg anchors(auto centers?) is so that B&N("the original store just a block away") would find it attractive to move into as it downsize. Seems more like a consolidation.


And it does kinda make sense.......The B&N did pretty much the same thing in my hometown a few years ago.  I dont remember if it was a sears(probably not) but they did move into the mall.

Still going to. I was back home and in there picking up a barrons on a weekend i was visiting. I as actually a little shocked how many people were in there.....no millennials but it was maybe half past 9 on a saturday or sunday morning.

 

Edit: Sears owns that property.
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 09:38:34 AM
Sears also owns the one in lafyette, La and the one in bloomington, Il that CBL marks as T2. For what its worth.


Is there a list of properties for SRG?
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 10:59:34 AM
Its strange because either theres like a "big short" CRE "wave of bankruptcies" (most of which is already priced in and sounds like its dependent on a Sears bankruptcy, according to the article) that ends in something like a massive(maybe too strong of a word) bailout of sears to effectively bail out the rest of CRE? I admit it sounds a bit dramatic. 


And then theres a narrative which is the exact opposite. Retail is not entirely dead instead its consolidating and that some of the properties have value.

1) This quote from the SA article. I mean he kinda says that hes still on the sidelines. Not the first time ive heard that before. SRG is kinda a running joke..."I like it but after the Sears bankruptcy."
Quote
It’s clear that the REIT market is already pricing in a Sears bankruptcy that will leave many Mall REITs scrambling for cover. The Mall REITs with the most Sears exposure include PEI, CBL, WPG, and of course SRG…

Trouble is still brewing, and whether it’s a secular or a cyclical shift, I don’t think it’s prudent to place any bets on CBL, WPG, or SRG until there is more clarity.


2) Seritage's CEOs comments from the NAREIT conference (h/t: LongTermView). basically saying that rents at old sears stores are going up. I quote:
Quote
During the last 18 months, Seritage has leased almost 3 million square feet of space, Schall said. In the process, rent has increased from the Sears level of $4 per foot to $18 per foot
https://www.reit.com/news/videos/seritage-expected-approach-1-billion-new-development-year-end


3) This press release from Sears a from May 25 saying the...
Quote
executed $28 million of real estate sales out of over $700 million in bids received to date on over 60 properties
http://www.reuters.com/article/brief-sears-presentation-executed-28-mln-idUSFWN1IR090

Could that be the end of the assets for Sears? And how many have they closed this year already?

4) And then there peripheral stuff like Buffett seems to believe in SRG it still. I Dont think hes sold has he? And some rather bullish articles in the WSJ recently. And I though I heard Aldi wanted to open up some new stores. And I think that Lone Pine also covered their sears short awhile back?



What would happen if there was No Sears bankruptcy? No way that seems probable with all their bleeding.




Edit: I mean what could a property like this one on Irving Park and North Ave in Chicago be worth to a developer? Thats a big piece of property. What does ackman(?) say "The parking lot." /s    That property is in a pretty average american spot. It says median income is $55k. Which lines up with a quick google search.

Here Look for yourself. https://shcrealestate.com/
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 11:39:58 AM
One last thing that was kinda haunting me, and im not 100% sure, but i think it was Buffett that said at the latest annual meeting that about 10% of their sales at Nebraska Furnatur Mart was online sales and store pickup. Which would be consistent with FRED.....Hardly the death of retail although it is of some concern.

Edit: He did get out of Walmart. Clearly that chart is going to continue up and to the right.
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 12:14:49 PM
One final disconnect. Didnt Charlie Munger say that Real Estate was the easiest to value because it had a cashflow and that everyone was in the game? Some story about the "Patels"? I didnt get that comment. And thats why he liked the stock market so much more? I think it was the latest DJCO meeting.

Well now isnt there cashflow data associated with SRG?

Here, source. https://www.youtube.com/watch?v=KZtGpUl5vC8&list=PLznYPOzm2L21OYxOpzbwObdJmOEqhSkzc&index=8
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on June 13, 2017, 01:28:01 PM
I think the bigger risk with SRG is the supply/demand uncertainty with retail space, but so far that's been proven wrong.

SHLD bankruptcy risk for SRG is remote. I don't see Lampert letting SHLD go bankrupt without first securing SRG. He's come this far burning the furniture to keep the fire alive, and lending SHLD his own money, why stop now and risk both companies? On the other hand, SRG is just a liquidity problem in the case of a SHLD bankruptcy. They can sell their JV's for instance and get the money for the short term to ramp up new leases if need be. Also most of the SHLD stores owned by SRG are EBITDAR positive (at least as of 2015 which I know is ages ago for this stat) so they probably wouldn't shut down even in a BK.
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 01:37:14 PM
I think when he mentioned "the Patel's" he was taking about owner operators in the lodging space?

Seems like being able to increase $/sq ft would be enticing (as a landlord/tenant?)

There's so many ins & outs here...


Enticing? They are already doing it before your very eyes. And people are already circling sears like sharks in the water. People want these properties. They WANT Sears to fail and sell those properties.

Quote
Plaintiffs nonetheless alleged that (1) this transaction constituted self-dealing because ESL and Mr. Lampert effectively stood on “both sides of the deal” and, as a result, the court should review the transaction for entire fairness, and (2) the transaction was not entirely fair to Sears because the purchase price for its stores was $300 million too low.  Plaintiffs also alleged that ESL, Mr. Lampert, Sears’ board, and Seritage (the last as an alleged aider and abettor) were jointly and severally liable to Sears for this purported $300 million shortfall.


Chancery Court Suggests that Rights Offerings May Limit Liability in Transactions with Controlling Stockholders
http://www.clearymawatch.com/2017/06/chancery-court-suggests-rights-offerings-may-limit-liability-transactions-controlling-stockholders/



So either the properties (SRGs and i guess according to bruce's presentation there shlds?) are a doughnut or everyone is fighting over the "Patel's" property and they are holding on to it as much as they can while ex-Sears properties are increasing in rent......I dont think it can be both?



Edit:
Plus what DooDoo said in the post before this one. And then you get the option of SWY....so in reality while everyone is making fun of SYW(the right hand?) SRG is actually delivering on higher rents(the left hand?)


That sounds insane.
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 01:51:10 PM
Conventional wisdom in CRE right now would suggest you couldn't tell the difference between the below article and and onion article. I just dont get the disconnected between this and what SRG is doing and what SHLD is selling....well at least looking at offers on as of this moment.


http://www.nydailynews.com/new-york/manhattan/macy-herald-square-evacuated-dumpster-catches-fire-article-1.3243766?cid=bitly
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 01:55:33 PM
Why hasn't Sears been able to successfully run the Auto Centers?

How hard can it be?

I havent heard of anyone really putting figures on it to a lot of accuracy. But there was that Icahn deal recently and I dont think gas cars are going away in the near future. I mean maybe. But even then we know those properties have value or at least that guy on SA thought they were, how did he put it....."The Sears Auto store is the crown jewel site"
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on June 13, 2017, 01:57:10 PM
http://www.businessinsider.com/this-is-what-sears-stores-will-look-like-in-the-future-2017-5/#heres-what-the-virginia-beach-sears-store-looked-like-before-the-redevelopment-1

Prob already posted here but I didn't see it (you didn't look?)
Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 02:01:09 PM
One other interesting thing is i thought I remembered someone saying that firms were shorting SRG because they couldn't borrow enough SHLD shares.......its pretty common knowledge(at least I though so) that SHLD shares are hard to short against and the fees are(were?) crazy.

Heres something. From the About section, "IBorrow Desk is a tool for monitoring borrow rates and availability using Interactive Broker's freely available data."

https://www.iborrowdesk.com/report/SHLD

https://www.iborrowdesk.com/report/SRG

Title: Re: SRG - Seritage Growth Properties
Post by: doughishere on June 13, 2017, 02:06:24 PM
http://www.businessinsider.com/this-is-what-sears-stores-will-look-like-in-the-future-2017-5/#heres-what-the-virginia-beach-sears-store-looked-like-before-the-redevelopment-1

Prob already posted here but I didn't see it (you didn't look?)


Quote
Sears pays Seritage about $4.45 per square foot in rent, whereas Seritage's non-Sears tenants are paying about $15.23 per square foot.

Right, they are literally doing it.
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on June 13, 2017, 04:36:22 PM
I actually think there's a way for SRG to issue equity and buy SHLD properties in a way that is good for both SRG and SHLD.  If it's done in a way similar to the current master lease, then I'd say maybe not that great.  But if they're getting the ability to take 100% instead of 50% with various termination fees on better development yields, then you could say that SRG is an entity that can pay a bit more for these assets.  1) it would drive returns at SRG (and Lampert would benefit through his portion of a rights offering), 2) it would give SRG more time to work on the existing redevelopment (they clearly need more time to avoid triggering debt yield covenants), 3) anything credit positive at SHLD (such as large asset sales) is a positive for SRG (at least for the next couple or few years).  So say Lampert puts up a block of assets for sale, SRG could easily be the highest bidder, it's very possible that SRG would react favorably to this, any rights offering would be oversubbed and Lampert wouldn't need to foot the bill for another $1 billion on his own.

It might better explain the harsh unsecured loan to SRG.  Without ESL backstopping with asset sales or redevelopment capital it's hard to get anyone else to participate or jump in the water first.  Part of me thinks this unsecured loan would make me nervous as an equity holder of SRG, the other part of me thinks its just the first step to a more positive transaction.

Plus Lampert's incentives are now moving closer into the debt of SHLD and equity of SRG.  SHLD equity has become a call option (just based on $ value at ESL) and it's clear that he's got much more capital in other assets that are more reliant on the passing of time and slowing the bleed.  Will be interesting to see what happens.

++?
Title: Re: SRG - Seritage Growth Properties
Post by: writser on June 14, 2017, 07:06:13 AM
You know that you can edit your own posts, right? No need to spam the same topic fifty times in a row with oneliners.
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on June 14, 2017, 07:15:40 AM
You know that you can edit your own posts, right? No need to spam the same topic fifty times in a row with oneliners.

There! Instead of editing I just deleted all the offending one liners (except this one...)
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on June 15, 2017, 03:20:39 PM
For those that are actively bearish and those that stay away (or are agnostic to SRG) because of some concerns,  what are your concerns or reasons to be bearish on SRG?

I'm long but I'm also pragmatic such that I entertain both bullish and bearish thoughts.

Here are some concerns in no particular order:


1. Cash flow reliance on a single tenant. The Q1 2017 supplemental shows that only $44.5 million or 19.3% of the annual rent is from In-Place Third-Party Leases. It's true that SNO Third-Party Leases make up another $47.2 million or 20.4% but signed and opened are two different things. The annual rent from SHLD is $139.4 million or 60.3%.

2. Conflict of interest. Eddie Lampert is the chairman for both SHLD and SRG. One potential example of conflict involves the decision as to whether to do a 50% recapture now at a given property or whether to wait and do a 100% recapture in the future.

As I mentioned on May 29th, Art Coppola from Macerich says that 100% recaptures make the most sense in the https://seekingalpha.com/article/4066979-macerichs-mac-ceo-art-coppola-q1-2017-results-earnings-call-transcript?part=single transcription:
Quote
I never was looking to do 50% recaptures from any of the Sears stores. It was done in the early phases and I think it was a great move to put Primark in the half or so of the Sears box at Danbury and Freehold and that’s fine, that was a good idea. But honestly, I don’t see the economics makes sense to recapture 50% getting at the other seven locations and effectively pace Sears to them, shrink into the other half of the space. Because A, it costs too much money to do it and B, ultimately you're kicking the can down the road. So if and when Sears does fail, that the opportunity to redeploy the other half, probably doesn’t make a lot of sense. So at this point in time, I really don’t see anything happening on the development front of any of the other seven boxes.

Based on the above transcription and other information, I'm guessing the economics are often best for SRG with 100% recaptures. I'm guessing the economics are often best for SHLD with 50% recaptures as they bring in fresh tenants which increases foot traffic for the smaller SHLD stores.

3. Dividends. An argument can be made that SRG should not be paying dividends until SHLD is a smaller percentage of revenue. The "must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends" part of https://www.sec.gov/fast-answers/answersreitshtm.html shouldn't apply as the 2016 loss before taxes was $90,504,000.
 Of course we can back out most of the depreciation expense when looking at owner earnings such that there is enough money to pay dividends at this point. Still, it seems like it would be safer to not pay dividends until there is less dependence on SHLD. Some say the decision to pay dividends now is based more on incentives than economics.
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on June 16, 2017, 04:40:18 AM
For those that are actively bearish and those that stay away (or are agnostic to SRG) because of some concerns,  what are your concerns or reasons to be bearish on SRG?

I'm long but I'm also pragmatic such that I entertain both bullish and bearish thoughts.

Here are some concerns in no particular order:


1. Cash flow reliance on a single tenant. The Q1 2017 supplemental shows that only $44.5 million or 19.3% of the annual rent is from In-Place Third-Party Leases. It's true that SNO Third-Party Leases make up another $47.2 million or 20.4% but signed and opened are two different things. The annual rent from SHLD is $139.4 million or 60.3%.

2. Conflict of interest. Eddie Lampert is the chairman for both SHLD and SRG. One potential example of conflict involves the decision as to whether to do a 50% recapture now at a given property or whether to wait and do a 100% recapture in the future.

As I mentioned on May 29th, Art Coppola from Macerich says that 100% recaptures make the most sense in the https://seekingalpha.com/article/4066979-macerichs-mac-ceo-art-coppola-q1-2017-results-earnings-call-transcript?part=single transcription:
Quote
I never was looking to do 50% recaptures from any of the Sears stores. It was done in the early phases and I think it was a great move to put Primark in the half or so of the Sears box at Danbury and Freehold and that’s fine, that was a good idea. But honestly, I don’t see the economics makes sense to recapture 50% getting at the other seven locations and effectively pace Sears to them, shrink into the other half of the space. Because A, it costs too much money to do it and B, ultimately you're kicking the can down the road. So if and when Sears does fail, that the opportunity to redeploy the other half, probably doesn’t make a lot of sense. So at this point in time, I really don’t see anything happening on the development front of any of the other seven boxes.

Based on the above transcription and other information, I'm guessing the economics are often best for SRG with 100% recaptures. I'm guessing the economics are often best for SHLD with 50% recaptures as they bring in fresh tenants which increases foot traffic for the smaller SHLD stores.

3. Dividends. An argument can be made that SRG should not be paying dividends until SHLD is a smaller percentage of revenue. The "must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends" part of https://www.sec.gov/fast-answers/answersreitshtm.html shouldn't apply as the 2016 loss before taxes was $90,504,000.
 Of course we can back out most of the depreciation expense when looking at owner earnings such that there is enough money to pay dividends at this point. Still, it seems like it would be safer to not pay dividends until there is less dependence on SHLD. Some say the decision to pay dividends now is based more on incentives than economics.

I'm prepared to wait a while for the recaptures to remove the single tenant risk (no denying it presents a problem in their ability to renovate if this cash goes away & it's anyone's guess how long Sears will take to die or morph into whatever.)

Who dictates whether it's a 50% or 100% recapture (SHLD or SRG?)

I like a 50% recapture especially because it would seem to help Sears lower expenses (they obviously don't need the space) & the increased traffic to new tenants should help Sears revs.

I agree re: dividend & I don't even want one.

I'm anchored to the rent increase theory without regards to whether they can pull it off (prob stoopid but in good company...)
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on June 17, 2017, 02:09:57 PM
I'm anchored to the rent increase theory

Yeah, for me the rent increases trump all the concerns.

On another note, I'm still trying to digest yesterday's news regarding Amazon acquiring Whole Foods. It looks like SRG has Whole Foods in two spots:
Clearwater, Florida
Albany, New York
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on June 20, 2017, 01:19:07 PM
Report on regional malls

http://www.chainstoreage.com/article/report-regional-malls-upswing-010#
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on June 21, 2017, 08:54:40 AM
That SRG annex from '15 lists the property as 173k sqft.....according to articles recently.....215k.  Almost a 25% increase.
Yeah, the land densification opportunities should be tremendous over the years.

The Q1 2017 Macerich call talks about repurposing land:
Quote
As one of my peers said yesterday, the opportunity to make a lot of money on taking not only the square footage but the land that these departments stores were given 30 years go to help create these malls and to repurpose that land into today's use and they help us really position these centers for the 21st century. It’s a huge opportunity especially when you’re in high population trade areas in gateway cities.

The same call discusses the fact that parking rations should decrease over time:
Quote
it's also going to be the arrival of autonomous vehicles, so that we can adjust our parking rations to a more reasonable number and intensify the properties
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on June 22, 2017, 11:26:04 PM
Sears is closing more stores. I believe all or almost all of the stores listed are SRG-owned properties. It isn't clear if SHLD requested the lease terminations of its own accord, or SRG negotiated with SHLD for the rights to recapture 100% of the properties.

http://www.businessinsider.com/sears-is-closing-more-stores-2017-6 (http://www.businessinsider.com/sears-is-closing-more-stores-2017-6)

Title: Re: SRG - Seritage Growth Properties
Post by: thinkpad on June 23, 2017, 04:01:50 AM
Correct, all belong to srg
http://ir.seritage.com/Cache/389209875.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on June 23, 2017, 10:07:50 AM
Sears is closing more stores. I believe all or almost all of the stores listed are SRG-owned properties. It isn't clear if SHLD requested the lease terminations of its own accord, or SRG negotiated with SHLD for the rights to recapture 100% of the properties.

http://www.businessinsider.com/sears-is-closing-more-stores-2017-6 (http://www.businessinsider.com/sears-is-closing-more-stores-2017-6)



So out of these 20 properties, only 6 were EBITDA negative in 2015 according to the annex, though many were close. Shows how quickly things are deteriorating at SHLD. 2 of these are in A class malls ($760 and $900 sales/sqft), La Jolla and Baybrook Mall, so there should be some good opportunities there for redevelopment, 400,000 sqft of space and 26 acres.
Title: Re: SRG - Seritage Growth Properties
Post by: jrydaf on June 23, 2017, 06:49:02 PM
The SEC filing says all 20 stores are unprofitable, yet the JPM Annex shows La Jolla 2015 EBITDA was $3.26 million (not including the new rent payment) and $1.71 million after accounting for rent.  It was the 8th most profitable store in the transaction.  Either they really went downhill in two years or Seritage is lying in their SEC filing.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on July 03, 2017, 07:57:13 PM
The Santa Monica Sears redevelopment now has its own website.

http://mark302.com/ (http://mark302.com/)

Howard Hughes Corp has a website for the Landmark Mall in Alexandria, VA. HHC owns the entirety of this mall with the exception of the SRG-owned Sears store and is planning an elaborate redevelopment.

http://thenewlandmark.com/ (http://thenewlandmark.com/)


Is anyone aware of any similar sites that can help shed light on individual SRG properties?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on July 05, 2017, 12:51:44 AM
I hope they will take down the Sears name. I really feel the word itself is a liability from an image perspective for any redevelopment. I understand it's like they want Sears business to be one of many tenants but associating with a sick business just makes it look less professional.
Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on July 05, 2017, 08:20:07 AM
The Santa Monica Sears redevelopment now has its own website.

http://mark302.com/ (http://mark302.com/)

Howard Hughes Corp has a website for the Landmark Mall in Alexandria, VA. HHC owns the entirety of this mall with the exception of the SRG-owned Sears store and is planning an elaborate redevelopment.

http://thenewlandmark.com/ (http://thenewlandmark.com/)


Is anyone aware of any similar sites that can help shed light on individual SRG properties?

Great find, thanks for sharing !
Title: Re: SRG - Seritage Growth Properties
Post by: bci23 on July 05, 2017, 11:33:47 AM
The SEC filing says all 20 stores are unprofitable, yet the JPM Annex shows La Jolla 2015 EBITDA was $3.26 million (not including the new rent payment) and $1.71 million after accounting for rent.  It was the 8th most profitable store in the transaction.  Either they really went downhill in two years or Seritage is lying in their SEC filing.

Have you seen the Sears SSS trends the last two years? Retail has extreme operating leverage, not difficult to go from solid profitable to breakeven/loser with moderate sales decline.
Title: Re: SRG - Seritage Growth Properties
Post by: jrydaf on July 06, 2017, 01:21:19 PM
I hope they will take down the Sears name. I really feel the word itself is a liability from an image perspective for any redevelopment. I understand it's like they want Sears business to be one of many tenants but associating with a sick business just makes it look less professional.

Sears already moved out of the building. The sign will remain because Santa Monica designated the building as a historic landmark.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on July 07, 2017, 03:11:40 PM
https://www.wsj.com/articles/sears-holdings-to-close-43-more-stores-to-cut-costs-1499456195
Title: Re: SRG - Seritage Growth Properties
Post by: Eye4Valu on July 08, 2017, 06:07:21 AM
https://www.bizjournals.com/austin/news/2017/07/07/sears-grandstore-in-austin-to-slim-down-make-way.html?ana=yahoo&yptr=yahoo
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on July 08, 2017, 10:28:02 PM
https://www.wsj.com/articles/sears-holdings-to-close-43-more-stores-to-cut-costs-1499456195

SHLD has gotten much more aggressive with its pace of store closings lately. None of these are SRG properties.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on July 10, 2017, 09:50:39 PM
Anyone looking at SRG should read pages 11, 12, and 13 of Fairholme's recent conference call transcript.

http://www.fairholmefundsinc.com/Documents/ConferenceCall20170629.pdf
 (http://www.fairholmefundsinc.com/Documents/ConferenceCall20170629.pdf)


Title: Re: SRG - Seritage Growth Properties
Post by: Ballinvarosig Investors on July 13, 2017, 01:53:24 PM
http://www.businesswire.com/news/home/20170713006151/en/Seritage-Growth-Properties-Announces-Joint-Venture-Transactions
Quote
NEW YORK--(BUSINESS WIRE)--Seritage Growth Properties (NYSE:SRG) (the “Company”) today announced that it has completed two transactions with GGP Inc. (“GGP”) whereby the Company received gross consideration of $247.6 million. Pursuant to the transactions, the Company has (i) sold to GGP the Company’s 50% interest in eight of the 12 assets in the existing joint venture between the two companies for $190.1 million; and (ii) sold to GGP a 50% joint venture interest in five additional assets for $57.5 million.

“In addition, these transactions demonstrate our ability to tap into the value generated through redevelopment activity in order to redeploy capital into our next wave of accretive projects.”
Tweet this
As a result of these transactions, the Company reduced amounts outstanding under its mortgage loan by $50.6 million and received approximately $171.6 million of additional cash proceeds before closing costs, which it intends to use to fund its expanding redevelopment pipeline and for general corporate purposes.

“Over the last two years, our partnership with GGP has commenced a series of value enhancing redevelopments at high-quality Sears locations attached to dominant GGP retail centers. The transactions announced today allow Seritage to crystalize this value on eight of the existing 12 assets we held in partnership with GGP, and expand our partnership with GGP on five additional assets primed for redevelopment,” said Benjamin Schall, President and Chief Executive Officer. “In addition, these transactions demonstrate our ability to tap into the value generated through redevelopment activity in order to redeploy capital into our next wave of accretive projects.”

Benefits of the Transactions

Value Realization: as a result of leasing and development progress to date, the Company realized approximately $50.0 million of value creation above its basis across the 13 properties. The Company will continue to participate in the value creation opportunity at the remaining four assets in the original joint venture and the five new joint venture properties through its 50% ownership.
Incremental Liquidity: the Company received approximately $171.6 million before closing costs of unrestricted cash proceeds and reduced the amounts outstanding under its existing mortgage loan by $50.6 million. In addition, the Company’s share of future redevelopment costs was reduced as it no longer has funding obligations on the eight assets sold to GGP, and GGP will fund 50% of redevelopment costs at the five new joint venture assets as the properties are redeveloped.
Continued Partnership: the Company and GGP will build upon our successful partnership and expect to unlock additional value through the joint venture’s future redevelopment activities.
Summary of the Transactions

1) The Company sold to GGP its 50% interests in the Sears parcels at the following eight assets for $190.1 million:

– Coronado Center (Albuquerque, NM)

– The Mall in Columbia (Columbia, MD)

– Oakbrook Center (Oakbrook, IL)

– Paramus Park (Paramus, NJ)

– Pembroke Lakes Mall (Pembroke Pines, FL)

– Ridgedale Center (Minnetonka, MN)

– Staten Island Mall (Staten Island, NY)

– Valley Plaza Mall (Bakersfield, CA)

The existing joint venture will continue to own the Sears parcels at the following properties on a 50/50 basis:

– Alderwood (Lynwood, WA)

– Natick Collection (Natick, MA)

– Sooner Mall (Norman, OK)

– Stonebriar Centre (Frisco, TX)

2) The Company sold to GGP a 50% interest in the Sears parcels at the following five assets for $57.5 million:

– Altamonte Mall (Altamonte Springs, FL)

– Cumberland Mall (Atlanta, GA)

– Coastland Center (Naples, FL)

– Northridge Fashion Center (Northridge, CA)

– Willowbrook Mall (Wayne, NJ)

The new joint venture will own and operate these assets on substantially the same terms as the existing joint venture.
The cynic in me says that Seritage want to have ample liquidity on hand in-case Sears go into bankruptcy.
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on July 13, 2017, 02:11:00 PM
The optimist in me says they need the funding because redevelopment is about to skyrocket 😬
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on July 13, 2017, 02:59:24 PM
So they were earning less than 12% on these? Because redevelopment will yield 12%...it's like investing vs owning a business. If you can get the same return with no headache or work :)
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on July 13, 2017, 04:04:19 PM
So they were earning less than 12% on these? Because redevelopment will yield 12%...it's like investing vs owning a business. If you can get the same return with no headache or work :)

It's better for the mall owner to own the anchors than being independently owned or JV in this case. So my guess is that SRG got a better rate than if they were to continue owning.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on July 13, 2017, 08:45:33 PM
So they were earning less than 12% on these? Because redevelopment will yield 12%...it's like investing vs owning a business. If you can get the same return with no headache or work :)

It's better for the mall owner to own the anchors than being independently owned or JV in this case. So my guess is that SRG got a better rate than if they were to continue owning.

I agree with you that the mall owners are, generally speaking, the best owners of the JV properties.

I expect that we'll see SRG monetize more of its JVs in the future, and suspect that this was the plan all along. Here's a quote from SRG's S-11 filing:

"at any time after March 31, 2018 in the case of the GGP JV, April 13, 2018, in the case of the Simon JV, and April 30, 2018 in the case of the Macerich JV we will have the right to cause GGP to purchase from the GGP JV, Simon to purchase from the Simon JV, or Macerich to purchase from the Macerich JV, as applicable, any JV Property owned by the applicable JV with respect to which a certain third party leasing threshold has been satisfied at the fair market value of the property, less certain mortgage loans and other debt in respect of such property and certain selling expenses."

Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on July 13, 2017, 10:34:13 PM
Quote
The Company sold to GGP a 50% interest in the Sears parcels at the following five assets for $57.5 million:
–   Altamonte Mall (Altamonte Springs, FL)
–   Cumberland Mall (Atlanta, GA)
–   Coastland Center (Naples, FL)
–   Northridge Fashion Center (Northridge, CA)
–   Willowbrook Mall (Wayne, NJ)
The new joint venture will own and operate these assets on substantially the same terms as the existing joint venture.
The above implies a market value of around $115 million, right?

Here are the gross carrying amounts and accumulated depreciation in thousands of $ from the 2016 10-K:
10,839    (582) Altamonte Mall (Altamonte Springs, FL)
15,363    (495) Cumberland Mall (Atlanta, GA)
11,066    (347) Coastland Center (Naples, FL)
  8,868    (412) Northridge Fashion Center (Northridge, CA)
17,403    (763) Willowbrook Mall (Wayne, NJ)
-------- --------
63,539 (2,599)

So $60.9 million of the "Investment in real estate, net" line from the 2016 balance sheet has a market value of around $115 million.
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on July 15, 2017, 02:20:34 PM
Quote
The Company sold to GGP a 50% interest in the Sears parcels at the following five assets for $57.5 million:
–   Altamonte Mall (Altamonte Springs, FL)
–   Cumberland Mall (Atlanta, GA)
–   Coastland Center (Naples, FL)
–   Northridge Fashion Center (Northridge, CA)
–   Willowbrook Mall (Wayne, NJ)
The new joint venture will own and operate these assets on substantially the same terms as the existing joint venture.
The above implies a market value of around $115 million, right?

Here are the gross carrying amounts and accumulated depreciation in thousands of $ from the 2016 10-K:
10,839    (582) Altamonte Mall (Altamonte Springs, FL)
15,363    (495) Cumberland Mall (Atlanta, GA)
11,066    (347) Coastland Center (Naples, FL)
  8,868    (412) Northridge Fashion Center (Northridge, CA)
17,403    (763) Willowbrook Mall (Wayne, NJ)
-------- --------
63,539 (2,599)

So $60.9 million of the "Investment in real estate, net" line from the 2016 balance sheet has a market value of around $115 million.

This doesn't include the $21.1 million that is allocated for the redevelopment of Willowbrook in Wayne, NJ. Construction started in Q1 of this year and is expected to be complete by Q4. Not sure how much of that was already spent though.

They said in the press release that they had $50 million of value creation above their cost basis for the 13 properties in total. They received $247.6 million, which means they spent a total of roughly $197.6 million and made a gain of 25%.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on August 01, 2017, 10:23:42 PM
SPG CEO's Q2 call comments on Seritage attached.

SPG and MAC are waiting for SHLD to go bankrupt, or at least close the stores of its own volition, before they redevelop their SRG joint ventures. I don't think any SRG - SPG/MAC joint venture redevelopments have been initiated since SRG was spun off.

I think there are two reasons for this:
(1) SPG and MAC think the IRRs for developing 50% of the Sears boxes are significantly inferior to the IRRs for redeveloping 100% of the Sears boxes.
2) SRG has the option to force SPG and MAC to buy them out of the JVs once they are redeveloped. Redeveloping the Sears boxes puts SRG in the driver's seat.

 

Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on August 03, 2017, 11:51:10 PM
 Solid Q2 for SRG.

http://ir.seritage.com/Cache/1001226457.PDFO=PDF&T=&Y=&D=&FID=1001226457&iid=4584761 (http://ir.seritage.com/Cache/1001226457.PDFO=PDF&T=&Y=&D=&FID=1001226457&iid=4584761)
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on August 04, 2017, 08:06:41 AM
Solid Q2 for SRG.

http://ir.seritage.com/Cache/1001226457.PDFO=PDF&T=&Y=&D=&FID=1001226457&iid=4584761 (http://ir.seritage.com/Cache/1001226457.PDFO=PDF&T=&Y=&D=&FID=1001226457&iid=4584761)

4.2 avg releasing spread since inception.

Steadily grinding out sirloin patties from scraps...
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on August 13, 2017, 07:08:49 AM
https://www.nytimes.com/2017/08/11/business/the-incredible-shrinking-sears.html
Title: Re: SRG - Seritage Growth Properties
Post by: spark411 on August 15, 2017, 06:27:07 PM
I was surprised to find that Guy Spier sold 75% of SRG.   Also Mohnish Pabrai sold out a few quarters ago.   Does anyone have any guesses as to why they sold?   What is the risk here?   

Also, does anyone know if Warren Buffett still owns SRG in his personal account?
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on August 16, 2017, 12:17:11 AM
I was surprised to find that Guy Spier sold 75% of SRG.   Also Mohnish Pabrai sold out a few quarters ago.   Does anyone have any guesses as to why they sold?   What is the risk here?   

Also, does anyone know if Warren Buffett still owns SRG in his personal account?

Pabrai spoke to Barron's about why he sold. I believe the link to the story is somewhere in this thread. I don't know that Spier has made his reason for selling public. I think Buffett will be required to file is he sells, so he probably still holds. 

With all due respect, if you need to ask "What is the risk here" you really need to read through this thread.

Title: Re: SRG - Seritage Growth Properties
Post by: spark411 on August 16, 2017, 08:47:03 PM
thanks.   Let me restate my question.   

What has changed in the risk profile of the asset in the last 6 months that Pabrai and Spier has been selling out?   As far as I can see, the re-development and re-tenanting is going well.   Please advise if there are any thoughts.  Thanks
Title: Re: SRG - Seritage Growth Properties
Post by: sleepydragon on August 16, 2017, 08:53:47 PM
I sold earlier, mainly due to tax related reason.
After I realized that I had to pay personal income tax rate on SRG's dividends, I sold it and was waiting for a good time to buy it back again in my tax-free account...
Title: Re: SRG - Seritage Growth Properties
Post by: Greyhound on August 27, 2017, 11:37:12 AM
thanks.   Let me restate my question.   

What has changed in the risk profile of the asset in the last 6 months that Pabrai and Spier has been selling out?   As far as I can see, the re-development and re-tenanting is going well.   Please advise if there are any thoughts.  Thanks

Pabrai had indicated that he sold out SRG because of the risk of default from SHLD. He indicated that if SHLD becomes insolvent or files for chapter 11 that SRG wouldn't be able to redevelop their properties because of its large exposure to SHLD. Then came the going concern risk disclosure in the 2016 10K which spooked everyone.

However, if you look at what SHLD has done in the first 2 quarters things are looking good for the company's liqudity - real estate sales, loan renegotiation, pension funding status, Amazon partnership, Kenmore licensing agreements (see this infographic (https://searsholdings.com/docs/investor/eap/Progress-on-Our-Transformation-in-First-Half-of-2017.pdf)). Q2 saw significantly improved adjusted EBITDA and net income from the same period last year.

SHLD has also been quite successful in re-tenanting SHLD stores. Given the recent strong quarter of SRG, it validates not only the real estate portfolio of SRG but also of SHLD. This validation of real estate should reduce the risk profile to SRG since SHLD does have liquidity options to sell more real estate to fund its ongoing operations. With SHLD having liquidity options, the risk of SHLD going insolvent would be reduced which would then decrease the risk profile of SHLD to SRG.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 27, 2017, 12:34:44 PM
The funny thing about SRG is that most people that speak publicly on the company are focusing on the risk of income from SHLD going to zero.  Well, in my opinion that's a variable that's only worth $500 million of the SRG value at this point.  Call it income from SHLD of $150m this year, $120 next, then $95, etc.  the present value of that might be approximated at $500m.

Well, the enterprise value of SRG is around $4 billion.  Therefore $500 million shouldn't be the deciding factor in an investment with a value of $ 4 billion.

The other variable is 'what's the reinvestment (redevelopment) opportunity worth?'  I won't lay out my answer for that here, but I think that's where one should be looking when trying to decide if SRG is a good investment at an enterprise value of $4 billion


Title: Re: SRG - Seritage Growth Properties
Post by: Greyhound on August 27, 2017, 02:25:49 PM
That's a great point especially since SRG has been able to reduce its dependence on SHLD .... as noted in its latest quarter:

Increased annual base rent from tenants other than Sears Holdings to 44.0% of total annual base rent from 29.3% in the prior year period, including all signed leases and net of rent attributable to associated space to be recaptured
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on August 27, 2017, 08:39:38 PM
The funny thing about SRG is that most people that speak publicly on the company are focusing on the risk of income from SHLD going to zero.  Well, in my opinion that's a variable that's only worth $500 million of the SRG value at this point.  Call it income from SHLD of $150m this year, $120 next, then $95, etc.  the present value of that might be approximated at $500m.

Well, the enterprise value of SRG is around $4 billion.  Therefore $500 million shouldn't be the deciding factor in an investment with a value of $ 4 billion.

The other variable is 'what's the reinvestment (redevelopment) opportunity worth?'  I won't lay out my answer for that here, but I think that's where one should be looking when trying to decide if SRG is a good investment at an enterprise value of $4 billion

I think trying to isolate or unbundle the SHLD rent payments as a percentage of SRG's enterprise value isn't the ideal way to look at the situation.

Here's the way I'm thinking about SRG's SHLD tenant risk: I don't think anyone really knows what SHLD's remaining assets are worth, or when/how/if they will be monetized. However, Lampert has EVERY incentive to keep SHLD out of bankruptcy, or at least to stave it off as long as possible. If SHLD goes bankrupt not only will he likely lose his entire SHLD equity investment, but his SRG, SHOS, and LE equity positions will also be impaired. Lampert's ability to run a large retailer is very, very questionable, but he has proven adept at navigating the capital markets. He has also shown a willingness to put more of his own personal wealth on the line.

It is in SRG's best interest for all or almost all Sears and Kmart stores to eventually disappear from the face of the earth. I think it's all but inevitable that this happens. It's a question of timing.







Title: Re: SRG - Seritage Growth Properties
Post by: spark411 on August 28, 2017, 03:28:36 AM
Thanks all for the response. Very interesting and helpful.

I think if SHLD goes bankrupt, SRG still holds the value in the buildings/land.   If there is a cash crunch, SRG has the option to sell the buildings/land.   If there is really an oppty to increase rents 3-4x, there will be other buyers.

I think a key question is whether SRG is cherry picking the assets in the early years.  Does SRG really have 3-4x the rent potential of the SHLD tenanted properties OR does the first 1/3 of the assets have the 3-4x potential.   

Thanks
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on August 28, 2017, 06:02:00 PM
Pabrai indicated that SRG would need additional fundraising - which should be attainable, in the tune of $1 billion. See Berkshire investment in STOR.

He also believes there may be another chance to take a bite of the apple at much lower prices (dilution/sears fears develop). Which is why it's probably smart to wait and see what happens, rather than build up at these levels.

Flip side is, if sears makes it 2-3 years (say 2), the value of the company will be tremendous.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 28, 2017, 09:23:14 PM
Is anyone interested in laying out how things will look for SRG if SHLD lasts 2+ years instead of going BK in 2 years or less?  How will Hoss these two different outcomes change things for SRG? 

Thanks!
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on August 28, 2017, 10:12:54 PM
Is anyone interested in laying out how things will look for SRG if SHLD lasts 2+ years instead of going BK in 2 years or less?  How will Hoss two different outcomes change things for SRG? 

Thanks!

Among other things, I think the options with the joint ventures would be different.

As noted earlier in the thread, SRG said this in July:
Quote
sold to GGP the Company’s 50% interest in eight of the 12 assets in the existing joint venture between the two companies for $190.1 million

If SHLD goes bankrupt in 2 years or less then I think SRG needs to raise cash right away and sell their interest in the other 4 GGP JV assets along with their interest in the Simon and Macerich JV assets as fast as possible.

If SHLD lasts 2+ years then maybe SRG can be more strategic with these joint ventures. Maybe they sell them all within 2 years either way but I think they have more flexibility with the timing if SHLD is not BK.
Title: Re: SRG - Seritage Growth Properties
Post by: Greyhound on August 29, 2017, 04:52:13 AM
Is anyone interested in laying out how things will look for SRG if SHLD lasts 2+ years instead of going BK in 2 years or less?  How will Hoss two different outcomes change things for SRG? 

Thanks!

There's all this talk about sears going bankrupt. Their FY 16/17 $20.78 EPS loss certainly doesn't help and headlines that proclaim to know the future.

But for a moment, just think. What if they are able to right size itself to breakeven and profitability? Just keep in mind that EBITDA in the latest quarter was "only" ($62)m, which suggest, on an adj EBITDA basis, that SHLD could be on a path to breaking even.



Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on August 29, 2017, 06:21:46 AM
Is anyone interested in laying out how things will look for SRG if SHLD lasts 2+ years instead of going BK in 2 years or less?  How will Hoss two different outcomes change things for SRG? 

Thanks!

Among other things, I think the options with the joint ventures would be different.

As noted earlier in the thread, SRG said this in July:
Quote
sold to GGP the Company’s 50% interest in eight of the 12 assets in the existing joint venture between the two companies for $190.1 million

If SHLD goes bankrupt in 2 years or less then I think SRG needs to raise cash right away and sell their interest in the other 4 GGP JV assets along with their interest in the Simon and Macerich JV assets as fast as possible.

If SHLD lasts 2+ years then maybe SRG can be more strategic with these joint ventures. Maybe they sell them all within 2 years either way but I think they have more flexibility with the timing if SHLD is not BK.

How much longer SRG needs SHLD to keep paying rent is dependent on the rate at which properties are transitioned to 3rd party tenants. I think two years will probably be long enough to get them past the "major liquidity crunch if SHLD is no longer able to pay" stage.

Keep in mind that SHLD going bankrupt doesn't necessarily mean that it won't keep paying rent under the master lease. From the 2016 10K:

Sears Holdings leases a substantial majority of our properties. Bankruptcy laws afford certain protections to tenants that may also affect the Master Lease or JV Master Leases.  Subject to certain restrictions, a tenant under a master lease generally is required to assume or reject the master lease as a whole, rather than making the decision on a property-by-property basis.  This prevents the tenant from assuming only the better performing properties and terminating the master lease with respect to the poorer performing properties. While we believe that our Master Lease and JV Master Lease are unitary leases that would need to be assumed or rejected as a whole in any bankruptcy proceeding, whether or not a bankruptcy court would require that a master lease be assumed or rejected as a whole depends upon a “facts and circumstances” analysis considering a number of factors, including the parties’ intent, the nature and purpose of the relevant documents, whether there was separate and distinct consideration for each property included in the master lease, the provisions contained in the relevant documents and applicable state law.  If a bankruptcy court in a Sears Holdings bankruptcy were to allow the Master Lease or a JV Master Lease to be rejected in part, certain underperforming leases related to properties we or the applicable JV as landlord under a JV Master Lease, respectively, own could be rejected by the tenant in bankruptcy while tenant-favorable leases are allowed to remain in place, thereby adversely affecting payments to us derived from the properties.  For this and other reasons, a Sears Holdings bankruptcy could materially and adversely affect us.
Title: Re: SRG - Seritage Growth Properties
Post by: tooskinneejs on August 29, 2017, 08:29:29 AM
Are Sears' leases of Seritage properties assignable by Sears to other parties in the event of bankruptcy?  And if they are, would that be a potential negative for Seritage if the assignee could continue to pay below-market rents for a long-term period?
Title: Re: SRG - Seritage Growth Properties
Post by: Greyhound on August 29, 2017, 05:09:53 PM
Doesnt seem like assignments arent permitted except in permitted situations:

ARTICLE IX
TRANSFER
9.1 Transfer; Subletting and Assignment. Except as otherwise expressly provided herein (including, without limitation, Article XV), Tenant shall not, without Landlord’s prior written consent (which consent may be withheld in Landlord’s sole and absolute discretion) Transfer this Master Lease or the Demised Premises, or any rights of Tenant or any interest of Tenant therein, including any subletting of part or all or any part of the Demised Premises, or engage the services of any Person (other than an Affiliate of Tenant) for the management or operation of any Demised Premises (as to which management services Landlord’s consent shall not be unreasonably withheld, conditioned or delayed. Any assignment or Transfer of any rights or interests in violation of this Article IX is ipso facto null and void and of no force or effect. Tenant acknowledges and agrees that the foregoing restrictions on Tenant’s rights of Transfer are consistent with and integral to the protection and implementation of Landlord’s rights to the Recapture Space and Additional Recapture Space and that the Rent and the other terms and conditions of this Master Lease have been expressly negotiated based upon and taking into account the foregoing restrictions on Tenant’s rights of Transfer, and that Landlord is relying upon the expertise of Tenant in the operation of each Store and that Landlord entered into this Master Lease with the expectation that Tenant would remain in and operate each Store during the entire Term (except for such express rights of termination by Tenant, or recapture or buy-out by Landlord, or limited rights of Tenant, as set forth herein) and for those reasons, among others, except as set forth herein, Landlord retains sole and absolute discretion in approving or disapproving any assignment or sublease or other Transfer not expressly permitted hereunder. Tenant acknowledges and agrees that the foregoing restrictions on Transfer are reasonable and have been specifically negotiated and bargained for between the parties and are an essential part of the economics of this Master Lease, and are a material inducement to Landlord to enter into this Master Lease.


9.2 Permitted Subletting. Tenant shall not have any right to lease, sublease, license or otherwise permit the use or occupancy of any space on or within any Property, except for: (a) the Lands’ End Agreements; (b) the Sears Hometown License Agreement; and (c) leases, licenses, concessions or in-store department agreements with third-party retailers, concessionaires, tenants or licensees that (i) operate wholly within or as part of Tenant’s Store with respect to any Demised Premises (except for storage or parking of vehicles in connection with vehicle rentals), do not operate separate or apart from the operations of the applicable Kmart Stores and/or Sears Stores, do not violate or conflict with any Encumbrance or any use restrictions and/or exclusives which affect the Demised Premises as of the time of the Commencement Date and which are generally consistent with historical practices at the Stores or otherwise consistent with the permitted uses of Section 7.2 (the leases, licenses, concessions and other agreements in clauses (a), (b) and (c), individually, a “Sublease,” and collectively, the “Subleases”); provided that in the case of the Subleases described in part (c) of this sentence, (i) (x) Tenant shall use commercially reasonable efforts to give Notice to Landlord of each new Sublease executed after the Commencement Date within thirty (30) days of the execution thereof and prior to the commencement of occupancy by the sublessee; provided, however, Tenant shall not be in breach or default of the foregoing obligation to provide Notices of Subleases if it provides a list of Subleases entered into since the last Notice to Landlord within fifteen (15) days of Landlord’s written request therefor given not more frequently than once in any calendar quarter during the Term, and (y) Tenant shall give Notice to Landlord of each new Sublease to the extent not previously provided, as part of the quarterly reports provided in Section 21.24(a) to the extent of the actual knowledge of such Subleases by the person preparing and signing such quarterly report, and (ii) such Sublease shall be expressly subject to the rights of any other Leases existing as of the Commencement Date which were entered into prior to the execution of such Sublease and to other Encumbrances affecting the Property as of the date such Sublease is entered into. For the purposes of this Section 9.2 only, “Encumbrance” shall include any Landlord Mortgage solely with respect to the lien thereof.

9.3 Permitted Assignments. Notwithstanding the foregoing, Tenant may, without Landlord’s prior written consent: (a) assign this Master Lease to Tenant’s Parent or any Subsidiary thereof; or (b) assign or transfer all of its rights and obligations under the Master Lease (either directly or indirectly, by operation of law or through a merger or other corporate transaction) to any other solvent corporation, partnership, limited liability company or other legal entity that (1) acquires all or substantially all of the assets of Tenant’s Parent, (2) is the surviving entity of a merger with Tenant’s Parent, or (3) results from a consolidation, reorganization or
recapitalization of Tenant’s Parent with a solvent corporation, partnership or other legal entity, in each case of subclauses (1), (2) and (3), provided the surviving entity has a net worth of not less than the net worth of Tenant’s Parent as of immediately prior such merger or other corporate transaction, after giving effect to any financing provided or contemplated in such merger or corporate transaction; provided, that in each case the successor tenant or successor Tenant Party (if not the named Tenant herein, the “Unrelated Successor Tenant”) assumes all of such Tenant’s obligations under the Master Lease (except that any such Unrelated Successor Tenant shall not be required to operate a “Sears” or “Kmart” Store, but shall otherwise comply with all of the provisions of Sections 7.2 and 7.3). In the case of any such assignment, (x) each Lease Guarantor (or the successor to each Lease Guarantor) shall reaffirm the Lease Guaranty (if it is not the successor to Tenant under the Master Lease) in a written instrument for the express benefit of Landlord in form and content reasonably satisfactory to Landlord and Landlord shall receive a fully executed copy thereof, (y) the use of the Demised Premises, except as expressly set forth above, shall continue to comply with the requirements of this Master Lease, including without limitation all rights of Landlord and all obligations of Tenant with respect to the Recapture Space, Additional Recapture Space and the 100% Recapture Property and (z) with respect to subdivision (b) above, if the identity and creditworthiness of the successor tenant and successor Lease Guarantor shall be subject to the reasonable approval of Landlord and Landlord Mortgagee.



Source: Page 68 and 69 https://www.sec.gov/Archives/edgar/data/1628063/000119312515250446/d17110dex103.htm
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on September 17, 2017, 01:01:44 PM
Updated presentation for Sept 2017:  http://ir.seritage.com/Presentations
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on September 21, 2017, 08:26:24 AM
http://www.rbr.com/wp-content/uploads/Debunking-the-Retail-Apocalypse-Final-Enterprise.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on October 01, 2017, 03:48:53 AM
Seritage is part of a group that has put together a proposal to entice Amazon to locate it's 2nd headquarters in Dallas:

http://www.wfaa.com/money/amazon-proposed-second-headquarters-north-dallas-texas-photos-dbj/479363133 (http://www.wfaa.com/money/amazon-proposed-second-headquarters-north-dallas-texas-photos-dbj/479363133)
Title: Re: SRG - Seritage Growth Properties
Post by: Greyhound on October 01, 2017, 05:48:00 AM
Seritage is part of a group that has put together a proposal to entice Amazon to locate it's 2nd headquarters in Dallas:

http://www.wfaa.com/money/amazon-proposed-second-headquarters-north-dallas-texas-photos-dbj/479363133 (http://www.wfaa.com/money/amazon-proposed-second-headquarters-north-dallas-texas-photos-dbj/479363133)

The possibilities of these aging Sears locations are endless. Even repurposing it for your competitors HQ!
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on October 03, 2017, 01:13:50 PM
https://www.wsj.com/articles/retail-real-estate-holds-steady-despite-store-closures-1507053715
Quote
Overall, the retail vacancy rate across different types of malls and retail centers stayed flat at 10% in the third quarter from the second quarter, with asking rents rising 0.4% to $20.74 a square foot from the previous quarter and up 1.8% year-over-year.
...
Lower construction activity helped to rein in supply and support occupancy levels.
...
the restaurant sector as well as grocery stores and fitness centers are continuing to expand
Title: Re: SRG - Seritage Growth Properties
Post by: Greyhound on October 04, 2017, 07:52:21 PM
The industry statistics really goes to show that the retail apocalypse line is overblown.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on October 04, 2017, 10:00:24 PM
The industry statistics really goes to show that the retail apocalypse line is overblown.

Totally agree.  Particularly the retail real estate apocalypse line.  Yes, retailers are closing stores and losing share to online, but many other retailers are filling the physical space with different offerings. 
Title: Re: SRG - Seritage Growth Properties
Post by: Greyhound on October 06, 2017, 08:22:24 AM
http://www.commercialappeal.com/story/money/business/development/2017/10/05/nordstrom-rack-opens-new-east-memphis-poplar-commons/733814001/

Nordstrom Rack opens at former Sears location in East Memphis. Seritage is the landlord.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on October 16, 2017, 10:30:51 PM
Looked at the 10/16/2017 BERKOWITZ BRUCE R http://www.snl.com/IRWeblinkx/ShowFile.aspx?KeyFile=390662038&Output=XML&Format=XML Form 4 today and took some notes regarding the 19 lines:
###
1. Disposed 438,931 A shares bringing the total down from 4,205,581 to 3,766,650.*

2. & 3. Disposed then Acquired 846,299 C shares keeping him at 5,428,130.

4. & 5. Disposed then Acquired 871,672 C shares keeping him at 5,428,130.

6. Disposed 650,548 C shares bringing the total down from 5,428,130 to 4,777,582.*

7. Acquired 650,548 C shares in DIRECT acct bringing the total from 35,850 to 686,398.

8. Disposed  11,700 C shares bringing the total down from 4,777,582 to 4,765,882.*

9. & 10. Acquired then Disposed 11,700 A shares keeping him at 3,766,650.

11. Disposed  90,900 C shares bringing the total down from 4,765,882 to 4,674,982.*

12. & 13. Acquired then Disposed 90,900 A shares keeping him at 3,766,650.

14. Disposed  68,700 C shares bringing the total down from 4,674,982 to 4,606,282.*

15. & 16. Acquired then Disposed 68,700 A shares keeping him at 3,766,650.

17. Disposed  29,200 C shares & lost beneficial ownership of 5,151 shares per footnote (9) bringing the total down from 4,606,282 to 4,571,931.*

18. & 19. Acquired then Disposed 29,200 A shares keeping him at 3,766,650.

Bottom Line:
Disposed 438,931 A shares bringing the total down from 4,205,581 to 3,766,650.
Disposed 200,500 or [11,700 + 90,900 + 68,700 + 29,200] C shares, lost beneficial ownership of 5,151 C shares and distributed 650,548 C shares to direct bringing the indirect total down by 856,199 from 5,428,130 to 4,571,931.
###

Does the summary below sound correct for his indirect ownership?
Sold 438,931 A shares.
Sold 200,500 C shares.
Lost beneficial ownership of 5,151 C shares.
Distributed 650,548 C shares to direct.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on October 17, 2017, 05:57:15 AM
With Berkowitz winding up his hedge fund we'll likely see short term selling pressure as shares distributed to LPs are sold off. 

On a more positive note, a SRG spokesperson has confirmed a new $20 million development of half their Broward Mall space. I believe this redevelopment had not been announced previously.

https://therealdeal.com/miami/2017/10/12/sears-at-broward-mall-in-plantation-to-be-redeveloped/
 (https://therealdeal.com/miami/2017/10/12/sears-at-broward-mall-in-plantation-to-be-redeveloped/)
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on October 17, 2017, 07:48:52 AM
Looked at the 10/16/2017 BERKOWITZ BRUCE R http://www.snl.com/IRWeblinkx/ShowFile.aspx?KeyFile=390662038&Output=XML&Format=XML Form 4 today and took some notes regarding the 19 lines:
###
1. Disposed 438,931 A shares bringing the total down from 4,205,581 to 3,766,650.*

2. & 3. Disposed then Acquired 846,299 C shares keeping him at 5,428,130.

4. & 5. Disposed then Acquired 871,672 C shares keeping him at 5,428,130.

6. Disposed 650,548 C shares bringing the total down from 5,428,130 to 4,777,582.*

7. Acquired 650,548 C shares in DIRECT acct bringing the total from 35,850 to 686,398.

8. Disposed  11,700 C shares bringing the total down from 4,777,582 to 4,765,882.*

9. & 10. Acquired then Disposed 11,700 A shares keeping him at 3,766,650.

11. Disposed  90,900 C shares bringing the total down from 4,765,882 to 4,674,982.*

12. & 13. Acquired then Disposed 90,900 A shares keeping him at 3,766,650.

14. Disposed  68,700 C shares bringing the total down from 4,674,982 to 4,606,282.*

15. & 16. Acquired then Disposed 68,700 A shares keeping him at 3,766,650.

17. Disposed  29,200 C shares & lost beneficial ownership of 5,151 shares per footnote (9) bringing the total down from 4,606,282 to 4,571,931.*

18. & 19. Acquired then Disposed 29,200 A shares keeping him at 3,766,650.

Bottom Line:
Disposed 438,931 A shares bringing the total down from 4,205,581 to 3,766,650.
Disposed 200,500 or [11,700 + 90,900 + 68,700 + 29,200] C shares, lost beneficial ownership of 5,151 C shares and distributed 650,548 C shares to direct bringing the indirect total down by 856,199 from 5,428,130 to 4,571,931.
###

Does the summary below sound correct for his indirect ownership?
Sold 438,931 A shares.
Sold 200,500 C shares.
Lost beneficial ownership of 5,151 C shares.
Distributed 650,548 C shares to direct.

The 13F on 8/14 showed SRG holdings at 3.8m: https://www.sec.gov/Archives/edgar/data/1056831/000091957417006238/xslForm13F_X01/infotable.xml
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on October 18, 2017, 01:49:21 PM
We know Seritage sold their 50% interest in 8 of the 12 original GGP JVs for $190.1 million in July.

Foreign Tuffett noted that in the spring of '18 Seritage has the right to sell their interest in the other original JVs:
I expect that we'll see SRG monetize more of its JVs in the future, and suspect that this was the plan all along. Here's a quote from SRG's S-11 filing:

"at any time after March 31, 2018 in the case of the GGP JV, April 13, 2018, in the case of the Simon JV, and April 30, 2018 in the case of the Macerich JV we will have the right to cause GGP to purchase from the GGP JV, Simon to purchase from the Simon JV, or Macerich to purchase from the Macerich JV, as applicable, any JV Property owned by the applicable JV with respect to which a certain third party leasing threshold has been satisfied at the fair market value of the property, less certain mortgage loans and other debt in respect of such property and certain selling expenses."

If they sell in the spring of '18 and we assume valuations are similar to today then about how much can they get for their 50% interest in the other 4 original GGP JVs, the 10 Simon JVs and the 9 Macerich JVs? How quickly could they be sold once we're past the spring '18 dates?
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on October 19, 2017, 06:52:30 AM
We know Seritage sold their 50% interest in 8 of the 12 original GGP JVs for $190.1 million in July.

Foreign Tuffett noted that in the spring of '18 Seritage has the right to sell their interest in the other original JVs:
I expect that we'll see SRG monetize more of its JVs in the future, and suspect that this was the plan all along. Here's a quote from SRG's S-11 filing:

"at any time after March 31, 2018 in the case of the GGP JV, April 13, 2018, in the case of the Simon JV, and April 30, 2018 in the case of the Macerich JV we will have the right to cause GGP to purchase from the GGP JV, Simon to purchase from the Simon JV, or Macerich to purchase from the Macerich JV, as applicable, any JV Property owned by the applicable JV with respect to which a certain third party leasing threshold has been satisfied at the fair market value of the property, less certain mortgage loans and other debt in respect of such property and certain selling expenses."

If they sell in the spring of '18 and we assume valuations are similar to today then about how much can they get for their 50% interest in the other 4 original GGP JVs, the 10 Simon JVs and the 9 Macerich JVs? How quickly could they be sold once we're past the spring '18 dates?

I don't think SRG is going to be able to force Simon and Macerich to sell in the near term due to the clause I highlighted. 
Title: Re: SRG - Seritage Growth Properties
Post by: sleepydragon on October 22, 2017, 07:56:31 PM
I've spent a healthy chunk of time analyzing this and have taken a position.

By my best and most conservative estimates, Sears would have to both declare bankruptcy and reject all of the leases in the portfolio within the next 6 to 8 quarters in order to put Seritage in a bad situation. And even then, as long as SRG could access external financing at a reasonable rate of funding, they should be able to survive without too much trouble.  Beyond 8 quarters, the company should be able to generate positive cash flow even if Sears suddenly disappears off the face of the Earth - the one large assumption here is that they're able to continue to recapture and redevelop properties at the same rate that they have been for the last few quarters.  If that suddenly drastically slows then it's a different story.  So that's the downside scenario.

The upside is massive, and I think will happen more quickly than most people expect. A complete turnover of the portfolio (meaning Sears completely gone and new tenants brought in) gets me a price target of ~$224 using an FFO model and $204 using an NAV model.  By my estimates this should take somewhere around 15 years, giving us an annual return of ~11%.  This doesn't take into account any rental inflation, any growth in the portfolio, or really any other sort of excess return that could be generated by the management team.  This is a pure, steady-state portfolio turnover.  So I think there's probably upside even to my estimates.

For anyone who is concerned about the near term Sears bankruptcy risk, it is somewhat cost effective to hedge a position in SRG by buying long-dated SHLD puts.  The Jan '18 expiration covers most of the risk, as by my estimates the risk should be greatly diminished past that point and an investment should no longer need a SHLD hedge after that date.

I think a fully redeveloped share value in the $200 range that you put out there is entirely reasonable. The 15-year timeframe might be optimistic. Getting there would require both Sears and Kmart to be completely gone by then, and it would imply a redevelopment pace of roughly 2.4 million square feet per year (about 2.5 times their current run-rate). Given the secular trends in bricks and mortar retail (we have too many stores already), I think that is much more of a challenge than dealing with the Sears solvency risks. That said, it's pretty easy to see why Buffett liked this at $36 per share.

Would it be possible the WEB actually bought Sears instead of SRG, and got his SRG from the spinoff? And therefore as a result, he got caught reporting the form 4 which otherwise he won't have to.
Title: Re: SRG - Seritage Growth Properties
Post by: globalfinancepartners on October 22, 2017, 09:00:22 PM
Quote
Would it be possible the WEB actually bought Sears instead of SRG, and got his SRG from the spinoff? And therefore as a result, he got caught reporting the form 4 which otherwise he won't have to.

I don't think that is the case.  He would have filed his 13d much earlier than December 2015.  The filing seems to indicate he crossed into reporting territory on November 30th 2015.

Also his shareholding is a very round number, exactly 2 million shares, which seems like he bought them as SRG shares.  It is possible that he held SHLD, received SRG shares, then topped up his SRG shares in the open market to above 5% and stopped at an even number of shares.

https://www.sec.gov/Archives/edgar/data/315090/000119312515399523/d103925dsc13g.htm
Title: Re: SRG - Seritage Growth Properties
Post by: sleepydragon on October 22, 2017, 09:07:26 PM
Quote
Would it be possible the WEB actually bought Sears instead of SRG, and got his SRG from the spinoff? And therefore as a result, he got caught reporting the form 4 which otherwise he won't have to.

I don't think that is the case.  He would have filed his 13d much earlier than December 2015.  The filing seems to indicate he crossed into reporting territory on November 30th 2015.

Also his shareholding is a very round number, exactly 2 million shares, which seems like he bought them as SRG shares.  It is possible that he held SHLD, received SRG shares, then topped up his SRG shares in the open market to above 5% and stopped at an even number of shares.

https://www.sec.gov/Archives/edgar/data/315090/000119312515399523/d103925dsc13g.htm

The 2 million round number is a good point! Thanks!
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on October 24, 2017, 08:43:14 AM
I don't think SRG is going to be able to force Simon and Macerich to sell in the near term due to the clause I highlighted.

Yeah, I guess it can't be forced for some time due to the thrid party leasing threshold.

On another note, AMC Theatres to join SRG redevelopment property at Orland Square in Orland Park, Illinois: http://ir.seritage.com/file/Index?KeyFile=390750171
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on October 24, 2017, 06:03:18 PM
Re SRG Mortgage Loans Payable from page 41 of the following 2016 annual report:  http://www.snl.com/Cache/c38312861.html
On July 7, 2015, pursuant to the Transaction, the Company entered into a mortgage loan agreement (the “Mortgage Loan Agreement”) and mezzanine loan agreement (collectively, the “Loan Agreements”) providing for term loans in an initial principal amount of approximately $1,161 million (collectively, the “Mortgage Loans”) and a $100 million future funding facility (the “Future Funding Facility”), which we expect to be available to us to finance the redevelopment of properties in our portfolio from time to time, subject to satisfaction of certain conditions.  As of December 31, 2016, the total principal amounts outstanding under the Mortgage Loans and the Future Funding Facility were $1,161 million and $20 million, respectively, and $80 million remained available under the Future Funding Facility for future draws by the Company.
Interest under the Mortgage Loans and Future Funding Facility is due and payable on the payment dates, and all outstanding principal amounts are due when the loans mature on the payment date in July 2019, pursuant to the Loan Agreements.  The Company has two one-year extension options subject to the payment of an extension fee and satisfaction of certain other conditions.  Borrowings under the Mortgage Loans and Future Funding Facility bear interest at the London Interbank Offered Rates (“LIBOR”) plus, as of December 31, 2016, a weighted-average spread of 465 basis points; payments are made monthly on an interest-only basis.  The weighted-average interest rate for the Mortgage Loans and Future Funding Facility for the year ended December 31, 2016 was 5.24%.  For the period from July 7, 2015 (Date Operations Commenced) through December 31, 2015, the weighted-average interest rate for the Mortgage Loans was 4.96%.

The Loan Agreements contain a yield maintenance provision for the early extinguishment of the debt before March 9, 2018. 

Given SRG's ability to refinance without penalty by March 9, 2018 and the fact that there will have been, ballpark, $1.5B in value creation according SRG, why wouldn't SRG be able to refinance the mortgage or issue bonds on more favourable financial terms to both cover redevelopment if SHLD rejects the master lease in a formal BK (and no other bidder comes along)and pay maintenance capex.

Page 6 of the RBC initiation report dated Sept 6, 2016 says the loan becomes due in July 2019, but is prepayable in January 2018. 

Page 7, 2017 SRG presentation:  http://ir.seritage.com/Cache/1001227621.PDF?O=PDF&T=&Y=&D=&FID=1001227621&iid=4584761

In this way, I think SRG doesn't need SHLD to survive for as long as has been previously suggested. 


Title: Re: SRG - Seritage Growth Properties
Post by: dyow on October 24, 2017, 11:29:58 PM
Buffett couldn't buy sears even if he wanted to.  It would confuse his followers. 
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on October 27, 2017, 03:17:14 PM
https://seekingalpha.com/article/4117650-simon-property-group-spg-q3-2017-results-earnings-call-transcript?part=single
Quote
[David Simon] As you know, we did own Seritage stock, we did sell that.
Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on October 28, 2017, 01:58:04 PM
Seritage has 2$ per share of FFO and they pay 1$ per share in dividends.
My question is why ?

I know that they must pay 90% of taxable income to qualify as a REIT but SRG has net loss and they could use the money to diversify away from sears much quicker...
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on October 28, 2017, 05:01:02 PM
Seritage has 2$ per share of FFO and they pay 1$ per share in dividends.
My question is why ?

I know that they must pay 90% of taxable income to qualify as a REIT but SRG has net loss and they could use the money to diversify away from sears much quicker...

It is correct that SRG does not need to pay a dividend for tax reasons right now, due to showing losses. The reason SRG does pay is probably because it is customary for a REIT to do so and it makes it an easy sell to institutional investors, some of which require a stock to be dividend paying.
Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on October 28, 2017, 10:36:24 PM
It is correct that SRG does not need to pay a dividend for tax reasons right now, due to showing losses. The reason SRG does pay is probably because it is customary for a REIT to do so and it makes it an easy sell to institutional investors, some of which require a stock to be dividend paying.

seems very excessive to me for them to pay 50% in dividends while having to redevelop 90%+ of their assets at what seems to be a very attractive returns.

Is it that simple ? management will sacrifice good capital allocation for short term approval of investors (I would call them renters and not owners but this is another story)
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on October 29, 2017, 07:44:31 AM
It is correct that SRG does not need to pay a dividend for tax reasons right now, due to showing losses. The reason SRG does pay is probably because it is customary for a REIT to do so and it makes it an easy sell to institutional investors, some of which require a stock to be dividend paying.

seems very excessive to me for them to pay 50% in dividends while having to redevelop 90%+ of their assets at what seems to be a very attractive returns.

Is it that simple ? management will sacrifice good capital allocation for short term approval of investors (I would call them renters and not owners but this is another story)

It probably is that simple, unless you have a different explanation. I don’t know any REIT that does not pay a dividend, unless it is in deep distress. Even in 2009, most if not all Reits continued to pay a Evis den (albeit drastically reduced), even after deeply discounted secondaries.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on October 29, 2017, 09:02:15 AM
From my understanding the dividend is purely tax related.  They pay the dividend because the rules of REIT's say they must.
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on October 29, 2017, 12:32:49 PM
From my understanding the dividend is purely tax related.  They pay the dividend because the rules of REIT's say they must.

Reits are required to pay out at least 90% of taxabable income as dividend. Since SRG is still having losses, I don’t think they would need to pay out anything at this point.
https://www.sec.gov/fast-answers/answersreitshtm.html (https://www.sec.gov/fast-answers/answersreitshtm.html)
Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on October 29, 2017, 04:04:27 PM
It is a question that bothers me, I sent IR a message, hopefully this time I will get a reply :)



Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on October 29, 2017, 05:41:23 PM
I believe it may be due to the difference between tax accounting and GAAP accounting.
Title: Re: SRG - Seritage Growth Properties
Post by: glorysk87 on October 30, 2017, 01:13:50 PM
A) Tax accounting and GAAP accounting are different, so you can't just look at the income statement and make the call that they don't need to pay a dividend

B) They need to pay a decent dividend otherwise the already small investor base they have would vanish and their cost of equity would skyrocket.
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on October 30, 2017, 02:52:22 PM
A) Tax accounting and GAAP accounting are different, so you can't just look at the income statement and make the call that they don't need to pay a dividend

B) They need to pay a decent dividend otherwise the already small investor base they have would vanish and their cost of equity would skyrocket.

Dividend addiction is just sad.
Title: Re: SRG - Seritage Growth Properties
Post by: bizaro86 on October 30, 2017, 10:16:01 PM
The cost of equity argument seems odd to me. There is no possible justification for their current valuation unless you think they have many accretive redevelopment opportunities.

If you believe that, you should want them to retain capital to pursue these opportunities as fast as possible. That has the side benefit of reducing the risk of significant poorly timed dilution if Sears files early.

If you don't believe they have good reinvestment opportunities, why would you buy this? The answer is you wouldn't.

Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on October 31, 2017, 02:24:19 AM
A) Tax accounting and GAAP accounting are different, so you can't just look at the income statement and make the call that they don't need to pay a dividend

B) They need to pay a decent dividend otherwise the already small investor base they have would vanish and their cost of equity would skyrocket.

regarding A, I would argue tax accounting can't be THAT different from the income statement we all see, since if it was all REITs wouldn't have money to cover the depreciation. Maybe someone has more information about this subject ?

regarding B, the point may be valid but we should look as well at the positive effect of having more equity to deploy thus reducing leverage rate and by so making it more attractive to credit investors (reducing the dividend will be a positive to bond investors  and a negative to "dividend addicts" but what the management should focus on is creating long term value and not raising the stock price by deploying capital in dumb ways, sooner or later if management is creating value investors will enjoy it). Reducing the dividend will also enable to diversify away from sears much faster thus making the investment much more attractive to investors (who fear the sears bankruptcy).
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on October 31, 2017, 08:07:41 AM
The dividend question has been brought up before. Someone on this board asked management directly and the answer he got was pretty much "that's the way it is".

1) Maybe it's to keep the stock price up, but that would be silly because they have Eddie Lampert and Bruce Berkowitz as their biggest holders and these guys don't care about their stocks in their portfolios dropping (if you haven't noticed), and they are THE investor base. Oh and not to mention, Warren Buffett. My guess is if they cut the dividend they would have no problem finding enough buyers for their stock. Arguably the stock would go up because they'd be retaining all that capital free of dividend tax.

2) So maybe it's because of tax vs. GAAP accounting. I'm not an expert on this so I really don't know, someone else should chime in.

3) Look at the restricted stock units for management, they don't have access to shares until they vest, but any dividends paid on these shares vest immediately. When in doubt, follow the incentives, that's would Munger would do.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on October 31, 2017, 08:41:42 AM
This.
3) Look at the restricted stock units for management, they don't have access to shares until they vest, but any dividends paid on these shares vest immediately. When in doubt, follow the incentives, that's would Munger would do.
Title: Re: SRG - Seritage Growth Properties
Post by: WneverLOSE on October 31, 2017, 09:21:47 AM
3) Look at the restricted stock units for management, they don't have access to shares until they vest, but any dividends paid on these shares vest immediately. When in doubt, follow the incentives, that's would Munger would do.

I would buy you a beer if I could.

I am truly baffled at why would Warren invest, if reinvestment rates are low investors shouldn't expect great returns in the long term, if reinvestment rates are attractive (to me they look very attractive) the dividend is a killer and ruines about 50% of future returns.
I wish I could buy real estate that yields me 12-13%, I would do it all day long but I can't.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on October 31, 2017, 09:57:28 AM
Is anyone factoring in the possible upside to the asset valuation if inflation runs hot in the next few years ? Of course offset somewhat by increasing supply from Sears and everyone else ?
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on November 02, 2017, 12:57:33 PM
While the dividend is a large portion of current income (~50%) one could argue it's a fraction of the value SRG is creating every year.  There's a line of thought, which I understand and do not disagree with, that SRG is creating over $500 million of value every year via redevelopment and leasing to 3rd parties.  Anyone that subscribes to this thinking might feel that a $55 million dividend is not much of the 'true earnings' of SRG every year. 

Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on November 02, 2017, 01:52:54 PM
3Q17 Operating Results: http://ir.seritage.com/file/Index?KeyFile=390921511

Some parts that stood out to me:
Quote
Increased annual base rent from tenants other than Sears Holdings to 45.4% of total annual base rent from 31.4% in the prior year period, including all signed leases and net of rent attributable to associated space to be recaptured, and after the impact of the GGP transactions.

...

Agreed to sell to Simon Property Group (“Simon”) the Company’s 50% interest in five of the ten assets in the existing joint venture between the two companies for $68.0 million, subject to certain closing conditions.

The supplemental is out too. Why did the total third party annual rent go down from the Q2 supplement to the Q3 supplement? Is it because of the Q3 sales to GGP?

Q2 supplement:
 $47.2 million In-Place Third-Party
 $55.8 million SNO Third-Party
------
$103.0 million

Q3 supplement:
 $47.4 million In-Place Third-Party
 $53.9 million SNO Third-Party
------
$101.3 million
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on November 02, 2017, 02:02:14 PM
Sale of JV's?

Edit:  Looks like the sale of GGP JV's reduced annual rent by $7.997 million.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on November 02, 2017, 02:05:14 PM
I think you're right, BTShine.

I edited/asked that without seeing that you mentioned it.
Title: Re: SRG - Seritage Growth Properties
Post by: thinkpad on November 02, 2017, 02:33:24 PM
Hello,

did you notice the dilution on class A and C shares ?
" 28,001,411 and 25,843,251 shares issued and outstanding as of  September 30, 2017 and December 31, 2016, respectively"

"5,951,861 and 5,754,685 shares issued and outstanding as of  September 30, 2017 and December 31, 2016, respectively "

do you know where it is coming from ?

Title: Re: SRG - Seritage Growth Properties
Post by: namo on November 02, 2017, 05:21:01 PM
It could be conversion of some units held by Berkowitz or ESL, no?
If one of their funds distributed units to holders, it would be natural for them to convert them to liquid stock.

But I don't recall off-hand whether / which units are convertible.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on November 02, 2017, 06:04:03 PM
Hello,

did you notice the dilution on class A and C shares ?
" 28,001,411 and 25,843,251 shares issued and outstanding as of  September 30, 2017 and December 31, 2016, respectively"

"5,951,861 and 5,754,685 shares issued and outstanding as of  September 30, 2017 and December 31, 2016, respectively "

do you know where it is coming from ?

Yeah, it looks like the conversion of operating units.

Page 4 of the supplemental shows 55,785,000 shares and units as of 3Q17 and 55,774,000 as of 4Q16.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on November 03, 2017, 04:26:49 AM
https://www.forbes.com/sites/kaipetainen/2017/10/25/betting-on-sears-seritage-and-a-short-squeeze-university-of-florida-students-win-stock-competition/
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on November 03, 2017, 11:51:08 AM
Contra the market reaction today, I actually think the quarter was pretty good with 600,000 sq feet leased at a 4.6X spread. Some of the financial metrics look bad because of the GGP transaction closing and only one redevelopment project having been completed in Q3. Neither of these should have been surprises for anyone who follows the company closely.

While I'm not entirely pleased with the price they got for the Simon properties, IMO SRG's redevelopment opportunities outweigh its liquidity. Also, Simon and Macerich have been stonewalling SRG about redeveloping their JV properties. As such it probably makes more sense for SRG to sell and redeploy the cash.



 

Title: Re: SRG - Seritage Growth Properties
Post by: Greyhound on November 03, 2017, 01:57:57 PM
The dividend question has been brought up before. Someone on this board asked management directly and the answer he got was pretty much "that's the way it is".

1) Maybe it's to keep the stock price up, but that would be silly because they have Eddie Lampert and Bruce Berkowitz as their biggest holders and these guys don't care about their stocks in their portfolios dropping (if you haven't noticed), and they are THE investor base. Oh and not to mention, Warren Buffett. My guess is if they cut the dividend they would have no problem finding enough buyers for their stock. Arguably the stock would go up because they'd be retaining all that capital free of dividend tax.



As far as the dividend is concerned, the reason for the dividend is quite simple. They are required to distribute 90% of its taxable income otherwise the trust will have to pay tax on its income.

https://www.law.cornell.edu/uscode/text/26/857


REIT Qualification
We elected to be treated as a REIT commencing with the taxable year ended December 31, 2015 and expect to continue to operate so as to qualify as a REIT.  So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on net taxable income that we distribute annually to our shareholders.  In order to qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, including, but not limited to, the real estate qualification of sources of our income, the composition and values of our assets, the amounts we distribute to our shareholders and the diversity of ownership of our stock.  In order to comply with REIT requirements, we may need to forego otherwise attractive opportunities and limit our expansion opportunities and the manner in which we conduct our operations.  See “Risk Factors—Risks Related to Status as a REIT.”

REIT distribution requirements could adversely affect our ability to execute our business plan.

REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. We intend to, at a minimum, make distributions to our shareholders to comply with the REIT requirements of the Code.


Note 8 – Income Taxes
The Company has elected to be taxed as a REIT as defined under Section 856(c) of the Code for federal income tax purposes and expects to continue to operate to qualify as a REIT.  To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to currently distribute at least 90% of its adjusted REIT taxable income to its shareholders.
As a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed to its shareholders.  If the Company fails to qualify as a REIT or does not distribute 100% of its taxable income in any taxable year, it will be subject to federal taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years.
Even if the Company qualifies for taxation as a REIT, the Company is subject to certain state, local and Puerto Rico taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.


http://www.snl.com/Cache/c38312861.html
Title: Re: SRG - Seritage Growth Properties
Post by: BG2008 on November 04, 2017, 07:32:24 PM
I haven't read through this whole thread.  Why buy Seritage when you can buy Simon at about 8.6% Cap rate today? 
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on November 05, 2017, 02:29:51 AM
Presumably the argument is that Seritage real estate is on an up escalator while the others are flat or - perhaps due to a flood of new development even a down escalator. Currently say an established REIT has rents of $40 per square foot and another has $4 per square foot. If the second reit rents at $15 per square foot, then merchants might think twice to continue renting at $40 and might switch over, pressuring the REIT of the established trust. Also each new incremental dollar of investment would seem easier if rents are below the competitors by a significant amount.
Title: Re: SRG - Seritage Growth Properties
Post by: frommi on November 05, 2017, 03:28:08 AM
I haven't read through this whole thread.  Why buy Seritage when you can buy Simon at about 8.6% Cap rate today?

Maybe i did the math wrong but by my calcuation its at 7.3%, which is still a huge enough discount. I would argue that both SPG and SRG have similar return prospects at these prices, but SRG is more tax efficient when you have to pay taxes on dividends and plan to hold for a very long time.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on November 05, 2017, 06:47:29 AM
I haven't read through this whole thread.  Why buy Seritage when you can buy Simon at about 8.6% Cap rate today?

I'd recommend reading the presentation SRG released in September
http://ir.seritage.com/Cache/1001227621.PDF?O=PDF&T=&Y=&D=&FID=1001227621&iid=4584761

That's a fine place to better understand this story if you're not up for reading this thread.
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on November 05, 2017, 07:42:26 AM
I haven't read through this whole thread.  Why buy Seritage when you can buy Simon at about 8.6% Cap rate today?

I am ny sure how you get the 8.6% cape rate. The number is almost certainly incorrect and I think the cap rate should close to 7% the or thereabouts.

It is difficult to calculate cap rate precisely because a lot of their properties are not in majority held JV, so it is difficult to account for the underlying debt in those, which is necessary to calculate the true cap rate.
(Corrected for spelling)
Title: Re: SRG - Seritage Growth Properties
Post by: BG2008 on November 05, 2017, 12:55:47 PM
I haven't read through this whole thread.  Why buy Seritage when you can buy Simon at about 8.6% Cap rate today?

I am ny sure how you get the 8.6% cape rate. The number is almost certainly incorrect and I think the cap rate should close to 7% the or thereabouts.

It is difficult no calculator cap rate precisely because a lot of their properties are no in majority held JV, so it is difficult to account for the underlying debt in those, which is necessary that calculate the true cap rate.

Yeah, my cap rate is off due to JV adjustments.  SPG seems less interesting than I thought.
Title: Re: SRG - Seritage Growth Properties
Post by: dyow on November 07, 2017, 11:54:31 AM
I don't own this stock, and i didn't see this brought up in thread, but it is something i would be asking as shareholder.

Most of Seritage are Sears stores.  If Sears files then that would hurt Seritage obviously. 

But what if Sears does not file.  The reason Jerk-pert placed more Sears stores in Seritage is bc the stores are too big, and he wants to reconfigure these stores to make them smaller.

Sears now has around 580+ Sears stores, and about 150+ of these are in Seritage.   People are worried that the company files and you would get a flood of properties hitting the market causing an oversupply (let's ignore the CF issues that would arise from losing Sears as a tenant). But, the remaining stores that Sears owns or has a below market lease are available for redevelopment right now.  All of them. 

So in effect Seritage is already competing with supply from Sears. 

This issue brings up several questions, but most importantly is there enough demand for everyone to win, or does this hurt Seritage short term in ways that can't be quantified..and other questions.  This might not change the thesis but it might impact your returns on the stock and pace of redevelopment.

I believe this would be a good question for management if you own the stock.  I am saying this because i want someone to ask and want to know the answer.
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on November 07, 2017, 06:58:56 PM
I don't own this stock, and i didn't see this brought up in thread, but it is something i would be asking as shareholder.

Most of Seritage are Sears stores.  If Sears files then that would hurt Seritage obviously. 

But what if Sears does not file.  The reason Jerk-pert placed more Sears stores in Seritage is bc the stores are too big, and he wants to reconfigure these stores to make them smaller.

Sears now has around 580+ Sears stores, and about 150+ of these are in Seritage.   People are worried that the company files and you would get a flood of properties hitting the market causing an oversupply (let's ignore the CF issues that would arise from losing Sears as a tenant). But, the remaining stores that Sears owns or has a below market lease are available for redevelopment right now.  All of them. 

So in effect Seritage is already competing with supply from Sears. 

This issue brings up several questions, but most importantly is there enough demand for everyone to win, or does this hurt Seritage short term in ways that can't be quantified..and other questions.  This might not change the thesis but it might impact your returns on the stock and pace of redevelopment.

I believe this would be a good question for management if you own the stock.  I am saying this because i want someone to ask and want to know the answer.

Real estate is local and aggregate supply does not mean that much. If SRG owns a Sears box, it does not matter much if SHLD owns another Sears box 20 miles away as they don’t really compete with each other for tenants.
Title: Re: SRG - Seritage Growth Properties
Post by: dyow on November 07, 2017, 08:26:44 PM
I don't own this stock, and i didn't see this brought up in thread, but it is something i would be asking as shareholder.

Most of Seritage are Sears stores.  If Sears files then that would hurt Seritage obviously. 

But what if Sears does not file.  The reason Jerk-pert placed more Sears stores in Seritage is bc the stores are too big, and he wants to reconfigure these stores to make them smaller.

Sears now has around 580+ Sears stores, and about 150+ of these are in Seritage.   People are worried that the company files and you would get a flood of properties hitting the market causing an oversupply (let's ignore the CF issues that would arise from losing Sears as a tenant). But, the remaining stores that Sears owns or has a below market lease are available for redevelopment right now.  All of them. 

So in effect Seritage is already competing with supply from Sears. 

This issue brings up several questions, but most importantly is there enough demand for everyone to win, or does this hurt Seritage short term in ways that can't be quantified..and other questions.  This might not change the thesis but it might impact your returns on the stock and pace of redevelopment.

I believe this would be a good question for management if you own the stock.  I am saying this because i want someone to ask and want to know the answer.

Real estate is local and aggregate supply does not mean that much. If SRG owns a Sears box, it does not matter much if SHLD owns another Sears box 20 miles away as they don’t really compete with each other for tenants.

I don't believe this is true.  It depends who the tenant is.  I would assume the vast majority of Sears box tenants would not be local mom and pop shops, they would be national brands with a lot flexibility to expand where they see fit.

If I am a tenant that has a national presence or a new international business looking to expand in the US, why would I not look at all available properties?  I would look at all available options, weigh the pros and cons, and then decide based on the best market/location to maximize cash flows. 
 
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on November 08, 2017, 01:46:18 AM
I think the key is to focus on the new renting per square foot and not the total volume of space owned. It really looks like a mining operation. In mining you have the areas with the highest concentration of your "gold" which you go after and then you have the "leftovers" which maybe require more effort for less payoff. If SRG mines the first 1/3 of its space at 3x the $4 base rent, you have total replacement - albeit without growth but with a more solid foundation. For growth you have to figure out how the other 2/3 will be used. To some degree this is a creative project. Imagining how these blocks of land strewn around various urban and suburban areas could work to create synergies. Watch for intelligent development projects. Whether movie theaters, grocery stores, and offices is enough is an open question. Maybe it's not different enough. I'd look at the management's team potential for creative projects.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on November 08, 2017, 06:39:22 AM
I think the key is to focus on the new renting per square foot and not the total volume of space owned. It really looks like a mining operation. In mining you have the areas with the highest concentration of your "gold" which you go after and then you have the "leftovers" which maybe require more effort for less payoff. If SRG mines the first 1/3 of its space at 3x the $4 base rent, you have total replacement - albeit without growth but with a more solid foundation. For growth you have to figure out how the other 2/3 will be used. To some degree this is a creative project. Imagining how these blocks of land strewn around various urban and suburban areas could work to create synergies. Watch for intelligent development projects. Whether movie theaters, grocery stores, and offices is enough is an open question. Maybe it's not different enough. I'd look at the management's team potential for creative projects.

This is one way to think about it.

Tangentially related is a rationale I've seen some use as a reason to pass on investing in SRG: "I can't think which retailers will lease all that space, therefore I can't invest." I object to this line of reasoning, as it unrealistically assumes that a generalist value investor is in a position to have this information, or can somehow conjure it up a priori.

I think instead the proper question is "can SRG's professional management team, working with 3rd party leasing agents, lease the boxes over time." There's lots of room for debate on this question, but IMO at least it's the right question to be asking. 
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on November 08, 2017, 12:25:36 PM
"Real estate investment trusts, such as Seritage Growth Properties, are reconsidering use of space, carving many former malls into smaller parcels for retailers that produce more sales per square foot. They have found success by repositioning malls and giving people a reason to come beyond just filling shopping bags.

We will increasingly see some sort of combination of live-work-play. We are also more likely to see indoor-outdoor spaces, rather than sterile, old indoor malls, and mall transformations from traditional retail to office environments."

http://www.areadevelopment.com/distribution-warehousing/Q4-2017/reviving-dead-malls-as-warehouses-mixed-use-complexes.shtml

Is it me or do you think Buffett is reminded of his childhood days when he bought Coca Cola 6 to the pack and then sold them individually? I guess this is both the mining business and the pizza slice business :)


Title: Re: SRG - Seritage Growth Properties
Post by: TwoCitiesCapital on November 08, 2017, 01:12:35 PM
"Real estate investment trusts, such as Seritage Growth Properties, are reconsidering use of space, carving many former malls into smaller parcels for retailers that produce more sales per square foot. They have found success by repositioning malls and giving people a reason to come beyond just filling shopping bags.

We will increasingly see some sort of combination of live-work-play. We are also more likely to see indoor-outdoor spaces, rather than sterile, old indoor malls, and mall transformations from traditional retail to office environments."

http://www.areadevelopment.com/distribution-warehousing/Q4-2017/reviving-dead-malls-as-warehouses-mixed-use-complexes.shtml

Is it me or do you think Buffett is reminded of his childhood days when he bought Coca Cola 6 to the pack and then sold them individually? I guess this is both the mining business and the pizza slice business :)

Isn't there a quote about finance where the general theme is "all money is made by packaging or unpackaging"?

Like, there was an argument for the conglomerates of decades ago and so companies packaged themselves up. Then there was an argument that more value could be obtained by spinning off unrelated units and giving them the focus/resources they needed to prosper. Then related entities come buy and purchased those units for vertical/horizontal integration.

This seems to fit that well.

Step 1. Unpackage
Step 2. Repackage.
Step 3. ???
Step 4. Profit.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on November 17, 2017, 05:42:28 PM
https://www.bizjournals.com/southflorida/news/2017/11/17/open-air-retail-replacement-for-sears-at-aventura.html
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on December 04, 2017, 03:54:50 PM
1 million square feet of office space planned for Dallas.

https://www.dmagazine.com/commercial-real-estate/2017/12/former-sears-at-valley-view-mall-to-become-office-campus/
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on December 04, 2017, 04:39:05 PM
1 million square feet of office space planned for Dallas.

https://www.dmagazine.com/commercial-real-estate/2017/12/former-sears-at-valley-view-mall-to-become-office-campus/

Wow, that's quite a change going from around 235k gla to around 1 million.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 05, 2017, 12:31:34 AM
And the Santa Monica property is being developed for 50 million - http://www.latimes.com/business/la-fi-sears-santa-monica-20171126-story.html
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on December 05, 2017, 08:03:14 AM
Does anyone have an estimate of what the Santa Monica property will lease for and what the property will be worth after redevelopment?

Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on December 05, 2017, 11:30:51 AM
Seritage's Dallas Midtown property is part of Dallas's proposal for Amazon's second headquarters:

"Dallas Midtown was one of the North Texas proposals being offered up by the Dallas Regional Chamber as a potential site for Amazon.com's HQ2 campus. In September, Dallas Midtown stakeholders — including Seritage and KDC — unveiled a proposal for a 100-acre urban campus next to 'Amazon Park,' within the planned project."

Source: https://www.bizjournals.com/dallas/news/2017/12/05/seritage-kdc-office-campus-dallas-midtown.html

Dallas appears to be the favorite for Amazon HQ2:

http://www.wsj.com/graphics/amazon-headquarters/
Title: Re: SRG - Seritage Growth Properties
Post by: bci23 on December 05, 2017, 04:18:55 PM
Does anyone have an estimate of what the Santa Monica property will lease for and what the property will be worth after redevelopment?

The article in the post before yours says 50k sq ft and that Santa Monica office space is commonly at $6/sq ft/month or $72/sq ft/yr so that would say $3.6m/yr of rent. 4% cap rate would say building is worth $90m or something.
Title: Re: SRG - Seritage Growth Properties
Post by: bci23 on December 05, 2017, 04:20:33 PM
1 million square feet of office space planned for Dallas.

https://www.dmagazine.com/commercial-real-estate/2017/12/former-sears-at-valley-view-mall-to-become-office-campus/

Wow, that's quite a change going from around 235k gla to around 1 million.

Has anyone looked through the portfolio or asked management about how many massive Sq Footage expansion opportunities exist such as this example?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 07, 2017, 07:07:41 AM
https://www.wsj.com/graphics/lampert/
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on December 07, 2017, 08:32:28 AM
saw the shelf registration today and prospectus for preferred. looks like they are starting the process of restructuring the capitalization
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 07, 2017, 09:24:45 AM
For the Dallas property?
The more I look at SRG I see why Buffett bought a tiny stake. He's smart.
It's classic don't bet on the jockey, bet on the opportunity.
It's like herding sheep. Have you noticed the accelerated rate of development? It's like Lampert has no choice. Buffett saw this before no doubt. Bet on the constraint and natural, unavoidable trend and it doesn't matter even if a monkey is running it :)
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on December 07, 2017, 12:48:09 PM
saw the shelf registration today and prospectus for preferred. looks like they are starting the process of restructuring the capitalization

Could be spun either way: i) good opportunities to allocate capital @ a rate above the cost of preferred equity, positive sign; or ii) need capital to expedite re-tenanting due to Sears closures - it just depends on how Mr. Market feels. Given the tough REIT environment, I wonder what the market appetite will be for the preferred and what kind of a rate they'll be able to issue them at.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on December 07, 2017, 01:31:14 PM
Could be both.  Sears leaving allows for more capex and therefore capital to be invested at attractive rates of return.   If SHLD was strong and kept stores open then SRG wouldn't have much redevelopment opportunity because SRG can only reclaim 50% of each property.   I think the ROI on reclaiming 50% of a location for redevelopment is much lower that a full redevelopment. 
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on December 07, 2017, 01:37:29 PM
1 million square feet of office space planned for Dallas.

https://www.dmagazine.com/commercial-real-estate/2017/12/former-sears-at-valley-view-mall-to-become-office-campus/

Wow, that's quite a change going from around 235k gla to around 1 million.

Has anyone looked through the portfolio or asked management about how many massive Sq Footage expansion opportunities exist such as this example?

I'm not aware of any others of the same scale. Here are some smaller scale redevelopments and possible redevelopments:

* Phase 1 of the "Esplanade at Adventura" redevelopment will expand SRG's sq footage somewhat. They are planning to do an additional 2nd phase that will add significantly more. This has probably already been mentioned in this thread, but Adventura is one of the highest quality enclosed malls in the country on a sales per sq foot basis.

* There have been news articles about SRG redeveloping the Hicksville, NY store into a mixed use development with a 300+ unit apartment complex. Note the 30 acres of land SRG controls here. Nothing I have seen indicates that any plans have been finalized. Type I (full recapture) property.

* The Westfield UTC luxury mall in San Diego is just finishing up a $600M redevelopment. I believe the Sears store has already closed, or is scheduled to close in the near future. SRG controls over 12 acres here.

* SRG owns over 18 acres at the Town Center at Boca Raton mall. The mall is in the midst of a "significant, multi-million-dollar renovation slated for completion by the end of 2018." The quote is from a local news article I found on the web.

* SRG owns almost 15 acres at the Overlake Fashion Plaza in Redmond, WA. I believe development renderings are floating around, but nothing is official yet.

* SRG owns approximately 18 acres at the Landmark Mall in Alexandria, VA. The Sears store is still open, despite the entirety of the rest of the mall being closed. HHC has a long term plan to redevelop the mall into an open air shopping center complex. I think at some point the Sears store will close, at which point I wouldn't be surprised to see SRG sell out to HHC, which is known to like to have full control of its developments.
 
IMO over time we will see more of these sorts of sq footage expansions and "densifications", especially as outparcels are redeveloped.

I believe SRG has many more redevelopment opportunities than they have capital, but management is taking steps to address the company's capital constraints.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on December 07, 2017, 02:03:15 PM
saw the shelf registration today and prospectus for preferred. looks like they are starting the process of restructuring the capitalization

Could be spun either way: i) good opportunities to allocate capital @ a rate above the cost of preferred equity, positive sign; or ii) need capital to expedite re-tenanting due to Sears closures - it just depends on how Mr. Market feels. Given the tough REIT environment, I wonder what the market appetite will be for the preferred and what kind of a rate they'll be able to issue them at.

Yeah, it's hard to say how Mr. Market will react.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on December 07, 2017, 02:43:30 PM
They're offering Preferred Shares @ 7%

$70 million worth

http://ir.seritage.com/Cache/391382302.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on December 07, 2017, 10:22:15 PM
They're offering Preferred Shares @ 7%

$70 million worth

http://ir.seritage.com/Cache/391382302.pdf

Spread trade I guess, redevelop @ 10-12% and pay prefs @ 7%.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on December 08, 2017, 12:35:53 AM
I see it more as the spark to light the fire of self-sustaining development. So yeah, 11%-7% or 3% to start, if you pay it off, then you get the full cash-flows later on. And it's for a subset of costs. If income starts coming in at a fast enough pace, then you won't need it - the so-called goal of reaching the perpetual motion machine phase.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on December 08, 2017, 05:49:44 AM
If you consider the entire company ‘greenfield’ (assuming zero lease income from SHLD) and the only avenue forward is via 3rd party leases on redevelopment, the returns are more like 15%+.  I say this from a pessimistic perspective assuming all buildings are dark.   From that angle, this financing is much more attractive and the spreads more like 15-7%.

It’s not just the value creation, it’s also the value retention by replacing the Sears lease with a stable 3rd party. 
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on December 11, 2017, 11:30:26 PM
https://www.wsj.com/articles/shopping-mall-operator-westfield-valued-at-15-7-billion-in-takeover-offer-1513061175
Title: Re: SRG - Seritage Growth Properties
Post by: frommi on December 12, 2017, 04:18:49 AM
https://www.wsj.com/articles/shopping-mall-operator-westfield-valued-at-15-7-billion-in-takeover-offer-1513061175

Am i right that this was a 4.7% caprate?
My NAV estimation for the end of 2018 for SRG is somewhere around ~53$ (with a 5.7% caprate) based on the latest 10-Q, growing at ~15% the years after. Can`t find a better long term investment at the moment, if my assumptions are correct. (Has someone good/better caprate estimations for the SRG portfolio?)

Wouldn`t it be best to just develop the malls, then sell them immediately at private market valuations and reuse the capital to develop the next ones or buy back shares at current prices? Are there tax consequences or other reasons to hold onto the developed properties?
Title: Re: SRG - Seritage Growth Properties
Post by: OnTheShouldersOfGiants on December 12, 2017, 12:52:38 PM
Where did you find NOI numbers for Westfield? 
Title: Re: SRG - Seritage Growth Properties
Post by: frommi on December 12, 2017, 09:32:46 PM
Where did you find NOI numbers for Westfield?

Annual report? https://westfieldcorp.staging.carbonhouse.com/assets/doc/AR16-Westfield-Corp-Financials_D9-474c90164f.pdf
"Net property income".
For SRG i calculated the caprate SRG used to value the joint ventures on the balance sheet. I hope i didn`t make a mistake in my calculations.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on December 29, 2017, 03:53:24 PM
Some big projects in the works:

https://www.redmond.gov/common/pages/UserFile.aspx?fileId=217828

also:

http://www.citizen-times.com/story/news/local/2017/12/29/proposed-asheville-mall-redevelopment-sears-movie-theater-restaurants-housing-apartments/989873001/
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on January 04, 2018, 12:33:39 PM
https://www.reit.com/news/videos/seritage-ceo-says-leasing-activity-accelerated-2017
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on January 04, 2018, 03:33:43 PM
Drink from the fire hose?

http://fortune.com/2018/01/04/sears-stores-closing-2/
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on January 04, 2018, 04:42:35 PM
Drink from the fire hose?

http://fortune.com/2018/01/04/sears-stores-closing-2/

Has anyone gone through this http://searsholdings.com/docs/010418-store-closing-list.pdf 103 store list to identify which ones are part of the Seritage portfolio?
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on January 05, 2018, 07:15:47 AM
Drink from the fire hose?

http://fortune.com/2018/01/04/sears-stores-closing-2/

Has anyone gone through this http://searsholdings.com/docs/010418-store-closing-list.pdf 103 store list to identify which ones are part of the Seritage portfolio?

I've skimmed it and found four:

Hicksville, NY (SRG planning a large mixed use development)
Boca Raton, FL (Town Center at Boca Raton is a very high quality mall)
Westminster, CA (not a particularly high quality mall)
Austin, TX (this store was already on SRG's redevelopment list, with an estimated completion in Q3 2019)

There may be some that I missed. My guess is that these weren't SHLD termination properties, they were SRG wanting to recapture the space for redevelopment.

Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on January 18, 2018, 05:00:11 PM
1/18/2018 Release: http://ir.seritage.com/file/Index?KeyFile=391812307


Cliffs:

Signed new leases totaling over 870,000 sf in 4Q17.

Leased GLA is now 4.83 million with $86 million in annual rent compared to leased GLA of 3.96 million with annual rent of $71 million in the 3Q17 supplemental.

Development is now 6.20 million sf with projected annual income of $157 million compared to 4.95 million sf with projected annual income of $105 million in the 3Q17 supplemental.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on January 19, 2018, 01:45:01 AM
I was wondering if someone understood the REIT dividend requirements on SRG. For example, in 2016 they earned $92 million after adding back depreciation to a net loss. The dividend on the 25 or so million shares would be $25 million or 27% of the total cash flow. Now this seems like a cool trick of redevelopment that you can pay out only 27% instead of the usual 90% that REITS must pay out. I looked at another Berkshire investment STOR capital and over there, the company is literally paying out 70% of their AFFO in 2016. Is there something hiding - temporarily for a longer while - the ability to retain more earnings than other REITs? This is obviously better in terms of the need to issue equity and debt if you can retain more earnings to self-finance yourself when other REITs must continue to raise capital with debt/equity to grow their business. Or in SRG's case, this situation will at some point change and it too will be paying out 90%?
Title: Re: SRG - Seritage Growth Properties
Post by: frommi on January 19, 2018, 04:13:26 AM
I was wondering if someone understood the REIT dividend requirements on SRG. For example, in 2016 they earned $92 million after adding back depreciation to a net loss. The dividend on the 25 or so million shares would be $25 million or 27% of the total cash flow. Now this seems like a cool trick of redevelopment that you can pay out only 27% instead of the usual 90% that REITS must pay out. I looked at another Berkshire investment STOR capital and over there, the company is literally paying out 70% of their AFFO in 2016. Is there something hiding - temporarily for a longer while - the ability to retain more earnings than other REITs? This is obviously better in terms of the need to issue equity and debt if you can retain more earnings to self-finance yourself when other REITs must continue to raise capital with debt/equity to grow their business. Or in SRG's case, this situation will at some point change and it too will be paying out 90%?

REITs have to distribute 90% of their taxable earnings.

https://seekingalpha.com/article/3062776-reits-the-90-percent-rule-isnt-that-big-a-deal (https://seekingalpha.com/article/3062776-reits-the-90-percent-rule-isnt-that-big-a-deal)
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on January 19, 2018, 04:51:51 AM
Great article, thanks. I take it as long as net income is negative, there is no obligation to pay any dividend.

The article asks a good question: why are some REITs so generous when they are not obligated to pay anything due to a negative net income, they pay something.

For example, SRG just floated a 7% preferred security to raise 70 to 100m. That is just a little under the dividend and operating partner unit distributions paid from inception to the end of 2017. If they didn't pay me a 2.8% dividend yield over this period, they could have paid me a 7% dividend by NOT taking this loan. Another way to look at it, if new redevelopment is yielding unlevered 10-11%, then every dollar of dividend paid seems a lower return than the company can generate with those funds. I don't get - in this particular situation anyway - why they pay a single penny in dividend when all of their return, debt and equity yields 7 to 10% and they are not obligated to pay anything until their taxable income turns positive.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on January 19, 2018, 06:38:19 AM
1/18/2018 Release: http://ir.seritage.com/file/Index?KeyFile=391812307


Cliffs:

Signed new leases totaling over 870,000 sf in 4Q17.

Leased GLA is now 4.83 million with $86 million in annual rent compared to leased GLA of 3.96 million with annual rent of $71 million in the 3Q17 supplemental.

Development is now 6.20 million sf with projected annual income of $157 million compared to 4.95 million sf with projected annual income of $105 million in the 3Q17 supplemental.

Another solid quarter of leasing activity. The press release mentions that redevelopment activity has started at the Santa Monica, Adventura, and La Jolla properties. These are three of SRG's highest quality properties, with Adventura and Santa Monica probably being the two highest quality properties in SRG's entire portfolio. I don't think these properties have any signed leases yet. I think there is significant "hidden" upside from these properties getting leased up as their redevelopment continues.
Title: Re: SRG - Seritage Growth Properties
Post by: johnny on January 19, 2018, 05:00:10 PM
Great article, thanks. I take it as long as net income is negative, there is no obligation to pay any dividend.

The article asks a good question: why are some REITs so generous when they are not obligated to pay anything due to a negative net income, they pay something.

For example, SRG just floated a 7% preferred security to raise 70 to 100m. That is just a little under the dividend and operating partner unit distributions paid from inception to the end of 2017. If they didn't pay me a 2.8% dividend yield over this period, they could have paid me a 7% dividend by NOT taking this loan. Another way to look at it, if new redevelopment is yielding unlevered 10-11%, then every dollar of dividend paid seems a lower return than the company can generate with those funds. I don't get - in this particular situation anyway - why they pay a single penny in dividend when all of their return, debt and equity yields 7 to 10% and they are not obligated to pay anything until their taxable income turns positive.

Think this has been covered, but if there's a norm in REITspace for paying dividends, then the costs of violating the norm may be much higher than following it. If, for example, your no-distribution rationality results in a huge chunk of institutional buyers shunning your equity (for being a "broken" REIT), then the pricing penalty you suffer may be quite a bit larger (especially in a case like this where we -know- that the opportunities are going to require significant extra capital to execute on a favorable timeline).

Is it better to raise $3B over the next decade under the No Shun Condition, or is it better to have to raise $2.7B under the Shun Condition?

Not saying that this is the "correct" decision, but I think it's what is somewhere in the back of one's mind when they're testing the idea that they should exercise Perfect Rationality on what is, in the big picture, a relatively immaterial decision about the company's capitalization.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on January 20, 2018, 01:12:30 AM
They can always start paying the dividend when they need the money. So far if they didn't pay a dividend for 2 years they wouldn't need any capital. They could start the dividend today...and let's say the dilution if you issued equity of 100 million at $40 is 2.5 million shares out of 55 million it's 4.5%. It seems small but over time it can add up. I'm not entirely sure that they need alot more money than what Lampert and the relatively small preference shares have gotten so far...at least perhaps for another little while. Also I'm of the philosophy if you have the luxury of a net loss and run a REIT and have the option to not pay a dividend it's like splitting doubles in blackjack, it's just something you almost always should take until that opportunity is no longer available. Also I think SRG is already pretty shunned at current prices and with such a low dividend, very few are buying it for the yield. For REIT yield you can buy a dozen other REITS yielding 5%+.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on January 20, 2018, 06:58:31 AM
Pretty sure someone asked management and posted their response a few pages back in this thread.  Also, Mr. Lampert needs fuel for the yacht.
Title: Re: SRG - Seritage Growth Properties
Post by: DooDiligence on January 20, 2018, 09:59:05 AM
Pretty sure someone asked management and posted their response a few paged back in this thread.  Also, Mr. Lampert needs fuel for the yacht.


Impressive boat (I could run it; depending on the temperament of the owners.)

http://www.feadship.nl/en/fleet/yacht/fountainhead-1

---

These engines do gobble up some fuel (more or less; depends on who's operating them.)

http://www.mtu-allison.com.ar/pdf/20V_4000_M93.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: FiveSigma on January 22, 2018, 04:52:44 PM
Hi,

I was wondering if someone with access to CMBS offering documents was kind enough to post/share the JPMCC 2015-SGP document with the annex that (see image attached to this post) excerpt from a ValueInvestorsClub report mentions.

I tried looking online - no dice. SRG investor relations told me that they cannot provide it to me.

Much appreciated.
Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on January 22, 2018, 05:03:03 PM
Seritage CMBS annex attached.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on January 22, 2018, 05:18:09 PM
Hi,

I was wondering if someone with access to CMBS offering documents was kind enough to post/share the JPMCC 2015-SGP document with the annex that (see image attached to this post) excerpt from a ValueInvestorsClub report mentions.

I tried looking online - no dice. SRG investor relations told me that they cannot provide it to me.

Much appreciated.

I believe this document was posted earlier in this thread. The only version I have of it has been heavily modified and I'd rather not post it.
Title: Re: SRG - Seritage Growth Properties
Post by: frommi on February 28, 2018, 06:31:15 AM
https://www.businesswire.com/news/home/20180227006647/en/

While the numbers look not that good on the first view, on a second look they are not that bad. My NAV valuation for the end of 2019 has increased by 5$ this quarter which is a lot for one quarter. Maybe the market now recognizes this as a true redevelopment story.

Q3 2019 NOI forecast: $232.32 (155+77.3)
Q4 2019 NOI forecast: $273.40 (155+118)

Q3 2019 NAV/share 50$ at 6% caprate
Q4 2019 NAV/share 55$ at 6% caprate
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on February 28, 2018, 02:47:45 PM
https://www.businesswire.com/news/home/20180227006647/en/

While the numbers look not that good on the first view, on a second look they are not that bad. My NAV valuation for the end of 2019 has increased by 5$ this quarter which is a lot for one quarter. Maybe the market now recognizes this as a true redevelopment story.

Q3 2019 NOI forecast: $232.32 (155+77.3)
Q4 2019 NOI forecast: $273.40 (155+118)

Q3 2019 NAV/share 50$ at 6% caprate
Q4 2019 NAV/share 55$ at 6% caprate

Where do you get above numbers from? The base rents from Sears (the $155 NOI/year, I assume) are not stable, they are falling quicker right now then the rents from redevelopment projects rise, due to accelerated store closures. I would also pretty much assume that Sears by  the end of Y2019 won’t exist in it’s current form any more.

Also, the 6% CP rate assumption is too low. Kimco, which owns on average B properties like Sears does, trades at an almost 8% CP rate right now.I think 7% cap rate would be more realistic. Still, the redevelopments are value accrediting, but just not that much. I also predict that SRG will have to raise equity this year.

I like SRG, but there are a lot of headwinds to the redevelopment story.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on February 28, 2018, 04:14:20 PM
SRG has contractual right to sell back JVs to Simon, Mac, GGP in 3-6 weeks.  It seems looking at the fine print they need to have met certain leasing occupancy, but all the JVs are fully leased (albeit to Sears).  This could be source of 300m if need arises.
Title: Re: SRG - Seritage Growth Properties
Post by: frommi on February 28, 2018, 09:06:16 PM
Where do you get above numbers from? The base rents from Sears (the $155 NOI/year, I assume) are not stable, they are falling quicker right now then the rents from redevelopment projects rise, due to accelerated store closures. I would also pretty much assume that Sears by  the end of Y2019 won’t exist in it’s current form any more.

Also, the 6% CP rate assumption is too low. Kimco, which owns on average B properties like Sears does, trades at an almost 8% CP rate right now.I think 7% cap rate would be more realistic. Still, the redevelopments are value accrediting, but just not that much. I also predict that SRG will have to raise equity this year.

I like SRG, but there are a lot of headwinds to the redevelopment story.

In the link i posted is a table with "Projected Annual Income", there you can see the expected incremental rent. And when they sell JV to Simon for caprates of ~5.2% i assume that the rest of the portfolio is not worth much less. Of course i know whats going on in the REIT space, there are lots of other good opportunities there. SRG has cash of $415 million and needs ~$800 million to the end of 2019, while they can sell the JV (currently valued at $280 million) so the funding gap to 2019 is around $100 million right now.
The risks i see is that they are not able to lease out all of the additional space and that caprates in the private market go up. Maybe i was to optimistic with my position sizing and after having slept not that well i will probably reduce my position today. Concentration is really not my game. :)
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on March 01, 2018, 04:13:24 AM

In the link i posted is a table with "Projected Annual Income", there you can see the expected incremental rent. And when they sell JV to Simon for caprates of ~5.2% i assume that the rest of the portfolio is not worth much less. Of course i know whats going on in the REIT space, there are lots of other good opportunities there. SRG has cash of $415 million and needs ~$800 million to the end of 2019, while they can sell the JV (currently valued at $280 million) so the funding gap to 2019 is around $100 million right now.
The risks i see is that they are not able to lease out all of the additional space and that caprates in the private market go up. Maybe i was to optimistic with my position sizing and after having slept not that well i will probably reduce my position today. Concentration is really not my game. :)

I know where the additional NOI is coming from - roughly $115M annually from the $1.1B Development pipeline, but I think assuming that the base NOI of $155M is stable if far of base. the base NOI is dropping quickly, right now even quicker than development pipeline completions add to it. That is why the NOI is falling right and and I think it might keep falling until the pipeline Ames their way through and the Sears store closing abate or more likely, when they are all closed. Thus, total NOI will be much smaller than the $273M number you cited for Q4 2019, IMO.

I didn’t know about the 5.2% Cap rate on their JV properties to SPG, but I think those are A property locations and hand selected by SPG (some are in SPG existing malls), so I don’t think they are representative of SRG portfolio.

SRG on average are B mall locations, the $17/sqft rent on completed redevelopment properties tells us that much.

I don’t think that SRG is a bad bet, but there does seem to be a cash shortfall. selling JV properties will improve their balance sheet, but selling rented assets will also lower the NOI, so it is not that straightforward of a case. I am watching this and I think we might see prices that are better than what WEB paid for his stock somewhere down the road.
Title: Re: SRG - Seritage Growth Properties
Post by: DanielGMask on March 01, 2018, 07:23:37 AM
https://www.businesswire.com/news/home/20180227006647/en/

While the numbers look not that good on the first view, on a second look they are not that bad. My NAV valuation for the end of 2019 has increased by 5$ this quarter which is a lot for one quarter. Maybe the market now recognizes this as a true redevelopment story.

Q3 2019 NOI forecast: $232.32 (155+77.3)
Q4 2019 NOI forecast: $273.40 (155+118)

Q3 2019 NAV/share 50$ at 6% caprate
Q4 2019 NAV/share 55$ at 6% caprate

Coatailing is always dangerous ‘cause it makes the coatailer less suspicious. I’m a shareholder and I’m increasing my position at current prices, but I dont’t think this is a fast trade, it will take years for the underlying value to surface and it’s not sure thing!
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on March 01, 2018, 11:02:12 AM
Agree that an equity raise seems more and more likely.  If the shares react poorly, the best time to buy might be when they announce it.

Has anyone done a deep dive into the quality of the properties?  I have a friend in commercial real estate who has mentioned that they have a number of 'garbage' properties which he has looked at.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on March 01, 2018, 11:09:39 AM
The '17 10-K says the following on page 46:
Quote
Pursuant to the provisions of the Master Lease and many third-party leases, the Company is entitled to be reimbursed for certain property related expenses.  For the years ended December 31, 2017 and December 31, 2016, the Company recorded tenant reimbursement income of $62.5 million and $62.3 million, respectively, compared to property operating expenses and real estate tax expense aggregating of $65.3 million and $65.2 million, respectively.

Page F-22 shows $51.7 million in tenant reimbursements from the master lease. Does that mean third-party tenants paid reimbursements of $10.8 million or $62.5 million minus $51.7 million? What is the $10.5 million unearned tenant reimbursements line on page F-35?

Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on March 01, 2018, 05:09:35 PM
Agree that an equity raise seems more and more likely.  If the shares react poorly, the best time to buy might be when they announce it.

Has anyone done a deep dive into the quality of the properties?  I have a friend in commercial real estate who has mentioned that they have a number of 'garbage' properties which he has looked at.

They are going to have to raise more cash in the near future. I agree with you that an equity raise is possible. Another possibility is that they negotiate a new, larger mortgage loan. The yield maintenance provision on their current mortgage loan expires in about a week, so we may be hearing something soon. 

Some of their properties are definitely "garbage." Some are quite valuable. There is a table near the end of the 10-K that lays out SRG's acquisition cost for each property. It's a pretty good guide to the properties' relative values (aka their values relative to each other).
Title: Re: SRG - Seritage Growth Properties
Post by: frommi on March 01, 2018, 11:38:45 PM
Coatailing is always dangerous ‘cause it makes the coatailer less suspicious. I’m a shareholder and I’m increasing my position at current prices, but I dont’t think this is a fast trade, it will take years for the underlying value to surface and it’s not sure thing!

Thanks, i am guilty. Thinking about it it is funny that i got lured into this "growth" investment just because Buffet is involved. I should just stick to my quant models, i feel much more comfortable there.
Title: Re: SRG - Seritage Growth Properties
Post by: forest81 on March 03, 2018, 12:35:11 AM
Does Buffett still have this in his personal portfolio? On the major owners register I can't see him listed anywhere?
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 03, 2018, 04:19:35 AM
I see the 13g from dec 2015 under his name...but are 13g's necessary to be filed if there is no change?
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on March 03, 2018, 09:44:51 AM
Coatailing is always dangerous ‘cause it makes the coatailer less suspicious. I’m a shareholder and I’m increasing my position at current prices, but I dont’t think this is a fast trade, it will take years for the underlying value to surface and it’s not sure thing!

Thanks, i am guilty. Thinking about it it is funny that i got lured into this "growth" investment just because Buffet is involved. I should just stick to my quant models, i feel much more comfortable there.

One rule in investing is to never coattail. It doesn’t matter who you coattail, but I have personally found that it never works.  Now, I use other investor buys as an idea generator, but I would never buy a stock that falls out of my own comfort zone, just because somebody else does.

I feel the rule to never ever coattail should be written in stone.

I might buy SRG at some point down the road, but I think I will get the same, if not a better rice than Buffet.
Title: Re: SRG - Seritage Growth Properties
Post by: DanielGMask on March 03, 2018, 04:40:11 PM
Coatailing is always dangerous ‘cause it makes the coatailer less suspicious. I’m a shareholder and I’m increasing my position at current prices, but I dont’t think this is a fast trade, it will take years for the underlying value to surface and it’s not sure thing!

Thanks, i am guilty. Thinking about it it is funny that i got lured into this "growth" investment just because Buffet is involved. I should just stick to my quant models, i feel much more comfortable there.

One rule in investing is to never coattail. It doesn’t matter who you coattail, but I have personally found that it never works.  Now, I use other investor buys as an idea generator, but I would never buy a stock that falls out of my own comfort zone, just because somebody else does.

I feel the rule to never ever coattail should be written in stone.

I might buy SRG at some point down the road, but I think I will get the same, if not a better rice than Buffet.

👌
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 04, 2018, 01:36:14 AM
I thought I saw what Buffett saw in SRG too, and I still do. However now I suspect it's more of a roller coaster ride q to q...likewise, probably slower pace than expected. I remember he said at the annual he thought SRG would do just fine, but BRK would do even better. Of course this doesn't take purchase price into consideration and today at $36 I think it may be roughly equal to his purchase price 2 years ago. Guess he's a patient guy :)
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on March 06, 2018, 12:49:44 PM
Berkowitz controlled in his 3 funds as of Nov 30, 2017 according to his report dated Feb 1, 2018:
1.  Fairholme 2185,580;
2.  Income fund 568,000;
3.  Allocation fund 687,318.

Has anyone done a count on how many shares he's disposed of since the above date?
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on March 08, 2018, 03:26:36 PM
Does anyone have the most recent Boenning & Scattergood report on SRG? Barring that, a summary of its contents would also be much appreciated.
Title: Re: SRG - Seritage Growth Properties
Post by: Sunrider on March 08, 2018, 11:16:47 PM
Does anyone have the most recent Boenning & Scattergood report on SRG? Barring that, a summary of its contents would also be much appreciated.

.. would also appreciate a copy via PM.
Thanks!
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on March 09, 2018, 07:28:24 AM
Does anyone have the most recent Boenning & Scattergood report on SRG? Barring that, a summary of its contents would also be much appreciated.

.. would also appreciate a copy via PM.
Thanks!

I would also like a copy.
Title: Re: SRG - Seritage Growth Properties
Post by: forest81 on March 09, 2018, 08:48:31 AM
Small position here. Thinking of making it a large position. I am not sure I get why the market is in such a flap about this. I mean essentially the story is still the same $4 square foot into $17. It may take ten years but then it will be a treble roughly dependent on valuation. I think maybe Berkowitz forced liquidation maybe forcing the price down creating an attractive price? The only thing that concerns me is potential dilution to raise funds for the redevelopment. Surely they could raise funds from somewhere else other than diluting????
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on March 09, 2018, 09:57:37 AM
The path to get to. $17/Sqft is tougher than initially thought , but more importantly cap rates appear to be dropping due to retail malaise and higher interest rates. I don’t really have a hard time envisioning cap rates of 8% for B-malls, which is essentially what you are getting when buying KIM right now.

Many will question the need to take on development risk like with SRG, when you can buy fully developed properties cheap as well.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on March 09, 2018, 10:38:10 AM
Looking at Kim too?  Did you catch that Patrick O-Shag-Hennessy podcast with those Sorin Capital dudes?   
Title: Re: SRG - Seritage Growth Properties
Post by: dutchman on March 09, 2018, 10:40:44 AM
were it not for buffet, I think a lot of us would have no interest in this
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 09, 2018, 03:44:09 PM
 If you ignore the Sears base rental income drop which is a known factor, non-Sears rental revenue went up like 35% in 2017. A few more years like that and it will become very evident.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on March 09, 2018, 04:01:05 PM
were it not for buffet, I think a lot of us would have no interest in this

You're making me hungry with this "buffet" talk
Title: Re: SRG - Seritage Growth Properties
Post by: zippy1 on March 09, 2018, 04:13:38 PM
were it not for buffet, I think a lot of us would have no interest in this

You're making me hungry with this "buffet" talk
re-purpose to eatery?!  ;)
Title: Re: SRG - Seritage Growth Properties
Post by: NBL0303 on March 09, 2018, 04:18:52 PM
were it not for buffet, I think a lot of us would have no interest in this

If it were not for Buffett's position, perhaps the share price would be substantially lower, and then some of us would be very interested in it at a certain price.
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on March 09, 2018, 07:29:55 PM
were it not for buffet, I think a lot of us would have no interest in this

If it were not for Buffett's position, perhaps the share price would be substantially lower, and then some of us would be very interested in it at a certain price.

Well, SRG pretty much trades at the price the old man bought it two years ago, so that is a start.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on March 10, 2018, 09:12:34 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?

Title: Re: SRG - Seritage Growth Properties
Post by: NBL0303 on March 10, 2018, 09:16:55 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?
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius 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.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on March 10, 2018, 04:38:32 PM
The factor I’m 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?  That’s 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. 
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius 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
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital 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.
Title: Re: SRG - Seritage Growth Properties
Post by: DTEJD1997 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.
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius 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.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe 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+?
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital 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.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital 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.
Title: Re: SRG - Seritage Growth Properties
Post by: rb 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?
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on March 12, 2018, 02:59:23 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+?

Koshigoe,

Where did you learn that they expect rents to be $25 in the future?   That's very interesting information. 
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 12, 2018, 03:46:57 PM
top page 14 on the supplement.  1,066 k in total cost for redevelopment, 6.197 k square feet, expected $25 / sq ft once stabilized, IE current tenants pay higher rates.

most of redev capital should be debt, shouldn't change the fact that equity will go from 2 B to 10 B over a ten year stretch.  So they go from 1.3 B to 5 B in debt over time, shouldn't change the overall return much.  Yeah lots of weird things could happen over ten years with interest rates etc. But the rough numbers are in the ballpark. And the bears main concern is a peanuts short-term shortfall of 30-100m. The fear doesn't match the reality it seems.

Also, the other companies that were mentioned, DDR and WPG for a couple. I think some underestimate the unique situation of SRG. SRG has majority eccentric billionaire owner, proven no-frills  leadership team and they're executing with first mover advantage. They have a unique profile of land in nearly every state, and many trophy properties. They're nearly through permitting for several mixed use sites at Asheville, Overlake, and Hicksville.  To lump SRG with DDR and WPG is sort of an insult to the unique character of SRG assets and operational execution so far, in my opinion! But hey, bet with the $$.

Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on March 12, 2018, 03:58:47 PM
Are you putting a 6% cap rate on their total gross rents (as projected)?
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on March 12, 2018, 04:00:02 PM
top page 14 on the supplement.  1,066 k in total cost for redevelopment, 6.197 k square feet, expected $25 / sq ft once stabilized, IE current tenants pay higher rates.

most of redev capital should be debt, shouldn't change the fact that equity will go from 2 B to 10 B over a ten year stretch.  So they go from 1.3 B to 5 B in debt over time, shouldn't change the overall return much.  Yeah lots of weird things could happen over ten years with interest rates etc. But the rough numbers are in the ballpark. And the bears main concern is a peanuts short-term shortfall of 30-100m. The fear doesn't match the reality it seems.

Also, the other companies that were mentioned, DDR and WPG for a couple. I think some underestimate the unique situation of SRG. SRG has majority eccentric billionaire owner, proven no-frills  leadership team and they're executing with first mover advantage. They have a unique profile of land in nearly every state, and many trophy properties. They're nearly through permitting for several mixed use sites at Asheville, Overlake, and Hicksville.  To lump SRG with DDR and WPG is sort of an insult to the unique character of SRG assets and operational execution so far, in my opinion! But hey, bet with the $$.

The same eccentric billionaire owner has run Sears into the ground, so I think his acumen needs to be discounted somewhat. WPG is a Bad example since they own C malls (on average). KIM is a better proxy, except that they have  fully cash flowing properties right now, with the option to redevelop, while SRG needs to redevelop their entire real estate quickly,or they will sit on unproductive assets. KIM can take a more measured approach to redevelopment, since their properties are mostly cash flowing and will be for a while. I think it is a fair question, KIM may offer a similar total return Thant SRG at a lower risk.
Title: Re: SRG - Seritage Growth Properties
Post by: Compounder on March 12, 2018, 04:08:55 PM
While most seem to be focused on the $17 average signed so far, on the large projects that are already underway stabilized rents of nearly $40 per sqf are expected.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on March 12, 2018, 06:59:30 PM
I thought KIM owned no malls; only open air shopping centers. 
Title: Re: SRG - Seritage Growth Properties
Post by: Gilp on March 13, 2018, 07:41:04 AM
What basically is the difference business wise, between open air shopping centers and malls?
Title: Re: SRG - Seritage Growth Properties
Post by: FiveSigma on March 13, 2018, 07:50:02 AM
Fresh air?  ;D
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on March 13, 2018, 08:03:08 AM
I thought KIM owned no malls; only open air shopping centers.
True, but if we assume that rents in large part correlate to traffic and sales generation, then similar rents, regardless of enclosed or not, should indicate similar property values. I threw out WPG because they get similar rents and have both enclosed and strip centers.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on March 13, 2018, 08:07:31 AM
top page 14 on the supplement.  1,066 k in total cost for redevelopment, 6.197 k square feet, expected $25 / sq ft once stabilized, IE current tenants pay higher rates.

most of redev capital should be debt, shouldn't change the fact that equity will go from 2 B to 10 B over a ten year stretch.  So they go from 1.3 B to 5 B in debt over time, shouldn't change the overall return much.  Yeah lots of weird things could happen over ten years with interest rates etc. But the rough numbers are in the ballpark. And the bears main concern is a peanuts short-term shortfall of 30-100m. The fear doesn't match the reality it seems.

Also, the other companies that were mentioned, DDR and WPG for a couple. I think some underestimate the unique situation of SRG. SRG has majority eccentric billionaire owner, proven no-frills  leadership team and they're executing with first mover advantage. They have a unique profile of land in nearly every state, and many trophy properties. They're nearly through permitting for several mixed use sites at Asheville, Overlake, and Hicksville.  To lump SRG with DDR and WPG is sort of an insult to the unique character of SRG assets and operational execution so far, in my opinion! But hey, bet with the $$.

I don't get why the amount of debt they have only has a minimal impact on the equity value. It is quite odd to ignore debt when valuing a REIT. How SRG would ever command a $15B E/V, even at $25 rents, is beyond me. That's a valuation of like $400 per sf.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on March 13, 2018, 08:34:21 AM
What basically is the difference business wise, between open air shopping centers and malls?

Well the spin, at least, is that open air shopping centers are located based existing live-work traffic patterns and include a large slug of "neighborhood" convenience type centers and generally are more centered around impulse, convenience, and daily living maintenance stuff (i.e., popping into gym or getting hair or nails done).  I guess the worst case comparison would be with a mall in suburbia hell that was built with department stores as the attraction and large parking garages centered around said department stores, where all the rent comes from the smaller tenants based on the formerly compelling anchors and with like a 75% exposure to apparel. 

So Kimco has been highlighting a chart with their tenants with over 1% of Annual Base Rent the past few quarters and 3.5% of their ABR (and two of their top 14 are grocers) and there are no department stores in that top 14.

So if you think this is really a bloodbath for department stores and apparel (or just malls in general....they were always fresh hell if you weren't a power retail shopper, imop), not retail writ large, you might have a variant perception on at least some of the non mall retail REITs.

I read something the other day that said it takes 4x as many SF to effect online retail versus traditional (most of which is warehouse, at least for now) because of the different in shipping parcels versus pallets.  Makes sense to me and will probably matter at some point.

Yeah peridot, I see your logic on using it for a comp.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 13, 2018, 09:02:43 AM
top page 14 on the supplement.  1,066 k in total cost for redevelopment, 6.197 k square feet, expected $25 / sq ft once stabilized, IE current tenants pay higher rates.

most of redev capital should be debt, shouldn't change the fact that equity will go from 2 B to 10 B over a ten year stretch.  So they go from 1.3 B to 5 B in debt over time, shouldn't change the overall return much.  Yeah lots of weird things could happen over ten years with interest rates etc. But the rough numbers are in the ballpark. And the bears main concern is a peanuts short-term shortfall of 30-100m. The fear doesn't match the reality it seems.

Also, the other companies that were mentioned, DDR and WPG for a couple. I think some underestimate the unique situation of SRG. SRG has majority eccentric billionaire owner, proven no-frills  leadership team and they're executing with first mover advantage. They have a unique profile of land in nearly every state, and many trophy properties. They're nearly through permitting for several mixed use sites at Asheville, Overlake, and Hicksville.  To lump SRG with DDR and WPG is sort of an insult to the unique character of SRG assets and operational execution so far, in my opinion! But hey, bet with the $$.

I don't get why the amount of debt they have only has a minimal impact on the equity value. It is quite odd to ignore debt when valuing a REIT. How SRG would ever command a $15B E/V, even at $25 rents, is beyond me. That's a valuation of like $400 per sf.


It is not higher math:

37 mil x $25/sq ft = 925

925 / 0.06 = 15416

but thats equity, not enterprise value.

if solid REIT makes 925 mil a year the equity won't trade at 15416 - 4 or 5 B debt = 10 or 11 B...that's 10% cap rate. edit: this is too aggressive, knock off some 20% for op costs, etc...but you're still something in the ballpark of 10-13 B equity (14-17 B enterprise) in a decade.

so with just reasonable assumptions, SRG could quite easily be a 5x in 10 years. and this doesn't include the sure to be increasing dividends over that time frame.

edit: also wanted to comment on Kimco, that company is loaded with debt, which will only serve to handcuff them in the future with opportunities and redev. SRG doesn't have this legacy baggage, like tie ups with Albertsons and lots of debt. THey've got a clean sheet, and I think that is a nontrivial advantage when competing with these legacy REITS. In fact, Schall even mentioned so in the annual letter, that one of SRG competitive advantage lay in having a clean sheet to work with at properties.




Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on March 13, 2018, 11:03:34 AM

It is not higher math:

37 mil x $25/sq ft = 925

925 / 0.06 = 15416

but thats equity, not enterprise value.

if solid REIT makes 925 mil a year the equity won't trade at 15416 - 4 or 5 B debt = 10 or 11 B...that's 10% cap rate. edit: this is too aggressive, knock off some 20% for op costs, etc...but you're still something in the ballpark of 10-13 B equity (14-17 B enterprise) in a decade.

so with just reasonable assumptions, SRG could quite easily be a 5x in 10 years. and this doesn't include the sure to be increasing dividends over that time frame.

edit: also wanted to comment on Kimco, that company is loaded with debt, which will only serve to handcuff them in the future with opportunities and redev. SRG doesn't have this legacy baggage, like tie ups with Albertsons and lots of debt. THey've got a clean sheet, and I think that is a nontrivial advantage when competing with these legacy REITS. In fact, Schall even mentioned so in the annual letter, that one of SRG competitive advantage lay in having a clean sheet to work with at properties.

Please show us a public retail REIT comp for SRG that trades at an EV/revenue multiple of 16.75x (the midpoint of your range). It makes no sense to me.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 13, 2018, 12:36:32 PM

It is not higher math:

37 mil x $25/sq ft = 925

925 / 0.06 = 15416

but thats equity, not enterprise value.

if solid REIT makes 925 mil a year the equity won't trade at 15416 - 4 or 5 B debt = 10 or 11 B...that's 10% cap rate. edit: this is too aggressive, knock off some 20% for op costs, etc...but you're still something in the ballpark of 10-13 B equity (14-17 B enterprise) in a decade.

so with just reasonable assumptions, SRG could quite easily be a 5x in 10 years. and this doesn't include the sure to be increasing dividends over that time frame.

edit: also wanted to comment on Kimco, that company is loaded with debt, which will only serve to handcuff them in the future with opportunities and redev. SRG doesn't have this legacy baggage, like tie ups with Albertsons and lots of debt. THey've got a clean sheet, and I think that is a nontrivial advantage when competing with these legacy REITS. In fact, Schall even mentioned so in the annual letter, that one of SRG competitive advantage lay in having a clean sheet to work with at properties.

Please show us a public retail REIT comp for SRG that trades at an EV/revenue multiple of 16.75x (the midpoint of your range). It makes no sense to me.

If one goes back as recently as January of 2017, nowhere near the recent past heyday of REIT values, GGP, SPG both traded around 15-16 EV/rev. Granted that's not a relative trough number like today's 11-12, but for SRG it's in the realm of possibility once their property is redeveloped.

Even Kimco was 12.6 as recently as last summer, again not even close to its peak of the last 5 years, which was somewhere in the high teens EV/rev.

You factor in Aventura, Overlake, Hicksville, LaJolla, Valley View and others will be fully complete in 10 years, and you get a company on the order of GGP, SPG, not Kimco.

But hey, let's chop off 30%, say a fair EV/rev is 12 like a slightly undervalued kimco, you still get an EV of 11B for SRG in 2028. Lop off 4 B in debt that's 7B+ equity.  That's a 3.5 bagger not including divs in 10 years, which should be somewhere around 14% + let's say 3 for the div or 17% CAGR. This is assuming management's plan (could it be conservative?) of $25/sq foot bears out.

If it doesn't and things go to hell maybe stuck at $17 a square foot in ten years on 37 mil , you get 10-15% CAGR, something like that.  But that would be one strange world with 0 inflation in 10 years and a totally mismanaged SRG.
Title: Re: SRG - Seritage Growth Properties
Post by: BG2008 on March 14, 2018, 04:22:36 PM
Toys R US has 35mm US square feet. 

https://www.wsj.com/articles/toys-r-us-tells-workers-it-will-likely-close-all-u-s-stores-1521060803
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 14, 2018, 05:18:49 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+?

I think it is very dangerous to assume that SRG gets $17 a foot on all their real estate.  Yes, that is what they are expecting on all the projects they have done to date.  However, they have overwhelmingly done projects on higher value properties, in higher value areas (as you would expect).  When they do redevelopment projects on lower value properties they will not be expecting $17 a sqft.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on March 14, 2018, 05:45:24 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+?

I think it is very dangerous to assume that SRG gets $17 a foot on all their real estate.  Yes, that is what they are expecting on all the projects they have done to date.  However, they have overwhelmingly done projects on higher value properties, in higher value areas (as you would expect).  When they do redevelopment projects on lower value properties they will not be expecting $17 a sqft.

Yes and no. Longer lead times mean that many of SRG's best properties and largest developments either haven't been begun and/or don't have SNO leases yet. You are right though, that many of SRG's worst properties, including many SHLD lease termination properties, are empty. Some of them will probably remain empty for an extended period. I don't think anyone knows what the rent per sq foot # will be in 5 or 10 years. Nor does anyone know how many sq feet of space SRG will own years from now. Over time, I would expect that some properties will probably be sold off to opportunistic local developers. Ditto for the JV properties. This will likely be somewhat offset by the "densification" of some of the higher quality properties.

IMO SRG's properties are worth significantly more than the current EV. The big questions are how much money can SRG raise? And on what terms? And how long will SHLD and the master lease last?
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 14, 2018, 06:14:40 PM
Yes, some of the best properties are not yet in this "projects" figure.  However, the average value of a property where a project has been done was $21MM in 2015 before the project.  The average value of a property where no project was undertaken was $8.7MM in 2015. 
The properties with no projects as yet are worth a lot less.  Thus you should expect they will have a lot less rent if they ever are redeveloped.
(Yes, these are per property values but I doubt it would change much if I took the trouble to do it by square foot).
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 14, 2018, 06:52:18 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+?

I think it is very dangerous to assume that SRG gets $17 a foot on all their real estate.  Yes, that is what they are expecting on all the projects they have done to date.  However, they have overwhelmingly done projects on higher value properties, in higher value areas (as you would expect).  When they do redevelopment projects on lower value properties they will not be expecting $17 a sqft.

It seems that if anything 17 is much lower than what we should expect. Not sure what you mean by they have overwhelmingly done projects on higher value projects. None of their premier properties have been leased out yet, and many of the projects already completed are quite representative of remaining real estate. This question has been raised many times, so much so that Ben Schall answered it in the 2016 annual report.

"Brian and I often get asked whether our initial redevelopment activity was “cherry picked” in some form or
fashion; in fact, it’s quite the opposite. This first set of projects is very much representative of the breadth of our
opportunities to create outsized value across our portfolio."

And just to really stir things up, they expect 25 a square foot, not 17 :)
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 15, 2018, 09:29:09 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+?

I think it is very dangerous to assume that SRG gets $17 a foot on all their real estate.  Yes, that is what they are expecting on all the projects they have done to date.  However, they have overwhelmingly done projects on higher value properties, in higher value areas (as you would expect).  When they do redevelopment projects on lower value properties they will not be expecting $17 a sqft.

It seems that if anything 17 is much lower than what we should expect. Not sure what you mean by they have overwhelmingly done projects on higher value projects. None of their premier properties have been leased out yet, and many of the projects already completed are quite representative of remaining real estate. This question has been raised many times, so much so that Ben Schall answered it in the 2016 annual report.

"Brian and I often get asked whether our initial redevelopment activity was “cherry picked” in some form or
fashion; in fact, it’s quite the opposite. This first set of projects is very much representative of the breadth of our
opportunities to create outsized value across our portfolio."

And just to really stir things up, they expect 25 a square foot, not 17 :)

What I mean by "they have overwhelmingly done projects on higher value properties" is that there are 32 wholly owned properties which have done "100% recapture" projects and 198 that haven't.  Here I am looking at the list of individual projects which appears in the supplement, etc.  According to the July 2017 CMBS document, which has property by property appraisals, the average value per square foot on properties with a 100% recapture project is $130 psf, the average value per square foot on the other properties is $56.  No conjecture or assumptions from me here, just facts.  Note that there are some high-value properties like Valley View ($91 psf) and Boca Raton ($152) which do not yet appear on the "projects" list, but the list does now include other high value properties like Aventura ($735 psf) and San Diego ($245).

You're right on the 25, my bad.  Still, according to the list of projects and CMBS valuations, they've done projects on properties with a higher value per square foot than the rest.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 15, 2018, 09:36:46 AM
In case you're curious (I was!), the CMBS value psf of the 19 "partial recapture" projects was $65, whereas the 179 ones with no project at all was $55.  So the properties on which the "partial recapture" projects have been performed are much closer to being representative, but still they're not quite there.
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on March 15, 2018, 11:15:15 AM
I tried fiddling around with the CMBS annex over lunch.  Made some general assumptions which I would appreciate some feedback on as I am not very familiar with the space.  I divided the real estate portfolio into High Value PSF, Medium Value PSF, Low Value PSF.

High Value (12.3%) = Cushman Stabilized Appraised Value >$100 psf, assume $40 psf rent
Medium Value (62.1%)= Cushman Stabilized Appraised Value >$30PSF & <$100 psf, assume $15 psf rent
Low Value (25.6%) = All of the rest, assume $10 psf rent.

This averages to ~$17psf

This doesn't separate the JVs or anything, quick work.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 15, 2018, 01:01:06 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+?

I think it is very dangerous to assume that SRG gets $17 a foot on all their real estate.  Yes, that is what they are expecting on all the projects they have done to date.  However, they have overwhelmingly done projects on higher value properties, in higher value areas (as you would expect).  When they do redevelopment projects on lower value properties they will not be expecting $17 a sqft.

It seems that if anything 17 is much lower than what we should expect. Not sure what you mean by they have overwhelmingly done projects on higher value projects. None of their premier properties have been leased out yet, and many of the projects already completed are quite representative of remaining real estate. This question has been raised many times, so much so that Ben Schall answered it in the 2016 annual report.

"Brian and I often get asked whether our initial redevelopment activity was “cherry picked” in some form or
fashion; in fact, it’s quite the opposite. This first set of projects is very much representative of the breadth of our
opportunities to create outsized value across our portfolio."

And just to really stir things up, they expect 25 a square foot, not 17 :)

What I mean by "they have overwhelmingly done projects on higher value properties" is that there are 32 wholly owned properties which have done "100% recapture" projects and 198 that haven't.  Here I am looking at the list of individual projects which appears in the supplement, etc.  According to the July 2017 CMBS document, which has property by property appraisals, the average value per square foot on properties with a 100% recapture project is $130 psf, the average value per square foot on the other properties is $56.  No conjecture or assumptions from me here, just facts.  Note that there are some high-value properties like Valley View ($91 psf) and Boca Raton ($152) which do not yet appear on the "projects" list, but the list does now include other high value properties like Aventura ($735 psf) and San Diego ($245).

You're right on the 25, my bad.  Still, according to the list of projects and CMBS valuations, they've done projects on properties with a higher value per square foot than the rest.

I went through the exercise as well and came up with quite different numbers. 



On a total square foot basis (is there a better way of doing the comparison? Perhaps using the column titled Sears/Kmart summed with Auto Center, but hey this is approx) I got:



100% recap projects (including terminations which are by nature 100%) 

mean $71.19 / sq ft

median $52.09 sq ft



for non 100% (ie: everything else yet to be redeveloped)

mean $65.90

median $48.35



I believe with so many outliers in the data, median is by far the more useful number.



As well, a simple visual inspection of the spreadsheet when sorted by appraised value / sq ft (after highlighting the 100% recaps) clearly shows this is a quite evenly distributed sample thus far in SRG's life.

I had to separate out the two sheets to do the calcs, but here are both sheets, with the 100% recaps and all else.

Also included is raw Annex if you want to do own calcs.

Thanks for everyone's input!




Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 15, 2018, 02:13:08 PM
Dude... I think your data set is fucked up I'm sorry to say.

It has "Bayamon, Puerto Rico" as the highest value (Cushman stabilized) at $83MM.
It has Aventura at $8.5MM.

My data has Aventura at $83MM and Bayamon at $10MM... which seems much more in line with reality.

Given this I have to think your data set is screwed up. 

I went back and checked the file that was uploaded in message 498 (that has been downloaded 128 times) and it too has Bayamon really expensive and Aventura cheap.

Unless I'm missing something I can't avoid the conclusion that bad data was shared with everyone.  Here I will upload my copy of the raw CMBS data.
Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on March 15, 2018, 02:48:19 PM
I went back and checked the attachment to message 498. The excel document did in fact have errors. I accidentally uploaded the file I had been working with instead of the original copy. It looks like column 'BY' did not sort properly.

I updated the file attached to post 498 with the original CMBS annex. Sorry for any confusion. 

I don't think much emphasis should be put on column 'BY' titled "Cushman Stabilized Appraised Value." Using this to value the properties could lead to very misleading conclusions. For example, the Valley View Mall in Midtown Dallas was appraised at $9,267,333 back when this was a Class C mall. This property is under consideration for Amazon's HQ2 or a one million SQ FT Class A office development. Do a few Google searches. It's also been discussed previously in this thread (read the messages starting at post #461). This is one of Seritage's most valuable "Premier Properties" along with Aventura FL, La Jolla CA, Santa Monica CA, Hicksville NY, Redmond WA, etc. According to CEO Benjamin Schall's letter in the just released 2017 annual report, there are 36 "Premier Properties" in the portfolio.

Seritage has commenced redevelopment on 3 of their "Premier Properties" but these properties have yet to show up in the SNO lease figures.

Benjamin Schall's 2017 letter:

"As part of our announced redevelopment activity, we are now under construction on three of our premier redevelopments in Santa Monica and San Diego (La Jolla), CA and in Aventura, FL. The cumulative first phases of these three projects total over 500,000 square feet, with an expected incremental investment of approximately $300 million. These three projects generate minimal income today and are expected to generate north of $40 million of income upon stabilization – real needle movers for the Company. It is worth noting that we expect these projects, and others like them, to have future phases of development as we further activate these spectacular parcels of land."

That's $80 in rent PSF! Furthermore, Seritage is earning a higher return on their redevelopment investment on the "Premier Properties." These three properties are earning unlevered returns of over 13%, considerably higher than the 10-11% unlevered returns Seritage has achieved on their current redevelopment pipeline. The value of just the first phase of these 3 "Premier Properties" likely exceeds $400m after deducting the costs of redevelopment ($700m in gross value assuming $40m in annual stabalized rent at a 5.75% cap rate). That's $7 per share of value creation from just the first phase of 3 of 36 "Premier Properties."

2017 Annual Report with CEO Benjamin Schall's letter to shareholders:
http://www.envisionreports.com/srg/2018/2D112FE18E/234c5e1efc934721aedba9c2e654775f/Seritage_AR_3-13-18_secured.pdf
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 15, 2018, 04:09:04 PM
Sure a lot of value has been and will be created on the properties where they have done redevelopment.  What about the properties where there has been no re-development?  That's where the CMBS valuation comes in (in my mind).

But back to my original point... in general the nicer properties are the ones that are getting redeveloped so it would be a very bad idea to put the new redevelopment rates on the whole portfolio!
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 16, 2018, 04:35:13 AM
Good point. I think this focus on the total square footage is a distraction. It won't be anytime soon -if ever developed in full. More likely the $17/square foot on what is developed in the densified areas will increase further. Initital conditions: $4.1/square foot on the total of 27 million square foot earning (including Sears). Current condition: 7 million of the square foot is to 3rd parties earning 52% of the base rent and 20 million of poorly utilized Sears space earning the other 47%.

This is quite an achievement. Just 7 million is earning a bit more than the other 20 million! (plus some empty space earning nothing since the vacancy is 80%).

How much more of the 20 million can they develop?
Or can they grow more vertical , higher density on the existing 7 million?
I am not sure how square footage is counted. If you build vertically is this extra square footage?

Either way the 7 million is currently earning $15/square foot with some stabilized figure in the low 20s...
If they develop another 1/3 of the 20 million at the same $15/square foot that's going to be around $250 million in rent per year. Let's say Sears is still around for another 50 million? or the new stuff earning $50 million more over time and you get say $300 million to $400million per year. About double the rents.

The quesiton is if rents double over the next few years, what is the current valuation of SRG?
FFO is about say 100million now.
If it doubles that's 200million.
Equity is ~ 1.9 billion.
Final FFO will be 9x or about 10% yield.
Remember inflation should scale with this. This would be a real return. It's not bad in terms of this ultimate outcome because other stocks trading for 20 or 30x p/e when rates and inflation go up, while will also adjust upward earnings (although some companies may not be able to adjust costs downward) will still probably trade to lower P/E. They'd have to grow significantly to maintain the 20-30 P/E. A 10 P/E stock can always distribute higher dividends as REITs usually do and also may not fall as much. Say it trades at 12 or 13x...It won't be a huge return, say 37% from here but the dividend will be higher.
And this assumes a massive inflationary headwind for stocks to trade down to such low p/e.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 22, 2018, 08:04:16 AM
https://www.businesswire.com/news/home/20180322005548/en/Seritage-Growth-Properties-Invesco-Real-Estate-Announce

The appraised value in 2015 was low 50s million. And they split it at 145 mil basis, albeit after some planning and pre-work.

The Hilco 'stabilized value' in 2015 was around 100 mil. So there should be ample opportunity to harvest more cash through refinancing in future.

Thanks to Alex/GCA for providing CMBS data.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on March 22, 2018, 08:24:49 AM
The appraised value in 2015 was low 50s million. And they split it at 145 mil basis, albeit after some planning and pre-work.

Yeah, this property is in the heart of Santa Monica and it is quite valuable: $145 million for 96,500 square feet comes to over $1,500 per square foot.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on March 22, 2018, 08:29:29 AM
https://www.businesswire.com/news/home/20180322005548/en/Seritage-Growth-Properties-Invesco-Real-Estate-Announce

The appraised value in 2015 was low 50s million. And they split it at 145 mil basis, albeit after some planning and pre-work.

The Hilco 'stabilized value' in 2015 was around 100 mil. So there should be ample opportunity to harvest more cash through refinancing in future.

Thanks to Alex/GCA for providing CMBS data.



Valuation of $1,500 a square foot. That’s good.

Any idea if Seritage stays sole owner of the parking lot?  I’d guess so, but clearly no mention of that in the press release.
Title: Re: SRG - Seritage Growth Properties
Post by: DTEJD1997 on March 22, 2018, 08:47:33 AM
https://www.businesswire.com/news/home/20180322005548/en/Seritage-Growth-Properties-Invesco-Real-Estate-Announce

The appraised value in 2015 was low 50s million. And they split it at 145 mil basis, albeit after some planning and pre-work.

The Hilco 'stabilized value' in 2015 was around 100 mil. So there should be ample opportunity to harvest more cash through refinancing in future.

Thanks to Alex/GCA for providing CMBS data.



Valuation of $1,500 a square foot. That’s good.

Any idea if Seritage stays sole owner of the parking lot?  I’d guess so, but clearly no mention of that in the press release.

$1,500 a square foot valuation for a large commercial/retail property?

What kind of rent are they going to be charging?  What kind of stores can make a profit in that location? 

I would think at some point in valuation...almost nothing can function and make a profit. 

How can a "regular" tenant sell enough product to make a profit?

Apple & Tiffany might be able to do it...but more "regular" mall retailers?  I've got to wonder about that.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on March 22, 2018, 10:05:24 AM
The appraised value in 2015 was low 50s million. And they split it at 145 mil basis, albeit after some planning and pre-work.

Yeah, this property is in the heart of Santa Monica and it is quite valuable: $145 million for 96,500 square feet comes to over $1,500 per square foot.

The building is going to have 130,000 sf of GLA according to the web site, so about $1,115/sf valuation. Getting $45 rents (4% cap) won't be too difficult for that property.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 27, 2018, 03:04:15 PM
https://www.businesswire.com/news/home/20180322005548/en/Seritage-Growth-Properties-Invesco-Real-Estate-Announce

The appraised value in 2015 was low 50s million. And they split it at 145 mil basis, albeit after some planning and pre-work.

The Hilco 'stabilized value' in 2015 was around 100 mil. So there should be ample opportunity to harvest more cash through refinancing in future.

Thanks to Alex/GCA for providing CMBS data.

Yes, the Hilco "stabilized value" in 2015 was around 100MM which means that their analysis was...................... spot on! Given that the Invesco investment of $50MM for 50% values the property at $145MM after construction costs are taken into account... i.e. $50MM for 50% = $100MM of value today plus $45MM of construction costs = $145MM

Am I missing anything here?
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 27, 2018, 04:02:58 PM
You're ignoring the Hilco lease up costs of 24 mil to get to the 100 mil. (no free lunch here!)

They got the 100 mil valuation basis before spending (most of) the money.


Hilco theory said:

53 mil acquired
24 mil lease up

= 99.2 mil stabilized value back

total 99.2 mil SRG ownership on 77 mil investment 28% return

What happened:

53 mil acquired

sell half get 50 mil value back

put in 22.5 mil lease up

get 145/2 = 72.2 stabilized value back

total 72.2 mil SRG ownership on 25.5 mil investment 183% return

These numbers indicate to me that 1) Hilco greatly underestimates SRG's value enhancing abilities through creative JV and leveraging of cheap land acquisition price 2) SRG has an enormous margin of safety at present price, or even a more reasonable 40-45 a share.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 27, 2018, 04:34:21 PM
Or pretending Invesco never came in:

53 MM acquired
45 MM "lease up" (though probably more because they've been working on this property for a while)
=
145 MM of stabilized value

total 145 MM SRG ownership on 98 MM investment, or 48% return

Thanks
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 27, 2018, 04:55:38 PM
Yes, I agree with you on a wholly owned basis it's not nearly as eye-popping. Though being off by 20% (it will be more because there's planned 2nd phase converting the parking lot) on a commercial real estate valuation usually makes one party of the transaction a pretty big winner, i.e: Seritage.

Could one imagine the JV potential on a Valley View site, or the Aventura mall? They could potentially extract several hundred million from just those two redevs, essentially horse trading their way into a position where they get 50% of massive real estate projects for just some incremental lease up costs. JVing it seems really leverages the returns on any cash investment made by them.

It seems SRG is getting paid like a consultant, do all the dirty work then get a big pay day after all the development hurdles are finished. The JV on Santa Monica was announced only when it finally got through the Coastal Commission, the last step.



Title: Re: SRG - Seritage Growth Properties
Post by: GCA on March 27, 2018, 06:45:19 PM
These numbers indicate to me that 1) Hilco greatly underestimates SRG's value enhancing abilities through creative JV and leveraging of cheap land acquisition price 2) SRG has an enormous margin of safety at present price, or even a more reasonable 40-45 a share.

Yes, it would definitely appear Hilco greatly underestimated the Santa Monica property... though I'm not sure what this implies about the rest of the portfolio given Santa Monica is obviously special.

Again, unless Santa Monica is representative, I'm not sure how you get to a total portfolio valuation which is necessary for a margin of safety.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on March 28, 2018, 04:17:52 PM
Outlined in the latest Seritage annual letter was a cryptic comment from Schall,

"we expect there to be a growing bifurcation between developers and platforms that possess the scale, expertise, capital, and support from their investors to proactively redevelop prime real estate into dominant retail and mixed-use hubs – and those that do not possess those characteristics."

Could he have been referring as well to Westfield, and even GGP, two of the largest and strongest mall retailers in the US and both recently (and most probably in GGP's case) acquired?

While both strong companies with strong malls, they lack the freedom to wholly transform their malls into mixed use centers, exactly the premise of the GGP takeout by BPY. How is Mathrani going to say we're just going to go willy nilly to mixed use? No capital, no patience in the markets. He needed the cover of a BPY.

Buffett has said in past about how time is the friend of the wonderful business. Once free from the Sears bankruptcy miasma (which arguably has already passed) SRG strengths will blossom for the investment community to see, with total control over large acreage that others want in on.

And SRG won't have to just sell out to another developer (a BPY or Unibail), they will be in the catbird's seat, and able to command comically good terms compared to their acquisition price, as evident by the Santa Monica deal and potentially later this year with several other large scale redev JVs.

This most critical structural advantage seems lost in the fog of war now with most talk on the immediate funding issues.

I also believe SRG exhibits the characteristics of a platform company a la Ackman, though for the non-believers in the SRG story this might be a bridge too far at the moment!

Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on March 28, 2018, 05:16:20 PM
All the true, the only liability I see is the name on the Board of Trustees with initials ESL and a major unitholder. Hopefully a REIT has more protections than a corporation and there's less damage he can do to this business than to Sears. Other than that, agree with the thesis.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on March 29, 2018, 10:30:20 AM
Outlined in the latest Seritage annual letter was a cryptic comment from Schall,

"we expect there to be a growing bifurcation between developers and platforms that possess the scale, expertise, capital, and support from their investors to proactively redevelop prime real estate into dominant retail and mixed-use hubs – and those that do not possess those characteristics."

Could he have been referring as well to Westfield, and even GGP, two of the largest and strongest mall retailers in the US and both recently (and most probably in GGP's case) acquired?

While both strong companies with strong malls, they lack the freedom to wholly transform their malls into mixed use centers, exactly the premise of the GGP takeout by BPY. How is Mathrani going to say we're just going to go willy nilly to mixed use? No capital, no patience in the markets. He needed the cover of a BPY.

Buffett has said in past about how time is the friend of the wonderful business. Once free from the Sears bankruptcy miasma (which arguably has already passed) SRG strengths will blossom for the investment community to see, with total control over large acreage that others want in on.

And SRG won't have to just sell out to another developer (a BPY or Unibail), they will be in the catbird's seat, and able to command comically good terms compared to their acquisition price, as evident by the Santa Monica deal and potentially later this year with several other large scale redev JVs.

This most critical structural advantage seems lost in the fog of war now with most talk on the immediate funding issues.

I also believe SRG exhibits the characteristics of a platform company a la Ackman, though for the non-believers in the SRG story this might be a bridge too far at the moment!

I broadly agree with your thoughts here, although I would frame things differently. Instead of thinking about SRG as a platform company, I think it's more helpful to think of it as having massive optionality + more control over its own destiny than the enclosed mall operators. The optionality comes from owning ~230 properties spread over 49 states, many with outsized land parcels. SRG can largely pick and choose where and when to deploy capital in a way that REITs with smaller or less geographically dispersed footprints cannot.

Enclosed mall operators are constrained by the interests and rights of both inline and anchor tenants. This makes it hard for them to engage in large scale redevelopment projects unless they can get all their constituencies on board. A great example of this is the underperforming SHLD stores that have been the thorns in the sides of many enclosed malls. SRG's contractual right to partially or wholly kick SHLD out of properties it wants to redevelopment significantly mitigates this problem.

 

 

Title: Re: SRG - Seritage Growth Properties
Post by: GCA on April 11, 2018, 09:57:40 AM
I'm not sure just how much of an advantage SRG has in redeveloping their properties versus the mall owners.  I agree SRG has more focus here, and support from their investors... but other than that?  Yeah these operators need to get their anchor tenants on board, but my understanding is that SRG can't really do much either without getting the go ahead from the other anchor tenants.  Hah, maybe that's another reason for under-investment in the stores (make 'em so bad that the other anchors are happy to get rid of the "Sears blight").

In any case, here is an example of Simon doing just that... redeveloping 5 properties into mixed use... and in fact its the 5 JV properties that SRG recently sold to Simon:

http://www.insideindianabusiness.com/story/37921409/simon-to-redevelop-five-properties

Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on April 11, 2018, 11:26:54 AM
Yes it would be interesting to learn the development economics Simon will achieve on those 5 ex JV properties, and also the thinking of SRG management on why to sell at a 10% profit rather than participate in the redev.

Simon has said they were about 7% return with a 50% recapture, perhaps after paying SRG the 'finders fee' they won't achieve much better on a 100% basis.

It seems in this case Simon isn't at a disadvantage to SRG in redeveloping these ex JV sites. But I don't see how one can extend the 'just as favorable as SRG' economics to other mall owners with a Sears that aren't in or were in a JV.

These owners don't have the benefit of Eddie working both sides of the deal to shut the store down nor a master lease that allows the mall owner to kick out Sears.

For example, WPG being obligated to bid for Bon Ton to basically pay itself back in rent so there's no gaping hole there in its malls. SRG has no such ugly decision to contemplate.

I think the intangible blank slate advantage discussed doesn't lend itself to smoking gun examples just yet, but will be important as the retail evolution plays out in next few years.

And there are some potentially blockbuster deals on the near horizon for SRG including plans at Hicksville, Valley View and possible JVs at Aventura, La Jolla. Right there is enough to justify current market price and fully fund the pipeline to 150 m NOI, and then you're left with 75% of GLA for growth on your terms.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on April 11, 2018, 11:36:53 AM
I'm not sure just how much of an advantage SRG has in redeveloping their properties versus the mall owners.  I agree SRG has more focus here, and support from their investors... but other than that?  Yeah these operators need to get their anchor tenants on board, but my understanding is that SRG can't really do much either without getting the go ahead from the other anchor tenants.  Hah, maybe that's another reason for under-investment in the stores (make 'em so bad that the other anchors are happy to get rid of the "Sears blight").

In any case, here is an example of Simon doing just that... redeveloping 5 properties into mixed use... and in fact its the 5 JV properties that SRG recently sold to Simon:

http://www.insideindianabusiness.com/story/37921409/simon-to-redevelop-five-properties

I think you are somewhat misinterpreting what I am trying to say. The mall operators can redevelop the anchor boxes as well or better than anyone else, but by-and-large they don't own or control them. The boxes are generally controlled by the department stores (M, DDS, SHLD) via either outright ownership or very long term leases. One easy way to frame this is the frustration and powerlessness mall operators saddled with underperforming SHLD stores have probably felt over the last decade.

I've yet to see much, if any, evidence that SRG needs the sanction of other anchor tenants to redevelop its boxes. Do they have to work with the mall operators and city planners? Yes. Do they need the sanction of the department store operator which controls the box on the other side of the mall? Not that I'm aware of.

The JV properties are a special case. The original intent of the JVs was to redevelop the 50% of the properties' that SHLD did not have rights to. SRG has the contractual right to force the mall operators to buy its share of the JV properties once certain 3rd party leasing thresholds are met. Simon and Macerich subverted this process by sitting on their hands instead of working with SRG to redevelop. Given their liquidity positions relative to SRG's, as well as the inevitability that the SHLD stores in the JVs would (eventually) close, this has probably been a smart strategy. I think the mall operators will buy out all of SRG's interests in the JVs over time.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on April 11, 2018, 11:53:33 AM
Simon and Macerich subverted this process by sitting on their hands instead of working with SRG to redevelop. Given their liquidity positions relative to SRG's, as well as the inevitability that the SHLD stores in the JVs would (eventually) close, this has probably been a smart strategy. I think the mall operators will buy out all of SRG's interests in the JVs over time.

I wonder if this action was an oversight during the initial JV structuring?
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on April 11, 2018, 08:03:38 PM
Provides liquidity to SRG if needed. Plus, who wants a vacant Sear’s store at their mall?
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on April 20, 2018, 03:00:37 PM
And there are some potentially blockbuster deals on the near horizon for SRG including plans at Hicksville, Valley View and possible JVs at Aventura, La Jolla. Right there is enough to justify current market price and fully fund the pipeline to 150 m NOI, and then you're left with 75% of GLA for growth on your terms.

Aventura and La Jolla have already been added to the official project slate, and so if we assume the other projects that got on the slate last quarter generate no income, then those two put together would appear to offer $51MM in income (once stabilized) in a few years, and after spending a lot of money to get there (just look at the Aventura plans).

That leaves Hicksville, Valley View, Redmond, and Boca Raton.

Here's what I think the first three might generate in rent:
Redmond - $40MM
Valley View -  $90MM
Hicksville - $38MM

So, leaving out Boca Raton for now, $51MM or Aventura and La Jolla plus all the above gets you to $219mm in rent... which I guess depending on the cap rate you choose really could get you to today's EV.  Of course keep in mind these are really big developments that are going to take hundreds of millions of dollars and multiple years to complete...
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on May 04, 2018, 07:38:43 AM
Q1: http://ir.seritage.com/Cache/1500110255.PDF?O=PDF&T=&Y=&D=&FID=1500110255&iid=4584761

Quote
  • Signed new leases totaling 391,000 square feet at an average rent of $20.24 PSF. Since the Company’s inception in July 2015, new leasing activity has totaled over 5.2 million square feet at an average rent of $17.98 PSF
  • Net income: $9.1 million
  • NOI: $36.9m
  • FFO: $11m
  • 4.1x releasing multiples for space currently or formerly occupied by Sears Holdings Corporation
  • Annual base rent from tenants other than Sears Holdings: 54.3%
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on May 04, 2018, 11:56:39 AM
The more exciting stuff from my perspective are the land deals.  The Redmond deal values that land at 9 times what it was assessed for in the July 2015 CMBS.  The other two deals value those plots of land at 2 times what they were assessed at in the CMBS.  Equally as important these are the first retail to residential projects that have been officially mentioned by SRG (though they and others have been kicking around for some time).
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on May 04, 2018, 01:53:48 PM
The more exciting stuff from my perspective are the land deals.  The Redmond deal values that land at 9 times what it was assessed for in the July 2015 CMBS.  The other two deals value those plots of land at 2 times what they were assessed at in the CMBS.  Equally as important these are the first retail to residential projects that have been officially mentioned by SRG (though they and others have been kicking around for some time).

Scratch that, I didn't realize the Newark deal was for only half the property so it values the plot at 4 times the CMBS appraisal value...
Title: Re: SRG - Seritage Growth Properties
Post by: TwoCitiesCapital on May 04, 2018, 04:52:53 PM
Please forgive my ignorance, as I suspect this is a stupid question with a simple/obvious answer, but:

How do these numbers jive?

Quote
Financial Results
For the quarter ended March 31, 2018:
 Net income attributable to common shareholders of $9.1 million, or $0.26 per diluted share
 Total Net Operating Income (“Total NOI”) of $36.9 million
 Funds from Operations (“FFO”) of $11.0 million, or $0.20 per diluted share
 Company FFO of $12.4 million, or $0.22 per diluted share

What I see is that $9.1M net income = $0.26 per diluted share but total FFO is $11.0M or $0.20 per diluted share.

If the diluted per share figure remains static, how does 9M translate to a higher per share value than $11M?

:-\
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on May 04, 2018, 05:28:10 PM
Please forgive my ignorance, as I suspect this is a stupid question with a simple/obvious answer, but:

How do these numbers jive?

Quote
Financial Results
For the quarter ended March 31, 2018:
 Net income attributable to common shareholders of $9.1 million, or $0.26 per diluted share
 Total Net Operating Income (“Total NOI”) of $36.9 million
 Funds from Operations (“FFO”) of $11.0 million, or $0.20 per diluted share
 Company FFO of $12.4 million, or $0.22 per diluted share

What I see is that $9.1M net income = $0.26 per diluted share but total FFO is $11.0M or $0.20 per diluted share.

If the diluted per share figure remains static, how does 9M translate to a higher per share value than $11M?

:-\


The earnings were boosted by roughly $41M profit from property dispositions, but proceeds from property disposition don’t contribute to NOI (which is property operating profit).
Title: Re: SRG - Seritage Growth Properties
Post by: treasurehunt on May 04, 2018, 05:55:09 PM
Please forgive my ignorance, as I suspect this is a stupid question with a simple/obvious answer, but:

How do these numbers jive?

Quote
Financial Results
For the quarter ended March 31, 2018:
 Net income attributable to common shareholders of $9.1 million, or $0.26 per diluted share
 Total Net Operating Income (“Total NOI”) of $36.9 million
 Funds from Operations (“FFO”) of $11.0 million, or $0.20 per diluted share
 Company FFO of $12.4 million, or $0.22 per diluted share

What I see is that $9.1M net income = $0.26 per diluted share but total FFO is $11.0M or $0.20 per diluted share.

If the diluted per share figure remains static, how does 9M translate to a higher per share value than $11M?

:-\
The financial supplement has the information needed to figure out the answer. The denominator is different for the two calculations - 35,501 for EPS and 55,719 for FFO per share. For FFO the 20,218 outstanding units are added to the number of A and C shares outstanding. I think 55,719 is the share count that actually matters when analysing the company.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 21, 2018, 02:09:46 PM
http://ir.seritage.com/file/Index?KeyFile=393586630
Quote
SERITAGE GROWTH PROPERTIES AND FIRST WASHINGTON REALTY ANNOUNCE PARTNERSHIP TO OWN THE CORBIN COLLECTION IN WEST HARTFORD, CONNECTICUT
Company Release - 5/21/2018 4:59 PM ET
NEW YORK--(BUSINESS WIRE)-- Seritage Growth Properties (NYSE:SRG) and First Washington Realty, a national real estate investment and management company, today announced a joint venture partnership to own The Corbin Collection, the 163,700 square foot redevelopment of the former Sears store and auto center in West Hartford, Connecticut.

The transaction values The Corbin Collection at approximately $52 million, including costs remaining to complete the project. Seritage sold a 50% interest in the project to an affiliate of First Washington Realty, and received proceeds of approximately $23 million at closing, which it utilized primarily to repay existing mortgage debt associated with the property.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 22, 2018, 07:25:30 AM
Pretty big announcements the last few days. It's kind of surprising there isn't more talk about them here.

http://ir.seritage.com/file/Index?KeyFile=393597384
Quote
SERITAGE GROWTH PROPERTIES AND INVESCO REAL ESTATE ANNOUNCE PARTNERSHIP TO OWN THE COLLECTION AT UTC IN LA JOLLA, CALIFORNIA
Company Release - 5/22/2018 9:12 AM ET
Joint Venture to Redevelop Former Sears Site into Premium Shopping, Dining and Entertainment Destination

NEW YORK--(BUSINESS WIRE)-- Seritage Growth Properties (NYSE: SRG) and Invesco Real Estate, a global real estate investment manager, today announced a joint venture partnership to own The Collection at UTC, the adaptive re-use of the existing Sears store and auto center at Westfield UTC in La Jolla, California.

The transaction values The Collection at UTC at approximately $165 million, including costs remaining to complete the project. Seritage sold a 50% interest in the project to a separate account managed by Invesco and received proceeds of approximately $44 million at closing, which it utilized primarily to repay existing mortgage debt associated with the property. The partnership will invest, or pursue construction financing to fund, the additional capital required to convert the Sears store and auto center into 226,200 square feet of premium space leased to a collection of growing retailers and leading dining, entertainment and fitness concepts.
Title: Re: SRG - Seritage Growth Properties
Post by: cubsfan on May 22, 2018, 12:59:46 PM
I don't think anyone wants to hear about anything to do with Sears.

Like Brookfield, I think Seritage is going to be a good one. These announcements are under the radar,
No conference calls, non-promotional management.

Add in a short position of 50% of the float - and you get a pretty combustible mix if good news arises.
If the hedge funds are so short Seritage because of the "Sears is dying story" they'll have a tough
time covering as Sears continues to come up with creative ways to finance the company.
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on May 22, 2018, 01:38:01 PM
One thing I admire about buffett is the ability to think a few moves ahead. It's like chess. Now times are good for some companies, over time, the race will be won by making the right moves. Can mistakes be made? Sure. IBM for example. But in investing there are BIG mistakes and small mistakes. You can switch horses if you feel a better one comes around. If you cover your bases, the loss on the underperformer won't be too bad. In other words there is time to decide your optimal portfolio.
Title: Re: SRG - Seritage Growth Properties
Post by: Broeb22 on May 29, 2018, 08:04:37 AM
https://www.businesswire.com/news/home/20180529005568/en/Seritage-Growth-Properties-Announces-Appointment-Sharon-Osberg (https://www.businesswire.com/news/home/20180529005568/en/Seritage-Growth-Properties-Announces-Appointment-Sharon-Osberg)

Buffett's bridge buddy joining SRG board a coincidence?

No position here, but I would find it surprising that a person Buffett plays bridge with 3-4x per week would not be some kind of connection to the board for Buffett...
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 29, 2018, 10:15:30 AM
Good, maybe Warren and Sharon can get them to lower the dividend or cut it completely for a few years.
Title: Re: SRG - Seritage Growth Properties
Post by: cubsfan on May 29, 2018, 10:30:55 AM
Not likely to see a dividend cut since it will endanger the REIT status.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on May 29, 2018, 10:39:49 AM
Not likely to see a dividend cut since it will endanger the REIT status.

I was under the impression they have some room since their earnings are near zero.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on May 29, 2018, 10:50:23 AM
https://www.businesswire.com/news/home/20180529005568/en/Seritage-Growth-Properties-Announces-Appointment-Sharon-Osberg (https://www.businesswire.com/news/home/20180529005568/en/Seritage-Growth-Properties-Announces-Appointment-Sharon-Osberg)

Buffett's bridge buddy joining SRG board a coincidence?

No position here, but I would find it surprising that a person Buffett plays bridge with 3-4x per week would not be some kind of connection to the board for Buffett...

My thoughts exactly......

Title: Re: SRG - Seritage Growth Properties
Post by: cubsfan on May 29, 2018, 10:53:33 AM
Not likely to see a dividend cut since it will endanger the REIT status.

I was under the impression they have some room since their earnings are near zero.

I'm sorry - I thought you meant they should cut dividend to zero!
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on June 09, 2018, 07:17:08 PM
http://ent.ufl.edu/2018/06/07/announcement-planned-relocation-of-otolaryngology-practices-to-the-oaks-mall/

medical offices sucked up an entire sears box at The Oaks in Gainesville

according to 10k, they acquired the property for around $3.6 mil, and were getting something like $3/sq ft in rent according to annex.

according to release, rent should be $6 a sq ft, or something like 20 cap on original basis.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on June 29, 2018, 12:41:10 PM
SHLD closing 10 more SRG-owned stores. It's unclear if these are SHLD lease terminations, SRG-initiated, or some of both.

http://www.businessinsider.com/sears-closes-72-stores-as-sales-tumble-2018-5 (http://www.businessinsider.com/sears-closes-72-stores-as-sales-tumble-2018-5)

Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on July 07, 2018, 05:00:57 PM
according to press SRG sold back Sears at Valley Mall in Hagerstown for 11.4m. Carried on latest 10k at 4.3m.

https://www.heraldmailmedia.com/news/local/valley-mall-group-buys-former-sears-buildings-other-renovations-continue/article_364cf810-815e-11e8-ade3-eb2f6921e983.html

edit: the sales prices checks out on MD gov assessments & taxation website. Seems the only improvements were BJs Brewhouse and Verizon in auto center.

Seller: SERITAGE SRC FINANCE LLC   Date: 06/26/2018   Price: $11,400,000
Type: ARMS LENGTH IMPROVED   Deed1: /05780/ 00116   Deed2:
Seller: SEARS ROEBUCK AND CO   Date: 07/30/2015   Price: $0
Type: NON-ARMS LENGTH OTHER   Deed1: /05024/ 00488   Deed2:
Seller: MONTGOMERY WARD DEVELOPMENT LLC   Date: 06/04/2001   Price: $1,850,000
Type: NON-ARMS LENGTH OTHER   Deed1: /01776/ 00417   Deed2:
Title: Re: SRG - Seritage Growth Properties
Post by: crastogi on July 08, 2018, 05:40:07 AM
according to press SRG sold back Sears at Valley Mall in Hagerstown for 11.4m. Carried on latest 10k at 4.3m.

https://www.heraldmailmedia.com/news/local/valley-mall-group-buys-former-sears-buildings-other-renovations-continue/article_364cf810-815e-11e8-ade3-eb2f6921e983.html

edit: the sales prices checks out on MD gov assessments & taxation website. Seems the only improvements were BJs Brewhouse and Verizon in auto center.

Seller: SERITAGE SRC FINANCE LLC   Date: 06/26/2018   Price: $11,400,000
Type: ARMS LENGTH IMPROVED   Deed1: /05780/ 00116   Deed2:
Seller: SEARS ROEBUCK AND CO   Date: 07/30/2015   Price: $0
Type: NON-ARMS LENGTH OTHER   Deed1: /05024/ 00488   Deed2:
Seller: MONTGOMERY WARD DEVELOPMENT LLC   Date: 06/04/2001   Price: $1,850,000
Type: NON-ARMS LENGTH OTHER   Deed1: /01776/ 00417   Deed2:

I wonder if SRG selling this because they are cash constrained when it comes to developing this, or it was a strategic move.  Regardless looks like the book is understated significantly. 

Anybody who live s in the area - is/Was this is a nice mall/ premium area? 
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on July 09, 2018, 12:40:08 PM
New VIC writeup: https://valueinvestorsclub.com/idea/SERITAGE_GROWTH_PROPERTIES/142257

I think this is the 4th one? (3 long, 1 short)
Title: Re: SRG - Seritage Growth Properties
Post by: Saluki on July 09, 2018, 12:53:36 PM
Is anyone long the preferred shares?

They are cumulative preferred with a $25 liquidation preference.  And they are not callable until 2022.

It pays 7% at par, but has traded as low as 20, which would give a dividend of over 10% at that price.

I was on the on the fence about them at 20 and didn't buy it because I had so much of the common.  But what I should've done is buy some because it's a good place to park your money since if you believe the common will survive then the preferreds will too and will eventually be redeemed at 25 or get to par when conditions improve and you get a nice dividend while you wait.

also, as a measure of protection, if the dividend is suspended, then SRG can't pay the common shareholders a dividend until all the back dividends on the preferred are made current.

They are currently at 24, but move around whenever there is bad news about malls or sears. 
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on July 09, 2018, 01:16:52 PM
New VIC writeup: https://valueinvestorsclub.com/idea/SERITAGE_GROWTH_PROPERTIES/142257

I think this is the 4th one? (3 long, 1 short)

I wrote this write up and feel somewhat compelled to inform people here that this write up received some justified criticism.  Non-members of VIC can't see my response so I'll copy both the criticism and response below:

CRITICISM:

We believe you made a simple math error in your Individual Project Valuations that has a significant impact on your calculated fair value of Seritage. As a quick sanity check, the Redmond 2.5 acres sale for $16mm implies the remaining 12.5 acres are worth $80mm. To say this $80mm can be turned into $501mm on an undiscounted basis is aggressive.

You have confused Revenue with NOI. If you assume a 65% NOI margin on Residential, Retail, and Office, the gross value decreases by $155mm, $53mm, and $67mm, respectively. The undiscounted net value decreases from $501mm to $226mm. Making this math correction on just the Redmond property decreases the value of Seritage by $5 per share (or $3.50 with your 30% discount).

Beyond the simple math errors, we identify many further questionable assumptions. For instance, Rent PSF looks very high. You can find modern, new housing on Apartments.com in Redmond for $33 PSF on average as opposed to the $38.50 PSF assumed. We believe Class A Office Space outside of Seattle in Bellevue is renting in the low to mid $30 PSF as compared to the $42 PSF assumed. In addition, your valuation work appears to have excluded financing costs and overhead costs.

I think correcting the math errors would dramatically decrease the fair value for Seritage. Were you to use more realistic assumptions around rent PSF as well, that would further compress the fair value. Based on just the math errors identified above, I believe you have overstated the value of Seritage’s redevelopment opportunities by about $1 billion or $18 per share before discounting.

RESPONSE:

Wow what a glaring and embarrassing error.  You're right, I was using revenue multiples and then changed them to cap rates at the last minute and didn't change my input of revenues to be inputs of NOI.  Doing so substantially reduces the valuation.  I still think the investment might work out because of conservatism built in elsewhere, but it does blow up the approach.  After reducing Residential, Retail, and Office revenue by 30%, 30%, and 22.5% respectively to get NOI, and changing the overly conservative 30% PV discount to 20% (a bit more than 3 years at 7%) I get a reduced valuation of $39.80.  Again, this approach leaves out what I believe is the substantial upside from further redevelopment of the properties, but on the other hand still doesn't lower the rent inputs or capitalize corporate expense.

A couple of relatively minor pushbacks.

Substantial though it may be, I believe you are over-estimating the magnitude of the "math error".  The sum total of the three individual projects in my original valuation was $17.97.  Only if these properties were actually worth nothing could they reduce the value estimate by $18 per share.  If I were to value these properties how I valued the other properties with no formal projects (the lower of Hilco Dark and Cushman & Wakefield estimates) the result would be $73MM ($1.32 a share), but of course that is too low because the Redmond land alone just got valued at $96MM.

To be fair to me, I wasn't saying that $80MM of land could be turned into $501MM.  I was saying $96MM of land and $377MM of construction capital and multiple years of planning and 5 years of construction could be turned into $878MM eventually.  Maybe I ought to be locked up but that passed my sanity test.

Yes, I used a high estimate of rent for Redmond, but I also used a high construction cost estimate of $350, because that was the estimate given to me by someone who looked at the actual project specifics, instead of being a general area estimate.  It was higher than the other Redmond residential construction estimates I received of $180 (from a 2015 study of the area average), and $251.64 and $291.50 received from other professionals.  I figured brand new and mixed use and next to a park would go for a premium.  It would seem to me overly punative to reduce the high rent estimate and leave the high residential cost estimate the same.  Not sure if you would have any input on a residential cost estimate.

The same story goes for office.  We received office rental estimates of $19.64, $25, $30.91, and $42.  We received office cost estimates of $165.09, $207.88, and $300.  I chose the top estimates for each based on the above logic.

As for not capitalizing and including the corporate expense, you are again correct.  I wonder though if I were to take the "General and Administrative" line item from the income statement and capitalize it if I would not be double-counting some of the "soft" project costs which are accounted for in the project cost estimates.  I'm all ears on suggestions on how to approach this.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on July 09, 2018, 04:16:00 PM
I can't see the write up, but it sure seems more and more SRG is going for a high value portfolio of trophy mixed use properties.

Last year I don't recall them selling any properties, and already this year they've sold back two mall properties and several Kmarts. And all of them have been for what looks like substantial profit.

Asheville, Redmond, and Hicksville are all pretty close to being approved by city councils.

Perhaps they've waiting on more word from Amazon about the headquarters to put out anything more specific about plans, but the Valley View mixed use project is expected to cost around 800 mil, so probably worth something like 1.5 bil when complete. https://www.cpexecutive.com/post/kdc-seritage-plan-1-msf-dallas-office-project/

Reminds me of the Steve Jobs quote that people overestimate what can be done in a year, but vastly underestimate what can be done in 10 years.

It seems the value is really building behind the scenes, just their in-redevlopment portfolio should be near their EV soon to say nothing of the rest 3/4 of the portfolio carried for nothing.

And Eddie is chair of the investment committee, Sharon Osberg just came on the board. THere's a lot more than meets the eye here with management, some really top grade humans/capital allocators involved - and playing a strong hand to boot.


Title: Re: SRG - Seritage Growth Properties
Post by: GCA on July 10, 2018, 02:11:50 PM
Perhaps they've waiting on more word from Amazon about the headquarters to put out anything more specific about plans, but the Valley View mixed use project is expected to cost around 800 mil, so probably worth something like 1.5 bil when complete. https://www.cpexecutive.com/post/kdc-seritage-plan-1-msf-dallas-office-project/

...

It seems the value is really building behind the scenes, just their in-redevlopment portfolio should be near their EV soon to say nothing of the rest 3/4 of the portfolio carried for nothing.


Unfortunately, as far as I can tell, Valley View is being delayed because of zoning issues.  I should think would ultimately get resolved but sometimes things move very slow in real estate:
https://www.bizjournals.com/dallas/news/2017/01/30/dallas-valley-view-center-stands-as-scott-becks.html
https://www.dallasnews.com/opinion/commentary/2017/09/28/valley-view-mall-supposed-gone-now-remains-zombieland

On your second point ABOVE, the EV is $3,616MM while the total projected project income is $176MM, for a ratio of 20.5, when GGC, MAC, and SPG all trade around 14... so I think they've got a ways to go.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on July 11, 2018, 08:58:15 AM
i don't have any special knowledge on Valley View, though I would say the news articles cited are much older than the Dec 2017 announcement of the KDC partnership, and the statement they would be filing plans soon with the city. Valley View is still in contention for Amazon, I wouldn't expect any info until that is settled. And since they've come so far in that process, social proof would only elevate the property in eyes of other major companies.

On the valuation, at what point does the switch flip and we must assign value to the enormous backlog of developable property? Right now, it's assigned at basically nothing!

At the soon-coming time when the in-dev properties account for reasonable valuation of total EV, perhaps the switch flips and immediately a NPV of something like a few billion should be added to account for 20-30 mil of 4x rent opportunity.

We're already into Q3, so add something like 200 mil to EV (assuming 100 mil of redevelopment in Q2). That's already 3.2 something. In 80 days, it's 3.4  or 3.5 something. By end of year we're well within reasonable values for current redeveloped portfolio.

I don't believe it's fanciful to assume share price should be something like double what it is right now, just factoring in their captive backlog at reasonable discount rates and their demonstrated operating performance so far. But the doubting will continue...until it stops!. Anyway not arguing with you personally, I hope you're long too.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on July 11, 2018, 12:19:55 PM
I have some newer articles, here is one from after (like the day after) the KDC deal:
https://www.dallasnews.com/opinion/commentary/2017/12/12/valley-view-mall-plan-revive-shambles

Here's an article on another development in Dallas but in the comments some locals are talking about Valley View and it still sounds stalled to me:
https://www.dmagazine.com/frontburner/2018/06/dallas-city-council-oks-sending-millions-to-red-bird-mall-redevelopment/

So maybe the delay has to do with Amazon but I kind of doubt it.

Would love to see your math on this.  Yes I'm long but not as bullish as you are.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on July 11, 2018, 01:08:25 PM
Yes, regarding the new links, I believe that's what separates SRG from the pack, they just plow through and don't stop to try to get funding or concessions - beyond already laid out development or improvement concessions by the cities, like get an extra couple stories in your office building if you improve some streets. They don't even try to get the last dollar, for example at Redmond they're only going 6 stories or something with the office, but have option to go 9 I believe.

I think these qualitative factors, such as not wanting - or needing - a helping hand will further differentiate SRG form other publicly traded REITs and private developers. You see this at Redmond and Hicksville. I have watched many of the planning commission and study session videos and SRG comes across as quite professional with quality partners with much successful experience. Look at their architect partners for Hicksville and Redmond among others, the cream of the US. I think a lot of this culture stems from Eddie who is a perfectionist and only does business in first class way.

If you had Ben Schall doing promotional visits on Cramer like WPG and KIM I would bet value would be more reflected in the stock price. But that's not Eddie's style, he's weeding out the non-believers like Buffett did with Berkshire long ago.
 
As to the math, I don't have anything detailed!  Don't wish to be curt but it is quite obvious to me there is essentially zero downside and from satisfactory to very good returns over next 7-10 years, ie: 15%+ a year (3x 4x over that time).

Progress just moves slowly (albeit consistently) which leads many to mental masturbation while waiting I guess, but personally I feel very comfortable.
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on July 11, 2018, 03:25:54 PM
Yes, regarding the new links, I believe that's what separates SRG from the pack, they just plow through and don't stop to try to get funding or concessions - beyond already laid out development or improvement concessions by the cities, like get an extra couple stories in your office building if you improve some streets. They don't even try to get the last dollar, for example at Redmond they're only going 6 stories or something with the office, but have option to go 9 I believe.

I think these qualitative factors, such as not wanting - or needing - a helping hand will further differentiate SRG form other publicly traded REITs and private developers. You see this at Redmond and Hicksville. I have watched many of the planning commission and study session videos and SRG comes across as quite professional with quality partners with much successful experience. Look at their architect partners for Hicksville and Redmond among others, the cream of the US. I think a lot of this culture stems from Eddie who is a perfectionist and only does business in first class way.

If you had Ben Schall doing promotional visits on Cramer like WPG and KIM I would bet value would be more reflected in the stock price. But that's not Eddie's style, he's weeding out the non-believers like Buffett did with Berkshire long ago.
 
As to the math, I don't have anything detailed!  Don't wish to be curt but it is quite obvious to me there is essentially zero downside and from satisfactory to very good returns over next 7-10 years, ie: 15%+ a year (3x 4x over that time).

Progress just moves slowly (albeit consistently) which leads many to mental masturbation while waiting I guess, but personally I feel very comfortable.

With all due respect, you lack imagination if you cannot see any risk of downside here, especially given SRG's weak liquidity position and the continued deterioration of the retail real estate market. 
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on July 11, 2018, 09:06:51 PM
If I had physical stock certificates I'd fondle them, but alas only street name!
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on July 12, 2018, 09:39:43 AM
Q2 leasing activity was strong. 853K sq feet at a 3.6x "releasing" multiple.


https://www.businesswire.com/news/home/20180712005231/en/ (https://www.businesswire.com/news/home/20180712005231/en/)
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on July 12, 2018, 10:19:00 AM
Yes, 3.6x a little lower as I believe that includes the U of F taking over an entire sears box at The Oaks.

It's potentially a 60 yr lease, but at a low absolute rate, like $6 a foot. But that's a fabulous use of capital as it's locked in for at least 20 years at something like 25% or more per annum return on original basis.

http://www.gainesville.com/news/20180607/two-uf-health-offices-may-move-into-sears

The back half of the year has potential to be record setting as Hicksville, Redmond, Asheville execute. The cities are really dragging their feet - many board members don't do their homework and come unprepared to meetings - but there is a clock, something like 90-120 days that starts when the proposal hits. And the cities will have to make definitive decision in Q3.
Title: Re: SRG - Seritage Growth Properties
Post by: johnny on July 13, 2018, 03:26:29 PM
Ex-UofF still makes for an average $16.19 per foot, which isn't quite knocking it out of the park.

I'm not sure I understand the rationale for celebrating the return-on-book if the entire thesis of the thread is that book is significantly understated. $6 a square foot is $6 a square foot--what's fair value if the company signs similarly extraordinary RoR deals on the rest of their boxes?
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on July 13, 2018, 06:02:40 PM
Ex-UofF still makes for an average $16.19 per foot, which isn't quite knocking it out of the park.

I'm not sure I understand the rationale for celebrating the return-on-book if the entire thesis of the thread is that book is significantly understated. $6 a square foot is $6 a square foot--what's fair value if the company signs similarly extraordinary RoR deals on the rest of their boxes?

Agree on the book value issue. I think even many bearish on SRG would agree that book value is understated.

On a quarterly basis I think square footage leased and their releasing multiple figure are the two key #s to look at.

$6 per sq foot is (obviously) not great, but it's still almost double what SHLD was paying ($3.10).
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on July 13, 2018, 06:23:47 PM
The incremental returns on capex for redevelopment are most important for me.  Also, if investing this capex not only increases lease rates per square foot, but also locks in existing rents with a higher quality and more diversified tenant base, that also creates value. 

I’m less concerned with absolute lease rates and more concerned with how much capital SRG must invest for the related rent increases.

Title: Re: SRG - Seritage Growth Properties
Post by: vince on July 14, 2018, 09:31:49 AM
The incremental returns on capex for redevelopment are most important for me.  Also, if investing this capex not only increases lease rates per square foot, but also locks in existing rents with a higher quality and more diversified tenant base, that also creates value. 

I’m less concerned with absolute lease rates and more concerned with how much capital SRG must invest for the related rent increases.
So True, excellent post
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on July 16, 2018, 08:24:36 AM
One thing of interest is the price of redevelopment per square foot.   The last three years (6 months for 2018) are as follows:

2016: $138.50             
2017: $197.20             
2018: $111.50           

While we don't see disclosure on what specific SNO or projected lease rates are associated with each tranche, it might be fair to assume that the 2018 redevelopments are associated with the lower SNO lease rates we saw this quarter.   If we continue to see redevelopment costs in the low $100s psf (it was below $100 in Q2 2018.  $97.60 to be exact) we should expect to see Seritage signing lower lease rates than before.  Based on this history I'd expect to see $100 psft of redevelopment capex produce new lease rates of around $14.50 a square foot. 


---------
Calculations:
2016  (=$370.7/2.677 sqft)
2017  (=$693.6/3.517 sqft)
2018  (=$152.7/1.369 sqft)
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on July 17, 2018, 02:51:26 PM
at least one recently closed Sears being actively offered for sale

https://www.pyramidbrokerage.com/properties/img/property/flyers/G5340.pdf

Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on July 17, 2018, 03:01:02 PM
One thing of interest is the price of redevelopment per square foot.   The last three years (6 months for 2018) are as follows:

2016: $138.50             
2017: $197.20             
2018: $111.50           

While we don't see disclosure on what specific SNO or projected lease rates are associated with each tranche, it might be fair to assume that the 2018 redevelopments are associated with the lower SNO lease rates we saw this quarter. 

Good point, BTShine. The lower SNO lease rates need to be evaluated in tandem with the redevelopment costs.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on July 18, 2018, 01:18:43 PM
The incremental returns on capex for redevelopment are most important for me.  Also, if investing this capex not only increases lease rates per square foot, but also locks in existing rents with a higher quality and more diversified tenant base, that also creates value. 

I’m less concerned with absolute lease rates and more concerned with how much capital SRG must invest for the related rent increases.

I agree but you also have to consider how much of this is priced in?  It's not like SRG is trading at book value.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on July 18, 2018, 03:07:19 PM
If the majority of SRG's value will be realized via renting existing and redeveloped/newly developed space, then I think incremental rents and the related return on capex are what will help us determine the intrinsic value of the company.   Another important factor we must try to predict is the amount of capital they can invest on new and re-developments every year and in total over the next 10+ years with this portfolio. 

On the other hand, if you believe SRG will begin to sell off significant portions of land, then market value and it's approximate relation to book value are of importance.  Returns on capex do not matter if we are liquidating the portfolio.  In the current state I don't think SRG plans to liquidate it's land portfolio and therefore book value is not of utmost importance.   
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on July 24, 2018, 08:39:00 AM
If the majority of SRG's value will be realized via renting existing and redeveloped/newly developed space, then I think incremental rents and the related return on capex are what will help us determine the intrinsic value of the company.   Another important factor we must try to predict is the amount of capital they can invest on new and re-developments every year and in total over the next 10+ years with this portfolio. 

On the other hand, if you believe SRG will begin to sell off significant portions of land, then market value and it's approximate relation to book value are of importance.  Returns on capex do not matter if we are liquidating the portfolio.  In the current state I don't think SRG plans to liquidate it's land portfolio and therefore book value is not of utmost importance.

Once you extrapolate how much capex will be necessary to redevelop the entire portfolio then you'll see why they will have to sell off a substantial portion of their properties (whether via whole property sales or through JVs/partial sales).  They're not liquidating but they are going to need a ton of cash for redevelopment.  The contemplated Dallas office towers alone have an $800MM price tag.  Total portfolio cash needs is easily in excess of $2B.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on July 24, 2018, 09:05:20 AM
Do you think they will have an opportunity to access capital via mortgage debt?  I would imagine that the income and related value from their 68 redevelopments (as shown on page 4 of the IR presentation - link below) would support more mortgage debt than the $1.3 Billion SRG currently has.  They estimate these 68 redevelopments to be worth over $3 billion.  I would think they could take out another $700 million to make their debt load $2 Billion.  This way they can access capital as they progress and keep all real estate.


http://ir.seritage.com/Cache/1001237538.PDF?O=PDF&T=&Y=&D=&FID=1001237538&iid=4584761
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on July 24, 2018, 09:40:31 AM
BTShine - off memory, this is not possible under the current arrangement.  Obviously they would like to change this.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on July 24, 2018, 12:18:43 PM
BTShine - off memory, this is not possible under the current arrangement.  Obviously they would like to change this.

Good point.  I oversimplified the process.  They would either need to renegotiate their current mortgage and increase it's size.  Or they could obtain a new mortgage and pay off the exiting one.  There was a prepayment penalty, but that is not in place anymore as of March 9, 2018.

Title: Re: SRG - Seritage Growth Properties
Post by: Deepdive on July 28, 2018, 07:33:33 AM
The incremental returns on capex for redevelopment are most important for me.  Also, if investing this capex not only increases lease rates per square foot, but also locks in existing rents with a higher quality and more diversified tenant base, that also creates value. 

I’m less concerned with absolute lease rates and more concerned with how much capital SRG must invest for the related rent increases.

I agree but you also have to consider how much of this is priced in?  It's not like SRG is trading at book value.

Why do book value matter when dealing with real estate companies?  Whether you bought the properties 10, 20, 50, 100 years ago make a huge difference on how book value relates to current market value. 
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on July 30, 2018, 03:40:52 PM
Leasing 17 locations to Blink Fitness

https://www.prnewswire.com/news-releases/blink-fitness-accelerates-expansion-with-strategic-multi-state-deal-with-seritage-growth-properties-300686433.html?tc=eml_cleartime
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on July 30, 2018, 03:43:42 PM
250,000 square feet (approximately) for that deal.  Good to see they're leveraging their national footprint.   
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on July 30, 2018, 07:18:11 PM
Cool, how much rent is Blink paying per square foot?
Title: Re: SRG - Seritage Growth Properties
Post by: crastogi on July 30, 2018, 08:16:13 PM
My question too..  I missed that in the release

And how much we re purposing cost?
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on July 31, 2018, 01:44:31 PM
http://ir.seritage.com/File/Index?KeyFile=394447185 (http://ir.seritage.com/File/Index?KeyFile=394447185)

OMG
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on July 31, 2018, 01:51:34 PM
Well, looks like they're able to refinance their debt.  This is amazing.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on July 31, 2018, 02:20:25 PM
Wow, amazing indeed:
Quote
On July 31, 2018, Seritage Growth Properties, L.P., a Delaware limited partnership (the “Borrower”), as borrower, and Seritage Growth Properties, a Maryland real estate investment trust (the “Company”), as guarantor, entered into a Senior Secured Term Loan Agreement (the “Loan Agreement”) providing for a $2.0 billion term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire Hathaway”) as lender and Berkshire Hathaway as administrative agent. The Term Loan Facility provides for an initial funding of $1.6 billion at closing (the “Initial Funding”) and includes a committed $400 million incremental funding facility (the “Incremental Funding Facility”).
Title: Re: SRG - Seritage Growth Properties
Post by: willie2013 on July 31, 2018, 02:32:08 PM
Strange considering SRG probably still is a personal holding of Warren Buffett.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on July 31, 2018, 04:18:31 PM
This is interesting as it certainly clears up some uncertainty around SRG. But a few questions:

- why debt and not equity? Too small for BRK to own equity?
- Buffett has to disclose this right?
- does this make it more or less likely Buffett still owns in his PA?
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on July 31, 2018, 04:48:45 PM
Sears is going under sooner than later. This covers the $1 billion in estimated funding shortfall if Sears goes under, and they got it done before the distressed scenario, at decent rates. Equity would have been dilutive, debt can be paid off over time and accrective. Essentially, this removes a big downside risk, or at least mitigates it significantly. They still have to execute and its still essential to monitor sears' health.

But dang, what a move.   
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on July 31, 2018, 05:01:10 PM
This is interesting as it certainly clears up some uncertainty around SRG. But a few questions:

- why debt and not equity? Too small for BRK to own equity?
- Buffett has to disclose this right?
- does this make it more or less likely Buffett still owns in his PA?

What do you imagine would happen if Seritage went under and Berkshire owned the equity or debt?  This way, Berkshire gets a good rate on the loan, and a small possibility it ends up as one of the largest creditors in a bankruptcy.  Buffett knows those properties are worth three times what they are carried for.  Chances are slim that anything goes wrong with Seritage, but just in case...Cheers!
Title: Re: SRG - Seritage Growth Properties
Post by: frugalchief on July 31, 2018, 06:51:33 PM
On another note, Bruce Berkowitz sold all three funds out of SRG.

http://www.fairholmefundsinc.com/Reports/Funds2018SemiAnnual.pdf

Quote
The Fund exited its position in Seritage Growth Properties as we became concerned that the cash flows from developed properties no longer covered a below-industry average dividend in a raising rate environment.
Title: Re: SRG - Seritage Growth Properties
Post by: bci23 on July 31, 2018, 09:24:24 PM
On another note, Bruce Berkowitz sold all three funds out of SRG.

http://www.fairholmefundsinc.com/Reports/Funds2018SemiAnnual.pdf

Quote
The Fund exited its position in Seritage Growth Properties as we became concerned that the cash flows from developed properties no longer covered a below-industry average dividend in a raising rate environment.

An incredibly weak reasoning for exit.
Title: Re: SRG - Seritage Growth Properties
Post by: beaufort on July 31, 2018, 09:33:03 PM
The reality is Bruce wants to get away from anything to do with EL.
Title: Re: SRG - Seritage Growth Properties
Post by: TBW on August 01, 2018, 12:31:20 AM
I am surprised no one has brought up the strange situation here with Buffett.  Isn't it a bit weird to have BRK fund SRG while he personally owns the equity?

I am all for strategies where you make your own luck, buy equity and then help provide stable funding.  But when the ownership is personal, but funding is from company...  Perhaps I am wrong, but seems like very close to the line for someone like Buffett.

Interested to hear if people disagree and why.
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 01, 2018, 01:07:34 AM
I am surprised no one has brought up the strange situation here with Buffett.  Isn't it a bit weird to have BRK fund SRG while he personally owns the equity?

I am all for strategies where you make your own luck, buy equity and then help provide stable funding.  But when the ownership is personal, but funding is from company...  Perhaps I am wrong, but seems like very close to the line for someone like Buffett.

Interested to hear if people disagree and why.

I'm not sure how this scenario would be that different than what David Sokol was doing at Berkshire before Buffett parted ways under the guise that this was unethical behavior with Lubrizol.  That being said, it's probably best to wait for any comment from Buffett regarding the investment before jumping to any conclusions.  This may be capital that the double T's (Todd and Ted) are managing and the decision is independent...again, not sure how this would be any different than the Lubrizol issue.  I'm sure Buffett will comment shortly.  Cheers!
Title: Re: SRG - Seritage Growth Properties
Post by: johnny on August 01, 2018, 01:20:27 AM
I'm not sure how this scenario would be that different than what David Sokol was doing at Berkshire before Buffett parted ways under the guise that this was unethical behavior with Lubrizol.

I think the key factor working against Sokol was that he played his conflict a bit too close to the vest a little too long for everybody's comfort.

Buffett's position in Seritage was disclosed years ago and is pretty much known by 100% of the people on this planet who know what"Seritage" and "Warren Buffett" are. Something being done in broad daylight like this, with almost maximum transparency doesn't trigger any concerns for me.

I'm sure that won't stop Sokol from stomping around about it though.
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 01, 2018, 01:46:28 AM
I'm not sure how this scenario would be that different than what David Sokol was doing at Berkshire before Buffett parted ways under the guise that this was unethical behavior with Lubrizol.

I think the key factor working against Sokol was that he played his conflict a bit too close to the vest a little too long for everybody's comfort.

Buffett's position in Seritage was disclosed years ago and is pretty much known by 100% of the people on this planet who know what"Seritage" and "Warren Buffett" are. Something being done in broad daylight like this, with almost maximum transparency doesn't trigger any concerns for me.

I'm sure that won't stop Sokol from stomping around about it though.

I run a small holding company and an investment fund...I can tell you with 100% certainty that I would not invest in debt or equity in something personally, and then finance it through the holding company or fund, unless they already held such debt or equity and were benefiting equally to me. 

Buffett's my hero, so I'm giving him the benefit of the doubt on this, but if this is the scenario of what occurred...then it is a bit close to that line.  I have not seen any EDGAR filing saying Buffett disposed of Seritage shares, nor have I seen any EDGAR filings indicating Berkshire has bought Seritage shares.  Let's see how they explain it at some point.  Cheers!
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on August 01, 2018, 04:08:18 AM
I am surprised no one has brought up the strange situation here with Buffett.  Isn't it a bit weird to have BRK fund SRG while he personally owns the equity?

I am all for strategies where you make your own luck, buy equity and then help provide stable funding.  But when the ownership is personal, but funding is from company...  Perhaps I am wrong, but seems like very close to the line for someone like Buffett.

Interested to hear if people disagree and why.

I'm not sure how this scenario would be that different than what David Sokol was doing at Berkshire before Buffett parted ways under the guise that this was unethical behavior with Lubrizol.  That being said, it's probably best to wait for any comment from Buffett regarding the investment before jumping to any conclusions.  This may be capital that the double T's (Todd and Ted) are managing and the decision is independent...again, not sure how this would be any different than the Lubrizol issue.  I'm sure Buffett will comment shortly.  Cheers!

The issue with Sokol was that he didn’t disclose his personal holding in Lubrizol when he proposed BRK to buy the company. With WEB, the position is disclosed and was purchased years ag and one could also argue that the gain from WEB personal holding in SRG is virtually immaterialfor him anyways. I am fairly sure they have considered the optics of this related party transaction and made sure, it is beneficial for BRK as well, based on the loan terms. With a 7% interest rate for a 5 year loan term, they look pretty reasonable for BRK to me.

I am also curious on the disclosure of this transaction.
Title: Re: SRG - Seritage Growth Properties
Post by: Gregmal on August 01, 2018, 06:05:30 AM
On another note, Bruce Berkowitz sold all three funds out of SRG.

http://www.fairholmefundsinc.com/Reports/Funds2018SemiAnnual.pdf

Quote
The Fund exited its position in Seritage Growth Properties as we became concerned that the cash flows from developed properties no longer covered a below-industry average dividend in a raising rate environment.

Meanwhile he continues to hold the investing equivalent of quicksand in St. Joe as 1/3 of his fund... I generally give managers more leeway than most, but Bruce IMO, has lost it and is letting issues at his fund dictate his investment decisions.
Title: Re: SRG - Seritage Growth Properties
Post by: globalfinancepartners on August 01, 2018, 06:42:53 AM
Seritage equity is way too small to be considered for investment by Berkshire.  The terms of Berkshire's loan are not particularly beneficial for SRG, it's not like a gift or something.  SRG could have borrowed from anybody, and possibly at lower rates.  It's a good deal for Berkshire capital.  The equity wan't an option for BRK, which is why Buffett probably considered it in-bounds for a personal investment years ago.  Doesn't seem that conflicted to me, since its not like he 'saved' SRG equity or something.  They have a bunch of real estate to borrow against.  Refinancing the loan was never really a question right?

I have a much bigger issue with Warren buying JPM personally and skipping it for Berkshire, when he could have purchased it in size.  But it's super easy to monday morning quarterback investment decisions after the fact.  At the time, he thought WFC was his favorite.
Title: Re: SRG - Seritage Growth Properties
Post by: HalfMeasure on August 01, 2018, 06:53:59 AM
Seritage equity is way too small to be considered for investment by Berkshire.  The terms of Berkshire's loan are not particularly beneficial for SRG, it's not like a gift or something.  SRG could have borrowed from anybody, and possibly at lower rates.  It's a good deal for Berkshire capital.  The equity wan't an option for BRK, which is why Buffett probably considered it in-bounds for a personal investment years ago.  Doesn't seem that conflicted to me, since its not like he 'saved' SRG equity or something.  They have a bunch of real estate to borrow against.  Refinancing the loan was never really a question right?

I have a much bigger issue with Warren buying JPM personally and skipping it for Berkshire, when he could have purchased it in size.  But it's super easy to monday morning quarterback investment decisions after the fact.  At the time, he thought WFC was his favorite.

I agree with your sentiment. For Berkshire, the debt makes a lot of sense since they're essentially moving $2bln yielding ~2% in treasuries to a 5 year piece of paper @ 7% that's well over-collateralized. As you mention, 7% isn't cheap and SRG might have even paid a higher rate to Berkshire for the halo effect which benefits the equity on a short-run mark-to-market basis but in terms of the terminal value doesn't change much. If BRK lent @ a below market rate that might be a different story.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on August 01, 2018, 08:01:13 AM
the issue with Sokol is that he bought his shares a month or two before the buyout. Buffett has held through ups and downs for nearly 3 years, much like Munger had with BYD before Berkshire came in as 10% owner. So BYD is the analogy, not Sokol and Lubrizol.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 01, 2018, 08:10:52 AM
Agree with you on this, Koshigoe.  Sokol recommended the investment without telling his boss about his recent purchases.  Buffett felt misled. 

As for the financing, it looks like a good rate to me.  With the 1% fee on unused funds of $400 million the blended rate is closer to 5.8% for the $2 Billion commitment.   They only get to the full 7% rate when shovels are in the ground that require the extra $400 million of funding. 

The shadow of Sears is gone from Seritage and now replaced with the halo of Berkshire.   A good day indeed. 
Title: Re: SRG - Seritage Growth Properties
Post by: globalfinancepartners on August 01, 2018, 08:18:54 AM
My impression is that it is 7% on $1.6 Billion plus 1% on the undrawn $400 million until drawn, at which point the additional $400 million is also 7% money.  So not cheaper than 7%.  More expensive than 7%.  At least they didn't have to give out a bunch of cheap warrants
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 01, 2018, 01:01:14 PM
When will all the ‘analysts’ discover SRG is creating about $15 a share in value every year?
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on August 01, 2018, 01:13:22 PM
BTShine - How are you coming up with $15 per year?
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 01, 2018, 01:34:37 PM
the issue with Sokol is that he bought his shares a month or two before the buyout. Buffett has held through ups and downs for nearly 3 years, much like Munger had with BYD before Berkshire came in as 10% owner. So BYD is the analogy, not Sokol and Lubrizol.

Buffett always had the ultimate say on the Lubrizol deal...if it was nixed, Sokol was left holding Lubrizol stock.  Sokol was not guaranteed that Lubrizol would be bought by Berkshire.

Buffett holds SRG directly in his personal account.  Whether he held those shares for 1 year or 10 years is irrelevant, as he holds the decision to fund the SRG term loan.  It's not about disclosure, it's about the stock moving likely upwards as financing risk is removed.  If the SRG stock had been held by Berkshire, then that's perfectly fine. 

It's pretty clear as the nose on your face that this deal actually holds more conflict than the Sokol/Lubrizol deal.  I expect there is something that has not been disclosed, because I think the conflict here would be very discernable to Buffett and Munger.

Someone commented on the JPM investment, but that is less relevant, because Berkshire may already have held too much in bank-related stocks with their large positions in WFC and BAC.  We know Buffett buys small amounts of many stocks, simply to receive the annual reports, and that he was a big fan of Dimon's.  JPM's stock movement was not predicated on any influence by Berkshire, so while it may have annoyed shareholders that he didn't buy any JPM for Berkshire, it also isn't really a conflict.

Cheers! 

Title: Re: SRG - Seritage Growth Properties
Post by: JRH on August 01, 2018, 01:40:43 PM
I think the facts are incomplete here. Sokol held shares already, but he bought more after taking the idea to Buffett and their subsequent discussion of why the business would be a good fit for Berkshire.
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 01, 2018, 01:55:58 PM
I think the facts are incomplete here. Sokol held shares already, but he bought more after taking the idea to Buffett and their subsequent discussion of why the business would be a good fit for Berkshire.

Buffett still made the ultimate decision to either approve or nix the deal.  Sokol could have been left with a boatload of stock. 

Yes, the probability was better that Berkshire might buy Lubrizol with Sokol pitching the idea, but would anyone say that Buffett would approve a deal without doing all of his own analysis?

If Sokol was terminated because he didn't disclose all of his holdings in Lubrizol and it breached the company's bylaws and investment policy...that's fine.  They were justified in terminating him. 

But if we are talking about beneficial interest and that interest increasing because of a financing investment by Berkshire, I think that is an obvious conflict with SRG and the term loan.  Again, I expect an explanation, because that does not seem like Buffett's normal modus operandi.  Cheers!
Title: Re: SRG - Seritage Growth Properties
Post by: Grenville on August 01, 2018, 02:16:56 PM
Not sure if this improves the optics but one thought I had.

What if Sharon Osberg came up with the idea for Berkshire to provide the loan to SRG, without any indication or encouragement from Buffett. Once Buffett was told of the idea, he asked the independent board members of BRK to approve or disapprove the loan.

Warren probably did the underwriting which probably would make it a little suspect unless he had Ted or Todd look into it. Still it's odd for Berkshire to get involved in a small $2bln loan or take up either Ted or Todd's time without much material upside from the investment. I would have guessed they would have gotten some equity through the Berkshire seal of approval.

Granted Warren is close with Sharon and she knows he owns a stake in SRG. She also wouldn't be on the board of SRG had it not been for Warren investment.

Title: Re: SRG - Seritage Growth Properties
Post by: Saluki on August 01, 2018, 02:23:33 PM
I think the facts are incomplete here. Sokol held shares already, but he bought more after taking the idea to Buffett and their subsequent discussion of why the business would be a good fit for Berkshire.

But if we are talking about beneficial interest and that interest increasing because of a financing investment by Berkshire, I think that is an obvious conflict with SRG and the term loan.  Again, I expect an explanation, because that does not seem like Buffett's normal modus operandi.  Cheers!

BRK has $100+ Billion in cash and cash equivalents earning very little. They now took $2 billion and lent it, secured by real estate.  SRG, when Buffett bought the stock was about a $2 billion enterprise value company.  If BRK bought a 5% stake in the common it would be $100 million, so 1/10th of 1% of BRK's available cash.  BRK couldn't buy the common because it's too small to move the needle. Buffett could do it in his personal account, just like he could buy the Korean stocks selling at a 3x PE because they were also something that wasn't right for BRK based on size. Lending SRG money, secured by a lot of real estate is a different story.  This is similar to the $2 billion that they lent Home Capital.  I see no conflict here at all.

Besides, if he owns a third of BRK, then ~$630 million of the share of the money was "his", so are you we to believe that he risked $600+ million of his own money so he wouldn't lose money on the original $72 million investment?
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 01, 2018, 02:50:16 PM
I think the facts are incomplete here. Sokol held shares already, but he bought more after taking the idea to Buffett and their subsequent discussion of why the business would be a good fit for Berkshire.

But if we are talking about beneficial interest and that interest increasing because of a financing investment by Berkshire, I think that is an obvious conflict with SRG and the term loan.  Again, I expect an explanation, because that does not seem like Buffett's normal modus operandi.  Cheers!


Besides, if he owns a third of BRK, then ~$630 million of the share of the money was "his", so are you we to believe that he risked $600+ million of his own money so he wouldn't lose money on the original $72 million investment?

Even if you reverse that statement...that he put $72M from Berkshire into the loan and held $600M in SRG shares...is that a conflict?  So why would it not be if the numbers are reversed? 

The fact that Buffett doesn't own 100% of Berkshire...that he's the CEO, a fiduciary to the shareholders...means that there has to be a firewall in how he operates his personal accounts that he owns 100% of and how he operates a corporation that he owns 30% of.

I can't own stock in my friend's public or private company in my personal account, and then give him a loan through the company I'm running which would solidify the value of that underlying stock.  That's just common sense.  Yes, I could do that if the company I was running held the stock...but not personally.  And I would still be doing exactly the same as Buffett...risking more capital I own indirectly for a small equity position that I hold personally...that conflict hasn't disappeared, has it?

I am not a paragon of virtue, nor would I throw shade at Buffett...but we do run into the occasional hypocritical behavior or action by Buffett...which we should recognize as well as his genius and humanity.  Again, I await an explanation that makes more sense to me from Berkshire...at the moment, it doesn't pass the old smell test.   

Cheers!   
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 01, 2018, 02:54:40 PM
I think the facts are incomplete here. Sokol held shares already, but he bought more after taking the idea to Buffett and their subsequent discussion of why the business would be a good fit for Berkshire.

But if we are talking about beneficial interest and that interest increasing because of a financing investment by Berkshire, I think that is an obvious conflict with SRG and the term loan.  Again, I expect an explanation, because that does not seem like Buffett's normal modus operandi.  Cheers!


Besides, if he owns a third of BRK, then ~$630 million of the share of the money was "his", so are you we to believe that he risked $600+ million of his own money so he wouldn't lose money on the original $72 million investment?

Even if you reverse that statement...that he put $72M from Berkshire into the loan and held $600M in SRG shares...is that a conflict?  So why would it not be if the numbers are reversed? 

The fact that Buffett doesn't own 100% of Berkshire...that he's the CEO, a fiduciary to the shareholders...means that there has to be a firewall in how he operates his personal accounts that he owns 100% of and how he operates a corporation that he owns 30% of.

I can't own stock in my friend's public or private company in my personal account, and then give him a loan through the company I'm running which would solidify the value of that underlying stock.  That's just common sense.  Yes, I could do that if the company I was running held the stock...but not personally.  And I would still be doing exactly the same as Buffett...risking more capital I own indirectly for a small equity position that I hold personally...that conflict hasn't disappeared, has it?

I am not a paragon of virtue, nor would I throw shade at Buffett...but we do run into the occasional hypocritical behavior or action by Buffett...which we should recognize as well as his genius and humanity.  Again, I await an explanation that makes more sense to me from Berkshire...at the moment, it doesn't pass the old smell test.   

Cheers!

What I would like to see is that he either disposed of the SRG stock before the transaction or sold it to Berkshire or SRG at his original cost.  Either of those would live up to the ethical standards he's set.  Cheers!
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 01, 2018, 03:13:40 PM
Shane - every $500m capex creates RE that will produce around $75m per year.   At a cap rate of 6% this property is worth $1,250. 

Subtract the original $500m they used and now you’ve $750 million in value creation.  About $15 per share.
Title: Re: SRG - Seritage Growth Properties
Post by: sleepydragon on August 01, 2018, 03:49:17 PM
I don’t think there is any conflicts of interests. There is only a problem if Buffett is doing a trade in the opposite direction: I.e. he is selling while brk is buying, or buying when brk is selling, or he sell shortly after brk bought. Plus, He is getting a bond with a very nice 7% return so he is Not giving out favors to benefit SRG at the cost of Brk (and no incentive to do so cuz he still have more brk stocks than srg). Plus, he bought his stock long time ago, and only now Brk is offered a bond by SRG. He didn’t bought the stock knowing that brk will be offered the bond, nor did he proactively seek to help out SRG to have brk lend them money (I assume). The interest rate brk got is also very high.
Title: Re: SRG - Seritage Growth Properties
Post by: sleepydragon on August 01, 2018, 03:52:26 PM
I think the facts are incomplete here. Sokol held shares already, but he bought more after taking the idea to Buffett and their subsequent discussion of why the business would be a good fit for Berkshire.
In effect, Sokol bought knowing he will be selling to brk at higher price after Web make the offer. He is doing a trade in the opposite direction, at the cost of brk. In this case, who got hurt ? Nobody.
Title: Re: SRG - Seritage Growth Properties
Post by: Saluki on August 01, 2018, 04:44:08 PM
I would note that the Seritage cumulative preferred shares trade at almost par and pay a 7.5% dividend.  Since it's a cumulative dividend, it's very similar to debt, but unsecured. Berkshire receiving debt, secured by real estate, that pays 7% and is higher up in priority in a bankruptcy to the common and preferred, seems like a fair price to pay.  I don't think BRK gave SRG a sweetheart deal because Buffett owns some of the common shares. If so, what would be a "fair" rate to pay?  If you believe BRK should never do business with a company where the CEO has invested, no matter how fair the terms are, that's a different argument and while I may not like the optics, I don't think there is something legally or morally wrong with it. I'm sure other people agree with you though, and I look forward to hearing the answer at the next Berkshire annual meeting. In the meantime, as a SRG holder I just wait like this  ;D
Title: Re: SRG - Seritage Growth Properties
Post by: cubsfan on August 01, 2018, 04:50:36 PM
Yea, as a SRG shareholder - you got to love it.  7% rate seems a pretty stiff rate, SRG pays up, but the seal of approval is extremely valuable.
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on August 01, 2018, 05:01:52 PM
Current mortage and unsecured loans were 6.5% and due in 19 with 2 1 year options. New term isn't due till 23 and provides for sufficient funding to redevelop a ton of projects.
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 01, 2018, 08:36:41 PM
I think the facts are incomplete here. Sokol held shares already, but he bought more after taking the idea to Buffett and their subsequent discussion of why the business would be a good fit for Berkshire.
In effect, Sokol bought knowing he will be selling to brk at higher price after Web make the offer. He is doing a trade in the opposite direction, at the cost of brk. In this case, who got hurt ? Nobody.

Conflicts of interest do not occur solely if a party is hurt.  The definition is "a situation in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity."

If that is the definition most people use, then both Sokol and Buffett had a conflict in their positions...Sokol would benefit if Berkshire bought Lubrizol at a higher price...Buffett benefited as SRG's stock price increased 15% based on the news that SRG refinanced their loan through Berkshire subsidiaries.

How the hell does no one see this?  Cheers!
Title: Re: SRG - Seritage Growth Properties
Post by: Lakesider on August 01, 2018, 08:57:26 PM
Usually you can get around conflicts by providing full disclosure, details of which have been disclosed.

Would Warren lend SRG money at 7% if he didn't have own equity? Probably, berkshire are in the insurance biz after all. WB bought the equity because he sees the value there, he bought the debt because he sees value there. The whole thesis is undervalued real estate, given that the liquidity issues are now sorted SRG is good for the credit.

Title: Re: SRG - Seritage Growth Properties
Post by: rb on August 01, 2018, 09:52:11 PM
Sanjeev, I will have to respectfully disagree with you.

A lot has been said on this so I won't quote all of it to avoid clogging pages. But what Sokol did was essentially front running, and front running is bad. However his offense was not towards Berkshire shareholders. Sokol's offense was towards the Lubrizol shareholders whom he deprived of Berkshire's bid by buying their shares. The offense towards Berkshire shareholders was that he damaged the squeaky clean brand by engaging in front running that wasn't technically front running because of technicalities.

So obviously the SRG situation is different that the Lubrizol situation. I think the situation you've described in a previous post where you would use your investors money in the fund to help an investment you hold a personal stake in is a great example that applies to this situation. That is more of a typical agency problem. The thing is that when this sort of atrocity typically happens the agent has little financial stake but great control over an organization. Then uses said oprgaziation's resources to bail out a situation in which he has great net worth in.

In the case of Buffett and Berkshire, the situation is again different. Buffet's wealthis mainly in Berkshire. The SRG investment is a minuscule fraction of is worth. Completely different from the typical agency problem. Furthermore as others pointed out, SRG didn't get a sweetheart deal from BRK.

Let me put this another way. Let's assume that that JPM somehow goes into the ditch. Should Buffett and Berkshire pass on a BofA type deal with JPM just because Buffett owns the common in his PAs?
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 02, 2018, 12:09:18 AM
A lot has been said on this so I won't quote all of it to avoid clogging pages. But what Sokol did was essentially front running, and front running is bad. However his offense was not towards Berkshire shareholders. Sokol's offense was towards the Lubrizol shareholders whom he deprived of Berkshire's bid by buying their shares.

If this is an offense to Lubrizol shareholders, then every activist manager out there who finds a buyer for a company they've invested in is doing the same thing.  Sokol was thoroughly investigated by the SEC and nothing happened.

In the case of Buffett and Berkshire, the situation is again different. Buffet's wealthis mainly in Berkshire. The SRG investment is a minuscule fraction of is worth.

Martha Stewart would agree with you, but the Justice Department thought differently.

Let me put this another way. Let's assume that that JPM somehow goes into the ditch. Should Buffett and Berkshire pass on a BofA type deal with JPM just because Buffett owns the common in his PAs?

Yes, until he's disposed of any shares of JPM he owns personally. 

Doesn't matter if it's $1 or $1B...conflict is conflict...it's not based on a dollar amount.  If you were golfing and bet someone big or small...the amount is a moot point if you aren't keeping score properly.  Cheers!



Title: Re: SRG - Seritage Growth Properties
Post by: rolling on August 02, 2018, 03:43:53 AM
A lot has been said on this so I won't quote all of it to avoid clogging pages. But what Sokol did was essentially front running, and front running is bad. However his offense was not towards Berkshire shareholders. Sokol's offense was towards the Lubrizol shareholders whom he deprived of Berkshire's bid by buying their shares.

If this is an offense to Lubrizol shareholders, then every activist manager out there who finds a buyer for a company they've invested in is doing the same thing.  Sokol was thoroughly investigated by the SEC and nothing happened.

In the case of Buffett and Berkshire, the situation is again different. Buffet's wealthis mainly in Berkshire. The SRG investment is a minuscule fraction of is worth.

Martha Stewart would agree with you, but the Justice Department thought differently.

Let me put this another way. Let's assume that that JPM somehow goes into the ditch. Should Buffett and Berkshire pass on a BofA type deal with JPM just because Buffett owns the common in his PAs?

Yes, until he's disposed of any shares of JPM he owns personally. 

Doesn't matter if it's $1 or $1B...conflict is conflict...it's not based on a dollar amount.  If you were golfing and bet someone big or small...the amount is a moot point if you aren't keeping score properly.  Cheers!
We shouldn't be fundamentalists. Yes, there is a conflict of interest. Yes, it must be looked into with care. And, Yes, the first thing I thought was: "Doesn't he own the common?".

But the real questions are:
1- Is this a good deal for Berkshire? (it seems)
2- Did someone get hurt because of this (no, it wasn't the case with Lubrizol, where Sokol bought someone out after knowing it was likely to be taken out quickly... and yes, it is a big deal, I once sold a very big position on a huge 2 day rise, just to realize that the results that went out at the end of this rise meant I made a very bad deal, and those deals happened because somebody knew the results in advance... what Sokol did might not be technically abuse of priviledged information but it certainly feels like such; not the case with this Buffett deal)
3- Does this reinforce the idea that buffett acts in the best interest of shareholders? (yes)
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on August 02, 2018, 04:22:56 AM
I agree with rolling here that if you do define conflict of interest too narrow, the rule would become too restrictive.

The deal was fair by any measure and WEB  SRG holding were fairly long term and well disclosed. Martha Stuart was convicted of insider trading and lying in court. Sokol has recently purchased Lubrizol stock, then peddled it to WEB without disclosing his interest. Very different cases here. While I think one needs to tread very carefully in these situations, I think this deal would have passed (and probably did pass) any internal review.
Title: Re: SRG - Seritage Growth Properties
Post by: globalfinancepartners on August 02, 2018, 06:10:30 AM
Again, I don't see an issue with the conflict or lack thereof.  How far do you take it - JPM is often a joint underwriter of Berkshire and Berkshire subsidiary debt.  Warren is directing some of that business to JPM, instead of exclusively using a consortium of banks like BAC, WFC, GS that Berkshire has an equity interest in.  Is he directing Berkshire business to JPM to help his personal holding in JPM at the expense of Berkshire Hathaway shareholders' interest to have more business at BAC WFC and GS?  It gets goofy quickly.  The SRG equity was uninvestable by Berkshire.  The SRG loan was investable by Berkshire.  Pretty clean conflict resolution.

The Sokol situation was a little more nuanced than most of the posts suggest.  There was a very detailed board of directors report on the matter.  Sokol didn't own Lubrizol until Citi investment bankers included it in a list of acquisition targets he was looking at for Berkshire, in his capacity as a Berkshire manager.  Then he pitched the company to Buffett who dismissed it - not interested.  David Sokol then bought some Lubrizol stock.  At that point the inside information he had was, "David Sokol likes Lubrizol, Warren Buffett not interested in buying Lubrizol."  After that he got filled on some more GTC buy orders for additional shares.  At some point, Warren met with Lubrizol management and changed his mind - liked the company and became interested in bidding for it after all. 

The sin with Sokol was a violation of Berkshire's trust because he didn't tell Warren all of the details.  He told Warren he owned the stock, but not when he purchased it or how he came to be aware of / interested in it (recently and through a Citi investment banker with Berkshire as the client).  It wasn't a criminal offense and was never prosecuted for the simple reason that the only insider information Sokol had at the time of his purchases was, "Warren Buffett is NOT interested in buying Lubrizol."
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on August 02, 2018, 08:31:38 AM
IMO there was a greater potential for conflict back when Blue Chip Stamps wasn't wholly owned.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on August 02, 2018, 09:39:12 AM
The idea that WEB's $70MM SRG position even figured into the decision to invest $2B of debt into SRG is kind of laughable.

I mean, sure there is a teeny tiny conflict, but let's be realistic here.
Title: Re: SRG - Seritage Growth Properties
Post by: sleepydragon on August 02, 2018, 09:46:48 AM
Btw, why everybody assume this bond investment is by Buffett? It’s only 2b. Could very likely by TT
Title: Re: SRG - Seritage Growth Properties
Post by: vince on August 02, 2018, 11:22:07 AM
Any recent good valuation write-ups on this one that someone would like to share? Even a brief conservative back of envelope one that anyone would like to share?
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 02, 2018, 12:04:25 PM
Any recent good valuation write-ups on this one that someone would like to share? Even a brief conservative back of envelope one that anyone would like to share?

Yes.  How does one value this company?  That’s what I’d like to discuss.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on August 02, 2018, 02:04:51 PM
http://ir.seritage.com/file/Index?KeyFile=394491185
Title: Re: SRG - Seritage Growth Properties
Post by: Mephistopheles on August 02, 2018, 03:49:09 PM
Guys we are thinking way too much into this. Was Buffett's personal investment into SRG a conflict because he deprived BRK shareholders of this opportunity? What about the venture into Korean stocks? Shouldn't BRK shareholders get first dibs? If you think no because it is "immaterial", then fine. But then also you should agree that Buffett's stake in SRG is "immaterial" to his net worth and thus this isn't a conflict either.

If we are going to be strict fundamentalists, then you should be bothered by the Korean stocks and any other personal Buffett investment.

Buffett owns WFC, Charlie owns COST, conflicts? It's all in the same boat. Let's give the old man a pass shall we.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on August 02, 2018, 05:15:02 PM
Guys we are thinking way too much into this.

Agreed, Mephistopheles.

Back to the numbers, the 2Q18 8-K has some encouraging figures. Including SNO, we now have $127.4 million in 3P annual rent.
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 03, 2018, 12:29:46 AM
Guys we are thinking way too much into this. Was Buffett's personal investment into SRG a conflict because he deprived BRK shareholders of this opportunity? What about the venture into Korean stocks? Shouldn't BRK shareholders get first dibs? If you think no because it is "immaterial", then fine. But then also you should agree that Buffett's stake in SRG is "immaterial" to his net worth and thus this isn't a conflict either.

If we are going to be strict fundamentalists, then you should be bothered by the Korean stocks and any other personal Buffett investment.

Buffett owns WFC, Charlie owns COST, conflicts? It's all in the same boat. Let's give the old man a pass shall we.

It's not about Berkshire shareholders being deprived...that would be the other side of a potential conflict, but not in this case.  The conflict in this case is that the value of SRG stock in Buffett's personal portfolio went up in value because of a loan Berkshire made to SRG...essentially front-running similar to Sokol's investment in Lubrizol.  In this case, Buffett had the ultimate decision, whereas in the Lubrizol case, Sokol's gain was predicated on Buffett approving a Lubrizol deal.

The transgression, as minor as it seems, is best exemplified say if Buffett bought a handful of securities in his personal account, and then acquired those companies at a higher price through Berkshire...or even influenced their prices in some other way, such as a financing deal.  Trivial in the grand scheme of things and probably common place, but unusual for Buffett.  Cheers!

Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on August 03, 2018, 03:58:59 AM
^ I agree with Parsads logic here. It is common practice that pot. conflicts of interests are disclosed if you work for a company and that if such a conflict arises, somebody else or a committed would have to make decision on a transaction. I recall some cases, where a company takes over a company, where the CEO has a personal stake in and the board or a omitted needed to decide.

The deal looks proper to me, the disclosure was fair and the price of the transaction does not indicate any favorites, but it would be interesting how BRK internally deals with these conflicts of interests. It would be good to get some disclosure in thr SEC filings on that matter. This is particularly important because WEB will pass on the batton in a few years.
Title: Re: SRG - Seritage Growth Properties
Post by: longinvestor on August 03, 2018, 06:07:32 AM
Buffett was asked about conflicts just like this one at the annual meeting. His answer was that he’s actively taking his personal wealth to zero but not that of the Berkshire shareholder. There’s no personal gain typical of such conflicts and Buffett has singularly wrapped up his ego with the success of his painting.
Title: Re: SRG - Seritage Growth Properties
Post by: Gregmal on August 03, 2018, 06:13:09 AM
I think it's crazy the extent to which people are blowing this up. If I owned a network of businesses I would certainly use them to help each other and myself. This is more common sense than controversial.

He is from what I know, one of the largest owners of SRG as well. If he plundered one company to benefit the other, sure, but this is a total non event.
Title: Re: SRG - Seritage Growth Properties
Post by: Parsad on August 03, 2018, 07:31:14 AM
I think it's crazy the extent to which people are blowing this up. If I owned a network of businesses I would certainly use them to help each other and myself. This is more common sense than controversial.

He is from what I know, one of the largest owners of SRG as well. If he plundered one company to benefit the other, sure, but this is a total non event.

Greg think of it from a different perspective.  What if Buffett did not own SRG in his portfolio but his son or daughter did?  And Berkshire does the financing for SRG which boosts SRG's stock price...there has been a beneficial increase due to his action...and an obvious conflict there. 

Naturally, we know Buffett would never do that, but that has what has occurred.  Now there is probably a simple answer my small mind can't think of regarding what happened that Buffett already thought through...I'm just waiting for that explanation, because this is unusual for him.  Cheers!
Title: Re: SRG - Seritage Growth Properties
Post by: Rasputin on August 03, 2018, 08:25:57 AM
For me, the issue with Sokol-Lubrizol was the timing of his Lubrizol share purchases.  IIRC, Sokol bought those shares just weeks prior to bringing the deal to Buffett. 

To me, it's different situation vs Buffett-SRG/Munger-BYD/Weschler-DVA/Lou Simpson - Cort furniture.

Those people have had investments in those companies for years prior to Berkshire's involvement. 

IIRC Buffett said when Sokol told him that he had purchased Lubrizol shares, Buffett thought Sokol meant he has owned the shares personally for a while, Buffett didn't ask him when Sokol bought the shares. 
Title: Re: SRG - Seritage Growth Properties
Post by: Gregmal on August 03, 2018, 08:31:40 AM
For me, the issue with Sokol-Lubrizol was the timing of his Lubrizol share purchases.  IIRC, Sokol bought those shares just weeks prior to bringing the deal to Buffett. 

To me, it's different situation vs Buffett-SRG/Munger-BYD/Weschler-DVA/Lou Simpson - Cort furniture.

Those people have had investments in those companies for years prior to Berkshire's involvement. 

IIRC Buffett said when Sokol told him that he had purchased Lubrizol shares, Buffett thought Sokol meant he has owned the shares personally for a while, Buffett didn't ask him when Sokol bought the shares.

Buffett is a hypocrite. Is the aforementioned any different than a guy buying stock and then pitching it at a conference? Sokol had no control over whether Buffett bought the company or not. I don't think he did anything wrong at all. Warren just likes to polish his image every so often.

You know how many people probably pitch WB deals on a regular basis? The notion that Sokol buying shares because he knew it would be bought are crazy. If anything he's taking the same gamble many investors do on a regular basis. Irresponsible, but nothing wrong with it.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on August 03, 2018, 05:51:45 PM
Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.
Title: Re: SRG - Seritage Growth Properties
Post by: Gregmal on August 03, 2018, 06:05:55 PM
Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

I'd actually concur. I had a small position I bought just to keep an eye on this, mainly because its such a hard on for many value investors and IMO if there's any truth to Berkowitz's ridiculous values given to SHLD, it's likely buried in SRG now. I'd been relatively disappointed with it and exited the position yesterday.
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on August 03, 2018, 06:12:11 PM
For me, the issue with Sokol-Lubrizol was the timing of his Lubrizol share purchases.  IIRC, Sokol bought those shares just weeks prior to bringing the deal to Buffett. 

To me, it's different situation vs Buffett-SRG/Munger-BYD/Weschler-DVA/Lou Simpson - Cort furniture.

Those people have had investments in those companies for years prior to Berkshire's involvement. 

IIRC Buffett said when Sokol told him that he had purchased Lubrizol shares, Buffett thought Sokol meant he has owned the shares personally for a while, Buffett didn't ask him when Sokol bought the shares.

Buffett is a hypocrite. Is the aforementioned any different than a guy buying stock and then pitching it at a conference? Sokol had no control over whether Buffett bought the company or not. I don't think he did anything wrong at all. Warren just likes to polish his image every so often.

You know how many people probably pitch WB deals on a regular basis? The notion that Sokol buying shares because he knew it would be bought are crazy. If anything he's taking the same gamble many investors do on a regular basis. Irresponsible, but nothing wrong with it.

Really? Buffett, a multi-billionaire, owns $85 million of Seritage common stock, disclosed his investment in 2015. What conflict is there exactly? Through his personal investment, he gained an understanding of the investment. When an opportunity to invest a large sum of money came along, he invested $2 billion earning 7% rates, which by the way, is a fraction of his cash pile at Berkshire. He mentioned he would have owned the equity for Berkshire if he could have a bigger stake, but that's not doable. So all these comparisons about Buffett having a personal stake being boosted because of this debt investment is non-sense. Further, the 7% he earns for Berkshire is greater than the investment value of his own personal stake.

Ya'll need to take a chill pill.
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on August 03, 2018, 06:14:14 PM
Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

Please explain how extending the loan 4 years at 0.5% increase in rates, removing the requirement to repay mortgage loans with asset sale proceeds, and closing the liquidity gap needed to fund redevelopments, is not real news. Thank you.
Title: Re: SRG - Seritage Growth Properties
Post by: Gregmal on August 03, 2018, 06:18:19 PM
For me, the issue with Sokol-Lubrizol was the timing of his Lubrizol share purchases.  IIRC, Sokol bought those shares just weeks prior to bringing the deal to Buffett. 

To me, it's different situation vs Buffett-SRG/Munger-BYD/Weschler-DVA/Lou Simpson - Cort furniture.

Those people have had investments in those companies for years prior to Berkshire's involvement. 

IIRC Buffett said when Sokol told him that he had purchased Lubrizol shares, Buffett thought Sokol meant he has owned the shares personally for a while, Buffett didn't ask him when Sokol bought the shares.

Buffett is a hypocrite. Is the aforementioned any different than a guy buying stock and then pitching it at a conference? Sokol had no control over whether Buffett bought the company or not. I don't think he did anything wrong at all. Warren just likes to polish his image every so often.

You know how many people probably pitch WB deals on a regular basis? The notion that Sokol buying shares because he knew it would be bought are crazy. If anything he's taking the same gamble many investors do on a regular basis. Irresponsible, but nothing wrong with it.

Really? Buffett, a multi-billionaire, owns $85 million of Seritage common stock, disclosed his investment in 2015. What conflict is there exactly? Through his personal investment, he gained an understanding of the investment. When an opportunity to invest a large sum of money came along, he invested $2 billion earning 7% rates, which by the way, is a fraction of his cash pile at Berkshire. He mentioned he would have owned the equity for Berkshire if he could have a bigger stake, but that's not doable. So all these comparisons about Buffett having a personal stake being boosted because of this debt investment is non-sense. Further, the 7% he earns for Berkshire is greater than the investment value of his own personal stake.

Ya'll need to take a chill pill.

I think you misunderstood or misinterpreted my post. Buffett is a hypocrite. He's demonstrated that a bunch of times over the past decade. But I think I clearly stated this issue about conflict of interest is a joke and I can't understand why it's even being discussed. Any rational owner of many businesses would try to use their network to create synergies. Nothing wrong with that.
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on August 03, 2018, 06:22:53 PM
Ah, understand.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on August 03, 2018, 06:33:10 PM
Here's a look at the 2Q18 at share GLA:
58.5% Sears (.719*.813)
12.0% in-place 3P (.147*.813)
10.9% SNO 3P (.134*.813)

18.7% not leased

Regarding the 18.7% of at share GLA that isn't leased, how much of that is under development?
Title: Re: SRG - Seritage Growth Properties
Post by: Spekulatius on August 04, 2018, 05:10:38 AM
Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

Yes, I believe this too. I don’t own SRG, but if I did, it would be gone.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on August 05, 2018, 07:08:20 PM
Found the answer to my question from the other day. Looking at pages 19 and 20 of the 2Q18 supplemental, much of the 18.7% of GLA that is not leased is not under development. Here are the properties with termination dates before August 2018 that are not currently being developed:

Square Feet   Property
   118,200   Alpena, MI
   118,800   Chicago, IL (S Kedzie)
     96,600   Deming, NM
     87,800   Manistee, MI
     94,800   Riverton, WY
     92,700   Sault Sainte Marie, MI
   187,179   Chapel Hill, OH
   137,499   Concord, NC
     79,102   Detroit Lakes, MN
     94,885   Elkins, WV
     96,066   Kenton, OH
   112,505   Kissimmee, FL
     90,010   Layton, UT
     76,853   Leavenworth, KS
     87,500   Muskogee, OK
     68,334   Owensboro, KY
     94,841   Platteville, WI
     94,500   Riverside, CA (Iowa Ave.)
     72,511   Sioux Falls, SD
   161,700   Burnsville, MN
   293,700   Chicago, IL (N Harlem)
   155,100   Johnson City, NY
   194,900   Lafayette, LA
   208,700   Mentor, OH
   351,600   Middleburg Heights, OH
   215,000   Overland Park, KS
   204,500   Sarasota, FL
   209,900   Toledo, OH
     82,000   York, PA
   166,000   Friendswood, TX
   215,000   Westwood, TX
-----------
4,358,785   

4,358,785/36,390,000 is 12%.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on August 06, 2018, 10:04:35 AM
Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

Please explain how extending the loan 4 years at 0.5% increase in rates, removing the requirement to repay mortgage loans with asset sale proceeds, and closing the liquidity gap needed to fund redevelopments, is not real news. Thank you.

Good points.  It's news, I just never thought that liquidity / ability to obtain financing was the biggest issue with SRG.
I have thought the more impactful news flow items would be around 1) pace of redevelopment 2) economic of redevelopment.

Mostly I just wanted people to stop posting about conflicts of interest
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 06, 2018, 10:49:05 AM
Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

Please explain how extending the loan 4 years at 0.5% increase in rates, removing the requirement to repay mortgage loans with asset sale proceeds, and closing the liquidity gap needed to fund redevelopments, is not real news. Thank you.

Good points.  It's news, I just never thought that liquidity / ability to obtain financing was the biggest issue with SRG.
I have thought the more impactful news flow items would be around 1) pace of redevelopment 2) economic of redevelopment.

Mostly I just wanted people to stop posting about conflicts of interest

I think those two factors you listed were major items, but since there wasn’t good clarity going forward for their financing (where from, what terms/rate/duration) their capital needs and source was the last question mark. Up to this point financings were either from Eddie Lampert at ugly terms for SRG (not ideal) or a small inadequate preferred stock offering that’s trading at a high(ish) yield.  $2B is a huge number and the rate is fine.  It moves SRG in the right direction compared to the preferred and ESL financings.  Also, Buffett is very much an unbiased 3rd party investor in this situation (I know the COI debating people here will disagree. Thaft’s fine).  And his stamp of approval not only removes the financing fears it actually transitions SRG investors into greater confidence since Warren Buffett (or his co-workers) believe in SRG.  Mr. Buffett and his crew have been wrong in the past, but rarely.  Most often they are shrewd and successful.
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on August 06, 2018, 05:58:19 PM
Found the answer to my question from the other day. Looking at pages 19 and 20 of the 2Q18 supplemental, much of the 18.7% of GLA that is not leased is not under development. Here are the properties with termination dates before August 2018 that are not currently being developed:

Square Feet   Property
   118,200   Alpena, MI
   118,800   Chicago, IL (S Kedzie)
     96,600   Deming, NM
     87,800   Manistee, MI
     94,800   Riverton, WY
     92,700   Sault Sainte Marie, MI
   187,179   Chapel Hill, OH
   137,499   Concord, NC
     79,102   Detroit Lakes, MN
     94,885   Elkins, WV
     96,066   Kenton, OH
   112,505   Kissimmee, FL
     90,010   Layton, UT
     76,853   Leavenworth, KS
     87,500   Muskogee, OK
     68,334   Owensboro, KY
     94,841   Platteville, WI
     94,500   Riverside, CA (Iowa Ave.)
     72,511   Sioux Falls, SD
   161,700   Burnsville, MN
   293,700   Chicago, IL (N Harlem)
   155,100   Johnson City, NY
   194,900   Lafayette, LA
   208,700   Mentor, OH
   351,600   Middleburg Heights, OH
   215,000   Overland Park, KS
   204,500   Sarasota, FL
   209,900   Toledo, OH
     82,000   York, PA
   166,000   Friendswood, TX
   215,000   Westwood, TX
-----------
4,358,785   

4,358,785/36,390,000 is 12%.

Interestingly in addition to "terminated" properties where there is no redevelopment, there are also a growing number of "recaptured" properties where there is no announced redevelopment (and ostensibly no leases either).  Cross reference the recapture list (in the 10-Q) with the project list.  I count this at about 2.2MM GLA.  It includes some of the best properties (Valley View, Hicksville, Boca Raton, Redmond).

This whole situation is rather surprising.  Why "recapture" and kick out a paying tenant if you're not ready to redevelop?  I suspect the answer is that they're actually doing pre-re-development work and they're just not on the list... but they could be ready to go on the redevelopment list at any moment (or rather whenever they do those end of quarter pre-releases).
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on August 06, 2018, 07:06:22 PM
Interestingly in addition to "terminated" properties where there is no redevelopment, there are also a growing number of "recaptured" properties where there is no announced redevelopment (and ostensibly no leases either).  Cross reference the recapture list (in the 10-Q) with the project list.  I count this at about 2.2MM GLA.  It includes some of the best properties (Valley View, Hicksville, Boca Raton, Redmond).

This whole situation is rather surprising.  Why "recapture" and kick out a paying tenant if you're not ready to redevelop?  I suspect the answer is that they're actually doing pre-re-development work and they're just not on the list... but they could be ready to go on the redevelopment list at any moment (or rather whenever they do those end of quarter pre-releases).

I think you're right, GCA. I'm guessing that the planning process can be extensive and that it is much easier to plan redevelopment once Sears is out of the property.
Title: Re: SRG - Seritage Growth Properties
Post by: bci23 on August 06, 2018, 08:30:42 PM
Found the answer to my question from the other day. Looking at pages 19 and 20 of the 2Q18 supplemental, much of the 18.7% of GLA that is not leased is not under development. Here are the properties with termination dates before August 2018 that are not currently being developed:

Square Feet   Property
   118,200   Alpena, MI
   118,800   Chicago, IL (S Kedzie)
     96,600   Deming, NM
     87,800   Manistee, MI
     94,800   Riverton, WY
     92,700   Sault Sainte Marie, MI
   187,179   Chapel Hill, OH
   137,499   Concord, NC
     79,102   Detroit Lakes, MN
     94,885   Elkins, WV
     96,066   Kenton, OH
   112,505   Kissimmee, FL
     90,010   Layton, UT
     76,853   Leavenworth, KS
     87,500   Muskogee, OK
     68,334   Owensboro, KY
     94,841   Platteville, WI
     94,500   Riverside, CA (Iowa Ave.)
     72,511   Sioux Falls, SD
   161,700   Burnsville, MN
   293,700   Chicago, IL (N Harlem)
   155,100   Johnson City, NY
   194,900   Lafayette, LA
   208,700   Mentor, OH
   351,600   Middleburg Heights, OH
   215,000   Overland Park, KS
   204,500   Sarasota, FL
   209,900   Toledo, OH
     82,000   York, PA
   166,000   Friendswood, TX
   215,000   Westwood, TX
-----------
4,358,785   

4,358,785/36,390,000 is 12%.

Interestingly in addition to "terminated" properties where there is no redevelopment, there are also a growing number of "recaptured" properties where there is no announced redevelopment (and ostensibly no leases either).  Cross reference the recapture list (in the 10-Q) with the project list.  I count this at about 2.2MM GLA.  It includes some of the best properties (Valley View, Hicksville, Boca Raton, Redmond).

This whole situation is rather surprising.  Why "recapture" and kick out a paying tenant if you're not ready to redevelop?  I suspect the answer is that they're actually doing pre-re-development work and they're just not on the list... but they could be ready to go on the redevelopment list at any moment (or rather whenever they do those end of quarter pre-releases).

Those 4 you call out are almost certainly going to be very large projects with a "premiere" designation similar to Aventura FL and Dallas Midtown. Obviously those require more time to commence/plan.
Title: Re: SRG - Seritage Growth Properties
Post by: pcm983 on August 08, 2018, 08:19:52 PM
https://seekingalpha.com/article/4196019-seritage-compelling-opportunity-invest-alongside-warren-buffett-amidst-busted-short-thesis
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 08, 2018, 08:50:20 PM
Is there anything in that article that hasn’t been discussed on here?   There’s a paywall. 
Title: Re: SRG - Seritage Growth Properties
Post by: pcm983 on August 09, 2018, 08:58:55 AM
Sorry about that. I believe there is a paywall for a week then it should be accessible. Not necessarily. Crux of thesis is this worth 80 if you take SPG as a comp and add in the 160 psf development cost. Also explains why srg short thesis has been completely disproven. It is pretty crazy how this stock is still so heavily shorted despite the short thesis being wrong for 3 yrs. SHLD has yet to file and the liquidity concerns have been completely ameliorated.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on August 10, 2018, 11:19:21 AM
Sorry about that. I believe there is a paywall for a week then it should be accessible. Not necessarily. Crux of thesis is this worth 80 if you take SPG as a comp and add in the 160 psf development cost. Also explains why srg short thesis has been completely disproven. It is pretty crazy how this stock is still so heavily shorted despite the short thesis being wrong for 3 yrs. SHLD has yet to file and the liquidity concerns have been completely ameliorated.

Not a problem!  I look forward to reading it when the paywall is removed. 

What cap rate are you using?  And how long do you assume the redevelopment of SRG's land portfolio will take?
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on August 10, 2018, 02:50:06 PM
Sorry about that. I believe there is a paywall for a week then it should be accessible. Not necessarily. Crux of thesis is this worth 80 if you take SPG as a comp and add in the 160 psf development cost. Also explains why srg short thesis has been completely disproven. It is pretty crazy how this stock is still so heavily shorted despite the short thesis being wrong for 3 yrs. SHLD has yet to file and the liquidity concerns have been completely ameliorated.

How is SPG a fair comp when they get $53 per foot in rents at their properties, versus SRG in the teens?
Title: Re: SRG - Seritage Growth Properties
Post by: pcm983 on August 13, 2018, 06:58:45 AM
@BTShine:

In my downside case, I use a 6.5% cap rate which I think is reasonable as other REIT's with similar quality real estate trade at lower cap rates. As for timeline, I don't have a specific timeline in mind, assuming it takes maybe 3-4 years to do the bulk of it.

@peridotcapital:

SPG is a fair comp in my opinion because the quality of the real estate is similar - SRG receives lower rates because it's average lease is much larger sf-wise than SPG, but if you look at the actual properties, SRG and SPG are co-located at a lot of locations - I think the risk profile is quite similar given they have effectively very similar exposures.

Title: Re: SRG - Seritage Growth Properties
Post by: Shane on August 13, 2018, 08:17:26 AM

@peridotcapital:

SPG is a fair comp in my opinion because the quality of the real estate is similar - SRG receives lower rates because it's average lease is much larger sf-wise than SPG, but if you look at the actual properties, SRG and SPG are co-located at a lot of locations - I think the risk profile is quite similar given they have effectively very similar exposures.

How much of the portfolio is actually co-located?  I think of them as having a much different portfolio of properties with SPG being mostly A-malls and SRG having some A-malls and a lot of properties more similar to strip malls...
Title: Re: SRG - Seritage Growth Properties
Post by: GCA on August 13, 2018, 11:26:01 AM

@peridotcapital:

SPG is a fair comp in my opinion because the quality of the real estate is similar - SRG receives lower rates because it's average lease is much larger sf-wise than SPG, but if you look at the actual properties, SRG and SPG are co-located at a lot of locations - I think the risk profile is quite similar given they have effectively very similar exposures.

How much of the portfolio is actually co-located?  I think of them as having a much different portfolio of properties with SPG being mostly A-malls and SRG having some A-malls and a lot of properties more similar to strip malls...

About 3MM of 34MM GLA are in malls owned by Simon.

50.5% of SRG's square feet are "Shopping Center/Freestanding" as opposed to "Mall" according to the CMBS... so the properties are not necessarily that similar.
Title: Re: SRG - Seritage Growth Properties
Post by: pcm983 on August 13, 2018, 03:11:54 PM
~10% of the appraised value in the CMBS collateral package is in malls owned by Simon, with another ~10% in malls owned by GGP / Macerich. Not to mention SRG has notable JV's with all 3 aforementioned REIT's. There is likely some additional overlap but the excel sheet I have doesn't list the mall owners for ~40% of the value in the collateral package.

Also, from a very well done VIC write-up on SRG in February 2016:

"Retail real estate investors should be very familiar with the quality of SRG’s portfolio based on their investments in other publicly traded REITs, as 43% of SRG’s leasable square footage is in centers owned by publicly traded REITs.  SRG’s overlap tends to reside much more in high quality REIT portfolios than in those that own B Malls.  To demonstrate this point, we have done an implied cap rate analysis of the publicly traded malls in which SRG’s properties reside weighted by the number of properties that overlap.  Based on this analysis, SRG’s properties reside in REITs that trade at a weighted average cap rate of 5.7%, further demonstrating the quality of the portfolio."
Title: Re: SRG - Seritage Growth Properties
Post by: pcm983 on August 13, 2018, 03:18:15 PM
the whole point is they are redeveloping the legacy Sears RE into higher quality RE. Also, I think the point of the footprint overlap is that you are exposed to the same idiosyncratic risks - i.e., if you are in the same mall, you are exposed to the same footraffic trends, weather patterns, demographic trends, etc. the psf rent is not as relevant because 1) srg is in the process of re-leasing its RE at 3-5x higher rents, and 2) you need to adjust for the size discount you get when signing large leases vs. smaller leases
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on August 13, 2018, 04:01:44 PM

[/quote]

How is SPG a fair comp when they get $53 per foot in rents at their properties, versus SRG in the teens?
[/quote]


All mall REITs cheat (industry practice) and don't include dept stores in their per foot rent averages. A holdover from the olden days and probably misleading at best, in the new de-malling, mixed use paradigm. For example, Macerich only reports per square foot for stores under 10k sq ft.

SRG has huge first mover advantage that I believe will become more apparent in years ahead, as they have blank canvas, but Simon, GGP, and private mall operators (ie: the competition) have to get rid of legacy leases and the small inline (often enclosed) situation first, before they even get to SRG starting point.

Plus, look at the average age and makeup of SRG management, I think it's a plus when compared to the stodgier company peers.

Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on August 22, 2018, 06:30:23 PM
Sears posted new closures on their website, didn't see any news articles on it though.

Lots of SRG properties, see attached.
https://searsholdings.com/docs/082118-store_closing_list.pdf

Did anyone read that Lowe's is closing Orchard Supply? SRG had a new one going in FL at Fashion Square, and was almost complete.

Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on August 22, 2018, 09:11:47 PM
Did anyone read that Lowe's is closing Orchard Supply? SRG had a new one going in FL at Fashion Square, and was almost complete.

Yeah, Orchard Supply was in the news on tv tonight.
Title: Re: SRG - Seritage Growth Properties
Post by: longtermdave on August 28, 2018, 05:37:15 AM
Some color on the two companies. Not much here that isn't already known to the board...

As Sears Withers, Its Former Stores Fuel a New Fortune

https://www.nytimes.com/2018/08/28/business/sears-seritage-edward-lampert.html?rref=collection%2Fsectioncollection%2Fbusiness&action=click&contentCollection=business&region=rank&module=package&version=highlights&contentPlacement=5&pgtype=sectionfront (https://www.nytimes.com/2018/08/28/business/sears-seritage-edward-lampert.html?rref=collection%2Fsectioncollection%2Fbusiness&action=click&contentCollection=business&region=rank&module=package&version=highlights&contentPlacement=5&pgtype=sectionfront)
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on August 28, 2018, 08:26:21 AM
maybe you guys have already seen, on the 20 some SRG seals stores that recently closed, the 8-k said only 12 were sears leaving, so SRG is really ramping up the recalls with about 10 more.

I believe 2019 should be SRG's Annus mirabilis, with several large redevs starting with redmond (approved), dallas and hicksville, almost all of the redevelopment properties coming online by end of the year, and the new financing allowing for an increase in redevelopment pace.

and with still some 10 million shares short on a footing that crumbles more by the day
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on August 28, 2018, 02:58:47 PM
Some color on the two companies. Not much here that isn't already known to the board...

As Sears Withers, Its Former Stores Fuel a New Fortune

https://www.nytimes.com/2018/08/28/business/sears-seritage-edward-lampert.html?rref=collection%2Fsectioncollection%2Fbusiness&action=click&contentCollection=business&region=rank&module=package&version=highlights&contentPlacement=5&pgtype=sectionfront (https://www.nytimes.com/2018/08/28/business/sears-seritage-edward-lampert.html?rref=collection%2Fsectioncollection%2Fbusiness&action=click&contentCollection=business&region=rank&module=package&version=highlights&contentPlacement=5&pgtype=sectionfront)

I like this part:
Quote

Built just after World War II, the Art Deco-style Sears building in Santa Monica is across from a train station. Renderings of the new office space show young people working on a roof deck overlooking the Pacific.

“It is going to be worth an enormous amount of money,” said Bob Safai, founding partner of Madison Partners, a commercial real estate firm in the Los Angeles area.

In New York State, Seritage acquired property in relatively higher income areas.

The median income in the 12 ZIP codes in New York where Seritage bought stores is $74,266, according to an analysis by The New York Times. The median income in the ZIP codes that include the 46 Sears and Kmart stores in New York that Seritage did not acquire and are still operating is $67,962.
Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on August 28, 2018, 07:18:25 PM
The Redmond city council approved Seritage's development project.

This will be Seritage's first residential mix use development.

https://www.redmond-reporter.com/news/redmond-council-approves-overlakes-seritage-development/
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on September 03, 2018, 02:54:13 PM
The Redmond city council approved Seritage's development project.

This will be Seritage's first residential mix use development.

https://www.redmond-reporter.com/news/redmond-council-approves-overlakes-seritage-development/

This sounds like a big deal:
Quote
Seritage Growth Properties submitted a project application to the city in 2015 for the mixed-used development, which will include 100,000 square feet of street-level retail space, 266,800 square feet of office space and nearly 62,000 square feet of restaurant space.

Included in this would be 500 apartments, a 210-room hotel, around two acres of parks and open space and 2,245 underground parking stalls for a total of 1.05 million square feet of new development in Redmond’s Overlake neighborhood.

Does anyone have a link/source for the project application?

Is this the sf breakdown?
100,000 retail
266,800 office
  62,000 restaurant
621,000 apartments and hotel?

How much will this cost?
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on September 06, 2018, 05:18:47 PM
Found some answers. http://www.redmond.gov/cms/One.aspx?portalId=169&pageId=224202 has a list of documents.

The Development Agreement at http://www.redmond.gov/common/pages/UserFile.aspx?fileId=234614 says the following:
Quote
500 multifamily residential units (equivalent to approximately 476,865 square feet), a 210-room hotel (equivalent to approximately 121,565 square feet)
Title: Re: SRG - Seritage Growth Properties
Post by: pcm983 on September 11, 2018, 08:44:54 PM
https://www.wsj.com/articles/the-government-may-want-to-buy-your-dying-mall-1536663601
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on September 18, 2018, 10:56:35 AM
http://ir.seritage.com/file/Index?KeyFile=395046782
Quote
...today announced that construction has commenced to transform the former Sears building located in the heart of Santa Monica into The Mark 302, an iconic creative office and retail destination situated blocks from the beach in one of the most desirable locations in the country.

The Mark 302, totaling approximately 100,000 square feet, represents a rare workplace opportunity with high exposure in the center of downtown Santa Monica.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on September 22, 2018, 12:20:40 AM
https://therealdeal.com/chicago/2018/09/20/seritage-tucker-propose-mixed-use-development-at-portage-parks-6-corners/
Quote
The owner of a shuttered Sears store in Portage Park’s Six Corners district is teaming up with Highland Park-based Tucker Development to propose a block-sized complex with 550 apartments and more than 160,000 square feet of retail space.

The landlord, Seritage Growth Properties, released renderings imagining a movie theater and fitness center inside a redevelopment of the existing building at 4730 West Irving Park Road, according to Nadig Newspapers.
Title: Re: SRG - Seritage Growth Properties
Post by: pcm983 on October 09, 2018, 07:15:31 PM
here we go!!!

https://www.wsj.com/articles/sears-hires-advisers-to-prepare-bankruptcy-filing-1539136189?mod=breakingnews
Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on October 10, 2018, 06:28:27 AM
So now that Sears is effectively bankrupt, how does this effect SRG? The market seems to have taken a 6% hit on the news. Rational?
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on October 10, 2018, 06:44:41 AM
So now that Sears is effectively bankrupt, how does this effect SRG? The market seems to have taken a 6% hit on the news. Rational?

I would argue that SHLD has effectively been bankrupt for some time. The news is that it may literally go bankrupt in a matter of days.

While it's tough to judge how much SRG should decline, I think the decline is at least directionally correct: the prospect of SHLD filing bankruptcy is bad for SRG. Anything might happen with the master lease in a bankruptcy scenario.



Title: Re: SRG - Seritage Growth Properties
Post by: scorpioncapital on October 10, 2018, 06:54:35 AM
The question is if the 47% or so of Sears rent to SRG has also been discounted to zero by the market.
Title: Re: SRG - Seritage Growth Properties
Post by: Saluki on October 10, 2018, 08:48:22 AM
As part of the spinoff SHLD had a right to put 20% of it's stores back each year to SRG if it paid 1 year's rent on the properties.  (so it should take 5 years for SRG to slowly go from 90% SHLD tenant revenue to something more diversified).  SHLD will still have to pay rent on the stores it decides to keep, but might not have to give the 1 year payment to SRG.  I think prior to BRK lending $2 billion at favorable rates to SRG, this would be a problem (how do you get the $$$ to redevelop stores if the biggest tenant goes under), but it should be workable for SRG now.  Not the best outcome, but not an existential threat anymore.

The bankruptcy timing is surprising though, when I worked at a retailer in college 30% of the stores revenues occurred in December, so i'm surprised SHLD didn't try to stick it out another 60 days and get one last wave of money coming in. 
Title: Re: SRG - Seritage Growth Properties
Post by: bizaro86 on October 10, 2018, 10:30:23 AM
ESL is so far into the debt now I wonder if they want to hold the liquidation sale in Nov-Dec to try and get the inventory sold off fast.
Title: Re: SRG - Seritage Growth Properties
Post by: vince on October 10, 2018, 10:50:23 AM
On 3 different occasions I bought and sold SRG and lost money on all 3.  Im not touching it
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on October 10, 2018, 10:53:03 AM
As part of the spinoff SHLD had a right to put 20% of it's stores back each year to SRG if it paid 1 year's rent on the properties.  (so it should take 5 years for SRG to slowly go from 90% SHLD tenant revenue to something more diversified).  SHLD will still have to pay rent on the stores it decides to keep, but might not have to give the 1 year payment to SRG.  I think prior to BRK lending $2 billion at favorable rates to SRG, this would be a problem (how do you get the $$$ to redevelop stores if the biggest tenant goes under), but it should be workable for SRG now.  Not the best outcome, but not an existential threat anymore.

The bankruptcy timing is surprising though, when I worked at a retailer in college 30% of the stores revenues occurred in December, so i'm surprised SHLD didn't try to stick it out another 60 days and get one last wave of money coming in.

Re the bolded: what makes you think that? IMO one of the things the market is afraid of is that a bankruptcy court will invalidate the master lease.

Re the second paragraph: there is a game of "chicken" going on here between Lampert and some of the bondholders. Seeking Alpha user "fxfx" (no affiliation) explains the situation well.

https://seekingalpha.com/news/3396248-sears-minus-20-percent-bankruptcy-looms (https://seekingalpha.com/news/3396248-sears-minus-20-percent-bankruptcy-looms)
Title: Re: SRG - Seritage Growth Properties
Post by: Saluki on October 10, 2018, 11:43:17 AM
Sorry, I can't read the seekingalpha article b/c of the paywall. 

I'm assuming (based on my general understanding of retail, not from having read SHLDs annual report) that not every location is losing money.  Some must be profitable and others losing money, but on average the whole is losing money.  Since they've been handing back store leases for almost 3 years now, they must be handing back the ones that are losing the most and holding onto the ones that are profitable or could be turned around.

I'm not an expert but my understanding is that in bankruptcy the judge can decide which executory (contracts in which both sides have to perform, like a lease, as opposed to debt where only one side has to perform) contracts to keep and which to discharge.  If they do away with the master lease completely, they would lose the remaining profitable stores, the rights to sublet some of the valuable leases that they don't give back and the right to get paid if SRG wants to take back a lease that SHLD didn't want to give up.  So, for instance, if SHLD gave SRG back half the square footage of a giant box and SRG paid to redevelop it, the remaining half is worth a lot more if you can assign the lease to a 3rd party.

If SRG had individual leases for the properties, I think it would look a lot different, but if it's all under the master lease and the options are take it all or leave it all, then I think SHLD has some strong incentives to hold onto it or to use the threat of cancelling to renegotiate.  But they can't have it both ways, if they want to stay in the properties, then the master lease has to be accepted.  It's still too early to guess how this will play out.     
Title: Re: SRG - Seritage Growth Properties
Post by: Saluki on October 10, 2018, 11:55:05 AM
As part of the spinoff SHLD had a right to put 20% of it's stores back each year to SRG if it paid 1 year's rent on the properties.  (so it should take 5 years for SRG to slowly go from 90% SHLD tenant revenue to something more diversified).  SHLD will still have to pay rent on the stores it decides to keep, but might not have to give the 1 year payment to SRG.  I think prior to BRK lending $2 billion at favorable rates to SRG, this would be a problem (how do you get the $$$ to redevelop stores if the biggest tenant goes under), but it should be workable for SRG now.  Not the best outcome, but not an existential threat anymore.

The bankruptcy timing is surprising though, when I worked at a retailer in college 30% of the stores revenues occurred in December, so i'm surprised SHLD didn't try to stick it out another 60 days and get one last wave of money coming in.

Re the bolded: what makes you think that? IMO one of the things the market is afraid of is that a bankruptcy court will invalidate the master lease.

Re the second paragraph: there is a game of "chicken" going on here between Lampert and some of the bondholders. Seeking Alpha user "fxfx" (no affiliation) explains the situation well.

https://seekingalpha.com/news/3396248-sears-minus-20-percent-bankruptcy-looms (https://seekingalpha.com/news/3396248-sears-minus-20-percent-bankruptcy-looms)

Sorry, I just re-read this and I think I misunderstood what you were asking.  Yes, you are correct, they probably couldn't just reject the 1 year payments and keep the rest of the master lease in tact.  I assumed they would negotiate and say "if you do away with the 1 year payments, we can keep handing back the leases to you slowly (maybe 25 or 30% a year instead of 20%), or we can cancel the entire master lease and let you drink from the fire hose." 
Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on October 10, 2018, 12:11:02 PM
Sorry, I can't read the seekingalpha article b/c of the paywall. 

I'm assuming (based on my general understanding of retail, not from having read SHLDs annual report) that not every location is losing money.  Some must be profitable and others losing money, but on average the whole is losing money.  Since they've been handing back store leases for almost 3 years now, they must be handing back the ones that are losing the most and holding onto the ones that are profitable or could be turned around.

I'm not an expert but my understanding is that in bankruptcy the judge can decide which executory (contracts in which both sides have to perform, like a lease, as opposed to debt where only one side has to perform) contracts to keep and which to discharge.  If they do away with the master lease completely, they would lose the remaining profitable stores, the rights to sublet some of the valuable leases that they don't give back and the right to get paid if SRG wants to take back a lease that SHLD didn't want to give up.  So, for instance, if SHLD gave SRG back half the square footage of a giant box and SRG paid to redevelop it, the remaining half is worth a lot more if you can assign the lease to a 3rd party.

If SRG had individual leases for the properties, I think it would look a lot different, but if it's all under the master lease and the options are take it all or leave it all, then I think SHLD has some strong incentives to hold onto it or to use the threat of cancelling to renegotiate.  But they can't have it both ways, if they want to stay in the properties, then the master lease has to be accepted.  It's still too early to guess how this will play out.   

It's a link to a news story and comment thread. You might have to create a Seeking Alpha profile to read it, but it's free.

What you're saying makes sense, but I am skeptical that their stores that are 4 wall profitable can generate the cash flow to cover non-store overhead.

Also, at some point they are going to start suffering from reverse economies of scale as the store base continues to rapidly shrink. Let's assume they have 200 stores that are 4 wall profitable. If those 200 stores are scattered across the country it will be very difficult to right size the logistics and supply chain in a way that allows the company to be a viable enterprise going forward. IIRC American Apparel was an example of this issue. 

I'm not a bankruptcy expert by any means, but it wouldn't surprise me if all retail operations of the company are liquidated (a la Toys R Us) if they file.
Title: Re: SRG - Seritage Growth Properties
Post by: TwoCitiesCapital on October 10, 2018, 06:49:33 PM
This has only be a small position (~2%) for me opened earlier this year around $40. When WB announced the $ and the stock jumped 20-25% shortly thereafter, I let go of the about 20% of the position to take all the gains off the table.

While the long-term development is intact, there are too many headwinds with rising rates and an expected Sears bankruptcy on the horizon to not take quick and easy gains like that.

Ultimately, I'd love to repurchase all of those share, and then some, but I want some of the negativity to be worked out and my guess there will be other opportunities to buy at lower prices than $50/share while that is happening. If we hit $40/share again, I expect I'll be buying back everything that was sold plus some.
Title: Re: SRG - Seritage Growth Properties
Post by: CorpRaider on October 11, 2018, 05:25:52 AM
Not very scientific, but I decided a while ago to wait until sears filed and the press started talking about the potential for fraudulent transfer issues before looking more closely again.
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on October 11, 2018, 06:27:13 AM
We've known SHLD is going bankrupt for a long time, I believe the market expected it to most likely be this year or early next (based on sell side reports).  With the new loan from Berkshire... I view this as largely a non-issue.  We know the value is there and the path to realize it is pretty clear.  They will continue to develop properties and I would imagine some additional financing could be raised as they show progress.

Both Eddie and WEB have a vested interest in making this work.  Eddie controls the tenant going bankrupt and is a massive holder of SRG equity.  WEB owns the debt and a good slug of equity.  It is a pretty good set-up, IMO.
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on October 11, 2018, 07:45:23 AM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on October 11, 2018, 07:58:46 AM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

Agreed. 

Also, Shane you’re right.  The present value of the rental stream from SHLD was not more than a couple hundred million.  The value created via redevelopment, if it goes well, is over $500m a year.  The real story here is redevelopment.  It’s not rent from SHLD.
Title: Re: SRG - Seritage Growth Properties
Post by: Saluki on October 11, 2018, 08:22:24 AM
I would keep an eye on the cumulative redeemable preferreds.  I'm overweight SRG so I don't know if I'd buy more common, but I regret not getting the preferred (SRG-PA) when it was down at $20 (callable at $25). It pays over 7%, is cumulative and when it dropped down to $20 the effective interest rate was +11% if I recall correctly. It's higher up in priority than the common in case of bankruptcy, has a $25 liquidation preferrence and if the common is investable then the preferreds are money good.   

It's trading just under $23 now, so not a screaming bargain but if SHLD files for bankruptcy it might look attractive on the dip.
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on October 11, 2018, 09:13:46 AM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

This is true, but the company has been working on a refinancing option for a long time.  The management is quality, they're not going to sit on their hands waiting for a disaster to strike.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 11, 2018, 01:04:52 PM
SRG will lose about $33.5 million in revenues from SHLD it looks like based on the Q2 number. Out of total revenues for Q2 of $49.2 million. If one annualizes the SHLD payments one gets to a loss of revenue from SHLD of $134 million. Assuming there is a Chapter 7 filing. Not sure how much SRG will be able to get out of the SHLD Chapter 7 or 11 filing. Not sure how SHLD is able to make it through Chapter 11. Just the process will cost a lot of money.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 11, 2018, 01:08:28 PM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

This is true, but the company has been working on a refinancing option for a long time.  The management is quality, they're not going to sit on their hands waiting for a disaster to strike.

Keep in mind that at the same time SRG management is supposed to raise a lot more money it looks it is about to lose $134 million in revenue payments from SHLD. The Q2 loss would have been about $78 million rather than $44 million.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 11, 2018, 01:10:19 PM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

This is true, but the company has been working on a refinancing option for a long time.  The management is quality, they're not going to sit on their hands waiting for a disaster to strike.

Keep in mind that at the same time SRG management is supposed to raise a lot more money it looks it is about to lose $134 million in revenue payments from SHLD. The Q2 loss would have been about $78 million rather than $44 million.

One more point ... it seems Eddie L and SHLD weren't expecting to file as they seem to still be looking for DIP financing. Not sure why you think SRG management was aware already of the coming BK filing.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 11, 2018, 01:13:26 PM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

This is true, but the company has been working on a refinancing option for a long time.  The management is quality, they're not going to sit on their hands waiting for a disaster to strike.

Keep in mind that at the same time SRG management is supposed to raise a lot more money it looks it is about to lose $134 million in revenue payments from SHLD. The Q2 loss would have been about $78 million rather than $44 million.

One more point ... it seems Eddie L and SHLD weren't expecting to file as they seem to still be looking for DIP financing. Not sure why you think SRG management was aware already of the coming BK filing.

And in case of a Chapter 7 filing, 900 more SHLD stores are about to hit the market. 
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on October 11, 2018, 02:25:18 PM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

This is true, but the company has been working on a refinancing option for a long time.  The management is quality, they're not going to sit on their hands waiting for a disaster to strike.

Keep in mind that at the same time SRG management is supposed to raise a lot more money it looks it is about to lose $134 million in revenue payments from SHLD. The Q2 loss would have been about $78 million rather than $44 million.

One more point ... it seems Eddie L and SHLD weren't expecting to file as they seem to still be looking for DIP financing. Not sure why you think SRG management was aware already of the coming BK filing.

I think they viewed it as an eventuality and therefore have been planning for it.  I don't think they knew a filing was necessarily imminent this month or anything like that.

Yes more stores will hit the market, but with retail it is all about location and SRG has some of the best locations in the Sears portfolio.  Doesn't matter if a ton of boxes hit the market in rural Alabama when you're trying to lease space in Miami...
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 11, 2018, 10:15:37 PM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

This is true, but the company has been working on a refinancing option for a long time.  The management is quality, they're not going to sit on their hands waiting for a disaster to strike.

Keep in mind that at the same time SRG management is supposed to raise a lot more money it looks it is about to lose $134 million in revenue payments from SHLD. The Q2 loss would have been about $78 million rather than $44 million.

One more point ... it seems Eddie L and SHLD weren't expecting to file as they seem to still be looking for DIP financing. Not sure why you think SRG management was aware already of the coming BK filing.

I think they viewed it as an eventuality and therefore have been planning for it.  I don't think they knew a filing was necessarily imminent this month or anything like that.

Yes more stores will hit the market, but with retail it is all about location and SRG has some of the best locations in the Sears portfolio.  Doesn't matter if a ton of boxes hit the market in rural Alabama when you're trying to lease space in Miami...

Well about 125 of the SHLD stores were just in CA. Mervyn's had about the same amount of stores in CA and it took down rents to get the properties leased up. Or since you are a fan of Florida, based on the latest K, 75 SHLD stores are in Florida. SRG has 26 stores in Florida btw. Not sure how many of the Florida SRG stores have been retenanted/redeveloped yet, but the available supply in Florida is about to triple. This is not an issue of a store in Miami and another one in rural Alabama.
Title: Re: SRG - Seritage Growth Properties
Post by: RadMan24 on October 12, 2018, 05:17:32 AM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

This is true, but the company has been working on a refinancing option for a long time.  The management is quality, they're not going to sit on their hands waiting for a disaster to strike.

Keep in mind that at the same time SRG management is supposed to raise a lot more money it looks it is about to lose $134 million in revenue payments from SHLD. The Q2 loss would have been about $78 million rather than $44 million.

One more point ... it seems Eddie L and SHLD weren't expecting to file as they seem to still be looking for DIP financing. Not sure why you think SRG management was aware already of the coming BK filing.

I think they viewed it as an eventuality and therefore have been planning for it.  I don't think they knew a filing was necessarily imminent this month or anything like that.

Yes more stores will hit the market, but with retail it is all about location and SRG has some of the best locations in the Sears portfolio.  Doesn't matter if a ton of boxes hit the market in rural Alabama when you're trying to lease space in Miami...

Well about 125 of the SHLD stores were just in CA. Mervyn's had about the same amount of stores in CA and it took down rents to get the properties leased up. Or since you are a fan of Florida, based on the latest K, 75 SHLD stores are in Florida. SRG has 26 stores in Florida btw. Not sure how many of the Florida SRG stores have been retenanted/redeveloped yet, but the available supply in Florida is about to triple. This is not an issue of a store in Miami and another one in rural Alabama.

Candyman, they knew they ain't stupid and Sears gave a ton of warning. You ready between the lines. Seritage has also been building its JV alliances. As mentioned above, the hit on earnings and cash flow with liquidation will hurt - but with financing in place it won't be dire and it will be manageable. That's not to say people freak out or question weather its enough, there may be a chance to buy shares at cheaper levels than they are at now. But in terms of shorting - that's a risky proposition.
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on October 12, 2018, 07:43:57 AM
without that loan, the stock would be getting crushed. sears liquidation would hurt with no financing back drop and sharks would be swimming for higher rates. Everyone tried to sell the story 7% was highway robbery. It wasn't.

This is true, but the company has been working on a refinancing option for a long time.  The management is quality, they're not going to sit on their hands waiting for a disaster to strike.

Keep in mind that at the same time SRG management is supposed to raise a lot more money it looks it is about to lose $134 million in revenue payments from SHLD. The Q2 loss would have been about $78 million rather than $44 million.

One more point ... it seems Eddie L and SHLD weren't expecting to file as they seem to still be looking for DIP financing. Not sure why you think SRG management was aware already of the coming BK filing.

I think they viewed it as an eventuality and therefore have been planning for it.  I don't think they knew a filing was necessarily imminent this month or anything like that.

Yes more stores will hit the market, but with retail it is all about location and SRG has some of the best locations in the Sears portfolio.  Doesn't matter if a ton of boxes hit the market in rural Alabama when you're trying to lease space in Miami...

Well about 125 of the SHLD stores were just in CA. Mervyn's had about the same amount of stores in CA and it took down rents to get the properties leased up. Or since you are a fan of Florida, based on the latest K, 75 SHLD stores are in Florida. SRG has 26 stores in Florida btw. Not sure how many of the Florida SRG stores have been retenanted/redeveloped yet, but the available supply in Florida is about to triple. This is not an issue of a store in Miami and another one in rural Alabama.

Even comparing within a state makes no sense Candyman1.  It can be as specific as neighborhood or block.  Two retail locations can have substantially different rent profiles and be only blocks away from each other.  There isn't much logic in saying the supply in Florida will triple when a store services a few square miles.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 12, 2018, 08:13:50 AM
Even comparing within a state makes no sense Candyman1.  It can be as specific as neighborhood or block.  Two retail locations can have substantially different rent profiles and be only blocks away from each other.  There isn't much logic in saying the supply in Florida will triple when a store services a few square miles.
[/quote]

Interesting ... so why did redevelopment deals and terms struggle in CA when Mervyn's took Chapter 7 with about 120 stores. I guess those stores don't cover a few square miles. =) I know someone that was involved in that situation. Yes, the store covers only a local area, but the tenants don't. And the tenants now will have three times the choices to pick where they will open their new stores. It is much easier to negotiate with landlords when you have 4 knocking on your door with a great location each than when you have one. And the landlords will all call on the same potential tenants at the same time.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on October 12, 2018, 09:12:07 AM
Candyman,

Interesting point.   Do you know if the rent rate $psf or length of vacancy had the bigger affect on properties during the Mervyn's process?   
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on October 12, 2018, 12:50:46 PM
Even comparing within a state makes no sense Candyman1.  It can be as specific as neighborhood or block.  Two retail locations can have substantially different rent profiles and be only blocks away from each other.  There isn't much logic in saying the supply in Florida will triple when a store services a few square miles.
Quote
Interesting ... so why did redevelopment deals and terms struggle in CA when Mervyn's took Chapter 7 with about 120 stores. I guess those stores don't cover a few square miles. =) I know someone that was involved in that situation. Yes, the store covers only a local area, but the tenants don't. And the tenants now will have three times the choices to pick where they will open their new stores. It is much easier to negotiate with landlords when you have 4 knocking on your door with a great location each than when you have one. And the landlords will all call on the same potential tenants at the same time.

Suppose you're correct Candyman, yes there will be more supply a la Mervyns, and rental rates should come down. SRG, as we have seen, should do just fine because 1) they can sit on properties acquired at garage sale prices (EV/sqft of $120/sq ft) and release far below what other REITs avg sq ft rental is for similar quality property for a nice profit and multiple of historical Sears rents => competitive advantage.

We have seen this over last several years with REIs, Olive Gardens, Steakhouses moving from literally blocks down the street to fill in the new supply at SRG.

I'd argue you're right, but I don't draw same conclusion as you. As Berkowitz said a couple of years back before he threw in the towel on all things SRG, "anyway you slice it, SRG is cheap" at around 40-something a share.

And with the 5 yr loan from BRK, to me SRG remains quite a lopsided positive bet, and nice risk adjusted returns.


edit: also getting the whole boxes back means the JVs can finally be greenlit with Macerich, Simon, and rest of GGP.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 12, 2018, 03:15:24 PM
Even comparing within a state makes no sense Candyman1.  It can be as specific as neighborhood or block.  Two retail locations can have substantially different rent profiles and be only blocks away from each other.  There isn't much logic in saying the supply in Florida will triple when a store services a few square miles.
Quote
Interesting ... so why did redevelopment deals and terms struggle in CA when Mervyn's took Chapter 7 with about 120 stores. I guess those stores don't cover a few square miles. =) I know someone that was involved in that situation. Yes, the store covers only a local area, but the tenants don't. And the tenants now will have three times the choices to pick where they will open their new stores. It is much easier to negotiate with landlords when you have 4 knocking on your door with a great location each than when you have one. And the landlords will all call on the same potential tenants at the same time.

Suppose you're correct Candyman, yes there will be more supply a la Mervyns, and rental rates should come down. SRG, as we have seen, should do just fine because 1) they can sit on properties acquired at garage sale prices (EV/sqft of $120/sq ft) and release far below what other REITs avg sq ft rental is for similar quality property for a nice profit and multiple of historical Sears rents => competitive advantage.

We have seen this over last several years with REIs, Olive Gardens, Steakhouses moving from literally blocks down the street to fill in the new supply at SRG.

I'd argue you're right, but I don't draw same conclusion as you. As Berkowitz said a couple of years back before he threw in the towel on all things SRG, "anyway you slice it, SRG is cheap" at around 40-something a share.

And with the 5 yr loan from BRK, to me SRG remains quite a lopsided positive bet, and nice risk adjusted returns.

edit: also getting the whole boxes back means the JVs can finally be greenlit with Macerich, Simon, and rest of GGP.

You are seriously going to throw Berkowitz as a reference at me? LOL. If you show that guy a dollar bill, he'd tell you its worth two dollars. Go through his letters and reasoning why SHLD was worth so much more. Made no sense at all. All of his reasonings were laughable but the best one was when he put a value on the SHLD pharmacies.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 12, 2018, 03:41:41 PM
Candyman,

Interesting point.   Do you know if the rent rate $psf or length of vacancy had the bigger affect on properties during the Mervyn's process?   

Spoke to my friend again and he said the drag was about $4 a sq foot. But keep in mind that Mervyn's went chapter 7 in the recession. So that was an issue too.
Title: Re: SRG - Seritage Growth Properties
Post by: BTShine on October 12, 2018, 03:43:44 PM
Candyman,

Interesting point.   Do you know if the rent rate $psf or length of vacancy had the bigger affect on properties during the Mervyn's process?   

Spoke to my friend again and he said the drag was about $4 a sq foot. But keep in mind that Mervyn's went chapter 7 in the recession. So that was an issue too.

Thanks!  By 'drag of $4 psf' do you mean something leasing at $18 went to $14?   Did your friend mention what rates they were getting?
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 12, 2018, 03:55:42 PM
Candyman,

Interesting point.   Do you know if the rent rate $psf or length of vacancy had the bigger affect on properties during the Mervyn's process?   

Spoke to my friend again and he said the drag was about $4 a sq foot. But keep in mind that Mervyn's went chapter 7 in the recession. So that was an issue too.

Thanks!  By 'drag of $4 psf' do you mean something leasing at $18 went to $14?   Did your friend mention what rates they were getting?

Yes, on the best locations they had expected $14 and got $10 on the lower quality ones they ended up with $6 rather than $10. Now every store was different, but this was his generalized memory. $4 makes a big difference in final valuation.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on October 12, 2018, 04:58:34 PM
Quote

You are seriously going to throw Berkowitz as a reference at me? LOL. If you show that guy a dollar bill, he'd tell you its worth two dollars. Go through his letters and reasoning why SHLD was worth so much more. Made no sense at all. All of his reasonings were laughable but the best one was when he put a value on the SHLD pharmacies.

Again, we agree - I thought he was crazy and on tilt to sell SRG in the 30s and give a one sentence reasoning as to why in his letter. As well as to invest in SHLD.

Berkowitz wasn't a reference in my above post, simply that the words he spoke about SRG (and ended up not believing himself) still ring true.

Straw man aside, SRG has strong properties (fact) and is low cost provider compared to competition (fact). They've been operating in tough environment for over 3 years and operationally have done quite well.  And best is yet to come with large projects. Look at some of the IRRs on the residential deal at Redmond, on the resale of Tanforan, on JV of West Hartford and Santa Monica. Clear, conservative path to 3 bagger in 7-10 years => ~15% compounded.
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on October 12, 2018, 05:26:47 PM
Even comparing within a state makes no sense Candyman1.  It can be as specific as neighborhood or block.  Two retail locations can have substantially different rent profiles and be only blocks away from each other.  There isn't much logic in saying the supply in Florida will triple when a store services a few square miles.

Interesting ... so why did redevelopment deals and terms struggle in CA when Mervyn's took Chapter 7 with about 120 stores. I guess those stores don't cover a few square miles. =) I know someone that was involved in that situation. Yes, the store covers only a local area, but the tenants don't. And the tenants now will have three times the choices to pick where they will open their new stores. It is much easier to negotiate with landlords when you have 4 knocking on your door with a great location each than when you have one. And the landlords will all call on the same potential tenants at the same time.
[/quote]

The point I am trying to make is that the stores coming online following a SHLD bankruptcy are likely not great locations and may not even compete with the SRG properties at all.  It is my belief that physical retail will still exist in the future, but many sites are no longer viable because of driving distance/inconvenience to customer.  Therefore, location will matter more in the future than in the past.  I don't know anything about Mervyn's, but I would imagine if it went bankrupt during the recession there was an abundance of properties on the market and a derth of tenants.  Do you think it closely parallels the situation with SRG, all things considered?
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 12, 2018, 06:31:58 PM
Even comparing within a state makes no sense Candyman1.  It can be as specific as neighborhood or block.  Two retail locations can have substantially different rent profiles and be only blocks away from each other.  There isn't much logic in saying the supply in Florida will triple when a store services a few square miles.

Interesting ... so why did redevelopment deals and terms struggle in CA when Mervyn's took Chapter 7 with about 120 stores. I guess those stores don't cover a few square miles. =) I know someone that was involved in that situation. Yes, the store covers only a local area, but the tenants don't. And the tenants now will have three times the choices to pick where they will open their new stores. It is much easier to negotiate with landlords when you have 4 knocking on your door with a great location each than when you have one. And the landlords will all call on the same potential tenants at the same time.

The point I am trying to make is that the stores coming online following a SHLD bankruptcy are likely not great locations and may not even compete with the SRG properties at all.  It is my belief that physical retail will still exist in the future, but many sites are no longer viable because of driving distance/inconvenience to customer.  Therefore, location will matter more in the future than in the past.  I don't know anything about Mervyn's, but I would imagine if it went bankrupt during the recession there was an abundance of properties on the market and a derth of tenants.  Do you think it closely parallels the situation with SRG, all things considered?
[/quote]

I disagree on the current SHLD. They just sold and leased back one property for $32 million. The properties sold under the mezz loan piece are selling for an average of around $10 million.
Yeah Mervyn's had the additional problem of the recession. 
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on October 13, 2018, 07:48:08 AM
"In malls where leases were signed decades ago, Sears rents could be as low as $4 a square foot. New tenants in the same space could bring as much as six times that amount."

https://www.wsj.com/articles/sears-exit-would-leave-big-holes-in-malls-some-landlords-welcome-that-1539342000

I don't think we see this situation again. There's not another Sears going under with these kind of goofy low rents. And SRG owns the best and the most.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 13, 2018, 06:03:48 PM
"In malls where leases were signed decades ago, Sears rents could be as low as $4 a square foot. New tenants in the same space could bring as much as six times that amount."

https://www.wsj.com/articles/sears-exit-would-leave-big-holes-in-malls-some-landlords-welcome-that-1539342000

I don't think we see this situation again. There's not another Sears going under with these kind of goofy low rents. And SRG owns the best and the most.

Average new lease for SRG $17.5 per sq foot. Average SPG base minimum rent (before CAM) $53 per sq foot. Btw. if you assume that the $17.5 is before CAM, well SPG's  is close to $70 a sq foot after cam. Are you still sure that SRG "owns the best and the most". The SPG numbers are US numbers.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 13, 2018, 06:25:37 PM
Straw man aside, SRG has strong properties (fact) and is low cost provider compared to competition (fact). They've been operating in tough environment for over 3 years and operationally have done quite well.  And best is yet to come with large projects. Look at some of the IRRs on the residential deal at Redmond, on the resale of Tanforan, on JV of West Hartford and Santa Monica. Clear, conservative path to 3 bagger in 7-10 years => ~15% compounded.
[/quote]

... the next 3 years are going to be a lot more challenging than the past 3 years. And I am not referring to the rough retail environment, no this one is specific to SRG.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on October 13, 2018, 07:51:06 PM
Straw man aside, SRG has strong properties (fact) and is low cost provider compared to competition (fact). They've been operating in tough environment for over 3 years and operationally have done quite well.  And best is yet to come with large projects. Look at some of the IRRs on the residential deal at Redmond, on the resale of Tanforan, on JV of West Hartford and Santa Monica. Clear, conservative path to 3 bagger in 7-10 years => ~15% compounded.

... the next 3 years are going to be a lot more challenging than the past 3 years. And I am not referring to the rough retail environment, no this one is specific to SRG.
[/quote]

how will it be more difficult? in the last 3 years they've scaled a business from scratch to one of the leading retail developers in the US as far as development backlog.

1) scaled up from skeleton crew to 70+ full timers over last three years
2) instituted JV policies and asset sales as well as capital raising - now they're proven veterans with well placed and high quality partners and contacts
3) steady state leasing of around 500k sq ft per quarter at 4x multiples - all while scaling up!
4) ended talk of liquidity concerns, as by the time the 2B is due in 4.5 years, they will have several hundred million in rev.

so now with all that out of the way, you're saying just executing - now with laser like focus - will be tougher? signs point to no.




Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on October 13, 2018, 07:58:54 PM
Average new lease for SRG $17.5 per sq foot. Average SPG base minimum rent (before CAM) $53 per sq foot. Btw. if you assume that the $17.5 is before CAM, well SPG's  is close to $70 a sq foot after cam. Are you still sure that SRG "owns the best and the most". The SPG numbers are US numbers.

uh, *** gross conceptual error alert ***.

form an earlier post:
Quote
All mall REITs cheat (industry practice) and don't include dept stores in their per foot rent averages. A holdover from the olden days and probably misleading at best, in the new de-malling, mixed use paradigm. For example, Macerich only reports per square foot for stores under 10k sq ft.

To be specific, from SPG 10k edit: pg 58

Quote
We include all company owned space except for mall anchors, mall majors, mall freestanding and mall outlots in the calculation. Base minimum rent per square foot is the average base minimum rent charge in effect for the reporting period for all tenants that would qualify to be included in ending occupancy.

Total Sales per Square Foot. Total sales include total reported retail tenant sales on a trailing 12‐month basis at owned GLA (for mall stores with less than 10,000 square feet) in the malls and The Mills and stores with less than 20,000 square feet in the Premium Outlets. Retail sales at owned GLA affect revenue and profitability levels because sales determine the amount of minimum rent that can be charged, the percentage rent realized, and the recoverable expenses (common area maintenance, real estate taxes, etc.) that tenants can afford to pay.

if anything, that comically inflated rent avg is warning signs for SPG and $$ signs for SRG. As Bezos says, your margin is my opportunity.

Are you one of the shorts I've been loaning shares to for the last two years?
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 13, 2018, 10:01:51 PM
Straw man aside, SRG has strong properties (fact) and is low cost provider compared to competition (fact). They've been operating in tough environment for over 3 years and operationally have done quite well.  And best is yet to come with large projects. Look at some of the IRRs on the residential deal at Redmond, on the resale of Tanforan, on JV of West Hartford and Santa Monica. Clear, conservative path to 3 bagger in 7-10 years => ~15% compounded.

... the next 3 years are going to be a lot more challenging than the past 3 years. And I am not referring to the rough retail environment, no this one is specific to SRG.

how will it be more difficult? in the last 3 years they've scaled a business from scratch to one of the leading retail developers in the US as far as development backlog.

1) scaled up from skeleton crew to 70+ full timers over last three years
2) instituted JV policies and asset sales as well as capital raising - now they're proven veterans with well placed and high quality partners and contacts
3) steady state leasing of around 500k sq ft per quarter at 4x multiples - all while scaling up!
4) ended talk of liquidity concerns, as by the time the 2B is due in 4.5 years, they will have several hundred million in rev.

so now with all that out of the way, you're saying just executing - now with laser like focus - will be tougher? signs point to no.
[/quote]

One of the four you got wrong. I'll let you figure out which one it is.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 13, 2018, 10:12:14 PM
Average new lease for SRG $17.5 per sq foot. Average SPG base minimum rent (before CAM) $53 per sq foot. Btw. if you assume that the $17.5 is before CAM, well SPG's  is close to $70 a sq foot after cam. Are you still sure that SRG "owns the best and the most". The SPG numbers are US numbers.

uh, *** gross conceptual error alert ***.

form an earlier post:
Quote
All mall REITs cheat (industry practice) and don't include dept stores in their per foot rent averages. A holdover from the olden days and probably misleading at best, in the new de-malling, mixed use paradigm. For example, Macerich only reports per square foot for stores under 10k sq ft.

To be specific, from SPG 10k edit: pg 58

Quote
We include all company owned space except for mall anchors, mall majors, mall freestanding and mall outlots in the calculation. Base minimum rent per square foot is the average base minimum rent charge in effect for the reporting period for all tenants that would qualify to be included in ending occupancy.

Total Sales per Square Foot. Total sales include total reported retail tenant sales on a trailing 12‐month basis at owned GLA (for mall stores with less than 10,000 square feet) in the malls and The Mills and stores with less than 20,000 square feet in the Premium Outlets. Retail sales at owned GLA affect revenue and profitability levels because sales determine the amount of minimum rent that can be charged, the percentage rent realized, and the recoverable expenses (common area maintenance, real estate taxes, etc.) that tenants can afford to pay.

if anything, that comically inflated rent avg is warning signs for SPG and $$ signs for SRG. As Bezos says, your margin is my opportunity.

Are you one of the shorts I've been loaning shares to for the last two years?

Yes, and is SRG trying to rent out the space to mall anchors? Fine you can cut that number in two and that still gets you $26 per sq foot for SPG. Again does that mean that SRG "owns the best and most". It still cannot get to that number. You said SRG got the best stores/locations, well wouldn't one expect then rents to be higher than even the ones advertized by 50% of SPG numbers?
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 13, 2018, 10:20:45 PM
form an earlier post:
Quote
All mall REITs cheat (industry practice) and don't include dept stores in their per foot rent averages. A holdover from the olden days and probably misleading at best, in the new de-malling, mixed use paradigm. For example, Macerich only reports per square foot for stores under 10k sq ft.

So i guess if all of these reits "cheat", I have to assume that SRG isn't "cheating"?
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on October 14, 2018, 07:44:40 AM
https://turnaround.org/jcr/2017/11/sears-srg-and-economics-fraudulent-conveyance
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on October 14, 2018, 10:48:15 AM
form an earlier post:
Quote
All mall REITs cheat (industry practice) and don't include dept stores in their per foot rent averages. A holdover from the olden days and probably misleading at best, in the new de-malling, mixed use paradigm. For example, Macerich only reports per square foot for stores under 10k sq ft.

So i guess if all of these reits "cheat", I have to assume that SRG isn't "cheating"?

that's correct. They lay out their performance data as the chips fall.

Do you really support the idea of not including some of your owned space if it looks bad for rental prices?  "Oh that rate is too low, don't worry we just won't count it! lolololol"

We are no longer in 1985, segregated residential, industrial, retail...the future is mixed use and excluding "anchors" in rental numbers is avoiding reality.

But that's why SRG is cheap, because people who just look at top line numbers that are bogus come to the wrong conclusion.



Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on October 14, 2018, 10:57:26 AM
You said SRG got the best stores/locations, well wouldn't one expect then rents to be higher than even the ones advertized by 50% of SPG numbers?

no!

the thesis, through a margin of safety lens, is that SRG can undercut these inflated rent levels, release space at 17 (or 25$ a square foot if you look to projected stabilized numbers) and still make 4-5x off their rents at acquisition.

this is the worst case.

the best case is that their properties are in fact as good as Simon and Macerich on the whole, and will command quite high rents, like those already seen at San Diego, and soon to be seen at Aventura, Hicksville, Valley View and others.

but a lot of SRG value will be proven through JVs with residential sales, as seen already at Redmond and Hicksville.  SRG is a different beast than Simon or Macerich or GGP.  I mean, GGP was sold to BPY because they realized they were screwed and couldn't change to mixed use in a public environment.

the situation is more nuanced than just picking headline rent numbers and saying x >y.






Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 14, 2018, 11:04:15 AM
You said SRG got the best stores/locations, well wouldn't one expect then rents to be higher than even the ones advertized by 50% of SPG numbers?

no!

the thesis, through a margin of safety lens, is that SRG can undercut these inflated rent levels, release space at 17 (or 25$ a square foot if you look to projected stabilized numbers) and still make 4-5x off their rents at acquisition.

this is the worst case.

the best case is that their properties are in fact as good as Simon and Macerich on the whole, and will command quite high rents, like those already seen at San Diego, and soon to be seen at Aventura, Hicksville, Valley View and others.

but a lot of SRG value will be proven through JVs with residential sales, as seen already at Redmond and Hicksville.  SRG is a different beast than Simon or Macerich or GGP.  I mean, GGP was sold to BPY because they realized they were screwed and couldn't change to mixed use in a public environment.

the situation is more nuanced than just picking headline rent numbers and saying x >y.

One clue ... $1,200,000,000
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on October 15, 2018, 05:56:57 AM
You said SRG got the best stores/locations, well wouldn't one expect then rents to be higher than even the ones advertized by 50% of SPG numbers?

no!

the thesis, through a margin of safety lens, is that SRG can undercut these inflated rent levels, release space at 17 (or 25$ a square foot if you look to projected stabilized numbers) and still make 4-5x off their rents at acquisition.

this is the worst case.

the best case is that their properties are in fact as good as Simon and Macerich on the whole, and will command quite high rents, like those already seen at San Diego, and soon to be seen at Aventura, Hicksville, Valley View and others.

but a lot of SRG value will be proven through JVs with residential sales, as seen already at Redmond and Hicksville.  SRG is a different beast than Simon or Macerich or GGP.  I mean, GGP was sold to BPY because they realized they were screwed and couldn't change to mixed use in a public environment.

the situation is more nuanced than just picking headline rent numbers and saying x >y.

One clue ... $1,200,000,000

COBF can be a great place for a thoughtful discussion, but it doesn't seem like that is what you are seeking here.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on October 15, 2018, 08:25:27 AM
"In malls where leases were signed decades ago, Sears rents could be as low as $4 a square foot. New tenants in the same space could bring as much as six times that amount."

https://www.wsj.com/articles/sears-exit-would-leave-big-holes-in-malls-some-landlords-welcome-that-1539342000

I don't think we see this situation again. There's not another Sears going under with these kind of goofy low rents. And SRG owns the best and the most.

JC Penney is next. Their debt load + free cash flow breakeven during a banner retail year like 2018 does not bode well for the future. They can last a few years maybe, but that's it.
Title: Re: SRG - Seritage Growth Properties
Post by: SlowAppreciation on October 15, 2018, 08:31:06 AM
http://ir.seritage.com/file/Index?KeyFile=395346869
Title: Re: SRG - Seritage Growth Properties
Post by: DRValue on October 15, 2018, 08:36:12 AM
I expect the Dividend to be cut but like the preferred if they go lower.
Title: Re: SRG - Seritage Growth Properties
Post by: koshigoe on October 15, 2018, 09:27:33 AM


JC Penney is next. Their debt load + free cash flow breakeven during a banner retail year like 2018 does not bode well for the future. They can last a few years maybe, but that's it.

yes, sure, though there is no SRG-like entity that will benefit en masse from JC Penny going under. The SRG / SHLD situation is a one off it seems, where SRG is the lone or at least lion share beneficiary from a retailers collapse.

there was a similar situation back in the 70s/80s with Vornado that Buffett was on the board of for a time. He lamented missing out on the situation as he resigned before it rocketed up over the next 20 years. It's a footnote in Snowball.

To your JC Penny point, Buffett has said that rather than bet on which car manufacturer will win, the right choice was to short horses. A lot of these 'old white guys' on the boards of these mall REITS have doomed their companies.

My other large position is *** potential trigger warning *** JD.com. BABA to me is black box that pushes into gray too much, and I see JD winning over long term. It's an interesting situation and some of the data/research from AMZN, SRG, and retailers/landlord struggles can be applied there it seems.

Title: Re: SRG - Seritage Growth Properties
Post by: Foreign Tuffett on October 15, 2018, 09:37:19 AM
Lots of SRG-owned stores on this list.


https://www.businessinsider.com/sears-kmart-stores-closing-list-2018-10 (https://www.businessinsider.com/sears-kmart-stores-closing-list-2018-10)
Title: Re: SRG - Seritage Growth Properties
Post by: alexbossert on October 15, 2018, 09:44:53 AM
Ben Schall wrote a very well done letter to shareholders this morning:

http://ir.seritage.com/Cache/1001244146.PDF?O=PDF&T=&Y=&D=&FID=1001244146&iid=4584761
Title: Re: SRG - Seritage Growth Properties
Post by: Shane on October 15, 2018, 09:45:30 AM
Stock up +5.7%, I'm a little surprised.  Had hoped for lower prices to top up.
Title: Re: SRG - Seritage Growth Properties
Post by: cubsfan on October 15, 2018, 11:52:04 AM
Ben Schall wrote a very well done letter to shareholders this morning:

http://ir.seritage.com/Cache/1001244146.PDF?O=PDF&T=&Y=&D=&FID=1001244146&iid=4584761

Thanks for posting Alex - great communication by Ben Schall.
Boy, oh boy, if you parse his letter carefully and believe it - this is going to be a great investment.
I wouldn't want to be part of the 10M shares that are short.
Title: Re: SRG - Seritage Growth Properties
Post by: LongTermView on October 15, 2018, 01:16:25 PM
Ben Schall wrote a very well done letter to shareholders this morning:

http://ir.seritage.com/Cache/1001244146.PDF?O=PDF&T=&Y=&D=&FID=1001244146&iid=4584761

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.
Title: Re: SRG - Seritage Growth Properties
Post by: Candyman1 on October 16, 2018, 09:59:59 AM
Ben Schall wrote a very well done letter to shareholders this morning:

http://ir.seritage.com/Cache/1001244146.PDF?O=PDF&T=&Y=&D=&FID=1001244146&iid=4584761

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.

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.
Title: Re: SRG - Seritage Growth Properties
Post by: peridotcapital on October 16, 2018, 10:07:23 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 m