Author Topic: SRG - Seritage Growth Properties  (Read 268970 times)

Foreign Tuffett

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Re: SRG - Seritage Growth Properties
« Reply #600 on: May 29, 2018, 10:50:23 AM »
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......



cubsfan

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Re: SRG - Seritage Growth Properties
« Reply #601 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!

koshigoe

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Re: SRG - Seritage Growth Properties
« Reply #602 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.
« Last Edit: June 09, 2018, 07:23:00 PM by koshigoe »

Foreign Tuffett

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Re: SRG - Seritage Growth Properties
« Reply #603 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


koshigoe

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Re: SRG - Seritage Growth Properties
« Reply #604 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:
« Last Edit: July 07, 2018, 05:20:18 PM by koshigoe »

crastogi

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Re: SRG - Seritage Growth Properties
« Reply #605 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? 

SlowAppreciation

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Re: SRG - Seritage Growth Properties
« Reply #606 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)

Saluki

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Re: SRG - Seritage Growth Properties
« Reply #607 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. 
If it's important, do it every day. If it's not important, don't do it at all.  -Dan Gable

GCA

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Re: SRG - Seritage Growth Properties
« Reply #608 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.

koshigoe

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Re: SRG - Seritage Growth Properties
« Reply #609 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.


« Last Edit: July 09, 2018, 04:18:11 PM by koshigoe »