Author Topic: SRG - Seritage Growth Properties  (Read 469409 times)

RadMan24

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Re: SRG - Seritage Growth Properties
« Reply #1000 on: August 10, 2020, 04:17:26 PM »
SRG has both crown jewel assets and multiple levers to pull to raise liquidity.

can you be more specific?

I read Third Avenue's old thesis to get an idea of the crown jewels. They pointed to Honolulu (complete and included in the numbers), Santa Monica (JV'd and unleased at the moment but the JV was at $1000/foot and will be a hiqh quality asset, San Diego (already covered) and Aventura (already covered). I then looked at the locations in every state in which i have some knowledge (ie I live in Maryland, where do they have maryland locations? I ) and couldn't find too much that inspired me. Looked in a few other states. I know the Boca location, etc.

Where are the jewels? and how much are they worth?

I have no doubt that over the long term many of SRG's locations will be and are worth more than the EV/foot or EV/eventual foot, but I struggle to see why SRG's equity holders will benefit. Berkshire's loan is in violation of covenants. Its simultaneously high enough rate to take all of SRG's economics, but too low to be attractive to PE/opportunistic capital.

 help me out. What are the multiple levers? thus far these are the levers I see:

1) deferring cash interest with Berkshire so that it accrues at 9% instead of 7%
2) not paying their suppliers / (note the $25mm in increase in payables making operating cash flow look $25mm better than it would in 1H2020)
3) selling their income producing properties for a 6% cap (pretty good!) at the pace they can, but selling something at 6% to pay off something at 7% isn't super exciting
4) doing more JV's, but doubt their JV partners are looking for more, given the state of things at MAC/Brookfield (to a much lesser extent Simon)

Have you read the covenants and the related penalty against SRG if breached?

Depends how you define crown jewels, in my mind, those are turning non=income producing assets into high quality assets. Just look for examples, like here: https://chicago.curbed.com/2018/5/16/17362108/sears-redevelopment-mixed-use-six-corners and what SRG discloses its plans for residential living across 14 sites.

If you look at something that looks uninspiring, that's fine, move on. Do you think this example of turning parking lot acres into sq ft can't be replicated?  https://www.seritage.com/retail/property/2300-tyrone-blvd-n/3312513/landing

As an side, who cares who agrees with whom - if you listened to Gregmal and bought SPG instead of SRG you would have missed 70+ percentage points of gains in a couple of months. 


Regardless, there's a lease rate of high-30s. Why are folks still worried about liquidity traps, as rent collection and store openings resume? Future tenants will be of solid prospects and looking to grow. Redevelopment opportunities will take place in a post-covid world. At this point, if you don't see it, then it's too hard.

With all due respect RadMan24, you were making comments regarding SRG being at "attractive levels" at the end of January when the stock was between $36 and $37. Given that, I have no idea why you are criticizing anyone for being bearish and missing the pop off the COVID lows. We are all wrong sometimes, but having some degree of humility is important.

You can quote what I said. But your point is taken. Now if I only had concrete evidence of big leverage and liquidity problems at SRG, or an immortal thesis taking place, I'd really learn something from this forum.   


thepupil

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Re: SRG - Seritage Growth Properties
« Reply #1001 on: August 10, 2020, 05:16:52 PM »
Now if I only had concrete evidence of big leverage and liquidity problems at SRG, or an immortal thesis taking place, I'd really learn something from this forum.

- 2019 (pre-covid): -$58mm CFOA
- Fixed charge coverage <1, attaching majority of properties to the term loan, needs berkshire's permission to do things
- Putting development pipeline on hold
- talking about paying 9% PIK to conserve cash
- not paying construction folks and getting sued for it (maybe this gets better as tenants pay):
https://www.levelset.com/blog/miami-esplanade-at-aventura-23-million-construction-liens/
https://www.levelset.com/blog/westfield-broward-plantation-florida-mall-owes-9-million-construction/
https://www.levelset.com/blog/westfield-shopping-mall-faces-lien-claims/

what would you need to see for "big issues"?

 there's certainly some evidence of potential problems, no?

do you think the LTV on the Berkshire loan has increased or decreased since underwriting?

I’m a little skeptical of the construction lien thing because it’s all from one source but I find it concerning that it spans geographies and contractors/ is not an isolated incident. I imagine developers and construction guys / subs get in disputes all the time, just wierd for SRG to get in disputes with several all at once (for not paying).

EDIT:
Is the auditor covering their ass with respect to identifying liquidity as a "critical audit matter" not a sign of a little bit of some issues? The more bullish interpretation is "they looked into it" and agree with SRG and hey there's some mention of put rights on the JV's (if these were at above market prices, that'd help SRG a lot).

Auditors are not investors, but they are saying that figuring out whether SRG has enough liquidity is a "challenging, subjective, and complex judgement".

I agree with them.

Quote
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 Liquidity — Refer to Note 1 to the financial statements


 Critical Audit Matter Description

 The Company’s primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service (collectively, “obligations”), and the reinvestment in and redevelopment of its properties (“development expenditures”).  As a result of a decrease in occupancy levels due to the Company’s recapture of space for redevelopment purposes and the execution of certain termination rights by Sears Holdings Corporation under a master lease agreement, property rental income, which is the Company’s primary source of operating cash flow, did not fully fund obligations incurred during the year ended December 31, 2019. Obligations are projected to continue to exceed property rental income until such time as additional tenants commence paying rent, and the Company plans to incur additional development expenditures as it continues to invest in the redevelopment of its portfolio.

The Company plans to fund its obligations and development expenditures with a combination of capital sources including, but not limited to, sales of wholly owned properties, sales of interests in joint venture properties (which may include the exercise of certain rights that allow the Company to sell its interests in select joint venture properties to its partners at fair market value) and potential credit and capital markets transactions.

We identified the Company’s liquidity disclosure as a critical audit matter because of the significant judgments in management’s plans to fund its obligations and development expenditures. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s conclusion that it is probable the Company’s plans will be effectively implemented within one year after the date the financial statements are issued and will provide the necessary cash flows to fund the Company’s obligations and development expenditures.
How the Critical Audit Matter Was Addressed in the Audit

 Our audit procedures related to the Company’s liquidity disclosure included the following, among others:

 We tested the effectiveness of the controls over management’s plans and related disclosures.

 We tested management’s key assumptions, including projected rental income and property operating costs by comparing such assumptions to underlying lease agreements and historical operating costs.

We evaluated management’s estimates relating to redevelopment costs by comparing to underlying development plans and costs spent to date.
 
We evaluated the timing and likelihood of potential sales of wholly owned properties and exercise of put rights within select joint ventures by comparing expected proceeds to comparable market information and historical transactions effectuated by the Company, as well as evaluating the terms and conditions present in joint venture agreements, as applicable.

 We engaged in discussions with management, including the Chief Executive Officer and Chief Financial Officer regarding management’s intent and ability to generate the planned sources of capital.

We evaluated management’s plans in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusion reached by management.

« Last Edit: August 11, 2020, 05:27:35 AM by thepupil »

scorpioncapital

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Re: SRG - Seritage Growth Properties
« Reply #1002 on: August 11, 2020, 03:35:38 AM »
srg was around 40 before covid. It seems now almost everything is approaching the pre-covid levels. Even if it doesn't reach there again for a while and reaches 20 to 25, it's still a substantial return even after the 30% gain from the 10s.

CorpRaider

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Re: SRG - Seritage Growth Properties
« Reply #1003 on: August 13, 2020, 07:13:38 PM »
Yeah, it's a no from me dawg.  Many thanks, however, to all who shared their thoughts in this thread!

changegonnacome

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Re: SRG - Seritage Growth Properties
« Reply #1004 on: August 14, 2020, 03:12:35 PM »
Pabrai has joined the fun on his 13F - not sure if thats a good or bad sign :)

scorpioncapital

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Re: SRG - Seritage Growth Properties
« Reply #1005 on: August 15, 2020, 04:48:33 AM »
You just have to look at what Buffett has done to see what he is thinking here.

1. He has bought pure equity for Berkshire in STOR. This is a solid, well run REIT. So for Berkshire he buys the highest quality investments in equity with quality management. He is not willing to put Berkshire money into anything speculative.

2. He lent 1.6 billion to SRG via Berkshire. A loan at high interest with the kicker of getting it all if they stumble. This is what you do when you do not fully trust the management, or you think there are more risks but still think it won't go bankrupt. Credit analysis. Worst case you get all the properties. He did it via Berkshire again, to be conservative.

3. He bought a *small* 6% personal stake in SRG. This smells to me of a pure speculation. As Graham has said, speculation is neither illegal nor immoral, but also not very fattening to the wallet. It was a tiny bet that it could return alot but that his loan in Berkshire is well protected anyway and the way to go on an investment basis.

I am on board with this reasoning. For Berkshire, participate as conservatively as possible. Personally, perhaps a small speculation. Those who buy the equity today could have a huge upside with all the Fed liquidity and return to normal, but by no stretch of the imagination is SRG top management. They have been aggressive and in an industry (mall reits) that is really distressed. If inflation hits, the equity is a great little out of the money call option (similar to shorting 30 year bonds perhaps)

gfp

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Re: SRG - Seritage Growth Properties
« Reply #1006 on: August 15, 2020, 09:46:24 AM »
Pabrai has joined the fun on his 13F - not sure if thats a good or bad sign :)

This was widely known since he filed on SRG back on June 10th.  Dalal owned 4,835,205 shares (12.52%) as of that date.

https://www.sec.gov/Archives/edgar/data/1549575/000154957520000008/seritage13G.txt

thepupil

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Re: SRG - Seritage Growth Properties
« Reply #1007 on: August 24, 2020, 10:00:23 AM »
According to FCPT calls / earnings results, they are buying at 6-6.5% cap rates.



FCPT Announces Second Outparcel Portfolio With Seritage Growth Properties for $27.3 million

Business Wire

MILL VALLEY, Calif. -- August 24, 2020

Four Corners Property Trust (NYSE:FCPT), a real estate investment trust engaged in the ownership of high-quality, net-leased restaurant properties (“FCPT” or the “Company”), is pleased to announce that it has signed an amendment to the deal originally announced on October 30, 2019, for the purchase of nine additional single tenant outparcel properties from Seritage Growth Properties (NYSE: SRG) for $27.3 million. The transaction is priced at a cap rate in a range consistent with past FCPT transactions. The transaction is expected to close in various tranches with the majority closing in 2020 and the remainder in 2021, subject to customary closing conditions and regulatory approvals.

The nine outparcels span four restaurant brands, three bank branches and two retail brands. The portfolio’s restaurant brands are Arby’s, BJ’s Restaurant and Brewhouse, Popeyes, and Portillo’s. The portfolio’s non-restaurant tenants are three bank branches (operated by Bank of America, Chase and Truist Bank), a Recreational Equipment, Inc. (“REI”), and an auto services center operated by American Automobile Association (“AAA”). Four of the brands (AAA, Bank of America, Chase and Truist Bank) are new to FCPT’s portfolio. The properties in this transaction have contractual rent growth, net-lease structures and strong tenancy with credit-worthy operators.

The retail outparcels are located within highly trafficked and populated corridors in California, Louisiana, Maryland, Michigan, South Carolina, Utah, Wisconsin and Virginia (2). Of the nine leases, eight are with the brand’s corporate entities and one is with a franchisee (Popeyes). Each property has a separate individual lease and the leases have a weighted average remaining term of approximately 9 years.

The aggregate portfolios between FCPT and Seritage Growth Properties totaled $96 million / 32 properties, of which $45 million / 14 properties have closed to date. After adjusting for certain properties that have been removed from the first portfolio, FCPT currently has $36 million / 13 properties remaining under contract to acquire from Seritage Growth Properties.

Bill Lenehan, CEO of Four Corners Property Trust, stated: “Over the past year we have been encouraged by the cooperation between FCPT and Seritage and are excited we will continue to partner together to drive value for both companies’ shareholders. This portfolio reflects strong credit and real estate consistent with FCPT’s commitment to only acquire high-quality properties.”

About FCPT

FCPT, headquartered in Mill Valley, CA, is a real estate investment trust primarily engaged in the acquisition and leasing of restaurant properties. The Company seeks to grow its portfolio by acquiring additional real estate to lease, on a net basis, for use in the restaurant and retail industries. Additional information about FCPT can be found on the website at www.fcpt.com.

thepupil

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Re: SRG - Seritage Growth Properties
« Reply #1008 on: September 04, 2020, 07:41:45 AM »
FCPT keeps issuing press releases about how it’s buying high quality, long term leased small assets from SRG. If SRG has a good capital structure and was clearly adding a lot of value in development, I think the case could be made that SRG is right to sell stabilized assets to deploy in higher return opps.

But don’t they need more NOI/stabilized assets? I get the feeling they are getting picked off because they need liquidity.

It seems that a rights offering or issuance would be better for long term value than selling the stuff with the best corporate guarantees and longest lease term.

Haven’t seen any SRG asset sales of non earning assets that would help them de-lever / slow down the treadmill of interest and cash burn. Perhaps those are on the come.

scorpioncapital

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Re: SRG - Seritage Growth Properties
« Reply #1009 on: September 04, 2020, 11:17:30 AM »
Good article - https://www.fool.com/investing/2020/09/04/seritage-lines-up-more-asset-sales-to-buy-time/

It says that they gave up 8 million in income to sell 158.9 million of assets in q1 & q2. That's a 5% yield. I would probably also take 160 million cash versus 8 million a year in income. But this may be because it is not yet developed and FCPT will increase the rents further?