I'm very open-minded on Seritage, so would be grateful if somebody who's bullish could help me place a missing link in my analysis.

When viewed as a 'cigar-butt' investment, I can see a liquidation value margin of safety at $10 or lower after the debt's been repaid. But where I am having more trouble is making the link between where SRG is today, and the belief that it could become a multi-bagger 10 to 20 years down the road.

I respect and admire a lot of the 'guru' investors who have recently ploughed into the stock, and am particularly curious about the fact that Guy Spier added to his position in Q2. Spier by his own admission is far more risk-averse than Pabrai, and yet he added a significant tranche to his position. So I am still on a journey to try and make the link as to how this stock becomes a long-term compounder before I file it in the 'too hard' box.

Phil Town recently commented that the stock has the potential upside of reaching $140 a share long-term. I have reverse-engineered this figure as follows;

$140 * 55.9m shares = $7.8bn

Add $1.6bn of existing debt for an EV of $9.4bn

Assume a more optimistic long-term cap rate on well developed properties at around 6%, and we get approx $550m NOI, which can be achieved if we optimistically assume $25 rents per sq foot on 22m sq ft of GLA (this also assumes that SRG sells another 7m sq ft of GLA in the coming years).

Even if we assume that these reasonably optimistic assumptions play out, here is the missing link I just can't piece together right now...

In the latest 10Q dated June 30th, SRG states that out a total GLA of approx 29.3m sq ft (including their share of JV properties), approx 18.8m sq ft is either being redeveloped or is available for lease. As described above, if we assume that 7m sq ft gets sold off, that still leaves 11.8m sq ft of GLA that needs significant redevelopment expenditure in order to achieve a rental figure of $25 per sq ft.

Assuming a 15% yield on CapEx redevelopment, SRG would have to spend $166 per sq ft in order to achieve rental income of $25. That's almost an additional $2bn that needs to be spent on the remaining 11.8m sq ft of GLA that is currently not generating any income for Seritage. Some of this figure is clearly going to be covered by the sale of further properties, but nowhere near enough to cover the full sum. And that's before we even factor in the cash burn they are going through right now (although Berkshire's leeway on interest payments should cash levels fall too low will clearly give them breathing space, particularly as the rate of cash burn declined a lot in Q2).

Therefore, when I look at a cautious investor such as Guy Spier adding to his position, I cannot bridge the link between the 'cigar-butt' outcome, which I can see a lot more clearly, and the 'multi-bagger' outcome, which I am struggling with.

Have I made erroneous assumptions regarding the redevelopment build costs? Is it actually the case that a substantial number of the remaining properties are already in much better condition than I am envisaging, thereby requiring significantly less average redevelopment costs of $166 per sq ft?

I don't want to throw in the towel on this just yet so would appreciate any insights into where you might think I am going wrong. Thank you.