Author Topic: SRG - Seritage Growth Properties  (Read 513178 times)

thepupil

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Re: SRG - Seritage Growth Properties
« Reply #1030 on: November 06, 2020, 08:32:59 AM »
SRG sold $100mm+ of property

Cash + Rec. went from           $146mm to $157mm  +$11mm
Accounts Payable went from    $168mm to $184mm  +$16mm

Net debt did not change, while they sold $100mm of assets. no deleveraging happening. <ó-I guess to be fair I should look at their capex/development too.

total run rate revenue (including signed not opened) =  $165mm.
Guestimmate of run rate opex and taxes                  = $71mm
Eventual NOI $91mm run rate

if we count G&A: $65mm

total run rate interest expense: $111mm

Normalized DSCR = 0.8x
With G&A            = 0.6x

Berkshire owns these assets until proven otherwise. I understand there are tons of non-earning assets here.

I don't understand how they can be sold at a pace that they don't just feed Uncle Warren's coupons. Maybe there's some super valuable ones on the come. 

To me it seems they need to raise lot of equity and refi the debt. That seems in the best interest of shareholders as piecemeal capital raises from asset sales donít delever the company.

Also it seems like they kept the run rate revenue flat at $165mm despite signing some leases. Iím assuming the difference is for assets sold and/or vacancies?

The treadmill of interest and retail headwinds seems to be at roughly the same speed as asset sales.

Is anyone interpreting the results differently?

« Last Edit: November 06, 2020, 08:50:21 AM by thepupil »


BG2008

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Re: SRG - Seritage Growth Properties
« Reply #1031 on: November 06, 2020, 11:25:17 AM »
SRG sold $100mm+ of property

Cash + Rec. went from           $146mm to $157mm  +$11mm
Accounts Payable went from    $168mm to $184mm  +$16mm

Net debt did not change, while they sold $100mm of assets. no deleveraging happening.

total run rate revenue (including signed not opened) =  $165mm.
Guestimmate of run rate opex and taxes                  = $71mm
Eventual NOI $91mm run rate

if we count G&A: $65mm

total run rate interest expense: $111mm
With G&A

Normalized DSCR = 0.8x
With G&A            = 0.6x

Berkshire owns these assets until proven otherwise. I understand there are tons of non-earning assets here.

I don't understand how they can be sold at a pace that they don't just feed Uncle Warren's coupons. Maybe there's some super valuable ones on the come.

You mean like Santa Monica?  130k sqft @ $55 (just ballparking based on Loopnet) yields $7.2mm in rent
« Last Edit: November 06, 2020, 11:30:52 AM by BG2008 »

shamelesscloner

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Re: SRG - Seritage Growth Properties
« Reply #1032 on: November 07, 2020, 01:03:31 PM »
How are folks interpreting the departure of Brian Dickman?

realassetsvalue

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Re: SRG - Seritage Growth Properties
« Reply #1033 on: November 07, 2020, 01:48:39 PM »
On the CFO departure, I have nothing to add.

The Santa Monica property will definitely be of great value once leased. Finding a big office tenant, even for primo West LA real estate, just got a whole lot harder with COVID. I think that project will get leased and be very valuable but it will probably take a while - like years not months (but now I've said it I am sure they lease it up quick).

One risk is that a lot of their most valuable properties are in JVs with better capitalized partners who are in a great position to buy SRG out at advantageous prices. As an example, Simon Property Group have elected to not start redeveloping any of the Sears boxes in their JV with Seritage - all are vacant. I presume they are waiting Seritage out in order to buy those sites at firesale prices and not need to share the upside... Both Santa Monica and La Jolla are with Invesco and I think they have more time on the clock than SRG does.

I think Pupil has accurately described the Q3 results. Selling the vacant / small assets for ~$40 PSF and lowering the operating cash outflow from taxes, etc. is good. Getting a 5.9% cap on the income producing sales they are achieving feels very good in this market and reflects that the locations they have are very strong. However, as they sell income-producing assets to plug the operating cash outflow, it gets harder and harder to get to "escape velocity" where recurring income and asset sales covers not only running costs but provides the capital they need to build out their projects.

Q3 2020 NOI was $6m, which is ~$25m annualized, down slightly from Q2 2020. G&A is on track for $40m a year, annual interest is $115m and the pref is $5m a year. Thus Q2 2020 run rate cash burn is $135m a year or about $11m a month. Unless they refinance the debt, this is the amount of NOI they need to get in place to break even. From their Term Loan amendment it looks like they can defer interest payments if their cash balance gets below a certain threshold and that will definitely buy time.

However, it sounds like they need years to get the SNO developments finished and cash flowing - they keep highlighting the potential annual rent of $13.5m that will cost ~$30m in CAPEX to unlock over the next 12 months. In-place leases total $100m ($5m from Sears, $95m third party) with about $65m of signed leases. They need to take this total to $200m excluding the Sears leases to access Berkshires additional $400m facility - in the pre-COVID environment it would take at least a year to sign that many leases (based on their 2017-2019 pace) assuming they were to sell none of their income producing properties... That in of itself may be tough to accomplished. Berkshire might give them access to the $400m - they definitely have been constructive in working with SRG - but the question is what they will want in return?

COVID really came at the worst possible time for SRG. You can see that while they were signing $40m - $45m of leases per year in 2017 - 2019, their on track to only sign $7.5m in 2020. Pre-COVID, they were really close to getting to having the leases signed and capital in place to reach a stablized NOI that would cover their costs and generate the capital to reinvest in building out the bigger projects. This environment is just a knife fight it feels like. As leases get cancelled by retailers scaling back their growth plans, that's also shrinking the SNO lease pool. This is why development is risky - even with great locations and a good team, if you get the timing wrong, things get really really hard.

The crown jewels are definitely their large-scale projects that have great potential - mixed use, the 6,500+ multifamily units they are getting permits for. I just can't see a path for current equity holders to unlock those projects without major dilution in the best case. This is one I am monitoring to see if there is reason to think that they will get to escape velocity on the redevelopment program with rents starting to cover the fixed costs or if there is a recapitalization of some sort.

But I know I am one of the more negative voices on this one on this board - any more positive takes?


RadMan24

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Re: SRG - Seritage Growth Properties
« Reply #1034 on: November 09, 2020, 10:13:33 AM »
Yea, it's called a vaccine.

thepupil

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Re: SRG - Seritage Growth Properties
« Reply #1035 on: November 09, 2020, 11:05:46 AM »
Yea, it's called a vaccine.

that's not a reason to own SRG specifically, is it?

UE       +35%
SRG    +29%
SPG     +26%
MAC     +32%
KIM      +30%
   

RadMan24

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Re: SRG - Seritage Growth Properties
« Reply #1036 on: November 09, 2020, 12:09:24 PM »
Yea, it's called a vaccine.

that's not a reason to own SRG specifically, is it?

UE       +35%
SRG    +29%
SPG     +26%
MAC     +32%
KIM      +30%
 

Coming from someone who is constantly looks in the weeds rather than the forest, I'm not surprised you came to that perspective. 

thepupil

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Re: SRG - Seritage Growth Properties
« Reply #1037 on: November 09, 2020, 12:32:04 PM »
I see. Guess I should stop focusing on the minutiae of capital structure, debt service, lease revenue, NOI and refinancing risk and instead keep in mind the big picture, such as the secular bullish tailwinds for retail real estate.

this conversation is clearly not productive. will revisit when we have more fundamental news. we'll make it a quarterly ritual of seeing if SRG grew lease revenue/NOI  enough or sold enough assets or raised enough equity to look to be in a sustainable position.

don't really understand the hostility. but whatever.



« Last Edit: November 09, 2020, 12:38:54 PM by thepupil »

Foreign Tuffett

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Re: SRG - Seritage Growth Properties
« Reply #1038 on: November 09, 2020, 01:09:12 PM »
I see. Guess I should stop focusing on the minutiae of capital structure, debt service, lease revenue, NOI and refinancing risk and instead keep in mind the big picture, such as the secular bullish tailwinds for retail real estate.

this conversation is clearly not productive. will revisit when we have more fundamental news. we'll make it a quarterly ritual of seeing if SRG grew lease revenue/NOI  enough or sold enough assets or raised enough equity to look to be in a sustainable position.

don't really understand the hostility. but whatever.

thepupil although I won't pretend that I follow this closely anymore (and so haven't attempted to duplicate your math) I agree with the basic gist of your recent posts.

The CFO resigning is also a huge red flag given the company's weak liquidity position. If this was a name I owned I would have broken out in a cold sweat when I saw that 8-K.   

To reiterate (shamelessly borrow?) something realassetsvalue posted: It is unclear how SRG reaches "escape velocity"

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BG2008

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Re: SRG - Seritage Growth Properties
« Reply #1039 on: November 09, 2020, 01:31:14 PM »
Money is cheap for companies that doesn't have perceived terminal risk 
The credit market is bifurcated into 1-3% cost of debt for those that are sustainable and growing even just 1-2% a year for the foreseeable future and usurious rates for assets that are deemed to have 10-15 year lives

I don't know what the psychological phenomenon is called.  Maybe there is a name for it.  People constantly ask me for my opinions on SRG and retail real estate investing in general.  I was approached by 20 people at an event once for my opinion on SRG.  It is almost like people are seeking confirmation that it is a good investment.   When I tell them I don't like it because it's just too hard for me.  The Amazon risk is too high.  Developments are risky.  Shit happens.  They somehow justifies it with Buffet/Munger, potential multi-bagger etc.  It is the most bizarre and weirdest psychological reaction.  I am probably being an asshole for pointing this out.  But it's a very peculiar phenomenon that I only observe with SRG, mall and retail real estate investing.  It's almost like people have made up their mind already and when I offer the bear case, they find a way to refute it.  I think I need to permanently walk around with a sign that says "no opinions on retail real estate investing."       

Maybe, the problem is that I am the asshole and I constantly project my negative views on SRG and I need to shut the F up.  No one needs a Debbie Downer.   


The one investor who did acknowledge my suggestion is Mephistopheles from the Macy's thread.  I think he actually bought some GRIF when I suggested to invest in warehouses rather than retail real estate.  We can probably write a case study on all the money lost on Department store real estate plays in the last decade.