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.
