SRG - Seritage Growth Properties

[Mephistopheles]

So just did some quick back of the envelope calculations, adjusted for proportion of JV and for operating partnership units:

SQFT: 39.67 million
Cash: $161.14 million
Debt: $1,145.10 million
Shares: 55.6 million
Stock price: $50
EV: $3,762.31

EV/SQFT is roughly $95. If they spend $100/SQFT on renovations, that's about $200/SQFT implied valuation. Latest signed but not open leases are $23/SQFT for next quarter.

If you assume $23 average rent for the entire 39.67 million SQFT, including all the Class A Sears and POS Kmarts, it's a 10% implied cap rate. So 3 questions:

1) Is $23 a fair assumption for average rent across their portfolio?
2) Is $100 across the board capex reasonable?
3) Is 10% a fair cap rate for the Kmarts but cheap for Sears?

[glorysk87]

So just did some quick back of the envelope calculations, adjusted for proportion of JV and for operating partnership units:

SQFT: 39.67 million
Cash: $161.14 million
Debt: $1,145.10 million
Shares: 55.6 million
Stock price: $50
EV: $3,762.31

EV/SQFT is roughly $95. If they spend $100/SQFT on renovations, that's about $200/SQFT implied valuation. Latest signed but not open leases are $23/SQFT for next quarter.

If you assume $23 average rent for the entire 39.67 million SQFT, including all the Class A Sears and POS Kmarts, it's a 10% implied cap rate. So 3 questions:

1) Is $23 a fair assumption for average rent across their portfolio?
2) Is $100 across the board capex reasonable?
3) Is 10% a fair cap rate for the Kmarts but cheap for Sears?

1) I'm using a more conservative view, and assuming that going forward all new tenants will be signed at around $14 psf. I think $23 may be a little high, as SRG is likely picking off the high-quality long hanging fruit first. But I could be wrong. I'd rather be conservative with it though.

2) Management has indicated that $100 psf for redevelopment is a good number to use going forward

3) I don't think 10% is fair for any of the properties. It's much higher than anything comparable you'll find. Espescially after redevelopment and re-tenanting.

[scorpioncapital]

A rule of thumb I like to think about with RE is:

Low inflation - development is cheaper. Building while debt costs and rates are low are like storing food in the summer for the winter.

Moderate-high inflation - you reap the rewards of your previous development because what you build in the past is now going to be much more expensive to redevelop, in fact, that is a competitive advantage you have by using up all - or even more of your free cash flow while rates were low. Actually this applies to all companies, those that are investing today when nobody is investing to sustain or improve their earning power in a future environment will reap benefits while others may go bankrupt or struggle immensely.

So essentially it's a balancing act. The more they can get done in this environment the better. In fact, an ideal scenario would be very low rates for maybe 5 more years. I think they'll have achieved a big chunk of their mission by then.

[SlowAppreciation]

New short thesis on VIC: https://www.valueinvestorsclub.com/idea/SERITAGE_GROWTH_PROPERTIES_9583B/138911

[scorpioncapital]

An even more negative short thesis I suppose -
http://seekingalpha.com/instablog/22912651-daniel-jennings/4923635-seritage-growth-properties-worst-reit-america

Although I would debate some of the points made such as 'No cash from operations according to ycharts.'
Clearly they have cash from operations, virtually all companies do!

[SlowAppreciation]

An even more negative short thesis I suppose -
http://seekingalpha.com/instablog/22912651-daniel-jennings/4923635-seritage-growth-properties-worst-reit-america

Although I would debate some of the points made such as 'No cash from operations according to ycharts.'
Clearly they have cash from operations, virtually all companies do!

I'm all for hearing alternate arguments, but this is probably the weakest short thesis on SRG I've come across. Doesn't seem like this guy has done his homework, and his argument of "more dividends = better" doesn't give me much confidence in his ability to analyze a business.

[wellmont]

 No cash from operations according to ycharts is all I need to know about that pitch.

[mcliu]

What about a Sears bankruptcy? Isn't that a huge risk here?

[Foreign Tuffett]

What about a Sears bankruptcy? Isn't that a huge risk here?

You might want to read back through the thread. I believe this prospect has been extensively discussed.

[FCharlie]

People have been saying Sears is going bankrupt since Sears (Kmart) came out of bankruptcy thirteen years ago.

This has me fascinated as SHLD seems to pollute practically everything it touches.

Since it keeps coming up, I wonder what everyone's opinion is on either of the following scenarios.

1) What would be the value of SRG if SHLD were not losing money and had stable sales?

2) Ignoring time being a factor, what would be the value of SRG after they upfit all of their existing real estate, with a variety of tenants, none of which being SHLD?

I suppose enterprise value is the most appropriate measure.