Author Topic: SRG - Seritage Growth Properties  (Read 535885 times)

SlowAppreciation

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Re: SRG - Seritage Growth Properties
« Reply #170 on: December 14, 2016, 11:53:02 AM »
Should have clarified that I meant the G&A was an operating expense (I understand the reasoning for adding back D&A and Acq-relate charges). I just don't see how G&A isn't an operating expense...

"Our primary cash expenses consist of our property operating expenses, general and administrative expenses, interest expense and construction and development related costs. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is primarily on our mortgage loan payable."

G&A is an operating expense of course, but NOI is a measure of property level income. It allows for investors to get an idea of the performance of the portfolio at the property level, insulating the performance of the actual real estate from the impacts of corporate expenses. It's not intended to be used to value the company as a whole. Make sense?

Thanks for clarifying. Yeah, I think this makes sense if someone were to acquire the company but I still feel more comfortable valuing it as if I were buying an operating business. SGA costs are costs that have to be paid, and the buildings aren't going to rent themselves out.

I'm long SRG and keep trying to "kill" it, and this generally means using very conservative assumptions. I do have a few more questions on SRG (and REITs in general):

  • What are you guys estimating for maintenance Capex for AFFO? $20m?
  • If we assume SRG reclaims 2m sqft/yr and it costs $100/sqft to do so, FCF doesn't support current valuations. Is FCF flawed with REITs?
  • I've seen a lot of various ways to get to a NAV (balance sheet-based vs inferring it from a given cap rate). Any preference here?



glorysk87

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Re: SRG - Seritage Growth Properties
« Reply #171 on: December 14, 2016, 12:10:12 PM »
Thanks for clarifying. Yeah, I think this makes sense if someone were to acquire the company but I still feel more comfortable valuing it as if I were buying an operating business. SGA costs are costs that have to be paid, and the buildings aren't going to rent themselves out.

I'm long SRG and keep trying to "kill" it, and this generally means using very conservative assumptions. I do have a few more questions on SRG (and REITs in general):

  • What are you guys estimating for maintenance Capex for AFFO? $20m?
  • If we assume SRG reclaims 2m sqft/yr and it costs $100/sqft to do so, FCF doesn't support current valuations. Is FCF flawed with REITs?
  • I've seen a lot of various ways to get to a NAV (balance sheet-based vs inferring it from a given cap rate). Any preference here?

You're free to value the company as you see fit. I just wanted to clarify the definition of NOI.

SlowAppreciation

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Re: SRG - Seritage Growth Properties
« Reply #172 on: December 14, 2016, 12:27:24 PM »
Thanks for clarifying. Yeah, I think this makes sense if someone were to acquire the company but I still feel more comfortable valuing it as if I were buying an operating business. SGA costs are costs that have to be paid, and the buildings aren't going to rent themselves out.

I'm long SRG and keep trying to "kill" it, and this generally means using very conservative assumptions. I do have a few more questions on SRG (and REITs in general):

  • What are you guys estimating for maintenance Capex for AFFO? $20m?
  • If we assume SRG reclaims 2m sqft/yr and it costs $100/sqft to do so, FCF doesn't support current valuations. Is FCF flawed with REITs?
  • I've seen a lot of various ways to get to a NAV (balance sheet-based vs inferring it from a given cap rate). Any preference here?

You're free to value the company as you see fit. I just wanted to clarify the definition of NOI.

Sorry, wasn't saying you're wrong or anything, and I do sincerely appreciate the definition.

scorpioncapital

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Re: SRG - Seritage Growth Properties
« Reply #173 on: December 14, 2016, 03:52:47 PM »
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

BTShine

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Re: SRG - Seritage Growth Properties
« Reply #174 on: December 14, 2016, 06:31:07 PM »
They likely would be able to access mortgage financing for much of their existing property.  They're not very leveraged.

DooDiligence

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Re: SRG - Seritage Growth Properties
« Reply #175 on: December 15, 2016, 12:36:24 AM »
I'm new to this space & am interested in your thoughts on the following:

https://www.lowenstein.com/files/Publication/cf50b2ab-8d73-4835-920b-614a2e3f5802/Presentation/PublicationAttachment/68a5ceb7-9efc-4d2d-b7d9-d559c1168054/Will%20Innovative%20Moves%20Reverse%20the%20'Death%20Spiral'%20of%20Malls.pdf

I know that General Growth & Seritage are two different companies & was just wondering if mall operators were likely to start being their own customers more & more?
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SlowAppreciation

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Re: SRG - Seritage Growth Properties
« Reply #176 on: December 15, 2016, 09:35:17 AM »
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

Yeah I think your comparison to cable companies is spot on. So probably best way of looking at SRG in the short-medium term would be to conservatively estimate out NOI, and then back into a NAV using comp cap rates?

KJP

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Re: SRG - Seritage Growth Properties
« Reply #177 on: December 15, 2016, 09:47:54 AM »
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

Yeah I think your comparison to cable companies is spot on. So probably best way of looking at SRG in the short-medium term would be to conservatively estimate out NOI, and then back into a NAV using comp cap rates?

How are you accounting for the money and time it will take to get to your stabilized NOI?

SlowAppreciation

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Re: SRG - Seritage Growth Properties
« Reply #178 on: December 15, 2016, 12:35:16 PM »
A company developing property probably shouldn't have any free cash flow. I don't think the idea of free cash flow supporting development cost is necessarily the metric to consider. Look at a cable company. In fact, a case can be made that no cash flow is just fine during this phase of the process. But when the building is complete and the rents are coming in, you are in the harvesting phase and then FCF is most certainly warranted. What is important, of course, is to match development cost with resources on hand, or raising capital, or developing slowly enough to support the venture. I also don't think the dividend is warranted but it suggests they are not developing at top speed yet. I wouldn't be upset or surprised if the dividend was cut to zero during this process.

Yeah I think your comparison to cable companies is spot on. So probably best way of looking at SRG in the short-medium term would be to conservatively estimate out NOI, and then back into a NAV using comp cap rates?

How are you accounting for the money and time it will take to get to your stabilized NOI?

My model uses a bunch of different inputs/assumptions to play with so feel free to check it out. I'll be the first to admit it's still plenty rough around the edges, but I'm still new to valuing REITs so I'd love any suggestions/criticisms about the model, assumptions used, formulas, etc.

scorpioncapital

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Re: SRG - Seritage Growth Properties
« Reply #179 on: December 15, 2016, 04:53:02 PM »
This is the definition of investing: Laying out a dollar today in the hopes of getting back more than a dollar tomorrow.