SRG - Seritage Growth Properties

[koshigoe]

It was maximum buying rate too, about 10-20% of the volume on each of the three days.

[cmlber]

1) Is fraudulent conveyance risk still in play if they lap the 2 year anniversary on the rights offering without a significant credit event?

2) This is the thematic issue that bothers me, however a mitigating factor is that there is always going to be a use for centralize real estate the question is just what the economics will be on whatever ends up being the first and best use 10 years from now. Worst case scenario, some of the boxes turn into warehouses, distribution centers, etc, right? It's not like the downside is them being left empty, the downside is now getting a $20-40/sqft tenant, but perhaps you can balance the economics by spending less on redevelopment. Would be interested to hear other's thoughts on this though as it is a big overhang with the amount of real estate that might come on the market if traditional retail continues to falter.

1) I'm not a lawyer, but I believe the look back period is 4 years under Illinois state law.  And I believe a case can be made that each time SHLD gives back space, that is a new transfer with it's own 4 (or 2) year clock.

2) I'm sure there will be some use for these boxes, but how valuable will those uses be?  There may be lower rent / lower redevelopment cost options, but it's a big unknown.  At this price, if you were comfortable with 1), it's probably not a huge risk though.   Especially since some of SRG's properties are high end centers that will likely always exist.

[HalfMeasure]

1) I'm not a lawyer, but I believe the look back period is 4 years under Illinois state law.  And I believe a case can be made that each time SHLD gives back space, that is a new transfer with it's own 4 (or 2) year clock.

2) I'm sure there will be some use for these boxes, but how valuable will those uses be?  There may be lower rent / lower redevelopment cost options, but it's a big unknown.  At this price, if you were comfortable with 1), it's probably not a huge risk though.   Especially since some of SRG's properties are high end centers that will likely always exist.

Thanks - that's an interesting point on the nuanced mechanics of SHLD putting back space. Not a lawyer either, but I would imagine that wouldn't count as a new transfer since ownership has already transferred and SHLD is just putting back space under the master lease. The argument could definitely be made either way and I'm not sure how the law would look at such a situation.

[scorpioncapital]

Investors in SRG should be rooting for a fraudulent conveyance case since it would suggest they got a good deal. If the case won't pay out much, shareholders may have overpaid and not be so happy

[SlowAppreciation]

http://www.businesswire.com/news/home/20170117005459/en/Seritage-Growth-Properties-Announces-Leasing-Development-Activity

[Mephistopheles]

So I just did some semi-anecdotal research and thought I'd share with you guys. As of 3Q16, SRG has developed or began working on 25 projects totalling 2 million square feet. This doesn't include the 15 projects that commenced prior to the SHLD spinoff. They've spent $286,500,000 on these 2 million sq ft, which is about $150 PSF. Incremental NOI PSF is $16.35, for a 11.4% yield.

What surprised me was the modest quality of these 25 properties. First of, 9 of the projects are in B or C rated malls at $250 to $400 PSF in sales. Only half of the projects are in malls. The other half are in freestanding/shopping centers for which I don't have the PSF information, except the Park North Shopping Center in San Antonio, which has $760 PSF in sales (auto center being redeveloped there). Overall, 5 of the properties are class A rated including this one shopping center. I'm assuming the rest of the non-malls are B rated at best. 5 of the properties are Kmarts, with the balance being Sears and/or Auto Centers.

What struck me is that 3 of the Kmarts are earning hefty rents upon redevelopment - $15, $17, $29 incremental PSF, based on reverse engineering the 11.4% incremental yield. What is also interesting is the site densification. For instance, the King of Prussia Auto Center is being redeveloped into a 29,100 square feet project, while the former Sears auto center occupied only 21,260 SF of space.

I guess the takeaway from this, for me atleast, is that (1) they're not necessarily working on their very best properties first, (2) Freestanding/Shopping centers/Kmarts are not all duds, (3) Class C/B do have very good potential, (4) Don't ignore the use of all the land/acres where they can build more.

This is 2 million out of 40 million SF of space, so about 5%, not exactly indicative of the entire company but can't be ignored either. Also they announced 680,500 SF of new activity at a cost of $166 PSF in 8 projects during 4Q16 at 14-15% incremental yield..should be very interesting to see which properties these are when they release earnings.

[negative alpha]

These are also unlevered yields; add a bit of debt and the ROI gets really interesting.

[BargainValueHunter]

FWIW - Bruce is adding this week -
https://www.sec.gov/Archives/edgar/data/1214344/000091957417000504/xslF345X03/p7394173.xml

Berkowitz is up to 3,649,550 shares as of yesterday. He probably should have traded out of his large SHLD position 18 months ago and into SRG then.

[argonaut]

Has anyone confirmed that WEB Stills owns his block from 2015?

[sleepydragon]

Just found out Berkowitz voted for Trump...