SRG - Seritage Growth Properties

[WneverLOSE]

For those that are actively bearish and those that stay away (or are agnostic to SRG) because of some concerns,  what are your concerns or reasons to be bearish on SRG?

I own a bit of SRG but unlike most of the people here I don't expect phenomenal results, I expect 7% if things go not that great or 18% if all the stars align.
I think the major reasons are : not being able to value the company with some sort of accuracy (impossible in my opinion), not liking the sector of retail property and being bearish on fixed  or near fixed income assets such as bonds and real estate (due to macroeconomics views on interest rates and so on).

edit : and of course the obvious one, Sears potential bankruptcy and SRG reliance on them.

[doughishere]

Interesting SA story from the POV of a developer turned FinTwit and more

https://seekingalpha.com/amp/article/4080637-thrill-victory-worth-agony-defeat

Very interesting that the argument here for the sears/srg anchors(auto centers?) is so that B&N("the original store just a block away") would find it attractive to move into as it downsize. Seems more like a consolidation.


And it does kinda make sense.......The B&N did pretty much the same thing in my hometown a few years ago.  I dont remember if it was a sears(probably not) but they did move into the mall.

Still going to. I was back home and in there picking up a barrons on a weekend i was visiting. I as actually a little shocked how many people were in there.....no millennials but it was maybe half past 9 on a saturday or sunday morning.

 

Edit: Sears owns that property.

[doughishere]

Sears also owns the one in lafyette, La and the one in bloomington, Il that CBL marks as T2. For what its worth.


Is there a list of properties for SRG?

[doughishere]

Its strange because either theres like a "big short" CRE "wave of bankruptcies" (most of which is already priced in and sounds like its dependent on a Sears bankruptcy, according to the article) that ends in something like a massive(maybe too strong of a word) bailout of sears to effectively bail out the rest of CRE? I admit it sounds a bit dramatic. 


And then theres a narrative which is the exact opposite. Retail is not entirely dead instead its consolidating and that some of the properties have value.

1) This quote from the SA article. I mean he kinda says that hes still on the sidelines. Not the first time ive heard that before. SRG is kinda a running joke..."I like it but after the Sears bankruptcy."

It’s clear that the REIT market is already pricing in a Sears bankruptcy that will leave many Mall REITs scrambling for cover. The Mall REITs with the most Sears exposure include PEI, CBL, WPG, and of course SRG…

Trouble is still brewing, and whether it’s a secular or a cyclical shift, I don’t think it’s prudent to place any bets on CBL, WPG, or SRG until there is more clarity.

2) Seritage's CEOs comments from the NAREIT conference (h/t: LongTermView). basically saying that rents at old sears stores are going up. I quote:

During the last 18 months, Seritage has leased almost 3 million square feet of space, Schall said. In the process, rent has increased from the Sears level of $4 per foot to $18 per foot

https://www.reit.com/news/videos/seritage-expected-approach-1-billion-new-development-year-end


3) This press release from Sears a from May 25 saying the...

executed $28 million of real estate sales out of over $700 million in bids received to date on over 60 properties

http://www.reuters.com/article/brief-sears-presentation-executed-28-mln-idUSFWN1IR090

Could that be the end of the assets for Sears? And how many have they closed this year already?

4) And then there peripheral stuff like Buffett seems to believe in SRG it still. I Dont think hes sold has he? And some rather bullish articles in the WSJ recently. And I though I heard Aldi wanted to open up some new stores. And I think that Lone Pine also covered their sears short awhile back?



What would happen if there was No Sears bankruptcy? No way that seems probable with all their bleeding.




Edit: I mean what could a property like this one on Irving Park and North Ave in Chicago be worth to a developer? Thats a big piece of property. What does ackman(?) say "The parking lot." /s    That property is in a pretty average american spot. It says median income is $55k. Which lines up with a quick google search.

Here Look for yourself. https://shcrealestate.com/

[doughishere]

One last thing that was kinda haunting me, and im not 100% sure, but i think it was Buffett that said at the latest annual meeting that about 10% of their sales at Nebraska Furnatur Mart was online sales and store pickup. Which would be consistent with FRED.....Hardly the death of retail although it is of some concern.

Edit: He did get out of Walmart. Clearly that chart is going to continue up and to the right.

[doughishere]

One final disconnect. Didnt Charlie Munger say that Real Estate was the easiest to value because it had a cashflow and that everyone was in the game? Some story about the "Patels"? I didnt get that comment. And thats why he liked the stock market so much more? I think it was the latest DJCO meeting.

Well now isnt there cashflow data associated with SRG?

Here, source. https://www.youtube.com/watch?v=KZtGpUl5vC8&list=PLznYPOzm2L21OYxOpzbwObdJmOEqhSkzc&index=8

[Mephistopheles]

I think the bigger risk with SRG is the supply/demand uncertainty with retail space, but so far that's been proven wrong.

SHLD bankruptcy risk for SRG is remote. I don't see Lampert letting SHLD go bankrupt without first securing SRG. He's come this far burning the furniture to keep the fire alive, and lending SHLD his own money, why stop now and risk both companies? On the other hand, SRG is just a liquidity problem in the case of a SHLD bankruptcy. They can sell their JV's for instance and get the money for the short term to ramp up new leases if need be. Also most of the SHLD stores owned by SRG are EBITDAR positive (at least as of 2015 which I know is ages ago for this stat) so they probably wouldn't shut down even in a BK.

[doughishere]

I think when he mentioned "the Patel's" he was taking about owner operators in the lodging space?

Seems like being able to increase $/sq ft would be enticing (as a landlord/tenant?)

There's so many ins & outs here...

Enticing? They are already doing it before your very eyes. And people are already circling sears like sharks in the water. People want these properties. They WANT Sears to fail and sell those properties.

Plaintiffs nonetheless alleged that (1) this transaction constituted self-dealing because ESL and Mr. Lampert effectively stood on “both sides of the deal” and, as a result, the court should review the transaction for entire fairness, and (2) the transaction was not entirely fair to Sears because the purchase price for its stores was $300 million too low.  Plaintiffs also alleged that ESL, Mr. Lampert, Sears’ board, and Seritage (the last as an alleged aider and abettor) were jointly and severally liable to Sears for this purported $300 million shortfall.

Chancery Court Suggests that Rights Offerings May Limit Liability in Transactions with Controlling Stockholders
http://www.clearymawatch.com/2017/06/chancery-court-suggests-rights-offerings-may-limit-liability-transactions-controlling-stockholders/



So either the properties (SRGs and i guess according to bruce's presentation there shlds?) are a doughnut or everyone is fighting over the "Patel's" property and they are holding on to it as much as they can while ex-Sears properties are increasing in rent......I dont think it can be both?



Edit:
Plus what DooDoo said in the post before this one. And then you get the option of SWY....so in reality while everyone is making fun of SYW(the right hand?) SRG is actually delivering on higher rents(the left hand?)


That sounds insane.

[doughishere]

Conventional wisdom in CRE right now would suggest you couldn't tell the difference between the below article and and onion article. I just dont get the disconnected between this and what SRG is doing and what SHLD is selling....well at least looking at offers on as of this moment.


http://www.nydailynews.com/new-york/manhattan/macy-herald-square-evacuated-dumpster-catches-fire-article-1.3243766?cid=bitly

[doughishere]

Why hasn't Sears been able to successfully run the Auto Centers?

How hard can it be?

I havent heard of anyone really putting figures on it to a lot of accuracy. But there was that Icahn deal recently and I dont think gas cars are going away in the near future. I mean maybe. But even then we know those properties have value or at least that guy on SA thought they were, how did he put it....."The Sears Auto store is the crown jewel site"