Author Topic: SRG - Seritage Growth Properties  (Read 535343 times)

DooDiligence

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DooDiligence

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Re: SRG - Seritage Growth Properties
« Reply #351 on: June 13, 2017, 04:36:22 PM »
I actually think there's a way for SRG to issue equity and buy SHLD properties in a way that is good for both SRG and SHLD.  If it's done in a way similar to the current master lease, then I'd say maybe not that great.  But if they're getting the ability to take 100% instead of 50% with various termination fees on better development yields, then you could say that SRG is an entity that can pay a bit more for these assets.  1) it would drive returns at SRG (and Lampert would benefit through his portion of a rights offering), 2) it would give SRG more time to work on the existing redevelopment (they clearly need more time to avoid triggering debt yield covenants), 3) anything credit positive at SHLD (such as large asset sales) is a positive for SRG (at least for the next couple or few years).  So say Lampert puts up a block of assets for sale, SRG could easily be the highest bidder, it's very possible that SRG would react favorably to this, any rights offering would be oversubbed and Lampert wouldn't need to foot the bill for another $1 billion on his own.

It might better explain the harsh unsecured loan to SRG.  Without ESL backstopping with asset sales or redevelopment capital it's hard to get anyone else to participate or jump in the water first.  Part of me thinks this unsecured loan would make me nervous as an equity holder of SRG, the other part of me thinks its just the first step to a more positive transaction.

Plus Lampert's incentives are now moving closer into the debt of SHLD and equity of SRG.  SHLD equity has become a call option (just based on $ value at ESL) and it's clear that he's got much more capital in other assets that are more reliant on the passing of time and slowing the bleed.  Will be interesting to see what happens.

++?
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writser

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Re: SRG - Seritage Growth Properties
« Reply #352 on: June 14, 2017, 07:06:13 AM »
You know that you can edit your own posts, right? No need to spam the same topic fifty times in a row with oneliners.
I'm sorry if I have offended you. Please contact this forum's safe space coordinator to work things out.

@thewritser

DooDiligence

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Re: SRG - Seritage Growth Properties
« Reply #353 on: June 14, 2017, 07:15:40 AM »
You know that you can edit your own posts, right? No need to spam the same topic fifty times in a row with oneliners.

There! Instead of editing I just deleted all the offending one liners (except this one...)
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LongTermView

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Re: SRG - Seritage Growth Properties
« Reply #354 on: June 15, 2017, 03:20:39 PM »
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'm long but I'm also pragmatic such that I entertain both bullish and bearish thoughts.

Here are some concerns in no particular order:


1. Cash flow reliance on a single tenant. The Q1 2017 supplemental shows that only $44.5 million or 19.3% of the annual rent is from In-Place Third-Party Leases. It's true that SNO Third-Party Leases make up another $47.2 million or 20.4% but signed and opened are two different things. The annual rent from SHLD is $139.4 million or 60.3%.

2. Conflict of interest. Eddie Lampert is the chairman for both SHLD and SRG. One potential example of conflict involves the decision as to whether to do a 50% recapture now at a given property or whether to wait and do a 100% recapture in the future.

As I mentioned on May 29th, Art Coppola from Macerich says that 100% recaptures make the most sense in the https://seekingalpha.com/article/4066979-macerichs-mac-ceo-art-coppola-q1-2017-results-earnings-call-transcript?part=single transcription:
Quote
I never was looking to do 50% recaptures from any of the Sears stores. It was done in the early phases and I think it was a great move to put Primark in the half or so of the Sears box at Danbury and Freehold and thatís fine, that was a good idea. But honestly, I donít see the economics makes sense to recapture 50% getting at the other seven locations and effectively pace Sears to them, shrink into the other half of the space. Because A, it costs too much money to do it and B, ultimately you're kicking the can down the road. So if and when Sears does fail, that the opportunity to redeploy the other half, probably doesnít make a lot of sense. So at this point in time, I really donít see anything happening on the development front of any of the other seven boxes.

Based on the above transcription and other information, I'm guessing the economics are often best for SRG with 100% recaptures. I'm guessing the economics are often best for SHLD with 50% recaptures as they bring in fresh tenants which increases foot traffic for the smaller SHLD stores.

3. Dividends. An argument can be made that SRG should not be paying dividends until SHLD is a smaller percentage of revenue. The "must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends" part of https://www.sec.gov/fast-answers/answersreitshtm.html shouldn't apply as the 2016 loss before taxes was $90,504,000.
 Of course we can back out most of the depreciation expense when looking at owner earnings such that there is enough money to pay dividends at this point. Still, it seems like it would be safer to not pay dividends until there is less dependence on SHLD. Some say the decision to pay dividends now is based more on incentives than economics.
« Last Edit: June 15, 2017, 05:06:08 PM by LongTermView »

DooDiligence

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Re: SRG - Seritage Growth Properties
« Reply #355 on: June 16, 2017, 04:40:18 AM »
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'm long but I'm also pragmatic such that I entertain both bullish and bearish thoughts.

Here are some concerns in no particular order:


1. Cash flow reliance on a single tenant. The Q1 2017 supplemental shows that only $44.5 million or 19.3% of the annual rent is from In-Place Third-Party Leases. It's true that SNO Third-Party Leases make up another $47.2 million or 20.4% but signed and opened are two different things. The annual rent from SHLD is $139.4 million or 60.3%.

2. Conflict of interest. Eddie Lampert is the chairman for both SHLD and SRG. One potential example of conflict involves the decision as to whether to do a 50% recapture now at a given property or whether to wait and do a 100% recapture in the future.

As I mentioned on May 29th, Art Coppola from Macerich says that 100% recaptures make the most sense in the https://seekingalpha.com/article/4066979-macerichs-mac-ceo-art-coppola-q1-2017-results-earnings-call-transcript?part=single transcription:
Quote
I never was looking to do 50% recaptures from any of the Sears stores. It was done in the early phases and I think it was a great move to put Primark in the half or so of the Sears box at Danbury and Freehold and that’s fine, that was a good idea. But honestly, I don’t see the economics makes sense to recapture 50% getting at the other seven locations and effectively pace Sears to them, shrink into the other half of the space. Because A, it costs too much money to do it and B, ultimately you're kicking the can down the road. So if and when Sears does fail, that the opportunity to redeploy the other half, probably doesn’t make a lot of sense. So at this point in time, I really don’t see anything happening on the development front of any of the other seven boxes.

Based on the above transcription and other information, I'm guessing the economics are often best for SRG with 100% recaptures. I'm guessing the economics are often best for SHLD with 50% recaptures as they bring in fresh tenants which increases foot traffic for the smaller SHLD stores.

3. Dividends. An argument can be made that SRG should not be paying dividends until SHLD is a smaller percentage of revenue. The "must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends" part of https://www.sec.gov/fast-answers/answersreitshtm.html shouldn't apply as the 2016 loss before taxes was $90,504,000.
 Of course we can back out most of the depreciation expense when looking at owner earnings such that there is enough money to pay dividends at this point. Still, it seems like it would be safer to not pay dividends until there is less dependence on SHLD. Some say the decision to pay dividends now is based more on incentives than economics.

I'm prepared to wait a while for the recaptures to remove the single tenant risk (no denying it presents a problem in their ability to renovate if this cash goes away & it's anyone's guess how long Sears will take to die or morph into whatever.)

Who dictates whether it's a 50% or 100% recapture (SHLD or SRG?)

I like a 50% recapture especially because it would seem to help Sears lower expenses (they obviously don't need the space) & the increased traffic to new tenants should help Sears revs.

I agree re: dividend & I don't even want one.

I'm anchored to the rent increase theory without regards to whether they can pull it off (prob stoopid but in good company...)
« Last Edit: June 16, 2017, 04:44:14 AM by DooDiligence »
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---

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LongTermView

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Re: SRG - Seritage Growth Properties
« Reply #356 on: June 17, 2017, 02:09:57 PM »
I'm anchored to the rent increase theory

Yeah, for me the rent increases trump all the concerns.

On another note, I'm still trying to digest yesterday's news regarding Amazon acquiring Whole Foods. It looks like SRG has Whole Foods in two spots:
Clearwater, Florida
Albany, New York

BTShine

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Re: SRG - Seritage Growth Properties
« Reply #357 on: June 20, 2017, 01:19:07 PM »

LongTermView

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Re: SRG - Seritage Growth Properties
« Reply #358 on: June 21, 2017, 08:54:40 AM »
That SRG annex from '15 lists the property as 173k sqft.....according to articles recently.....215k.  Almost a 25% increase.
Yeah, the land densification opportunities should be tremendous over the years.

The Q1 2017 Macerich call talks about repurposing land:
Quote
As one of my peers said yesterday, the opportunity to make a lot of money on taking not only the square footage but the land that these departments stores were given 30 years go to help create these malls and to repurpose that land into today's use and they help us really position these centers for the 21st century. Itís a huge opportunity especially when youíre in high population trade areas in gateway cities.

The same call discusses the fact that parking rations should decrease over time:
Quote
it's also going to be the arrival of autonomous vehicles, so that we can adjust our parking rations to a more reasonable number and intensify the properties
« Last Edit: June 21, 2017, 09:01:02 AM by LongTermView »

Foreign Tuffett

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Re: SRG - Seritage Growth Properties
« Reply #359 on: June 22, 2017, 11:26:04 PM »
Sears is closing more stores. I believe all or almost all of the stores listed are SRG-owned properties. It isn't clear if SHLD requested the lease terminations of its own accord, or SRG negotiated with SHLD for the rights to recapture 100% of the properties.

http://www.businessinsider.com/sears-is-closing-more-stores-2017-6

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