SRG - Seritage Growth Properties

[Foreign Tuffett]

https://www.wsj.com/articles/sears-holdings-to-close-43-more-stores-to-cut-costs-1499456195

SHLD has gotten much more aggressive with its pace of store closings lately. None of these are SRG properties.

[Foreign Tuffett]

Anyone looking at SRG should read pages 11, 12, and 13 of Fairholme's recent conference call transcript.

http://www.fairholmefundsinc.com/Documents/ConferenceCall20170629.pdf

[Ballinvarosig Investors]

http://www.businesswire.com/news/home/20170713006151/en/Seritage-Growth-Properties-Announces-Joint-Venture-Transactions

NEW YORK--(BUSINESS WIRE)--Seritage Growth Properties (NYSE:SRG) (the “Company”) today announced that it has completed two transactions with GGP Inc. (“GGP”) whereby the Company received gross consideration of $247.6 million. Pursuant to the transactions, the Company has (i) sold to GGP the Company’s 50% interest in eight of the 12 assets in the existing joint venture between the two companies for $190.1 million; and (ii) sold to GGP a 50% joint venture interest in five additional assets for $57.5 million.

“In addition, these transactions demonstrate our ability to tap into the value generated through redevelopment activity in order to redeploy capital into our next wave of accretive projects.”
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As a result of these transactions, the Company reduced amounts outstanding under its mortgage loan by $50.6 million and received approximately $171.6 million of additional cash proceeds before closing costs, which it intends to use to fund its expanding redevelopment pipeline and for general corporate purposes.

“Over the last two years, our partnership with GGP has commenced a series of value enhancing redevelopments at high-quality Sears locations attached to dominant GGP retail centers. The transactions announced today allow Seritage to crystalize this value on eight of the existing 12 assets we held in partnership with GGP, and expand our partnership with GGP on five additional assets primed for redevelopment,” said Benjamin Schall, President and Chief Executive Officer. “In addition, these transactions demonstrate our ability to tap into the value generated through redevelopment activity in order to redeploy capital into our next wave of accretive projects.”

Benefits of the Transactions

Value Realization: as a result of leasing and development progress to date, the Company realized approximately $50.0 million of value creation above its basis across the 13 properties. The Company will continue to participate in the value creation opportunity at the remaining four assets in the original joint venture and the five new joint venture properties through its 50% ownership.
Incremental Liquidity: the Company received approximately $171.6 million before closing costs of unrestricted cash proceeds and reduced the amounts outstanding under its existing mortgage loan by $50.6 million. In addition, the Company’s share of future redevelopment costs was reduced as it no longer has funding obligations on the eight assets sold to GGP, and GGP will fund 50% of redevelopment costs at the five new joint venture assets as the properties are redeveloped.
Continued Partnership: the Company and GGP will build upon our successful partnership and expect to unlock additional value through the joint venture’s future redevelopment activities.
Summary of the Transactions

1) The Company sold to GGP its 50% interests in the Sears parcels at the following eight assets for $190.1 million:

– Coronado Center (Albuquerque, NM)

– The Mall in Columbia (Columbia, MD)

– Oakbrook Center (Oakbrook, IL)

– Paramus Park (Paramus, NJ)

– Pembroke Lakes Mall (Pembroke Pines, FL)

– Ridgedale Center (Minnetonka, MN)

– Staten Island Mall (Staten Island, NY)

– Valley Plaza Mall (Bakersfield, CA)

The existing joint venture will continue to own the Sears parcels at the following properties on a 50/50 basis:

– Alderwood (Lynwood, WA)

– Natick Collection (Natick, MA)

– Sooner Mall (Norman, OK)

– Stonebriar Centre (Frisco, TX)

2) The Company sold to GGP a 50% interest in the Sears parcels at the following five assets for $57.5 million:

– Altamonte Mall (Altamonte Springs, FL)

– Cumberland Mall (Atlanta, GA)

– Coastland Center (Naples, FL)

– Northridge Fashion Center (Northridge, CA)

– Willowbrook Mall (Wayne, NJ)

The new joint venture will own and operate these assets on substantially the same terms as the existing joint venture.

The cynic in me says that Seritage want to have ample liquidity on hand in-case Sears go into bankruptcy.

[Mephistopheles]

The optimist in me says they need the funding because redevelopment is about to skyrocket 😬

[scorpioncapital]

So they were earning less than 12% on these? Because redevelopment will yield 12%...it's like investing vs owning a business. If you can get the same return with no headache or work

[Mephistopheles]

So they were earning less than 12% on these? Because redevelopment will yield 12%...it's like investing vs owning a business. If you can get the same return with no headache or work

It's better for the mall owner to own the anchors than being independently owned or JV in this case. So my guess is that SRG got a better rate than if they were to continue owning.

[Foreign Tuffett]

So they were earning less than 12% on these? Because redevelopment will yield 12%...it's like investing vs owning a business. If you can get the same return with no headache or work

It's better for the mall owner to own the anchors than being independently owned or JV in this case. So my guess is that SRG got a better rate than if they were to continue owning.

I agree with you that the mall owners are, generally speaking, the best owners of the JV properties.

I expect that we'll see SRG monetize more of its JVs in the future, and suspect that this was the plan all along. Here's a quote from SRG's S-11 filing:

"at any time after March 31, 2018 in the case of the GGP JV, April 13, 2018, in the case of the Simon JV, and April 30, 2018 in the case of the Macerich JV we will have the right to cause GGP to purchase from the GGP JV, Simon to purchase from the Simon JV, or Macerich to purchase from the Macerich JV, as applicable, any JV Property owned by the applicable JV with respect to which a certain third party leasing threshold has been satisfied at the fair market value of the property, less certain mortgage loans and other debt in respect of such property and certain selling expenses."

[LongTermView]

The Company sold to GGP a 50% interest in the Sears parcels at the following five assets for $57.5 million:
–   Altamonte Mall (Altamonte Springs, FL)
–   Cumberland Mall (Atlanta, GA)
–   Coastland Center (Naples, FL)
–   Northridge Fashion Center (Northridge, CA)
–   Willowbrook Mall (Wayne, NJ)
The new joint venture will own and operate these assets on substantially the same terms as the existing joint venture.

The above implies a market value of around $115 million, right?

Here are the gross carrying amounts and accumulated depreciation in thousands of $ from the 2016 10-K:
10,839    (582) Altamonte Mall (Altamonte Springs, FL)
15,363    (495) Cumberland Mall (Atlanta, GA)
11,066    (347) Coastland Center (Naples, FL)
  8,868    (412) Northridge Fashion Center (Northridge, CA)
17,403    (763) Willowbrook Mall (Wayne, NJ)
-------- --------
63,539 (2,599)

So $60.9 million of the "Investment in real estate, net" line from the 2016 balance sheet has a market value of around $115 million.

[Mephistopheles]

The Company sold to GGP a 50% interest in the Sears parcels at the following five assets for $57.5 million:
–   Altamonte Mall (Altamonte Springs, FL)
–   Cumberland Mall (Atlanta, GA)
–   Coastland Center (Naples, FL)
–   Northridge Fashion Center (Northridge, CA)
–   Willowbrook Mall (Wayne, NJ)
The new joint venture will own and operate these assets on substantially the same terms as the existing joint venture.

The above implies a market value of around $115 million, right?

Here are the gross carrying amounts and accumulated depreciation in thousands of $ from the 2016 10-K:
10,839    (582) Altamonte Mall (Altamonte Springs, FL)
15,363    (495) Cumberland Mall (Atlanta, GA)
11,066    (347) Coastland Center (Naples, FL)
  8,868    (412) Northridge Fashion Center (Northridge, CA)
17,403    (763) Willowbrook Mall (Wayne, NJ)
-------- --------
63,539 (2,599)

So $60.9 million of the "Investment in real estate, net" line from the 2016 balance sheet has a market value of around $115 million.

This doesn't include the $21.1 million that is allocated for the redevelopment of Willowbrook in Wayne, NJ. Construction started in Q1 of this year and is expected to be complete by Q4. Not sure how much of that was already spent though.

They said in the press release that they had $50 million of value creation above their cost basis for the 13 properties in total. They received $247.6 million, which means they spent a total of roughly $197.6 million and made a gain of 25%.

[Foreign Tuffett]

SPG CEO's Q2 call comments on Seritage attached.

SPG and MAC are waiting for SHLD to go bankrupt, or at least close the stores of its own volition, before they redevelop their SRG joint ventures. I don't think any SRG - SPG/MAC joint venture redevelopments have been initiated since SRG was spun off.

I think there are two reasons for this:
(1) SPG and MAC think the IRRs for developing 50% of the Sears boxes are significantly inferior to the IRRs for redeveloping 100% of the Sears boxes.
2) SRG has the option to force SPG and MAC to buy them out of the JVs once they are redeveloped. Redeveloping the Sears boxes puts SRG in the driver's seat.