thanks. Let me restate my question.
What has changed in the risk profile of the asset in the last 6 months that Pabrai and Spier has been selling out? As far as I can see, the re-development and re-tenanting is going well. Please advise if there are any thoughts. Thanks
Pabrai had indicated that he sold out SRG because of the risk of default from SHLD. He indicated that if SHLD becomes insolvent or files for chapter 11 that SRG wouldn't be able to redevelop their properties because of its large exposure to SHLD. Then came the going concern risk disclosure in the 2016 10K which spooked everyone.
However, if you look at what SHLD has done in the first 2 quarters things are looking good for the company's liqudity - real estate sales, loan renegotiation, pension funding status, Amazon partnership, Kenmore licensing agreements (see this
infographic). Q2 saw significantly improved adjusted EBITDA and net income from the same period last year.
SHLD has also been quite successful in re-tenanting SHLD stores. Given the recent strong quarter of SRG, it validates not only the real estate portfolio of SRG but also of SHLD. This validation of real estate should reduce the risk profile to SRG since SHLD does have liquidity options to sell more real estate to fund its ongoing operations. With SHLD having liquidity options, the risk of SHLD going insolvent would be reduced which would then decrease the risk profile of SHLD to SRG.