SRG - Seritage Growth Properties

[Spekulatius]

Seritage has 2$ per share of FFO and they pay 1$ per share in dividends.
My question is why ?

I know that they must pay 90% of taxable income to qualify as a REIT but SRG has net loss and they could use the money to diversify away from sears much quicker...

It is correct that SRG does not need to pay a dividend for tax reasons right now, due to showing losses. The reason SRG does pay is probably because it is customary for a REIT to do so and it makes it an easy sell to institutional investors, some of which require a stock to be dividend paying.

[WneverLOSE]

It is correct that SRG does not need to pay a dividend for tax reasons right now, due to showing losses. The reason SRG does pay is probably because it is customary for a REIT to do so and it makes it an easy sell to institutional investors, some of which require a stock to be dividend paying.

seems very excessive to me for them to pay 50% in dividends while having to redevelop 90%+ of their assets at what seems to be a very attractive returns.

Is it that simple ? management will sacrifice good capital allocation for short term approval of investors (I would call them renters and not owners but this is another story)

[Spekulatius]

It is correct that SRG does not need to pay a dividend for tax reasons right now, due to showing losses. The reason SRG does pay is probably because it is customary for a REIT to do so and it makes it an easy sell to institutional investors, some of which require a stock to be dividend paying.

seems very excessive to me for them to pay 50% in dividends while having to redevelop 90%+ of their assets at what seems to be a very attractive returns.

Is it that simple ? management will sacrifice good capital allocation for short term approval of investors (I would call them renters and not owners but this is another story)

It probably is that simple, unless you have a different explanation. I don’t know any REIT that does not pay a dividend, unless it is in deep distress. Even in 2009, most if not all Reits continued to pay a Evis den (albeit drastically reduced), even after deeply discounted secondaries.

[BTShine]

From my understanding the dividend is purely tax related.  They pay the dividend because the rules of REIT's say they must.

[Spekulatius]

From my understanding the dividend is purely tax related.  They pay the dividend because the rules of REIT's say they must.

Reits are required to pay out at least 90% of taxabable income as dividend. Since SRG is still having losses, I don’t think they would need to pay out anything at this point.
https://www.sec.gov/fast-answers/answersreitshtm.html

[WneverLOSE]

It is a question that bothers me, I sent IR a message, hopefully this time I will get a reply

[BTShine]

I believe it may be due to the difference between tax accounting and GAAP accounting.

[glorysk87]

A) Tax accounting and GAAP accounting are different, so you can't just look at the income statement and make the call that they don't need to pay a dividend

B) They need to pay a decent dividend otherwise the already small investor base they have would vanish and their cost of equity would skyrocket.

[DooDiligence]

A) Tax accounting and GAAP accounting are different, so you can't just look at the income statement and make the call that they don't need to pay a dividend

B) They need to pay a decent dividend otherwise the already small investor base they have would vanish and their cost of equity would skyrocket.

Dividend addiction is just sad.

[bizaro86]

The cost of equity argument seems odd to me. There is no possible justification for their current valuation unless you think they have many accretive redevelopment opportunities.

If you believe that, you should want them to retain capital to pursue these opportunities as fast as possible. That has the side benefit of reducing the risk of significant poorly timed dilution if Sears files early.

If you don't believe they have good reinvestment opportunities, why would you buy this? The answer is you wouldn't.