SRG - Seritage Growth Properties

[BG2008]

I haven't read through this whole thread.  Why buy Seritage when you can buy Simon at about 8.6% Cap rate today?

I am ny sure how you get the 8.6% cape rate. The number is almost certainly incorrect and I think the cap rate should close to 7% the or thereabouts.

It is difficult no calculator cap rate precisely because a lot of their properties are no in majority held JV, so it is difficult to account for the underlying debt in those, which is necessary that calculate the true cap rate.

Yeah, my cap rate is off due to JV adjustments.  SPG seems less interesting than I thought.

[dyow]

I don't own this stock, and i didn't see this brought up in thread, but it is something i would be asking as shareholder.

Most of Seritage are Sears stores.  If Sears files then that would hurt Seritage obviously. 

But what if Sears does not file.  The reason Jerk-pert placed more Sears stores in Seritage is bc the stores are too big, and he wants to reconfigure these stores to make them smaller.

Sears now has around 580+ Sears stores, and about 150+ of these are in Seritage.   People are worried that the company files and you would get a flood of properties hitting the market causing an oversupply (let's ignore the CF issues that would arise from losing Sears as a tenant). But, the remaining stores that Sears owns or has a below market lease are available for redevelopment right now.  All of them. 

So in effect Seritage is already competing with supply from Sears. 

This issue brings up several questions, but most importantly is there enough demand for everyone to win, or does this hurt Seritage short term in ways that can't be quantified..and other questions.  This might not change the thesis but it might impact your returns on the stock and pace of redevelopment.

I believe this would be a good question for management if you own the stock.  I am saying this because i want someone to ask and want to know the answer.

[Spekulatius]

I don't own this stock, and i didn't see this brought up in thread, but it is something i would be asking as shareholder.

Most of Seritage are Sears stores.  If Sears files then that would hurt Seritage obviously. 

But what if Sears does not file.  The reason Jerk-pert placed more Sears stores in Seritage is bc the stores are too big, and he wants to reconfigure these stores to make them smaller.

Sears now has around 580+ Sears stores, and about 150+ of these are in Seritage.   People are worried that the company files and you would get a flood of properties hitting the market causing an oversupply (let's ignore the CF issues that would arise from losing Sears as a tenant). But, the remaining stores that Sears owns or has a below market lease are available for redevelopment right now.  All of them. 

So in effect Seritage is already competing with supply from Sears. 

This issue brings up several questions, but most importantly is there enough demand for everyone to win, or does this hurt Seritage short term in ways that can't be quantified..and other questions.  This might not change the thesis but it might impact your returns on the stock and pace of redevelopment.

I believe this would be a good question for management if you own the stock.  I am saying this because i want someone to ask and want to know the answer.

Real estate is local and aggregate supply does not mean that much. If SRG owns a Sears box, it does not matter much if SHLD owns another Sears box 20 miles away as they don’t really compete with each other for tenants.

[dyow]

I don't own this stock, and i didn't see this brought up in thread, but it is something i would be asking as shareholder.

Most of Seritage are Sears stores.  If Sears files then that would hurt Seritage obviously. 

But what if Sears does not file.  The reason Jerk-pert placed more Sears stores in Seritage is bc the stores are too big, and he wants to reconfigure these stores to make them smaller.

Sears now has around 580+ Sears stores, and about 150+ of these are in Seritage.   People are worried that the company files and you would get a flood of properties hitting the market causing an oversupply (let's ignore the CF issues that would arise from losing Sears as a tenant). But, the remaining stores that Sears owns or has a below market lease are available for redevelopment right now.  All of them. 

So in effect Seritage is already competing with supply from Sears. 

This issue brings up several questions, but most importantly is there enough demand for everyone to win, or does this hurt Seritage short term in ways that can't be quantified..and other questions.  This might not change the thesis but it might impact your returns on the stock and pace of redevelopment.

I believe this would be a good question for management if you own the stock.  I am saying this because i want someone to ask and want to know the answer.

Real estate is local and aggregate supply does not mean that much. If SRG owns a Sears box, it does not matter much if SHLD owns another Sears box 20 miles away as they don’t really compete with each other for tenants.

I don't believe this is true.  It depends who the tenant is.  I would assume the vast majority of Sears box tenants would not be local mom and pop shops, they would be national brands with a lot flexibility to expand where they see fit.

If I am a tenant that has a national presence or a new international business looking to expand in the US, why would I not look at all available properties?  I would look at all available options, weigh the pros and cons, and then decide based on the best market/location to maximize cash flows. 
 

[scorpioncapital]

I think the key is to focus on the new renting per square foot and not the total volume of space owned. It really looks like a mining operation. In mining you have the areas with the highest concentration of your "gold" which you go after and then you have the "leftovers" which maybe require more effort for less payoff. If SRG mines the first 1/3 of its space at 3x the $4 base rent, you have total replacement - albeit without growth but with a more solid foundation. For growth you have to figure out how the other 2/3 will be used. To some degree this is a creative project. Imagining how these blocks of land strewn around various urban and suburban areas could work to create synergies. Watch for intelligent development projects. Whether movie theaters, grocery stores, and offices is enough is an open question. Maybe it's not different enough. I'd look at the management's team potential for creative projects.

[Foreign Tuffett]

I think the key is to focus on the new renting per square foot and not the total volume of space owned. It really looks like a mining operation. In mining you have the areas with the highest concentration of your "gold" which you go after and then you have the "leftovers" which maybe require more effort for less payoff. If SRG mines the first 1/3 of its space at 3x the $4 base rent, you have total replacement - albeit without growth but with a more solid foundation. For growth you have to figure out how the other 2/3 will be used. To some degree this is a creative project. Imagining how these blocks of land strewn around various urban and suburban areas could work to create synergies. Watch for intelligent development projects. Whether movie theaters, grocery stores, and offices is enough is an open question. Maybe it's not different enough. I'd look at the management's team potential for creative projects.

This is one way to think about it.

Tangentially related is a rationale I've seen some use as a reason to pass on investing in SRG: "I can't think which retailers will lease all that space, therefore I can't invest." I object to this line of reasoning, as it unrealistically assumes that a generalist value investor is in a position to have this information, or can somehow conjure it up a priori.

I think instead the proper question is "can SRG's professional management team, working with 3rd party leasing agents, lease the boxes over time." There's lots of room for debate on this question, but IMO at least it's the right question to be asking. 

[scorpioncapital]

"Real estate investment trusts, such as Seritage Growth Properties, are reconsidering use of space, carving many former malls into smaller parcels for retailers that produce more sales per square foot. They have found success by repositioning malls and giving people a reason to come beyond just filling shopping bags.

We will increasingly see some sort of combination of live-work-play. We are also more likely to see indoor-outdoor spaces, rather than sterile, old indoor malls, and mall transformations from traditional retail to office environments."

http://www.areadevelopment.com/distribution-warehousing/Q4-2017/reviving-dead-malls-as-warehouses-mixed-use-complexes.shtml

Is it me or do you think Buffett is reminded of his childhood days when he bought Coca Cola 6 to the pack and then sold them individually? I guess this is both the mining business and the pizza slice business

[TwoCitiesCapital]

"Real estate investment trusts, such as Seritage Growth Properties, are reconsidering use of space, carving many former malls into smaller parcels for retailers that produce more sales per square foot. They have found success by repositioning malls and giving people a reason to come beyond just filling shopping bags.

We will increasingly see some sort of combination of live-work-play. We are also more likely to see indoor-outdoor spaces, rather than sterile, old indoor malls, and mall transformations from traditional retail to office environments."

http://www.areadevelopment.com/distribution-warehousing/Q4-2017/reviving-dead-malls-as-warehouses-mixed-use-complexes.shtml

Is it me or do you think Buffett is reminded of his childhood days when he bought Coca Cola 6 to the pack and then sold them individually? I guess this is both the mining business and the pizza slice business

Isn't there a quote about finance where the general theme is "all money is made by packaging or unpackaging"?

Like, there was an argument for the conglomerates of decades ago and so companies packaged themselves up. Then there was an argument that more value could be obtained by spinning off unrelated units and giving them the focus/resources they needed to prosper. Then related entities come buy and purchased those units for vertical/horizontal integration.

This seems to fit that well.

Step 1. Unpackage
Step 2. Repackage.
Step 3.
Step 4. Profit.

[LongTermView]

https://www.bizjournals.com/southflorida/news/2017/11/17/open-air-retail-replacement-for-sears-at-aventura.html

[BTShine]

1 million square feet of office space planned for Dallas.

https://www.dmagazine.com/commercial-real-estate/2017/12/former-sears-at-valley-view-mall-to-become-office-campus/