SRG - Seritage Growth Properties

[Spekulatius]

Repurposing of retail space will happen,  but I think not all the retail space can be repurposed. In some cases, the cost of tear down and rebuild may be very high and will result in a huge economic loss for the owner

[scorpioncapital]

They need to convert their thinking. Yes, I heard about the office space in the Santa Monica property and the mixed use project in Texas BUT SRG needs to become say 60% of this and 40% retail/entertainment/services. From what I see of the tenant roster, it's too much shift from SRG to just pure retail again. Sure it's better but the real reason SRG or any REIT like this would be a killer investment is the pivot away from retail into more productive uses. Even 'other' retail is not as productive as it could be.

[DTEJD1997]

Hey all:

Unless ALL of SRG's properties are "super prime" I have a hard time seeing how they will be valued higher than other retail REIT's.

Just look at all the carnage going on with the retail REIT sector, and none of that is going to effect SRG?

Add on top of that their huge need for capital to redo/re-purpose their properties.  That is an added layer of complexity/risk.

Then you've got a rising interest rate environment.  Rising rates should hit 5% cap rate properties/projects high than it hits 10% cap rates.

I think SRG could do OK in the long run, I just think they are overpriced currently in relation to the RISK and some of their other competitors.

[Spekulatius]

Hey all:

Unless ALL of SRG's properties are "super prime" I have a hard time seeing how they will be valued higher than other retail REIT's.

Just look at all the carnage going on with the retail REIT sector, and none of that is going to effect SRG?

Add on top of that their huge need for capital to redo/re-purpose their properties.  That is an added layer of complexity/risk.

Then you've got a rising interest rate environment.  Rising rates should hit 5% cap rate properties/projects high than it hits 10% cap rates.

I think SRG could do OK in the long run, I just think they are overpriced currently in relation to the RISK and some of their other competitors.

If the properties were super prime (or even prime), the newlly redeveloped properties would generate more than $17/sqft. $17/sqft is a B-mall Rents, no less and no more. So, I think we can safely assume that Sears properties are on average B-mall properties.
i think the rents for B-mallet DDR and KIM are around $16/sqft but that includes properties with below market rents. KIM and DDR are B-mall Reits.

[koshigoe]

37 mil x $17 = 629

629 / 0.06 = 10,483

2 to 10.4 in 10 years is ~18%

if takes 10 years to do it, that's 18% CAGR, if it takes more, worse cap rate, etc that's lets say 15% a year. But, SRG predicts average $25 square foot when stabilized, so worst case is 15-18 CAGR, better case...20+?

[peridotcapital]

37 mil x $17 = 629

629 / 0.06 = 10,483

2 to 10.4 in 10 years is ~18%

if takes 10 years to do it, that's 18% CAGR, if it takes more, worse cap rate, etc that's lets say 15% a year. But, SRG predicts average $25 square foot when stabilized, so worst case is 15-18 CAGR, better case...20+?

You are saying SRG equity is worth $10.5B in 10 years? You seem to be assuming they have zero debt right now and never raise capital ever again.

[peridotcapital]

Good points.  Is Kimco the cheapest REIT of this kind that you know of or are there other cheap options as well?

There are cheaper REITs (WPG as an example) but Kimco's rents are nearly identical to what SRG is doing on redevelopments, so its my preferred comp.

[rb]

37 mil x $17 = 629

629 / 0.06 = 10,483

2 to 10.4 in 10 years is ~18%

if takes 10 years to do it, that's 18% CAGR, if it takes more, worse cap rate, etc that's lets say 15% a year. But, SRG predicts average $25 square foot when stabilized, so worst case is 15-18 CAGR, better case...20+?

You are saying SRG equity is worth $10.5B in 10 years? You seem to be assuming they have zero debt right now and never raise capital ever again.

Another issue is whether current rent levels are sustainable. What happens if another Sears like department store goes out of business? That's not exactly a crazy idea. If a lot of supply comes to market will there be enough tenants to fill the space? And if there are would the rents hold at current levels given the new sopply?

[BTShine]

37 mil x $17 = 629

629 / 0.06 = 10,483

2 to 10.4 in 10 years is ~18%

if takes 10 years to do it, that's 18% CAGR, if it takes more, worse cap rate, etc that's lets say 15% a year. But, SRG predicts average $25 square foot when stabilized, so worst case is 15-18 CAGR, better case...20+?

Koshigoe,

Where did you learn that they expect rents to be $25 in the future?   That's very interesting information. 

[koshigoe]

top page 14 on the supplement.  1,066 k in total cost for redevelopment, 6.197 k square feet, expected $25 / sq ft once stabilized, IE current tenants pay higher rates.

most of redev capital should be debt, shouldn't change the fact that equity will go from 2 B to 10 B over a ten year stretch.  So they go from 1.3 B to 5 B in debt over time, shouldn't change the overall return much.  Yeah lots of weird things could happen over ten years with interest rates etc. But the rough numbers are in the ballpark. And the bears main concern is a peanuts short-term shortfall of 30-100m. The fear doesn't match the reality it seems.

Also, the other companies that were mentioned, DDR and WPG for a couple. I think some underestimate the unique situation of SRG. SRG has majority eccentric billionaire owner, proven no-frills  leadership team and they're executing with first mover advantage. They have a unique profile of land in nearly every state, and many trophy properties. They're nearly through permitting for several mixed use sites at Asheville, Overlake, and Hicksville.  To lump SRG with DDR and WPG is sort of an insult to the unique character of SRG assets and operational execution so far, in my opinion! But hey, bet with the $$.