SRG - Seritage Growth Properties

[CorpRaider]

Are you putting a 6% cap rate on their total gross rents (as projected)?

[Spekulatius]

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 $$.

The same eccentric billionaire owner has run Sears into the ground, so I think his acumen needs to be discounted somewhat. WPG is a Bad example since they own C malls (on average). KIM is a better proxy, except that they have  fully cash flowing properties right now, with the option to redevelop, while SRG needs to redevelop their entire real estate quickly,or they will sit on unproductive assets. KIM can take a more measured approach to redevelopment, since their properties are mostly cash flowing and will be for a while. I think it is a fair question, KIM may offer a similar total return Thant SRG at a lower risk.

[Compounder]

While most seem to be focused on the $17 average signed so far, on the large projects that are already underway stabilized rents of nearly $40 per sqf are expected.

[CorpRaider]

I thought KIM owned no malls; only open air shopping centers. 

[Gilp]

What basically is the difference business wise, between open air shopping centers and malls?

[FiveSigma]

Fresh air? 

[peridotcapital]

I thought KIM owned no malls; only open air shopping centers.

True, but if we assume that rents in large part correlate to traffic and sales generation, then similar rents, regardless of enclosed or not, should indicate similar property values. I threw out WPG because they get similar rents and have both enclosed and strip centers.

[peridotcapital]

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 $$.

I don't get why the amount of debt they have only has a minimal impact on the equity value. It is quite odd to ignore debt when valuing a REIT. How SRG would ever command a $15B E/V, even at $25 rents, is beyond me. That's a valuation of like $400 per sf.

[CorpRaider]

What basically is the difference business wise, between open air shopping centers and malls?

Well the spin, at least, is that open air shopping centers are located based existing live-work traffic patterns and include a large slug of "neighborhood" convenience type centers and generally are more centered around impulse, convenience, and daily living maintenance stuff (i.e., popping into gym or getting hair or nails done).  I guess the worst case comparison would be with a mall in suburbia hell that was built with department stores as the attraction and large parking garages centered around said department stores, where all the rent comes from the smaller tenants based on the formerly compelling anchors and with like a 75% exposure to apparel. 

So Kimco has been highlighting a chart with their tenants with over 1% of Annual Base Rent the past few quarters and 3.5% of their ABR (and two of their top 14 are grocers) and there are no department stores in that top 14.

So if you think this is really a bloodbath for department stores and apparel (or just malls in general....they were always fresh hell if you weren't a power retail shopper, imop), not retail writ large, you might have a variant perception on at least some of the non mall retail REITs.

I read something the other day that said it takes 4x as many SF to effect online retail versus traditional (most of which is warehouse, at least for now) because of the different in shipping parcels versus pallets.  Makes sense to me and will probably matter at some point.

Yeah peridot, I see your logic on using it for a comp.

[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 $$.

I don't get why the amount of debt they have only has a minimal impact on the equity value. It is quite odd to ignore debt when valuing a REIT. How SRG would ever command a $15B E/V, even at $25 rents, is beyond me. That's a valuation of like $400 per sf.

It is not higher math:

37 mil x $25/sq ft = 925

925 / 0.06 = 15416

but thats equity, not enterprise value.

if solid REIT makes 925 mil a year the equity won't trade at 15416 - 4 or 5 B debt = 10 or 11 B...that's 10% cap rate. edit: this is too aggressive, knock off some 20% for op costs, etc...but you're still something in the ballpark of 10-13 B equity (14-17 B enterprise) in a decade.

so with just reasonable assumptions, SRG could quite easily be a 5x in 10 years. and this doesn't include the sure to be increasing dividends over that time frame.

edit: also wanted to comment on Kimco, that company is loaded with debt, which will only serve to handcuff them in the future with opportunities and redev. SRG doesn't have this legacy baggage, like tie ups with Albertsons and lots of debt. THey've got a clean sheet, and I think that is a nontrivial advantage when competing with these legacy REITS. In fact, Schall even mentioned so in the annual letter, that one of SRG competitive advantage lay in having a clean sheet to work with at properties.