SRG - Seritage Growth Properties

[Foreign Tuffett]

I'm not sure just how much of an advantage SRG has in redeveloping their properties versus the mall owners.  I agree SRG has more focus here, and support from their investors... but other than that?  Yeah these operators need to get their anchor tenants on board, but my understanding is that SRG can't really do much either without getting the go ahead from the other anchor tenants.  Hah, maybe that's another reason for under-investment in the stores (make 'em so bad that the other anchors are happy to get rid of the "Sears blight").

In any case, here is an example of Simon doing just that... redeveloping 5 properties into mixed use... and in fact its the 5 JV properties that SRG recently sold to Simon:

http://www.insideindianabusiness.com/story/37921409/simon-to-redevelop-five-properties

I think you are somewhat misinterpreting what I am trying to say. The mall operators can redevelop the anchor boxes as well or better than anyone else, but by-and-large they don't own or control them. The boxes are generally controlled by the department stores (M, DDS, SHLD) via either outright ownership or very long term leases. One easy way to frame this is the frustration and powerlessness mall operators saddled with underperforming SHLD stores have probably felt over the last decade.

I've yet to see much, if any, evidence that SRG needs the sanction of other anchor tenants to redevelop its boxes. Do they have to work with the mall operators and city planners? Yes. Do they need the sanction of the department store operator which controls the box on the other side of the mall? Not that I'm aware of.

The JV properties are a special case. The original intent of the JVs was to redevelop the 50% of the properties' that SHLD did not have rights to. SRG has the contractual right to force the mall operators to buy its share of the JV properties once certain 3rd party leasing thresholds are met. Simon and Macerich subverted this process by sitting on their hands instead of working with SRG to redevelop. Given their liquidity positions relative to SRG's, as well as the inevitability that the SHLD stores in the JVs would (eventually) close, this has probably been a smart strategy. I think the mall operators will buy out all of SRG's interests in the JVs over time.

[koshigoe]

Simon and Macerich subverted this process by sitting on their hands instead of working with SRG to redevelop. Given their liquidity positions relative to SRG's, as well as the inevitability that the SHLD stores in the JVs would (eventually) close, this has probably been a smart strategy. I think the mall operators will buy out all of SRG's interests in the JVs over time.

I wonder if this action was an oversight during the initial JV structuring?

[RadMan24]

Provides liquidity to SRG if needed. Plus, who wants a vacant Sear’s store at their mall?

[GCA]

And there are some potentially blockbuster deals on the near horizon for SRG including plans at Hicksville, Valley View and possible JVs at Aventura, La Jolla. Right there is enough to justify current market price and fully fund the pipeline to 150 m NOI, and then you're left with 75% of GLA for growth on your terms.

Aventura and La Jolla have already been added to the official project slate, and so if we assume the other projects that got on the slate last quarter generate no income, then those two put together would appear to offer $51MM in income (once stabilized) in a few years, and after spending a lot of money to get there (just look at the Aventura plans).

That leaves Hicksville, Valley View, Redmond, and Boca Raton.

Here's what I think the first three might generate in rent:
Redmond - $40MM
Valley View -  $90MM
Hicksville - $38MM

So, leaving out Boca Raton for now, $51MM or Aventura and La Jolla plus all the above gets you to $219mm in rent... which I guess depending on the cap rate you choose really could get you to today's EV.  Of course keep in mind these are really big developments that are going to take hundreds of millions of dollars and multiple years to complete...

[SlowAppreciation]

Q1: http://ir.seritage.com/Cache/1500110255.PDF?O=PDF&T=&Y=&D=&FID=1500110255&iid=4584761

• Signed new leases totaling 391,000 square feet at an average rent of $20.24 PSF. Since the Company’s inception in July 2015, new leasing activity has totaled over 5.2 million square feet at an average rent of $17.98 PSF
• Net income: $9.1 million
• NOI: $36.9m
• FFO: $11m
• 4.1x releasing multiples for space currently or formerly occupied by Sears Holdings Corporation
• Annual base rent from tenants other than Sears Holdings: 54.3%

[GCA]

The more exciting stuff from my perspective are the land deals.  The Redmond deal values that land at 9 times what it was assessed for in the July 2015 CMBS.  The other two deals value those plots of land at 2 times what they were assessed at in the CMBS.  Equally as important these are the first retail to residential projects that have been officially mentioned by SRG (though they and others have been kicking around for some time).

[GCA]

The more exciting stuff from my perspective are the land deals.  The Redmond deal values that land at 9 times what it was assessed for in the July 2015 CMBS.  The other two deals value those plots of land at 2 times what they were assessed at in the CMBS.  Equally as important these are the first retail to residential projects that have been officially mentioned by SRG (though they and others have been kicking around for some time).

Scratch that, I didn't realize the Newark deal was for only half the property so it values the plot at 4 times the CMBS appraisal value...

[TwoCitiesCapital]

Please forgive my ignorance, as I suspect this is a stupid question with a simple/obvious answer, but:

How do these numbers jive?

Financial Results
For the quarter ended March 31, 2018:
 Net income attributable to common shareholders of $9.1 million, or $0.26 per diluted share
 Total Net Operating Income (“Total NOI”) of $36.9 million
 Funds from Operations (“FFO”) of $11.0 million, or $0.20 per diluted share
 Company FFO of $12.4 million, or $0.22 per diluted share

What I see is that $9.1M net income = $0.26 per diluted share but total FFO is $11.0M or $0.20 per diluted share.

If the diluted per share figure remains static, how does 9M translate to a higher per share value than $11M?

[Spekulatius]

Please forgive my ignorance, as I suspect this is a stupid question with a simple/obvious answer, but:

How do these numbers jive?

Financial Results
For the quarter ended March 31, 2018:
 Net income attributable to common shareholders of $9.1 million, or $0.26 per diluted share
 Total Net Operating Income (“Total NOI”) of $36.9 million
 Funds from Operations (“FFO”) of $11.0 million, or $0.20 per diluted share
 Company FFO of $12.4 million, or $0.22 per diluted share

What I see is that $9.1M net income = $0.26 per diluted share but total FFO is $11.0M or $0.20 per diluted share.

If the diluted per share figure remains static, how does 9M translate to a higher per share value than $11M?

The earnings were boosted by roughly $41M profit from property dispositions, but proceeds from property disposition don’t contribute to NOI (which is property operating profit).

[treasurehunt]

Please forgive my ignorance, as I suspect this is a stupid question with a simple/obvious answer, but:

How do these numbers jive?

Financial Results
For the quarter ended March 31, 2018:
 Net income attributable to common shareholders of $9.1 million, or $0.26 per diluted share
 Total Net Operating Income (“Total NOI”) of $36.9 million
 Funds from Operations (“FFO”) of $11.0 million, or $0.20 per diluted share
 Company FFO of $12.4 million, or $0.22 per diluted share

What I see is that $9.1M net income = $0.26 per diluted share but total FFO is $11.0M or $0.20 per diluted share.

If the diluted per share figure remains static, how does 9M translate to a higher per share value than $11M?

The financial supplement has the information needed to figure out the answer. The denominator is different for the two calculations - 35,501 for EPS and 55,719 for FFO per share. For FFO the 20,218 outstanding units are added to the number of A and C shares outstanding. I think 55,719 is the share count that actually matters when analysing the company.