SRG - Seritage Growth Properties

[peridotcapital]

Sorry about that. I believe there is a paywall for a week then it should be accessible. Not necessarily. Crux of thesis is this worth 80 if you take SPG as a comp and add in the 160 psf development cost. Also explains why srg short thesis has been completely disproven. It is pretty crazy how this stock is still so heavily shorted despite the short thesis being wrong for 3 yrs. SHLD has yet to file and the liquidity concerns have been completely ameliorated.

How is SPG a fair comp when they get $53 per foot in rents at their properties, versus SRG in the teens?

[pcm983]

@BTShine:

In my downside case, I use a 6.5% cap rate which I think is reasonable as other REIT's with similar quality real estate trade at lower cap rates. As for timeline, I don't have a specific timeline in mind, assuming it takes maybe 3-4 years to do the bulk of it.

@peridotcapital:

SPG is a fair comp in my opinion because the quality of the real estate is similar - SRG receives lower rates because it's average lease is much larger sf-wise than SPG, but if you look at the actual properties, SRG and SPG are co-located at a lot of locations - I think the risk profile is quite similar given they have effectively very similar exposures.

[Shane]

@peridotcapital:

SPG is a fair comp in my opinion because the quality of the real estate is similar - SRG receives lower rates because it's average lease is much larger sf-wise than SPG, but if you look at the actual properties, SRG and SPG are co-located at a lot of locations - I think the risk profile is quite similar given they have effectively very similar exposures.

How much of the portfolio is actually co-located?  I think of them as having a much different portfolio of properties with SPG being mostly A-malls and SRG having some A-malls and a lot of properties more similar to strip malls...

[GCA]

@peridotcapital:

SPG is a fair comp in my opinion because the quality of the real estate is similar - SRG receives lower rates because it's average lease is much larger sf-wise than SPG, but if you look at the actual properties, SRG and SPG are co-located at a lot of locations - I think the risk profile is quite similar given they have effectively very similar exposures.

How much of the portfolio is actually co-located?  I think of them as having a much different portfolio of properties with SPG being mostly A-malls and SRG having some A-malls and a lot of properties more similar to strip malls...

About 3MM of 34MM GLA are in malls owned by Simon.

50.5% of SRG's square feet are "Shopping Center/Freestanding" as opposed to "Mall" according to the CMBS... so the properties are not necessarily that similar.

[pcm983]

~10% of the appraised value in the CMBS collateral package is in malls owned by Simon, with another ~10% in malls owned by GGP / Macerich. Not to mention SRG has notable JV's with all 3 aforementioned REIT's. There is likely some additional overlap but the excel sheet I have doesn't list the mall owners for ~40% of the value in the collateral package.

Also, from a very well done VIC write-up on SRG in February 2016:

"Retail real estate investors should be very familiar with the quality of SRG’s portfolio based on their investments in other publicly traded REITs, as 43% of SRG’s leasable square footage is in centers owned by publicly traded REITs.  SRG’s overlap tends to reside much more in high quality REIT portfolios than in those that own B Malls.  To demonstrate this point, we have done an implied cap rate analysis of the publicly traded malls in which SRG’s properties reside weighted by the number of properties that overlap.  Based on this analysis, SRG’s properties reside in REITs that trade at a weighted average cap rate of 5.7%, further demonstrating the quality of the portfolio."

[pcm983]

the whole point is they are redeveloping the legacy Sears RE into higher quality RE. Also, I think the point of the footprint overlap is that you are exposed to the same idiosyncratic risks - i.e., if you are in the same mall, you are exposed to the same footraffic trends, weather patterns, demographic trends, etc. the psf rent is not as relevant because 1) srg is in the process of re-leasing its RE at 3-5x higher rents, and 2) you need to adjust for the size discount you get when signing large leases vs. smaller leases

[koshigoe]

[/quote]

How is SPG a fair comp when they get $53 per foot in rents at their properties, versus SRG in the teens?
[/quote]


All mall REITs cheat (industry practice) and don't include dept stores in their per foot rent averages. A holdover from the olden days and probably misleading at best, in the new de-malling, mixed use paradigm. For example, Macerich only reports per square foot for stores under 10k sq ft.

SRG has huge first mover advantage that I believe will become more apparent in years ahead, as they have blank canvas, but Simon, GGP, and private mall operators (ie: the competition) have to get rid of legacy leases and the small inline (often enclosed) situation first, before they even get to SRG starting point.

Plus, look at the average age and makeup of SRG management, I think it's a plus when compared to the stodgier company peers.

[koshigoe]

Sears posted new closures on their website, didn't see any news articles on it though.

Lots of SRG properties, see attached.
https://searsholdings.com/docs/082118-store_closing_list.pdf

Did anyone read that Lowe's is closing Orchard Supply? SRG had a new one going in FL at Fashion Square, and was almost complete.

[LongTermView]

Did anyone read that Lowe's is closing Orchard Supply? SRG had a new one going in FL at Fashion Square, and was almost complete.

Yeah, Orchard Supply was in the news on tv tonight.

[longtermdave]

Some color on the two companies. Not much here that isn't already known to the board...

As Sears Withers, Its Former Stores Fuel a New Fortune

https://www.nytimes.com/2018/08/28/business/sears-seritage-edward-lampert.html?rref=collection%2Fsectioncollection%2Fbusiness&action=click&contentCollection=business&region=rank&module=package&version=highlights&contentPlacement=5&pgtype=sectionfront