SRG - Seritage Growth Properties

[koshigoe]

JC Penney is next. Their debt load + free cash flow breakeven during a banner retail year like 2018 does not bode well for the future. They can last a few years maybe, but that's it.

yes, sure, though there is no SRG-like entity that will benefit en masse from JC Penny going under. The SRG / SHLD situation is a one off it seems, where SRG is the lone or at least lion share beneficiary from a retailers collapse.

there was a similar situation back in the 70s/80s with Vornado that Buffett was on the board of for a time. He lamented missing out on the situation as he resigned before it rocketed up over the next 20 years. It's a footnote in Snowball.

To your JC Penny point, Buffett has said that rather than bet on which car manufacturer will win, the right choice was to short horses. A lot of these 'old white guys' on the boards of these mall REITS have doomed their companies.

My other large position is *** potential trigger warning *** JD.com. BABA to me is black box that pushes into gray too much, and I see JD winning over long term. It's an interesting situation and some of the data/research from AMZN, SRG, and retailers/landlord struggles can be applied there it seems.

[Foreign Tuffett]

Lots of SRG-owned stores on this list.


https://www.businessinsider.com/sears-kmart-stores-closing-list-2018-10

[AJB96]

Ben Schall wrote a very well done letter to shareholders this morning:

http://ir.seritage.com/Cache/1001244146.PDF?O=PDF&T=&Y=&D=&FID=1001244146&iid=4584761

[Shane]

Stock up +5.7%, I'm a little surprised.  Had hoped for lower prices to top up.

[cubsfan]

Ben Schall wrote a very well done letter to shareholders this morning:

http://ir.seritage.com/Cache/1001244146.PDF?O=PDF&T=&Y=&D=&FID=1001244146&iid=4584761

Thanks for posting Alex - great communication by Ben Schall.
Boy, oh boy, if you parse his letter carefully and believe it - this is going to be a great investment.
I wouldn't want to be part of the 10M shares that are short.

[LongTermView]

Ben Schall wrote a very well done letter to shareholders this morning:

http://ir.seritage.com/Cache/1001244146.PDF?O=PDF&T=&Y=&D=&FID=1001244146&iid=4584761

I like this part:

We estimate that the 79 projects that we’ve completed or commenced solely on the Seritage platform will be worth upwards of $3.4 billion ($3.1 billion at share) once the remaining $940 million ($880 million at share) of investment capital has been deployed and the projects have been stabilized. We have 23 assets in joint ventures with the three largest mall owners with a basis of $370 million at our share. Just with those 102 assets, our portfolio would be worth almost $3.8 billion. The remainder of the portfolio provides meaningful value creation opportunity, including some of our top locations and at least three dozen sites with potential for significant densification.

[Candyman1]

Ben Schall wrote a very well done letter to shareholders this morning:

http://ir.seritage.com/Cache/1001244146.PDF?O=PDF&T=&Y=&D=&FID=1001244146&iid=4584761

I like this part:

We estimate that the 79 projects that we’ve completed or commenced solely on the Seritage platform will be worth upwards of $3.4 billion ($3.1 billion at share) once the remaining $940 million ($880 million at share) of investment capital has been deployed and the projects have been stabilized. We have 23 assets in joint ventures with the three largest mall owners with a basis of $370 million at our share. Just with those 102 assets, our portfolio would be worth almost $3.8 billion. The remainder of the portfolio provides meaningful value creation opportunity, including some of our top locations and at least three dozen sites with potential for significant densification.

Hmmm interesting ... so since the last SRG presentation (Sept 2018) the average rent has gone down from $17.5 per sq foot to $16.5 per sq foot. Maybe a typo ...

Lets see how that $3.4 billion squares up to the rent. If I go with the last Q number, I get 7.8 million sq feet completed or under development. Lets assume there are no cost to running the SRG real estate and the rent stays $17.5 per sq foot. Also lets assume that the cap rate is 5%. So 7.8 million sq feet times (17.5/0.05) gets me $2.73 billion. That is for 78 projects, not the 79 listed by BS in his letter. I guess that last project is worth 670 million.

[peridotcapital]

I like this part:

We estimate that the 79 projects that we’ve completed or commenced solely on the Seritage platform will be worth upwards of $3.4 billion ($3.1 billion at share) once the remaining $940 million ($880 million at share) of investment capital has been deployed and the projects have been stabilized. We have 23 assets in joint ventures with the three largest mall owners with a basis of $370 million at our share. Just with those 102 assets, our portfolio would be worth almost $3.8 billion. The remainder of the portfolio provides meaningful value creation opportunity, including some of our top locations and at least three dozen sites with potential for significant densification.

The current E/V at $42 is $3.3B. Using the numbers above, after they spend (borrow) another $900M (taking the E/V to $4.2B), the leading 102 assets would be worth $3.8B. Sure, the undiscounted net value of everything is more than $42/share, but Schall's figures don't make me want to buy at that price. Not to mention, who knows what cap rate he is using despite rising rates.

[koshigoe]

The current E/V at $42 is $3.3B. Using the numbers above, after they spend (borrow) another $900M (taking the E/V to $4.2B), the leading 102 assets would be worth $3.8B. Sure, the undiscounted net value of everything is more than $42/share, but Schall's figures don't make me want to buy at that price. Not to mention, who knows what cap rate he is using despite rising rates.

EV more like 4.1 B now.

I offer different conclusion, that is way cheap. They're basically fairly valued now, maybe a bit expensive for current income once lease-up and dev are finished depending on cap rate you select (Schall et al estimate based on mid-to-high 5s, see response to candyman below).

But then that leaves 25-30 million sq ft to get 3x-4x re-rate. Even if commercial real estate goes haywire, they can sell off 5 mil of garbage properties (prob current plan anyway) for more than they paid (see past sales this year for podunk Kmarts) and lease the remaining 25m at min 3x rents. (current avg is 4.xx a sq ft...come on)

I struggle to see worse outcome than that. And that outcome will produce something like 15% per annum for a decade for long term holder, and a triple from current stock price on something like 600 mil net income (give or take a hundred million, no need to be precise).



 

[koshigoe]

Hmmm interesting ... so since the last SRG presentation (Sept 2018) the average rent has gone down from $17.5 per sq foot to $16.5 per sq foot. Maybe a typo ...

Lets see how that $3.4 billion squares up to the rent. If I go with the last Q number, I get 7.8 million sq feet completed or under development. Lets assume there are no cost to running the SRG real estate and the rent stays $17.5 per sq foot. Also lets assume that the cap rate is 5%. So 7.8 million sq feet times (17.5/0.05) gets me $2.73 billion. That is for 78 projects, not the 79 listed by BS in his letter. I guess that last project is worth 670 million.

I hope you don't get banned any time soon for being a (0/10) troll, refuting your statements has helped me organize my own thoughts.

values are based on "...and the projects have been stabilized" rents that are estimated at avg $23 a foot for first 73 projects (per the latest supplement pg 14)

The latest presentation says those 73 projects should be worth 3.170B, so we can figure the assumed cap rate.

23* 7.915mil = 182 mil / .057 = something like 3.190B

so Schall assumes something like 5.7 cap rate.

add in the 6 new projects and the JV cut, and you've got near the 3.8 as stated.