SRG - Seritage Growth Properties

[thepupil]

8 hours ago, Anglozurich said:

@thepupil you seem to be frustrated that because this is not your one foot hurdle, it therefore has to be a 10 foot hurdle for everyone. Someone who has visited most of the gold brick properties / land parcels may have an acute understanding of the redevelopment potential and leasing rates in those real estate micro-climates. They may just have an edge on you or they may not. This thread seems to go around in circles. If anyone has anything to add on the potential of individual assets (like Dallas post above - helpful thanks) would be happy to engage.

Agreed. I’ve repeated myself enough. We will simply have to see how the fundamentals unfold.  
 

[Pistachio_Lawyer]

On 5/15/2021 at 4:48 PM, thepupil said:

Agreed. I’ve repeated myself enough. We will simply have to see how the fundamentals unfold.  
 

You'll still make money when you buy SRG at $40.00 range xD

[Mikekryan]

Eddie Lampert sold out of Seritage, and other significant reductions. What are your thoughts on this?

[Pistachio_Lawyer]

13 minutes ago, Mikekryan said:

Eddie Lampert sold out of Seritage, and other significant reductions. What are your thoughts on this?

Maybe he is sitting in cash in anticipation of a market event. He is sold out of SRG. Can't read much into it other than him not wanting to hold on to SRG 

[Jmac42600]

2 hours ago, Mikekryan said:

Eddie Lampert sold out of Seritage, and other significant reductions. What are your thoughts on this?

Are you sure that he has sold out? I saw his 13F however a lot of large shareholders in SRG have been converting their holdings to OP units I believe. Does anyone else have insight on this?

If its true and he has sold out then that's very concerning to the story here.

[Gregmal]

Why would it be concerning? If you have done the work and decided this was a long, it shouldn't really matter. I'm not trying to be a dick here, but a lot of you guys just seem to be following here(cough BABA too). I always advise people to avoid stocks where the elevator pitch involves name dropping someone else. If you've run the numbers and likely outcomes and see significant upside, fuck Lampert. He's been bag holder numero uno here for like nearly two decades. 

[FCharlie]

1 hour ago, Jmac42600 said:

Are you sure that he has sold out? I saw his 13F however a lot of large shareholders in SRG have been converting their holdings to OP units I believe. Does anyone else have insight on this?

If its true and he has sold out then that's very concerning to the story here.

As of April 5, Lampert still owned/controlled 9.1% of the company. This is according to the proxy

https://www.sec.gov/Archives/edgar/data/1628063/000117494721000392/def14a-50918_srg.htm#a_022

[FCharlie]

I have a question for the Seritage shareholders here.

 I would love to know what the Seritage faithful see in SRG that they don't see in competitor Macerich. I see Macerich as similar to Seritage in that both companies have seen their shares beaten to death over the last few years and, while off their bottoms, they have both just barely begun to recover. Yet MAC feels like a one foot hurdle as it already has solid FFO, a respectable dividend yield but with only a 35% payout ratio, and I believe tons of upside over the next few years as rent abatements cease, occupancy returns to a more normal level, and dividends double/triple from here. Looking at Seritage, I understand the appeal on some levels, but then I just can't get past the fact that it has negative FFO and I can't come to a confident decision about what eventually happens with their assets as so many assets end up being sold to raise cash to fund CapEx. Basically, every time I look, Seritage always ends up in the "too hard" pile. 

So just curious if anyone out there has any thoughts on Seritage vs Macerich and what upside do you see with Seritage that you don't see with Macerich or perhaps other competitors?

 

 

[Cicero]

I agree with @FCharlie, Lampert still owns most of the shares. Here is why:

# His last 13D was filed on 1-Apr. At that point RBS/ESL/Lampert controlled 9.1% of shares

# If I am not mistaken 1% changes in ownership necessitate an amended 13D filing and unlike the initial filling where the grace period is 10 days the amendment has to be "filed promptly" which I think means in practice two, three business days 

# Also note that reporting date of the 13F is 31-Mar so actually BEFORE his last 13D 

# It also seems that the 13F fillings only pick up the shares solely owned by RBS Partners and not the shares with shared dispositive power (i.e. the shares owned by Lampert)

So what happened here: RBS Partners sold out of the SRG shares in March over which it had sole control (consistent with the 13D filed 17-Mar). The 13F that just came out shows only the "inventory" of the sole control shares at 30-Mar, which at that point was zero as we kind of knew from the 13D filed 17-Mar.  1-Apr RBS and Lampert converted a bunch of OP Units which meant they controlled 9.1% of the shares outstanding. If I am not missing something here Lampert still controls these 9.1%. 

 

Edited May 18, 2021 by Cicero

[Cicero]

3 hours ago, Gregmal said:

Why would it be concerning? If you have done the work and decided this was a long, it shouldn't really matter. I'm not trying to be a dick here, but a lot of you guys just seem to be following here(cough BABA too). I always advise people to avoid stocks where the elevator pitch involves name dropping someone else. If you've run the numbers and likely outcomes and see significant upside, fuck Lampert. He's been bag holder numero uno here for like nearly two decades. 

I agree that one should not buy something because XYZ famous investor bought it, but Lampert is in a different bucket here, no? He sits on the board and has therefore access to more information. He also controls the possible outcomes through the OP units. So him selling out would be as concerning as management/ insiders selling out in other situations. Don't admire the management of other companies for their investing skills either, but if they sell in size all of a sudden you better have a hard look what's going on. 

 

[peridotcapital]

I think the issue with Macerich is the debt load of $173 per square foot. They own ~2x the space of SRG with ~5.5x the debt. I know that's not apples to apples given how much SRG space is not leased, but still, given both are extremely levered situations, SRG probably has more upside potential. FD: Don't own SRG common, just the preferred for my income-focused clients.

[Jmac42600]

21 hours ago, Cicero said:

I agree that one should not buy something because XYZ famous investor bought it, but Lampert is in a different bucket here, no? He sits on the board and has therefore access to more information. He also controls the possible outcomes through the OP units. So him selling out would be as concerning as management/ insiders selling out in other situations. Don't admire the management of other companies for their investing skills either, but if they sell in size all of a sudden you better have a hard look what's going on. 

 

Agreed. Pretty much nailed every point here. Lampert has insider info and has a large % of his net worth in this.

[RetroRanger]

I dont understand the stuff regarding Lampert. He still owns 7% in operating units. (as i understood it)

He just transformed "some" OPs to public stocks and sold them. If this continues at a specific speed and the ownership goes significant down . Than we can talk. No it could simply be for whatever reasons ( money, cash, bitcoins )

 

[thepupil]

3 hours ago, RetroRanger said:

I dont understand the stuff regarding Lampert. He still owns 7% in operating units. (as i understood it)

He just transformed "some" OPs to public stocks and sold them. If this continues at a specific speed and the ownership goes significant down . Than we can talk. No it could simply be for whatever reasons ( money, cash, bitcoins )

 

there are about 56mm shares + OP units. SRG has not been buying back or issuing stock, the 56mm is pretty constant, but the mix shifts from OP units to shares as ESL and friends convert to shares to get liquidity. 

as of 3/31 there were 40.5mm outstanding shares 

as of April 23rd 10Q there were 42.6mm shares due to conversions after Q end, so there are still ~13.5mm OP units left, which are held by ESL, right? so doesn't ESL own 24% of the company via OP units and another 6.7% (3.8mm shares) via the shares, for a total of 30%?

did i miss something?

 

Edited May 19, 2021 by thepupil

[RetroRanger]

"so doesn't ESL own 24% of the company via OP units and another 6.7% (3.8mm shares) via the shares, for a total of 30%?"

No you are right! Sorry for the confusion   But the main point was, Eddie did not sell out or anything! 

[thepupil]

On 5/18/2021 at 7:39 AM, peridotcapital said:

I think the issue with Macerich is the debt load of $173 per square foot. They own ~2x the space of SRG with ~5.5x the debt. I know that's not apples to apples given how much SRG space is not leased, but still, given both are extremely levered situations, SRG probably has more upside potential. FD: Don't own SRG common, just the preferred for my income-focused clients.

I own neither and won't opine on upside, but MAC has a far better balance sheet than SRG after issuing $700mm+ of equity this year. they now have $7.7B of debt, w/ $600 million of Q1 annualized NOI / $900mm of pre-covid NOI (though not completely comparable as they've sold some assets that may be included in that $900mm). Using the $600mm, that's a debt yield of 7.8% ($600/$7.7B).

More importantly, all but a smidgeon of MAC's debt is non-recourse mortgages where MAC holds the upper hand as they (as they already have) can negotiate extensions, DPO's, or in dire circumstances, hand back keys and lose a few properties. At a WA rate of 3.5% or so, the interest does not gobble up MAC's cash flow. MAC can actually service its debt (though needs to address maturity defaults via aforementioned negotiations), particularly if there's an actual recovery in high quality retail. SRG's debt yield is far lower, its interest rate is 2x, and it all comes due at once. MAC also has developments (JV w/ Google leased office for example) coming online that will de-lever it further (some of these are co-owned w/ SRG as everyone knows)

MAC may have 5.1x the debt as SRG, but it has has 15x the Q1 annualized NOI ($600mm/$40mm) and 4x SRG's NOI if MAC NOI stays the same and SRG NOI gets to $150mm. Further, MAC is negotiating against a diffuse band of weak handed CMBS bagholders. SRG is negotiating against Uncle Warren clipping his 8% coup. 

I'm by no means comfortable with MAC's balance sheet, but it's much better than SRG's (at least through the lens of ability to service debt w/ NOI/cash flow). 

 

MAC 10Q: and at the closing of our corporate credit facility on April 14, 2021, our total debt including our pro-rata share of joint ventures was approximately $7.67 billion, including consolidated debt of $5.03 billion.

 

Edited May 19, 2021 by thepupil

[thepupil]

By the way, the MAC deck has some detail on the SRG JV’s.

slide 34-36 

this shows that MAC thinks the JV will spend $130mm-$160mm at a 9-10.5% yield and that $90-$120mm of the spend was remaining as of 12/2020. The JV is 50/50 so that will be evenly split.

If you assume exit at a 6% cap, and they achieve 10% yield on $150mm of spend, that would create about $100mm of value ($50mm to SRG). 

Not nothing, but not huge either in the context of the EV (for either company).

 

 

[thepupil]

http://s23.q4cdn.com/949579163/files/doc_presentations/2021/Annual-Meeting-2021-0519-final.pdf

new  presentation is out

[RetroRanger]

Really a shame they dont get that extra 400 Million from berkshire.

So berkshire must acknowledge all properties Sold! Interesting. A good way too prevent a bad management decision.

[Mikekryan]

18 hours ago, thepupil said:

http://s23.q4cdn.com/949579163/files/doc_presentations/2021/Annual-Meeting-2021-0519-final.pdf

new  presentation is out

Is there a way to dial into this meeting online? When will it be on?

[Pistachio_Lawyer]

On 5/17/2021 at 9:41 PM, FCharlie said:

I have a question for the Seritage shareholders here.

 I would love to know what the Seritage faithful see in SRG that they don't see in competitor Macerich. I see Macerich as similar to Seritage in that both companies have seen their shares beaten to death over the last few years and, while off their bottoms, they have both just barely begun to recover. Yet MAC feels like a one foot hurdle as it already has solid FFO, a respectable dividend yield but with only a 35% payout ratio, and I believe tons of upside over the next few years as rent abatements cease, occupancy returns to a more normal level, and dividends double/triple from here. Looking at Seritage, I understand the appeal on some levels, but then I just can't get past the fact that it has negative FFO and I can't come to a confident decision about what eventually happens with their assets as so many assets end up being sold to raise cash to fund CapEx. Basically, every time I look, Seritage always ends up in the "too hard" pile. 

So just curious if anyone out there has any thoughts on Seritage vs Macerich and what upside do you see with Seritage that you don't see with Macerich or perhaps other competitors?

 

 

If you own SRG, you're betting on their holdings. I would strongly suggest reading Thornton O'Glove's Quality of Earnings. Not every pretty balance sheet is a success story xD

[Pistachio_Lawyer]

Bear perspective from earlier this month:
 

Warren Buffett Should Sell This REIT After Another Earnings Wipeout | The Motley Fool

[Gregmal]

I stumbled upon the key piece of the puzzle. Master plan revealed.

No Capex required. Lease all properties, as is, as covid centers. Sell for 3 caps. $50 per share incoming. 

[RetroRanger]

Better Idea, Enrico La Quatra on Twitter offeered a good basic valuation.

 

"SRGs calculation is by far the simplest: I used Mohnish's calculation as a guide. When we take a discount from the median EV/sq.ft. of $186 to $157 as a lot of the current portfolio is not in prime locations we have an EV of 4.08B - Net Debt of 1.48B and MC of 2.6B. (1/2)"

"I used the 38.9mm S/O of Dec 20 (I know, I didn't update the calculation so far because in SRGs case it doesn't move the needle). ->$2.606B / 38.9mm = 67$"

He forgot the OP Units, but this gives us an intrinsic value of about 45$

Not too Bad!

 

 

[spartansaver]

24 minutes ago, RetroRanger said:

Better Idea, Enrico La Quatra on Twitter offeered a good basic valuation.

 

"SRGs calculation is by far the simplest: I used Mohnish's calculation as a guide. When we take a discount from the median EV/sq.ft. of $186 to $157 as a lot of the current portfolio is not in prime locations we have an EV of 4.08B - Net Debt of 1.48B and MC of 2.6B. (1/2)"

"I used the 38.9mm S/O of Dec 20 (I know, I didn't update the calculation so far because in SRGs case it doesn't move the needle). ->$2.606B / 38.9mm = 67$"

He forgot the OP Units, but this gives us an intrinsic value of about 45$

Not too Bad!

 

 

I remember when Bruce Berkowitz used a very similar chart over and over for Sears...