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SRG - Seritage Growth Properties

accutronman

By accutronman
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cmlber Newbie

cmlber

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anybody thinking there might be short squeeze coming up with low valuation and 28% of shares short? It is one of most shorted stocks on NYSE, and with small float could move up quickly like last spring. lots of value hands in this however low it goes...

 

http://www.wsj.com/mdc/public/page/2_3062-nyseshort-highlites.html

 

Cost to borrow SHLD is like 65%, so it's being used as a cheaper way to short SHLD I guess. 

 

I have two problems with this one, 1) the fraudulent conveyance risk seems pretty high to me, given that the long thesis is essentially "the assets SHLD transferred to SRG are worth way more than the price paid" and 2) 10-20 years from now, who is going to use all of the empty boxes left by Sears, Macys, Dillards, JC Penney, etc.?  On a relative basis, it looks pretty cheap, but would anyone long SRG actually consider buying REIT comps?

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HalfMeasure Newbie

HalfMeasure

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anybody thinking there might be short squeeze coming up with low valuation and 28% of shares short? It is one of most shorted stocks on NYSE, and with small float could move up quickly like last spring. lots of value hands in this however low it goes...

 

http://www.wsj.com/mdc/public/page/2_3062-nyseshort-highlites.html

 

Cost to borrow SHLD is like 65%, so it's being used as a cheaper way to short SHLD I guess. 

 

I have two problems with this one, 1) the fraudulent conveyance risk seems pretty high to me, given that the long thesis is essentially "the assets SHLD transferred to SRG are worth way more than the price paid" and 2) 10-20 years from now, who is going to use all of the empty boxes left by Sears, Macys, Dillards, JC Penney, etc.?  On a relative basis, it looks pretty cheap, but would anyone long SRG actually consider buying REIT comps?

 

1) Is fraudulent conveyance risk still in play if they lap the 2 year anniversary on the rights offering without a significant credit event?

 

2) This is the thematic issue that bothers me, however a mitigating factor is that there is always going to be a use for centralize real estate the question is just what the economics will be on whatever ends up being the first and best use 10 years from now. Worst case scenario, some of the boxes turn into warehouses, distribution centers, etc, right? It's not like the downside is them being left empty, the downside is now getting a $20-40/sqft tenant, but perhaps you can balance the economics by spending less on redevelopment. Would be interested to hear other's thoughts on this though as it is a big overhang with the amount of real estate that might come on the market if traditional retail continues to falter.

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cmlber Newbie

cmlber

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1) Is fraudulent conveyance risk still in play if they lap the 2 year anniversary on the rights offering without a significant credit event?

 

2) This is the thematic issue that bothers me, however a mitigating factor is that there is always going to be a use for centralize real estate the question is just what the economics will be on whatever ends up being the first and best use 10 years from now. Worst case scenario, some of the boxes turn into warehouses, distribution centers, etc, right? It's not like the downside is them being left empty, the downside is now getting a $20-40/sqft tenant, but perhaps you can balance the economics by spending less on redevelopment. Would be interested to hear other's thoughts on this though as it is a big overhang with the amount of real estate that might come on the market if traditional retail continues to falter.

 

1) I'm not a lawyer, but I believe the look back period is 4 years under Illinois state law.  And I believe a case can be made that each time SHLD gives back space, that is a new transfer with it's own 4 (or 2) year clock.

 

2) I'm sure there will be some use for these boxes, but how valuable will those uses be?  There may be lower rent / lower redevelopment cost options, but it's a big unknown.  At this price, if you were comfortable with 1), it's probably not a huge risk though.  Especially since some of SRG's properties are high end centers that will likely always exist.

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HalfMeasure Newbie

HalfMeasure

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1) I'm not a lawyer, but I believe the look back period is 4 years under Illinois state law.  And I believe a case can be made that each time SHLD gives back space, that is a new transfer with it's own 4 (or 2) year clock.

 

2) I'm sure there will be some use for these boxes, but how valuable will those uses be?  There may be lower rent / lower redevelopment cost options, but it's a big unknown.  At this price, if you were comfortable with 1), it's probably not a huge risk though.  Especially since some of SRG's properties are high end centers that will likely always exist.

 

Thanks - that's an interesting point on the nuanced mechanics of SHLD putting back space. Not a lawyer either, but I would imagine that wouldn't count as a new transfer since ownership has already transferred and SHLD is just putting back space under the master lease. The argument could definitely be made either way and I'm not sure how the law would look at such a situation.

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Mephistopheles Newbie

Mephistopheles

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So I just did some semi-anecdotal research and thought I'd share with you guys. As of 3Q16, SRG has developed or began working on 25 projects totalling 2 million square feet. This doesn't include the 15 projects that commenced prior to the SHLD spinoff. They've spent $286,500,000 on these 2 million sq ft, which is about $150 PSF. Incremental NOI PSF is $16.35, for a 11.4% yield.

 

What surprised me was the modest quality of these 25 properties. First of, 9 of the projects are in B or C rated malls at $250 to $400 PSF in sales. Only half of the projects are in malls. The other half are in freestanding/shopping centers for which I don't have the PSF information, except the Park North Shopping Center in San Antonio, which has $760 PSF in sales (auto center being redeveloped there). Overall, 5 of the properties are class A rated including this one shopping center. I'm assuming the rest of the non-malls are B rated at best. 5 of the properties are Kmarts, with the balance being Sears and/or Auto Centers.

 

What struck me is that 3 of the Kmarts are earning hefty rents upon redevelopment - $15, $17, $29 incremental PSF, based on reverse engineering the 11.4% incremental yield. What is also interesting is the site densification. For instance, the King of Prussia Auto Center is being redeveloped into a 29,100 square feet project, while the former Sears auto center occupied only 21,260 SF of space.

 

I guess the takeaway from this, for me atleast, is that (1) they're not necessarily working on their very best properties first, (2) Freestanding/Shopping centers/Kmarts are not all duds, (3) Class C/B do have very good potential, (4) Don't ignore the use of all the land/acres where they can build more.

 

This is 2 million out of 40 million SF of space, so about 5%, not exactly indicative of the entire company but can't be ignored either. Also they announced 680,500 SF of new activity at a cost of $166 PSF in 8 projects during 4Q16 at 14-15% incremental yield..should be very interesting to see which properties these are when they release earnings.

 

 

 

 

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koshigoe Newbie

koshigoe

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Has anyone confirmed that WEB Stills owns his block from 2015?

 

I think he's got till Feb 15 to report the updated form. He usually waits until the last day on this stuff. He could have sold in the 50s last spring and then bought back, but you wouldn't know until Feb 2018!

 

There was a time in the early 2000s, I think Bell Industries, and he bought in Dec and sold in Jan for 50%! Then bought back in when it went down again. Could be hazardous if one just goes off of his formal SEC reports for his personal account.

 

http://articles.latimes.com/2000/nov/09/business/fi-49227

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scorpioncapital Newbie

scorpioncapital

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I'm not sure the Bell thing is the same situation.in October 1999 there was a takeover proposal,

 

"Bell Industries Inc., an electronics and computer-products maker and distributor based in El Segundo, said it rejected as inadequate a $5.30-a-share offer by Steel Partners II. Bell told the New York-based investment fund that it would consider a higher offer. Bell's shares, which reached a 52-week high of $6 last month, rose 31 cents, or 7%, to close at $4.88. The shares have jumped 21% during the past year. Steel Partners is Bell's largest shareholder, with a stake of 15%, as of last March."

 

"An investment group disclosed that it sold about two-thirds of its Bell Industries Inc. holdings after company shares soared on reports that billionaire investor Warren Buffett had acquired a stake in the El Segundo-based systems integrator. Steel Partners sold more than 1.1 million common shares from Monday through Wednesday for $5.76 to $6.37 apiece, according to an amended Schedule 13D filed with the Securities and Exchange Commission. The shares were worth about $7.1 million."

 

My theory is that if Buffett went in for a sort of merger arbitrage then if the stock spikes 50% past any reasonable buy-out price, it's like getting the cash settlement in a merger closing without having to wait for any regulatory closing or even to find a buyer! Steel Partners did it for the same reason most likely.

 

I can't prove it, but my feeling is that SRG is a slower, more long-term development and growth of a REIT with regular dividends along the way with a larger payoff still to come down the road. RBC put out a report with an intrinsic value of $75+ per share. Of course if it got way ahead, like maybe at $57 in April 2016, why not sell it?

 

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SlowAppreciation Newbie

SlowAppreciation

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http://www.businesswire.com/news/home/20170228006795/en/Seritage-Growth-Properties-Reports-Fourth-Quarter-Full

 

For the three months ended December 31, 2016:

  • Net loss attributable to common shareholders of $15.0 million, or $0.48 per diluted share
  • Total Net Operating Income (“Total NOI”) of $48.7 million
  • Funds from Operations (“FFO”) of $34.5 million, or $0.62 per diluted share
  • Company FFO of $30.0 million, or $0.54 per diluted share

For the year ended December 31, 2016:

  • Net loss attributable to common shareholders of $51.6 million, or $1.64 per diluted share
  • Total NOI of $190.5 million
  • FFO of $106.5 million, or $1.92 per diluted share
  • Company FFO of $127.3 million, or $2.29 per diluted share

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