SRG - Seritage Growth Properties

[Spekulatius]

I agree with rolling here that if you do define conflict of interest too narrow, the rule would become too restrictive.

 

The deal was fair by any measure and WEB  SRG holding were fairly long term and well disclosed. Martha Stuart was convicted of insider trading and lying in court. Sokol has recently purchased Lubrizol stock, then peddled it to WEB without disclosing his interest. Very different cases here. While I think one needs to tread very carefully in these situations, I think this deal would have passed (and probably did pass) any internal review.

[gfp]

Again, I don't see an issue with the conflict or lack thereof.  How far do you take it - JPM is often a joint underwriter of Berkshire and Berkshire subsidiary debt.  Warren is directing some of that business to JPM, instead of exclusively using a consortium of banks like BAC, WFC, GS that Berkshire has an equity interest in.  Is he directing Berkshire business to JPM to help his personal holding in JPM at the expense of Berkshire Hathaway shareholders' interest to have more business at BAC WFC and GS?  It gets goofy quickly.  The SRG equity was uninvestable by Berkshire.  The SRG loan was investable by Berkshire.  Pretty clean conflict resolution.

 

The Sokol situation was a little more nuanced than most of the posts suggest.  There was a very detailed board of directors report on the matter.  Sokol didn't own Lubrizol until Citi investment bankers included it in a list of acquisition targets he was looking at for Berkshire, in his capacity as a Berkshire manager.  Then he pitched the company to Buffett who dismissed it - not interested.  David Sokol then bought some Lubrizol stock.  At that point the inside information he had was, "David Sokol likes Lubrizol, Warren Buffett not interested in buying Lubrizol."  After that he got filled on some more GTC buy orders for additional shares.  At some point, Warren met with Lubrizol management and changed his mind - liked the company and became interested in bidding for it after all. 

 

The sin with Sokol was a violation of Berkshire's trust because he didn't tell Warren all of the details.  He told Warren he owned the stock, but not when he purchased it or how he came to be aware of / interested in it (recently and through a Citi investment banker with Berkshire as the client).  It wasn't a criminal offense and was never prosecuted for the simple reason that the only insider information Sokol had at the time of his purchases was, "Warren Buffett is NOT interested in buying Lubrizol."

[LongTermView]

IMO there was a greater potential for conflict back when Blue Chip Stamps wasn't wholly owned.

[GCA]

The idea that WEB's $70MM SRG position even figured into the decision to invest $2B of debt into SRG is kind of laughable.

 

I mean, sure there is a teeny tiny conflict, but let's be realistic here.

[sleepydragon]

Btw, why everybody assume this bond investment is by Buffett? It’s only 2b. Could very likely by TT

[vince]

Any recent good valuation write-ups on this one that someone would like to share? Even a brief conservative back of envelope one that anyone would like to share?

[BTShine]

Any recent good valuation write-ups on this one that someone would like to share? Even a brief conservative back of envelope one that anyone would like to share?

 

Yes.  How does one value this company?  That’s what I’d like to discuss.

[SlowAppreciation]

http://ir.seritage.com/file/Index?KeyFile=394491185

[Mephistopheles]

Guys we are thinking way too much into this. Was Buffett's personal investment into SRG a conflict because he deprived BRK shareholders of this opportunity? What about the venture into Korean stocks? Shouldn't BRK shareholders get first dibs? If you think no because it is "immaterial", then fine. But then also you should agree that Buffett's stake in SRG is "immaterial" to his net worth and thus this isn't a conflict either.

 

If we are going to be strict fundamentalists, then you should be bothered by the Korean stocks and any other personal Buffett investment.

 

Buffett owns WFC, Charlie owns COST, conflicts? It's all in the same boat. Let's give the old man a pass shall we.

[LongTermView]

Guys we are thinking way too much into this.

 

Agreed, Mephistopheles.

 

Back to the numbers, the 2Q18 8-K has some encouraging figures. Including SNO, we now have $127.4 million in 3P annual rent.

[Parsad]

Guys we are thinking way too much into this. Was Buffett's personal investment into SRG a conflict because he deprived BRK shareholders of this opportunity? What about the venture into Korean stocks? Shouldn't BRK shareholders get first dibs? If you think no because it is "immaterial", then fine. But then also you should agree that Buffett's stake in SRG is "immaterial" to his net worth and thus this isn't a conflict either.

 

If we are going to be strict fundamentalists, then you should be bothered by the Korean stocks and any other personal Buffett investment.

 

Buffett owns WFC, Charlie owns COST, conflicts? It's all in the same boat. Let's give the old man a pass shall we.

 

It's not about Berkshire shareholders being deprived...that would be the other side of a potential conflict, but not in this case.  The conflict in this case is that the value of SRG stock in Buffett's personal portfolio went up in value because of a loan Berkshire made to SRG...essentially front-running similar to Sokol's investment in Lubrizol.  In this case, Buffett had the ultimate decision, whereas in the Lubrizol case, Sokol's gain was predicated on Buffett approving a Lubrizol deal.

 

The transgression, as minor as it seems, is best exemplified say if Buffett bought a handful of securities in his personal account, and then acquired those companies at a higher price through Berkshire...or even influenced their prices in some other way, such as a financing deal.  Trivial in the grand scheme of things and probably common place, but unusual for Buffett.  Cheers!

 

 

[Spekulatius]

^ I agree with Parsads logic here. It is common practice that pot. conflicts of interests are disclosed if you work for a company and that if such a conflict arises, somebody else or a committed would have to make decision on a transaction. I recall some cases, where a company takes over a company, where the CEO has a personal stake in and the board or a omitted needed to decide.

 

The deal looks proper to me, the disclosure was fair and the price of the transaction does not indicate any favorites, but it would be interesting how BRK internally deals with these conflicts of interests. It would be good to get some disclosure in thr SEC filings on that matter. This is particularly important because WEB will pass on the batton in a few years.

[Guest longinvestor]

Buffett was asked about conflicts just like this one at the annual meeting. His answer was that he’s actively taking his personal wealth to zero but not that of the Berkshire shareholder. There’s no personal gain typical of such conflicts and Buffett has singularly wrapped up his ego with the success of his painting.

[Gregmal]

I think it's crazy the extent to which people are blowing this up. If I owned a network of businesses I would certainly use them to help each other and myself. This is more common sense than controversial.

 

He is from what I know, one of the largest owners of SRG as well. If he plundered one company to benefit the other, sure, but this is a total non event.

[Parsad]

I think it's crazy the extent to which people are blowing this up. If I owned a network of businesses I would certainly use them to help each other and myself. This is more common sense than controversial.

 

He is from what I know, one of the largest owners of SRG as well. If he plundered one company to benefit the other, sure, but this is a total non event.

 

Greg think of it from a different perspective.  What if Buffett did not own SRG in his portfolio but his son or daughter did?  And Berkshire does the financing for SRG which boosts SRG's stock price...there has been a beneficial increase due to his action...and an obvious conflict there. 

 

Naturally, we know Buffett would never do that, but that has what has occurred.  Now there is probably a simple answer my small mind can't think of regarding what happened that Buffett already thought through...I'm just waiting for that explanation, because this is unusual for him.  Cheers!

[Rasputin]

For me, the issue with Sokol-Lubrizol was the timing of his Lubrizol share purchases.  IIRC, Sokol bought those shares just weeks prior to bringing the deal to Buffett. 

 

To me, it's different situation vs Buffett-SRG/Munger-BYD/Weschler-DVA/Lou Simpson - Cort furniture.

 

Those people have had investments in those companies for years prior to Berkshire's involvement. 

 

IIRC Buffett said when Sokol told him that he had purchased Lubrizol shares, Buffett thought Sokol meant he has owned the shares personally for a while, Buffett didn't ask him when Sokol bought the shares. 

[Gregmal]

For me, the issue with Sokol-Lubrizol was the timing of his Lubrizol share purchases.  IIRC, Sokol bought those shares just weeks prior to bringing the deal to Buffett. 

 

To me, it's different situation vs Buffett-SRG/Munger-BYD/Weschler-DVA/Lou Simpson - Cort furniture.

 

Those people have had investments in those companies for years prior to Berkshire's involvement. 

 

IIRC Buffett said when Sokol told him that he had purchased Lubrizol shares, Buffett thought Sokol meant he has owned the shares personally for a while, Buffett didn't ask him when Sokol bought the shares.

 

Buffett is a hypocrite. Is the aforementioned any different than a guy buying stock and then pitching it at a conference? Sokol had no control over whether Buffett bought the company or not. I don't think he did anything wrong at all. Warren just likes to polish his image every so often.

 

You know how many people probably pitch WB deals on a regular basis? The notion that Sokol buying shares because he knew it would be bought are crazy. If anything he's taking the same gamble many investors do on a regular basis. Irresponsible, but nothing wrong with it.

[GCA]

Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

[Gregmal]

Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

 

I'd actually concur. I had a small position I bought just to keep an eye on this, mainly because its such a hard on for many value investors and IMO if there's any truth to Berkowitz's ridiculous values given to SHLD, it's likely buried in SRG now. I'd been relatively disappointed with it and exited the position yesterday.

[RadMan24]

For me, the issue with Sokol-Lubrizol was the timing of his Lubrizol share purchases.  IIRC, Sokol bought those shares just weeks prior to bringing the deal to Buffett. 

 

To me, it's different situation vs Buffett-SRG/Munger-BYD/Weschler-DVA/Lou Simpson - Cort furniture.

 

Those people have had investments in those companies for years prior to Berkshire's involvement. 

 

IIRC Buffett said when Sokol told him that he had purchased Lubrizol shares, Buffett thought Sokol meant he has owned the shares personally for a while, Buffett didn't ask him when Sokol bought the shares.

 

Buffett is a hypocrite. Is the aforementioned any different than a guy buying stock and then pitching it at a conference? Sokol had no control over whether Buffett bought the company or not. I don't think he did anything wrong at all. Warren just likes to polish his image every so often.

 

You know how many people probably pitch WB deals on a regular basis? The notion that Sokol buying shares because he knew it would be bought are crazy. If anything he's taking the same gamble many investors do on a regular basis. Irresponsible, but nothing wrong with it.

 

Really? Buffett, a multi-billionaire, owns $85 million of Seritage common stock, disclosed his investment in 2015. What conflict is there exactly? Through his personal investment, he gained an understanding of the investment. When an opportunity to invest a large sum of money came along, he invested $2 billion earning 7% rates, which by the way, is a fraction of his cash pile at Berkshire. He mentioned he would have owned the equity for Berkshire if he could have a bigger stake, but that's not doable. So all these comparisons about Buffett having a personal stake being boosted because of this debt investment is non-sense. Further, the 7% he earns for Berkshire is greater than the investment value of his own personal stake.

 

Ya'll need to take a chill pill.

[RadMan24]

Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

 

Please explain how extending the loan 4 years at 0.5% increase in rates, removing the requirement to repay mortgage loans with asset sale proceeds, and closing the liquidity gap needed to fund redevelopments, is not real news. Thank you.

[Gregmal]

For me, the issue with Sokol-Lubrizol was the timing of his Lubrizol share purchases.  IIRC, Sokol bought those shares just weeks prior to bringing the deal to Buffett. 

 

To me, it's different situation vs Buffett-SRG/Munger-BYD/Weschler-DVA/Lou Simpson - Cort furniture.

 

Those people have had investments in those companies for years prior to Berkshire's involvement. 

 

IIRC Buffett said when Sokol told him that he had purchased Lubrizol shares, Buffett thought Sokol meant he has owned the shares personally for a while, Buffett didn't ask him when Sokol bought the shares.

 

Buffett is a hypocrite. Is the aforementioned any different than a guy buying stock and then pitching it at a conference? Sokol had no control over whether Buffett bought the company or not. I don't think he did anything wrong at all. Warren just likes to polish his image every so often.

 

You know how many people probably pitch WB deals on a regular basis? The notion that Sokol buying shares because he knew it would be bought are crazy. If anything he's taking the same gamble many investors do on a regular basis. Irresponsible, but nothing wrong with it.

 

Really? Buffett, a multi-billionaire, owns $85 million of Seritage common stock, disclosed his investment in 2015. What conflict is there exactly? Through his personal investment, he gained an understanding of the investment. When an opportunity to invest a large sum of money came along, he invested $2 billion earning 7% rates, which by the way, is a fraction of his cash pile at Berkshire. He mentioned he would have owned the equity for Berkshire if he could have a bigger stake, but that's not doable. So all these comparisons about Buffett having a personal stake being boosted because of this debt investment is non-sense. Further, the 7% he earns for Berkshire is greater than the investment value of his own personal stake.

 

Ya'll need to take a chill pill.

 

I think you misunderstood or misinterpreted my post. Buffett is a hypocrite. He's demonstrated that a bunch of times over the past decade. But I think I clearly stated this issue about conflict of interest is a joke and I can't understand why it's even being discussed. Any rational owner of many businesses would try to use their network to create synergies. Nothing wrong with that.

[RadMan24]

Ah, understand.

[LongTermView]

Here's a look at the 2Q18 at share GLA:

58.5% Sears (.719*.813)

12.0% in-place 3P (.147*.813)

10.9% SNO 3P (.134*.813)


18.7% not leased

 

Regarding the 18.7% of at share GLA that isn't leased, how much of that is under development?

 

[Spekulatius]

Here let me stir up some trouble:  I think this move is overblown... all they did was refinance their debt!  And not on fantastic terms for SRG!  The move is a short squeeze and the price will float back down to the low $40s until some real news comes out.

 

Yes, I believe this too. I don’t own SRG, but if I did, it would be gone.