SRG - Seritage Growth Properties

[thepupil]

So anyone done work on Santa Monica, Honolulu or Aventura or San Diego?

 

Most recent 10-K

 

Aventura: 50% leased

San Diego: 66% leased

Santa Monica: JV'd, 10-K says 0% leased, but I'm not sure if that's right

 

Honolulu is complete and is now a Drugstore, Ross, and a Petsmart.

 

https://www.thirdave.com/wp-content/uploads/2019/11/upd-11.2019-2018-Q1-TAREX-Letter.pdf

 

Key near-term projects include the Searsbox in

Santa Monica ,theK-Mart location in Honolulu,the Sears

box and adjacent land at Aventura Mall in Miami and the

Westfield UTC locationin San Diego.

 

Third Avenue seems to think they will raise equity and that was pre-covid.

However,when taking a

longer-term view (alongside a willingness to provide more

capital to support its redevelopment efforts),thereare

onlyahandful of property companies that havesucha

substantial opportunityaheadof them intermsof creating

shareholder valueby puttingexistingassets toa more

productiveuse.

[Gregmal]

Indeed, if the value creation lever is a wand waving, capital intensive project that spits out a Ross and a Petsmart, I cant think of a reason to not simply bypass all the execution risk and just buy into those things at 50% of NAV through UE...

[thepupil]

I mean i can definitely see how Aventura (a top 10 mall in the country, where they've poured in $60mm of development capital) and Santa Monica and others spit out some awesome returns / cool developments, so I'm very open to being proven wrong here, just trying to understand what people see as the appeal and when they  start to outrun the interest expense in terms of value creation.

 

I don't think it necessarily breaks if they need to raise a bunch of equity, just wondering why people think they don't need to. like if say aventura was worth $200mm (I'm throwing out some crazy number for effect) that would be material. If it's worth $30mm, I wouldn't consider it material.

 

the berkshire note attaches to the properties so it seems that raising money through asset level mortgages is somewhat limited (without approval)

 

all i can find on aventura:

50% leased and not paying its construction guys, apparently

https://www.levelset.com/blog/miami-esplanade-at-aventura-23-million-construction-liens/

[Gregmal]

I would probably lean more towards the $200M number than the $30M. SPG owns a third of Aventura.

 

On June 7, 2018, Aventura Mall, a property in which we own a noncontrolling 33.3% interest, refinanced its $1.2 billion mortgage loan and its $200.8 million construction loan with a $1.75 billion mortgage loan at a fixed interest rate of 4.12% that matures on July 1, 2028.  An early repayment charge of $30.9 million was incurred at the property, which along with the write-off of deferred debt issuance costs of $6.5 million, is included in interest expense in the accompanying combined joint venture statements of operations.  Our $12.5 million share of the charge associated with the repayment is included in income from unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income.  Excess proceeds from the financing were distributed to the venture partners.

[thepupil]

Yep, just wondering if anyone’s quantified it, and for example do these projects have construction loans ahead of them. I think they own all of the aventura project which would require them to consolidate the loan so my guess is not.

 

So if there are like 3 or 4 mega assets worth say $600mm equity and they produce no NOI right now and they were able to sell all immediately and pay down the term loan to $1 billion, then we’d have $100mm of NOI , $1B of debt and $600mm equity and own the remaining at a 6 cap and still not really exciting ...

 

This reminds me of JOE circa 2005, there’s some beachfront lots but g&a and cost eat up all the value creation. That can change with a big transaction though

[realassetsvalue]

 

• Q2 2020 annualized NOI is about $30m, this leaves $120m of NOI that needs to be produced through the development pipeline.

 

 

Why would you annualize 2Q20 as the baseline NOI? It's essentially the cyclical low for NOI.

 

Signed leases ex Sears amounts to $165M of annual rent. Interest, G&A, and pref divs total about $130M. If rent collections are in the mid 70's today and trend back towards 100% over the next 6 months (I know this is probably a fairly optimistic assumption), it doesn't seem like they will need to raise too much capital by selling off more assets. Will they have to JV out more of the high end pipeline and move more slowly than they were thinking 6 months ago? Sure, but it doesn't seem like the base case here is they have to get a big equity infusion to keep going and the existing equity gets massively diluted.

 

I could be wrong but I am using Q2 2020 NOI as the baseline because it seems pretty clear from what they have said that a significant amount of the capital expenditure needed to redevelop properties and unlock their signed but not open (SNO) pipeline still needs to be spent. In my mind, this is evidenced by citing the ~$43m of spend to unlock ~$13m of rent from their near-term pipeline that they are resuming. I believe that $13m of rent, for example, is within the SNO pipeline and these projects are likely the ones that were the most advanced (in terms of construction) when they halted things for COVID.

 

If minimal CAPEX is needed to unlock the rest of the SNO leases and thus run rate NOI is really in the ~$100m ballpark, that would definitely mean the way I am thinking about this is not correct and SRG is pretty close to producing CF to cover expenses and start to reinvest in their pipeline. Does anyone have a view w/ evidence that they don't need to invest significant dollars to start the SNO leases?

[thepupil]

agreed realassetsvalue. A lot of the signed not opened rent is in ongoing projects that require capital, a lot of additional leasing, and won't be profitable in their current state, which will make them difficult to monetize without significant additional progress.

 

For example, Pinstripes shows up as a "top tenant" (only ~1% of rent, so it's not super important, but it's easy to track because they only have a couple SRG locations) because of the 2 signed leases and projected $2 million of annual rent. As a tangent, Pinstripes is a fun yuppie boozy bowling experience with okay bar food, thepupil approves!

 

Pinstripes rents/will rent at 2 of SRG's best locations: 18% of the footage at Aventura and a portion of Westfield UTC JV. Both developments are in very high income areas at what should be highly productive retail sites.  think it's somewhat telling here that 18% of the footage of Aventura is only going to command $1-$1.5mm of base rent (I don't know th distribution between Aventura and Westfield). They'll probably charge more for the smaller tenants of course, but it's not like it's all going to be tesla and Apple stores (the mall itself already has those).

 

However, neither of these projects are complete and they are not profitable at such low occupancy.

 

Aventura is 51% leased (search the Q2 2020 supplemental for Biscayne Boulevard). The Aventura project alone has ~$20mm+ construction liens against it (which would be accounted for in the growing $168 million of accounts payable that SRG has, which roughly offsets its cash and receivables, not including the $91mm of signed but not closed asset sales). 

 

Likewise, the Westfield UTC project is only 57% leased (search for La Jolla JV in the supplemental). What's concerning here is this project was 67% leased in the Q1 supplement; it's going in the wrong direction. 

 

So when we talk about the $165mm of non sears rent of leases that are signed but not opened we have to consider that there needs to be additional capital spent on those, that the developments need to be leased up for the sites to generate a reasonable NOI margin etc.

 

So I don't really understand the responses I've received thus far about the annualized rent being enough to service the debt and fund capex and g&a and also maybe even produce profits for equity holders. Rent doesn't service interest/g&a/capex needs; NOI does. It's hard for me to see NOI margin approaching anything close to normalized for a long time.

 

I'd also note that SRG has signed 300K+ sf with co-working startup Industrious across a lot of locations. 30K of that is at Aventura. From what I read on Industrious, they are owned by CRE big wigs, growing quickly, their model is to not sign long term leases with landlords but to act as a kind of go between for the landlord/small time / flex tenants (ie they don't offer stability to the landlord but maybe give them a variable percent of the upside).

 

So something like Aventura is super sexy location, but SRG has leased up half of it. 18% of that is to a bowling alley that will pay $1-$1.5mm / year and 13% of that is to a co-working firm at unclear economics. The other 20% is to restaurants and stuff. It's hard for me to see that this has been/will be an awesome development.

 

Can someone bridge the next few years of funding capex/interest/g&A etc. for me?

 

Show me why a lender would refi the $1.6 billion loan? What type of lender and at what rate?

 

I feel like Berkshire should sell their note to Cerberus or Blackstone and let them put equity holders out of their misery. Or SRG should raise equity to prevent such an outcome.

 

 

 

[scorpioncapital]

What's all the impatience? If they aren't going bankrupt, it's a waiting game. When inflation hits, this will be 100 a share, even if it's a crappy REIT )

 

[thepupil]

One big positive is that the unconsolidated JV's have virtually no debt on them so all their equity is available for Berkshire loan repayment.

 

$1B of assets and $103mm of liabilities.

 

Page F-25 of the 10-K.

 

So the 50% in JV's (marked at $485mm) is unlevered, so they can probably get some capital from them, if they can lease them up. 

 

Of course, these are some of the best assets like San Diego, Santa Monica, etc.

 

[thepupil]

What's all the impatience? If they aren't going bankrupt, it's a waiting game. When inflation hits, this will be 100 a share, even if it's a crappy REIT )

 

I'm trying to figure out how they don't go bankrupt/dilute significantly.

 

What's the roadmap to a sustainable capital structure and the equity owning something/having cash flow?

 

As for your inflation comment, I look forward to all my REITs going up 5-10x in your scenario, but generally I don't bake tail scenarios into my base case and think it's lazy to assume inflation = REITs skyrocketing. What happens to SRG's $40mm of opex, $40mm of property taxes and $40mm of G&A (all annualized) in the inflation you contemplate. Do those rise more quickly than rent? At what rate will the 3 year duration term loan reset to with inflation? A certain kind of inflation could easily bankrupt SRG. If i wanted to bet on  inflation, I'd want something with low fixed rate, well termed out debt, little capex outlays. KIM has 9 year weighted average debt at like 3-5% yields for example.  A money bleeding developer with short term debt and funding needs is not what I'd use as an inflation hedge.

 

what I can see is they have things like Santa Monica which is a very valuable property that isn't leased at all. So if they lease that and sell it, that would inject capital into SRG and isn't in the $175mm of rent/$100mm of normalized NOI. That would help, but not sure how much. SRG sold half this project at an implied $145mm, they received $50mm cash and the rest is development spend from the JV partner; so if say they successfully develop it to where the bulding is worth $230mm (a quite generous $2300 / foot lol), then SRG could maybe get $115mm from this. so that'd be nice, then they'd still be 15x levered on an NOI basis and infinitely levered on an EBITDA basis. $100mm NOI / $1.5B pro-forma for debt paydown from sale of Santa Monica. the REIT market hates on my REITs that are 6-8x levered and have lots of completely unencumbered properties and cash reserves.

https://labusinessjournal.com/news/2018/mar/22/seritage-growth-invesco-partner-own-145m-developme/

 

I feel like I'm being repetitive and obnoxious and I'll shut up now, but my approach when looking at any real estate company is to look at the liabilities first and see what covers those / how I will pay them back. Are they recourse? (yes). What's their cost (high)? Are they owned by a bank / CMBS / or an opportunistic lender that may try to foreclose / take advantage (lender of unknown intent, berkshire is not traditional CRE lender so tough to conclude how Berkshire will act). this to me is the most the most important question in deciding what (if anything) the equity is worth. my preference is non-recourse CMBS or bank financing; you don't want PE guys or debt funds or like SL Green's mezz book sitting there waiting to take your equity. if anyone's aware of a friendly lender that will take out Berkshire's loan, I'm all ears

 

With SRG it is the exact opposite of everything I prefer (recourse corporate level leverage that also is secured by the properties at high cost and short term), so I think the onus is on the longs at showing how that gets taken care of. I do own CDR which is overlevered and funded by recourse corporate level short term borrowings (at low cost), but it's fully leased up and can kind of sort of possibly service its debt but its an option (own 80 bps, have realized 40 bps of profit on it)

 

shutting up now.

[scorpioncapital]

I am thinking that Lampert has actually been able to survive very long some sinking ships and SRG > SHLD.

Densification I think is the answer. They can sell 90% of everything they own. The 10% that's left, if they build on it and build well could be worth far more than the other 90%. I guess this is the Pareto principle at work. I wouldn't underestimate the power of a very small number of very deluxe and improved properties producing the lions share of the gains, even if they have to burn firewood with the vast majority to get there.

[RadMan24]

I am going to say something that is a bit douchey.  But it should be said.  Even thought GRIF has gone up $15 this year.  The NAV is probably over $70 and the current price is $53-54.  I think it will actually trade to $70 at some point.  One thing that I learned about real estate investing is to never invest in something that is in secular decline.  Everyday, Amazon and E-Commerce encroach upon the traditional brick and mortar retail.  Everyday the E-commerce's route density improves further driving down unit cost of delivery.  I think the issues are structural rather than cyclical (yes, it's my asshole opinion.) Since we are pricing things at 6% cap rate. This implies that it will take 14 years or so to be completely paid back.  Thus the Terminal Value for real asset valuation (or at least the perception of the sustainability of terminal value is incredibly important).  If you own an asset that could be deemed as unsustainable in 5-10 years in the real estate space, you should not own it at any price.  I have said this about Washington Prime, Macy's (which I lost money in), and a bunch of B and C malls.  Frankly, SRG, would be worth more as hundreds of patches of prime dirt. 

 

Munger said something about "it's not what floor you are on.  It's about whether you are going up or down."  GRIF is going up and traditional retail is going down.  Every year I go to Fairfax, I have 20 people who ask me about SRG.  It's not under the radar.  It is being heavily investigated by value investors.  I remember saying about this in the Macy's thread and I hope I had convinced a few folks to swap their Macy's for GRIF.  Own the stuff that is sustainable.  Because you're not paying 4x FCF and getting the dividend out.  You're bet on 14 year time horizons.  Who cares that you can develop to an 10-12% cash on cash yield.  If by year 5-7 these assets will be priced at 13-14% cap rate, it doesn't matter anymore. 

 

Now you layer on interest coverage.  There is a dynamic of burning furniture to stay warm coupled with structure headwinds.  Most of the involved do not have real estate background.  They are generalists who do not understand the nuances.

 

Right. And I suspect you could have made the same argument for Apple - a bunch of value generalists who couldn’t learn more about consumer tech to figure out 10x earnings was a good deal. Same principle here - it doesn’t take a rocket scientist to 1.) Figure out buildings earn more rent than parking lots (but parking lots and skyward buildings aren’t counted in sq ft numbers, so who knows what final sq ft numbers are when densification finished), 2) Sears locations (available for viewing on SRG website) are vastly surrounded by middle class and above homes, 3) SRG has both crown jewel assets and multiple levers to pull to raise liquidity.

 

Frankly, unless you went thru each of the 199 some off properties and did a self evaluation of each one and its future prospects, how can you form such a high confidence opinion?

[johnny]

I feel like Berkshire should sell their note to Cerberus or Blackstone and let them put equity holders out of their misery. Or SRG should raise equity to prevent such an outcome.

 

??? Berkshire is going to take possession and fill all the boxes with See’s and Nebraska Furniture Marts.

[Spekulatius]

This thread reminds me more and more of SHLD ~ 2015.

[thepupil]

SRG has both crown jewel assets and multiple levers to pull to raise liquidity.

 

can you be more specific?

 

I read Third Avenue's old thesis to get an idea of the crown jewels. They pointed to Honolulu (complete and included in the numbers), Santa Monica (JV'd and unleased at the moment but the JV was at $1000/foot and will be a hiqh quality asset, San Diego (already covered) and Aventura (already covered). I then looked at the locations in every state in which i have some knowledge (ie I live in Maryland, where do they have maryland locations? I ) and couldn't find too much that inspired me. Looked in a few other states. I know the Boca location, etc.

 

Where are the jewels? and how much are they worth?

 

I have no doubt that over the long term many of SRG's locations will be and are worth more than the EV/foot or EV/eventual foot, but I struggle to see why SRG's equity holders will benefit. Berkshire's loan is in violation of covenants. Its simultaneously high enough rate to take all of SRG's economics, but too low to be attractive to PE/opportunistic capital.

 

help me out. What are the multiple levers? thus far these are the levers I see:

 

1) deferring cash interest with Berkshire so that it accrues at 9% instead of 7%

2) not paying their suppliers / (note the $25mm in increase in payables making operating cash flow look $25mm better than it would in 1H2020)

3) selling their income producing properties for a 6% cap (pretty good!) at the pace they can, but selling something at 6% to pay off something at 7% isn't super exciting

4) doing more JV's, but doubt their JV partners are looking for more, given the state of things at MAC/Brookfield (to a much lesser extent Simon)

[Foreign Tuffett]

I agree w/ thepupil. The company has big leverage and liquidity problems* and, to the extent there is upside, Berkshire is in a position to gobble it all up.

 

 

 

* These problems existed pre-COVID, w/ many old (last year and early this year) posts in this thread discussing them.

 

 

 

 

[Gregmal]

I would also agree with Foreign Tuffett and Spek. The hope and dreams(along with all of the assets) of SHLD, just got transferred to SRG. #ImmortalThesis

[thepupil]

Mr Market agrees with the bulls  ;D

 

+25%, $785mm Equity value with the OP units, $2.4B EV

 

The 45% short interest could have something to do with it, but still impressive / kind of baffling

 

[RadMan24]

SRG has both crown jewel assets and multiple levers to pull to raise liquidity.

 

can you be more specific?

 

I read Third Avenue's old thesis to get an idea of the crown jewels. They pointed to Honolulu (complete and included in the numbers), Santa Monica (JV'd and unleased at the moment but the JV was at $1000/foot and will be a hiqh quality asset, San Diego (already covered) and Aventura (already covered). I then looked at the locations in every state in which i have some knowledge (ie I live in Maryland, where do they have maryland locations? I ) and couldn't find too much that inspired me. Looked in a few other states. I know the Boca location, etc.

 

Where are the jewels? and how much are they worth?

 

I have no doubt that over the long term many of SRG's locations will be and are worth more than the EV/foot or EV/eventual foot, but I struggle to see why SRG's equity holders will benefit. Berkshire's loan is in violation of covenants. Its simultaneously high enough rate to take all of SRG's economics, but too low to be attractive to PE/opportunistic capital.

 

help me out. What are the multiple levers? thus far these are the levers I see:

 

1) deferring cash interest with Berkshire so that it accrues at 9% instead of 7%

2) not paying their suppliers / (note the $25mm in increase in payables making operating cash flow look $25mm better than it would in 1H2020)

3) selling their income producing properties for a 6% cap (pretty good!) at the pace they can, but selling something at 6% to pay off something at 7% isn't super exciting

4) doing more JV's, but doubt their JV partners are looking for more, given the state of things at MAC/Brookfield (to a much lesser extent Simon)

 

Have you read the covenants and the related penalty against SRG if breached?

 

Depends how you define crown jewels, in my mind, those are turning non=income producing assets into high quality assets. Just look for examples, like here: https://chicago.curbed.com/2018/5/16/17362108/sears-redevelopment-mixed-use-six-corners and what SRG discloses its plans for residential living across 14 sites.

 

If you look at something that looks uninspiring, that's fine, move on. Do you think this example of turning parking lot acres into sq ft can't be replicated?  https://www.seritage.com/retail/property/2300-tyrone-blvd-n/3312513/landing

 

As an side, who cares who agrees with whom - if you listened to Gregmal and bought SPG instead of SRG you would have missed 70+ percentage points of gains in a couple of months. 

 

Regardless, there's a lease rate of high-30s. Why are folks still worried about liquidity traps, as rent collection and store openings resume? Future tenants will be of solid prospects and looking to grow. Redevelopment opportunities will take place in a post-covid world. At this point, if you don't see it, then it's too hard.

[thepupil]

I agree. After spending a few hours on it this weekend, It’s too hard for me to see how they pay back the loan, and why the equity is worth where it trades, much less 2-4x. I see UE’s NAV of $23 as aspirational but relatively easy to understand and would therefore want at leasT a 2x (or a 3-4x given the financial risk that isnt present elsewhere) to be interested in SRG. I see the financial risk as similar to CDR which does offer multi bags of upside that is easier for me to understand (and is potentially a zero)

 

The 45% short interest and devoted shareholder base keeps me from shorting it.

 

I will revisit if the capital structure changes. Good luck.

 

EDIT: to answer your questions:

yes I read the penalties if breached. Berkshire is more or less doing nothing for now. Point is that no one refi's this loan without huge improvement in fundamentals. thanks for the chicago example. I'm not sure what you are asking about the parking lot. all the strip center landlords are densifying/doing stuff with parking, so ya I think it can be replicated.

 

I'm worried about liquidity traps because I think normalized NOI is like $100mm, EBITDA is less, like $60mm and therefore SRG is like 15-25x levered. Of course they own a bunch of land/projects, but I couldn't find enough to get me comfortable. People shit on my real estate co's for being 6-8x levered (they also do development and have underearnigns assets, not at this scale relative to the income producing estate, of course) so was tryign to understand why SRG is different. I still don't, but think it's best to move on. I simply prefer RE companies with cash flow so no amount of work will lead me to like this and the scariness of shorting it has been very much solidified.

[peridotcapital]

The loan still has 3 years left on it so worrying about a refi right now seems odd. And they aren't that far away from getting to the benchmark of $200M of signed leases ex-Sears.

 

While this does look over leveraged on a debt to ebitda basis, the majority of the assets are not producing any revenue but still have value and can be sold, thereby rendering leverage ratios pretty meaningless in the near term. Wait until they start contributing vacant land into JVs in return for minority stakes in projects... it should be a great way to monetize their vacant space without needing to fund the redevelopments themselves.

 

I have no idea what NAV is, and I was never in the camp that it was $75 or $100 a share, but at a certain price, the risk/reward here is pretty enticing. That said, I was trimming common today into the strength. It's more of a trading vehicle for now given the volatility.

[thepupil]

The loan still has 3 years left on it so worrying about a refi right now seems odd. And they aren't that far away from getting to the benchmark of $200M of signed leases ex-Sears.

 

I would worry about it if it matures in 2100. It takes all of the economics until something more drastic happens. (More value creation asset sales etc)

[Xerxes]

https://www.cnn.com/2020/08/10/investing/iac-barry-diller-mgm/index.html

 

 

[Foreign Tuffett]

SRG has both crown jewel assets and multiple levers to pull to raise liquidity.

 

can you be more specific?

 

I read Third Avenue's old thesis to get an idea of the crown jewels. They pointed to Honolulu (complete and included in the numbers), Santa Monica (JV'd and unleased at the moment but the JV was at $1000/foot and will be a hiqh quality asset, San Diego (already covered) and Aventura (already covered). I then looked at the locations in every state in which i have some knowledge (ie I live in Maryland, where do they have maryland locations? I ) and couldn't find too much that inspired me. Looked in a few other states. I know the Boca location, etc.

 

Where are the jewels? and how much are they worth?

 

I have no doubt that over the long term many of SRG's locations will be and are worth more than the EV/foot or EV/eventual foot, but I struggle to see why SRG's equity holders will benefit. Berkshire's loan is in violation of covenants. Its simultaneously high enough rate to take all of SRG's economics, but too low to be attractive to PE/opportunistic capital.

 

help me out. What are the multiple levers? thus far these are the levers I see:

 

1) deferring cash interest with Berkshire so that it accrues at 9% instead of 7%

2) not paying their suppliers / (note the $25mm in increase in payables making operating cash flow look $25mm better than it would in 1H2020)

3) selling their income producing properties for a 6% cap (pretty good!) at the pace they can, but selling something at 6% to pay off something at 7% isn't super exciting

4) doing more JV's, but doubt their JV partners are looking for more, given the state of things at MAC/Brookfield (to a much lesser extent Simon)

 

Have you read the covenants and the related penalty against SRG if breached?

 

Depends how you define crown jewels, in my mind, those are turning non=income producing assets into high quality assets. Just look for examples, like here: https://chicago.curbed.com/2018/5/16/17362108/sears-redevelopment-mixed-use-six-corners and what SRG discloses its plans for residential living across 14 sites.

 

If you look at something that looks uninspiring, that's fine, move on. Do you think this example of turning parking lot acres into sq ft can't be replicated?  https://www.seritage.com/retail/property/2300-tyrone-blvd-n/3312513/landing

As an side, who cares who agrees with whom - if you listened to Gregmal and bought SPG instead of SRG you would have missed 70+ percentage points of gains in a couple of months. 

 

Regardless, there's a lease rate of high-30s. Why are folks still worried about liquidity traps, as rent collection and store openings resume? Future tenants will be of solid prospects and looking to grow. Redevelopment opportunities will take place in a post-covid world. At this point, if you don't see it, then it's too hard.

 

With all due respect RadMan24, you were making comments regarding SRG being at "attractive levels" at the end of January when the stock was between $36 and $37. Given that, I have no idea why you are criticizing anyone for being bearish and missing the pop off the COVID lows. We are all wrong sometimes, but having some degree of humility is important.

[Gregmal]

SRG has both crown jewel assets and multiple levers to pull to raise liquidity.

 

can you be more specific?

 

I read Third Avenue's old thesis to get an idea of the crown jewels. They pointed to Honolulu (complete and included in the numbers), Santa Monica (JV'd and unleased at the moment but the JV was at $1000/foot and will be a hiqh quality asset, San Diego (already covered) and Aventura (already covered). I then looked at the locations in every state in which i have some knowledge (ie I live in Maryland, where do they have maryland locations? I ) and couldn't find too much that inspired me. Looked in a few other states. I know the Boca location, etc.

 

Where are the jewels? and how much are they worth?

 

I have no doubt that over the long term many of SRG's locations will be and are worth more than the EV/foot or EV/eventual foot, but I struggle to see why SRG's equity holders will benefit. Berkshire's loan is in violation of covenants. Its simultaneously high enough rate to take all of SRG's economics, but too low to be attractive to PE/opportunistic capital.

 

help me out. What are the multiple levers? thus far these are the levers I see:

 

1) deferring cash interest with Berkshire so that it accrues at 9% instead of 7%

2) not paying their suppliers / (note the $25mm in increase in payables making operating cash flow look $25mm better than it would in 1H2020)

3) selling their income producing properties for a 6% cap (pretty good!) at the pace they can, but selling something at 6% to pay off something at 7% isn't super exciting

4) doing more JV's, but doubt their JV partners are looking for more, given the state of things at MAC/Brookfield (to a much lesser extent Simon)

 

Have you read the covenants and the related penalty against SRG if breached?

 

Depends how you define crown jewels, in my mind, those are turning non=income producing assets into high quality assets. Just look for examples, like here: https://chicago.curbed.com/2018/5/16/17362108/sears-redevelopment-mixed-use-six-corners and what SRG discloses its plans for residential living across 14 sites.

 

If you look at something that looks uninspiring, that's fine, move on. Do you think this example of turning parking lot acres into sq ft can't be replicated?  https://www.seritage.com/retail/property/2300-tyrone-blvd-n/3312513/landing

 

As an side, who cares who agrees with whom - if you listened to Gregmal and bought SPG instead of SRG you would have missed 70+ percentage points of gains in a couple of months. 

 

Regardless, there's a lease rate of high-30s. Why are folks still worried about liquidity traps, as rent collection and store openings resume? Future tenants will be of solid prospects and looking to grow. Redevelopment opportunities will take place in a post-covid world. At this point, if you don't see it, then it's too hard.

 

LOL, SPG even from pre covid has vastly outperformed Seritage. 140 to 65(plus real distributions) and no question regarding an equity wipeout(actually raising capital at 3%)>>>>40 to 13 on the way to 0. Its funny, but on the GM thread you run in circles quoting value investors snippets about patience and stock prices meaning nothing, and now you're talking up a trading bounce? But hey, $6 more dollars and you're back to the IPO level on GM!