SRG - Seritage Growth Properties

[Pistachio_Lawyer]

Seritage just announced it has appointed Andrea Olshan (Olshan Properties Inc) as their new CEO. She says she will  use her industry relationships to add weight to SRG's clout:

 

https://seekingalpha.com/news/3660306-seritage-names-andrea-olshan-ceo-and-president?mail_subject=srg-seritage-names-andrea-olshan-ceo-and-president&utm_campaign=rta-stock-news&utm_content=link-3&utm_medium=email&utm_source=seeking_alpha

[unics]

Seritage just announced it has appointed Andrea Olshan (Olshan Properties Inc) as their new CEO. She says she will  use her industry relationships to add weight to SRG's clout:

 

https://seekingalpha.com/news/3660306-seritage-names-andrea-olshan-ceo-and-president?mail_subject=srg-seritage-names-andrea-olshan-ceo-and-president&utm_campaign=rta-stock-news&utm_content=link-3&utm_medium=email&utm_source=seeking_alpha

 

Thank you for sharing. For those that are blocked by paywall or don't want to use the 5 free articles there are only 5 lines to it

• Andrea Olshan has been appointed as CEO/President of SRG effective on or before March 16th
  
• She'll also join the company's board
  
• Andrea Olshan is currently a CEO of a private real estate company, and will be transition to the chairman of Olshan Properties' board.
  
• Edward S. Lampert expects her "vast expertise developing retail, office, hospitality, and mixed-use projects for Olshan Properties'" will benefit SRG as "[seritage] expands its development activites across asset classes
  

 

[shamelesscloner]

Let the scuttlebutt begin!

 

Form 8-K with compensation details: https://www.sec.gov/ix?doc=/Archives/edgar/data/1628063/000114036121003924/brhc10019930_8k.htm

 

Seritage press release: http://ir.seritage.com/news/news-details/2021/Seritage-Growth-Properties-Appoints-Andrea-Olshan-as-Chief-Executive-Officer-and-President/default.aspx

 

The only video of Andrea that I could find:

[shamelesscloner]

Oh and I discovered on Twitter that she likes to play Words With Friends. I'm going to challenge her to a game!

[scorpioncapital]

It seems like Seritage has updated their property list and while they were at it, made it official that they have a new mixed-use project at Hicksville: https://seritage.com/retail/property/195-n-broadway/3312586/landing

 

It is conventional wisdom that residential has lower cap rates than commercial, that is, you can't get as much profit out of residential as commercial on a cost basis of investment, but it does seem that here the residential units are providing the lion's share of the revenues and profit. Perhaps residential is a better playground than commercial? Or at least, more mixed use projects?

 

 

[Anglozurich]

The table at the back of the supplement showing % of GLA leased at a property level (32% blended) shows the full extent of the work to be done here. Looking at this table causes beads of sweat. It will be a long hard and gritty road but investors know this already.

 

Positives:

 

$150m in annual rent (including SNO). Moving closed to the $200m run-rate rent to unlock the $400m facility from BRK. They are clearly working hard and making decent progress.

$140m of cash at year end and $112m cash-inflow since 31/12 from further sales of non-core assets post-y/e. They have created some breathing room.

They have paid all the interest in cash to avoid letting the BRK loan PIK and mushroom (upward spiraling would be a disaster)

4th quarter sales appear to be at $90psf up from the average in the year at $86psf (see cap rate question below)

 

Negatives

I am by no means an expert on current cap rates for each section of the portfolio. Hopefully selling at blended cap rates of 7.5% is not scalping the long-term of value of Seritage because of a race to secure short term funding. It does not look great? It goes to capital allocation and assessing a property one by one I suppose. Some sales were redevelopment projects where the decision is probably more obvious to glide it.

Impairment charges of $64m is not immaterial no matter how they try and brush it off.

 

CEO

I watched the 2016 interview (someone posted earlier - thank you) and whilst difficult to extract a great deal, I was impressed with her insights on commercial retail, specifically homing in on the type of tenants and formats that will prosper. This will have evolved since that interview. I felt her passion came through on the subject though. There will be many exceptions and I appreciate this is a very general comment......women can often have an edge in terms of understanding retailing, merchandising, consumer perception and the type of tenants/brands/concepts that will have staying power. Particularly for clothing retailers given higher spend per head is so often weighted towards females.This is obviously so critical at this stage in SRG's life. Imo, the decisions at the heart of the big money around SRG'S capital allocation that lies ahead, are very much back-solved based on the types of retailers or leisure/experience concepts management believe have staying power, factoring in local demographics and the opportunity cost of capital of re-purposing into mixed-use, full resi or selling. I am pleased a fresh pair of eyes are coming in to make these big decisions and she clearly has experience. Dicks being top of the tenant list pleases me. Decathlon in Europe is always packed because people want to try/see before they buy with a lot of outdoor and sporting goods. They also have great online capability.

 

*Also regarding the share options/grants they have given the CEO, which is based on performance targets ($4m i believe).........I would find it very very very hard to believe that someone with her experience would not have asked as one of her first questions....What is happening with this Berkshire loan? Am i swimming upstream here and could Warren just come down on this thing after 2 years of blood, sweat and tears? The answer is, he probably won't.

 

 

 

[thepupil]

Enough cheap RE out there to not deal with an inability to figure out th eventual capital structure / path to sustainability. It obviously doesn’t have the scale of non earning assets / development, but I thin UE is much more straightforward / safer and I think CDR is a levered option with multibagger opportunity on a refi/liquidity bridge for crappy strip centers. I think these two are an interesting barbell as it relates to strip center / outparcel play. SRG has some stuff that’s in a different class (like their Santa Monica office asset) so they aren’t directly comparable.

 

Since 9 /15/ 2020

 

CDR: +185%

UE: +66%

SRG: +52%

 

I'm covering my hypothetical SRG short / relative value hate in light of CDR's / UE's performance, but everyone wins on an absolute basis!

 

[shamelesscloner]

Yeah the 8% of the stockholders equity would work out to be ~4% of total diluted equity

 

can you show me how you are doing the equity please ?

 

TIA

GK

 

Yeah so from YE 10-k

 

Outstanding shares (class A & C) = 31.4k

Operating Partnership units = 24.2 k

 

So common shares end up being 56.5% of the equity of the company.

 

As a bit of background Operating Partnership units are common in reit ownership structures as it allows for a seller of a property to the reit to gain control of a security that will pay them dividends, but the taxable capital gain only occurs when the OP unit is converted into equity in the reit. So it becomes a tax deferral instrument. ESL owns all of the OP units not owned by by Seritage.

 

See the attached org chart for clarification

 

Has anyone seen an updated org chart for SRG? Does ESL still own 44.9% of the OP units?

[gfp]

In case you haven't seen it, a recent filing shows Lampert selling some SRG shares recently.  I don't follow the company close enough to know if anything changed with his OP unit position but I doubt it.  Here is the relevant section of the recent 13-D/A:

 

[Anglozurich]

Unless i am mistaken, he has converted any of the OP units. He has sold a small amount of common shares per the post above, but he also added during the collapse last spring on top of what he already had. Looks like it wasn't material and perhaps liquidity to pay taxes? Not exactly offloading and rushing for the exit. I think they are making decent progress.

[thepupil]

there are a few things going on. bottom line is there are about 56mm share equivalents between the OP units and shares. ESL owns ~30% primarily via the OP units, plus some shares. ESL has been redeeming LP's with SRG shares and selling shares on its own (after converting them from OP interest to shares). without going into each filing over the past few months, that's what i interpret to be the general direction of travel, ESL LP's and Lampert increasing the number of SRG shares (by converting OP units to shares) and generally selling (but not in drastic fashion)

 

For example, Thomas Tisch filed a 13G in March 2021, this shows up on Bloomberg as him having 2.7mm shares (6.8%) for the first time (as if it was a buy). In actuality, it represents him getting OP units from holding ESL and those being converted to shares. See the language “plus 1.6mm common shares...following their issuance in March 17th 2021 in exchange for....LP units of Seritage”

 

I would note that shares short have declined from 18mm in May 2020 to 5.4mm today, while share count is increasing as insiders convert OP to shares. This has brought SI as % of float down to 16%. Things can change but probably a little less short covering rocket fuel in the tank and need fundamentals to carry the stock from here

 

 

 

 

As of December 31, 2020, 38,896,428 Class A common shares were issued and outstanding. Class A shares have a par value of $0.01 per share.

During the year ended December 31, 2020, 1,901,739 OP Units were exchanged for an equal number of Class A shares.

 

As of March 3, 2021, there were 38,903,146 Class A common shares issued and outstanding which were held by approximately 138 shareholders of record.  The number of shareholders of record does not reflect persons or entities that held their shares in nominee or “street” name.

In addition, as of March 3, 2021, there were no Class B non-economic common shares issued and outstanding and 17,002,906 outstanding Operating Partnership units (“OP Units”) held by limited partners other than the Company.

 

ESL owns a substantial percentage of the Operating Partnership units, which may be exchanged for cash or, at the election of Seritage, Class A common shares, and which will result in certain transactions involving Seritage or Operating Partnership requiring the approval of ESL.

As of December 31, 2020, ESL owns approximately 30.4% of the Operating Partnership units, with the remainder of the units held by the Company. In addition, ESL will have the right to acquire additional Operating Partnership units in order to allow it to maintain its relative ownership interest in Operating Partnership if Operating Partnership issues additional units to the Company under certain circumstances, including if we issue additional equity and contribute the funds to Operating Partnership to fund acquisitions or redevelopment of properties, among other uses. In addition, ESL will have the right to require the Operating Partnership to redeem its Operating Partnership units in whole or in part in exchange for cash or, at the election of the Company, Class A common shares, except as described below. Due to the ownership limits set forth in our Declaration of Trust, ESL may dispose of some or all of the Class A common shares it beneficially owns prior to exercising its right to require Operating Partnership to redeem Operating Partnership units, and the partnership agreement of Operating Partnership will permit ESL (and only ESL) to transfer its Operating Partnership units to one or more underwriters to be exchanged for Class A common shares in connection with certain dispositions in order to achieve the same effect as would occur if ESL were to exchange a larger portion of its Operating Partnership units for Class A common shares and then dispose of those shares in an underwritten offering. Sales of a substantial number of Class A common shares in connection with or to raise cash proceeds to facilitate, such a redemption, or the perception that such sales may occur, could adversely affect the market price of the Class A common shares.

In addition, the partnership agreement of Operating Partnership requires the approval of a majority of the Operating Partnership units not held by the Company and entities controlled by it for certain transactions and other actions, including certain modifications to the partnership agreement, withdrawal or succession of the Company as general partner of Operating Partnership, limits on the right of holders of Operating Partnership units to redeem their units, tax elections and certain other matters. Because ESL currently owns a majority of the outstanding Operating Partnership units not held by the Company and entities controlled by it, ESL’s approval will be required in order for the general partner to undertake such actions unless ESL no longer owns a majority of such units. If ESL refuses to approve any such action, our business could be materially adversely affected. Furthermore, ESL owns approximately 6.5% of the outstanding Class A common shares. In any of these matters, the interests of ESL may differ from or conflict with the interests of our other shareholders.

[RetroRanger]

 

 

" that's what i interpret to be the general direction of travel, ESL LP's and Lampert increasing the number of SRG shares (by converting OP units to shares) and generally selling (but not in drastic fashion)"

 

"If ESL refuses to approve any such action, our business could be materially adversely affected. Furthermore, ESL owns approximately 6.5% of the outstanding Class A common shares. In any of these matters, the interests of ESL may differ from or conflict with the interests of our other shareholders."

 

if i look at these statements,  selling OPs or class A shares by Eddie Lampart, seems like a good thing, because they cannot "block" things anymore in their own interest. Or do i miss a point here?

[thepupil]

I didn't mean to imply anything terribly negative or positive. Rather, just pointing out what is generally occurring with the shares/OP units (OP units becoming shares).

 

Generally the supply of free floating common shares is increasing and insiders are trimming or their stakes are becoming more liquid. I don't like to divine/interpret precisely why a stock is going up, nor do I think that's possible, but SRG has traded up with heavily shorted names* and the increasing supply of shares along with the fact that shorts have covered a fair bit is probably a headwind for the short squeeze dynamics here (this is the case with many stocks, see JOE for example). that doesn't have anything to do with SRG's fundamental prospects. going forward, I don't think you have the same squeeze dynamics, that's my only point (along with insiders sseem to be trimming). I would say both are negatives for the near term stock price, but that fundamentals matter more than either of those.

 

I'm neither long nor short, just an observer. I would potentially go long if they raise a huge amount of equity or otherwise restructure the balance sheet. I'd potentially short if shorts get squeezed completely and abandon the stock and it goes up a lot. Neither is likely to happen and I'll likely continue to observe.

 

Lambert is chairman of the board and owns/controls a huge block of stock as do his insiders/associates. You are in his hands for a long time (for better or worse), regardless of his recent sales. all that stuff is just SEC filing risk factor warnings. The substance is ESL/Lambert  is in control and likely will be for a while.

 

*during the GME week ending 1/29/2021, SRG traded 18mm shares. typical weekly volume is more like 4mm

[Anglozurich]

".....Because ESL currently owns a majority of the outstanding Operating Partnership units not held by the Company and entities controlled by it, ESL’s approval will be required in order for the general partner to undertake such actions unless ESL no longer owns a majority of such units. If ESL refuses to approve any such action, our business could be materially adversely affected. Furthermore, ESL owns approximately 6.5% of the outstanding Class A common shares. In any of these matters, the interests of ESL may differ from or conflict with the interests of our other shareholders"

 

I agree. The above basically means per the partnership agreement he only needs to own a majority of the non-company held units. That means he's in control.

 

I also found this part interesting in the risks section...

 

"The Company’s Declaration of Trust Contains Restrictions on the Ownership and Transfer of Seritage Shares of Beneficial Interest. In order for us to qualify as a REIT, no more than 50% of the value of all outstanding shares of beneficial interest may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year other than 2015, the first taxable year for which we elected to be taxed as a REIT."

 

I wonder if this means he is forced to sell or trim?

 

 

 

 

 

[golonginvestor]

".....Because ESL currently owns a majority of the outstanding Operating Partnership units not held by the Company and entities controlled by it, ESL’s approval will be required in order for the general partner to undertake such actions unless ESL no longer owns a majority of such units. If ESL refuses to approve any such action, our business could be materially adversely affected. Furthermore, ESL owns approximately 6.5% of the outstanding Class A common shares. In any of these matters, the interests of ESL may differ from or conflict with the interests of our other shareholders"

I agree. The above basically means per the partnership agreement he only needs to own a majority of the non-company held units. That means he's in control.

I also found this part interesting in the risks section...

"The Company’s Declaration of Trust Contains Restrictions on the Ownership and Transfer of Seritage Shares of Beneficial Interest. In order for us to qualify as a REIT, no more than 50% of the value of all outstanding shares of beneficial interest may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year other than 2015, the first taxable year for which we elected to be taxed as a REIT."

I wonder if this means he is forced to sell or trim?

I thought he was trimming his position in RBS Partners, I thought this was some sort of fund managed by Lampert? If so that rule would not apply here assuming it has more then 5 people in the fund.

[Anglozurich]

Sorry, Ignore my last point on that ownership rule....i am speculating

https://sec.report/Document/0000899243-21-009476/

Probably the most relevant filing of late. Shows distribution of 261,472 Class A shares distributed to Partners from ESL Partners to certain limited partners on a pro-rata basis.
Then distribution of 1,658,855 operating units to limited partners on a pro-rata basis. As per posts above this is so they can convert to more liquid Class A's. Like you say, this is could be from RBS Partners LP instead of ESL Partners. I don't think its all that relevant as Lampert will be the limited partner.

https://sec.report/Document/0001193125-21-088555/

This form shows EL's sales of Class A (from the converted OP units) into the open market.

Agree with thepupil. Insider selling, not huge but also not small, has caused downward pressure on the stock alongside lower short squeeze activity. Probably not a big negative though. The re-opening, balance sheet management and leasing of space more important.

 

[Anglozurich]

Just to round off. Annoyed me that i wasnt following it through properly....

https://sec.report/Document/0000899243-21-009476/ shows the 1,658,855 OP units being distributed out of RBS Partners on 3 March. Then a filling on 17 March you can see the full 1,658,855 reappear in Thomas Tisch's 13G.  All 1,658,855 went to Thomas Tisch and are now in the form of Class A's. .

https://sec.report/Document/0001140361-21-009101/0001140361-21-009101.txt

He is now probably offloading them...

[Pistachio_Lawyer]

Recent bullish commentary re SRG:

1 Under-the-Radar Stock With Tons of Long-Term Potential | The Motley Fool

 

[CiaranRob]

Interesting to see another block of OP Units converted to the Class A by Lampert. 
 

Any reason why you would if not to liquidate them?

[Cicero]

None I can think of. 

[grc1980]

Interesting to see that they have now announced the new leadership team.  It looks like mainly a bunch of insider promotions, however it is good to have some clarity on the executive team.

Here is to hoping that they can execute.

https://www.businesswire.com/news/home/20210421006037/en/Seritage-Growth-Properties-Announces-Promotions-and-Organizational-Restructuring

 

[RetroRanger]

The new CEO has a clear vision and its good to see her building the Team for the future I guess sometimes a fresh look from the outside can help to use the given resources better than before ! 

[RetroRanger]

http://s23.q4cdn.com/949579163/files/doc_financials/2021/q1/v2/Earnings-Release-Ex-99.1-Final-v2.pdf

 

So new Report is out --> 5 new leases generating about > 1 Million USD annually, a little bit less net loss compared to 2020 in this period, due to decreasing expanses. 97% of the leases got collected ( last report was 95%)

Sold another 4 units. 

So from my view, same procedure like every quarter. Nothing excited, nothing bad. 

Oh and about buffet. The assumption about the dilution due to conversion of OP Units was right. The report shows that. 

So Buffet got diluted, that he no longer owns 5%. 

Also i really like the new CEO

"This quarter marks the beginning of a new chapter at Seritage. After our asset-by-asset review, we’ve taken an important step towards this goal by restructuring our team to better align our human capital and processes. Now we have turned our attention to executing on our asset plans in a thoughtful manner that will preserve our flexible capital structure and maximize our value creation opportunities. We expect to share further detail on these plans once finalized," said Andrea Olshan, Chief Executive Officer and President."

 

 

Edited April 30, 2021 by RetroRanger

[Cicero]

I thought the update was not so good actually. Not much development or leasing activity, but that was to be expected. The cap rates of the disposals were pretty high and more importantly there was a fair amount of terminations. Thought that the commentary on the terminations was a bit strange as well trying to spin the terminations positively as if it was the company's idea. 

Good news is that it's still fairly cheap. 

[RetroRanger]

The more important updates will be Q3/Q4 this year. This should be clear. But i like that the new CEO is making big changes internally etc.