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High quality retail real estate

OnTheShouldersOfGiants
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Mephistopheles Newbie

Mephistopheles

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Is anyone else looking at this? GGP, MAC, TCO, SPG are all trading at cap rates far above what these properties would fetch on the private market and paying 5% dividends at the same time.

 

I'm guessing this is tied to the death of retail.

 

Interested in others thoughts on this.

 

Yes, I own all of the above except TCO yet. The internet and Amazon are a tremendous boon for class A properties. B and C malls closing down mean that the strong will get stronger.  Class A rents per sqft, leasing spreads continue to grow year after year.  I'm trying to do an in-depth study of the industry, posted a thread few weeks ago as I'd like to find a good source of data that is free, but nobody replied. Lmk if you have good recommendations,

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Spekulatius Newbie

Spekulatius

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GGP looks interesting, but the debt load at 8x EBITDA is just too high, SRG is an interesting example in what Whitman calls resource conversion. With a 11-12% cash yield on invested capital for renovations and finding new tenants, they make about 22-24% on equity (assuming 50% equity) or 4x they invested equity, if you assume that Cap rates for their properties are in the 6% range fully  stabilized after thr conversion is complete..

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OnTheShouldersOfGiants Newbie

OnTheShouldersOfGiants

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Not SRG?

 

SRG has 42 pages dedicated to it and is a situation with more moving parts. To me it seems that General Growth, Taubman, Simon and Macerich represent most of the highest quality retail real estate in the US with opportunities to reinvest capital at attractive rates and are undervalued when compared to private market prices. ~ 5% dividend while you wait. It seems too simple.

 

Is anyone else looking at this? GGP, MAC, TCO, SPG are all trading at cap rates far above what these properties would fetch on the private market and paying 5% dividends at the same time.

 

I'm guessing this is tied to the death of retail.

 

Interested in others thoughts on this.

 

Yes, I own all of the above except TCO yet. The internet and Amazon are a tremendous boon for class A properties. B and C malls closing down mean that the strong will get stronger.  Class A rents per sqft, leasing spreads continue to grow year after year.  I'm trying to do an in-depth study of the industry, posted a thread few weeks ago as I'd like to find a good source of data that is free, but nobody replied. Lmk if you have good recommendations,

 

I've found the best information in the investor material from GGP, BPY and TCO.

 

GGP looks interesting, but the debt load at 8x EBITDA is just too high, SRG is an interesting example in what Whitman calls resource conversion. With a 11-12% cash yield on invested capital for renovations and finding new tenants, they make about 22-24% on equity (assuming 50% equity) or 4x they invested equity, if you assume that Cap rates for their properties are in the 6% range fully  stabilized after thr conversion is complete..

 

What is an appropriate Debt/EBITDA for this space?

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Spekulatius Newbie

Spekulatius

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GGP is at at 7.8x EV/EBITDA, which is a bit on through side. however their Re is very high quality and Inthink it is safer to own high quality RE leveraged with 7.8x ENITDA than low quality RE with 5x.

Furthermore, GGP has shown a long stern trend to deleverage and improve their debt metrics over time significantly. if they keep doing this, they should arrive at 6x EV/EBITDA ina couple of years, which I think would be fairly manageable.

 

The implied cap rate of GGP is about 7.2%, which Inthink is fairly cheap for high quality RE.

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BTShine Newbie

BTShine

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SRG has a higher risk reward than the others.  It’s sucesss is dependent upon the development, or repurposing, of their existing property.  If the current environment stays constant then SRG will outperform, but the fact is SRG is much a development company whereas the other REITs are established and stable, but I don’t think they’ll  meet the potential returns of SRG if the environment stays the same.

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Spekulatius Newbie

Spekulatius

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The implied cap rate of GGP is about 7.2%, which Inthink is fairly cheap for high quality RE.

 

Do you mind running me through how you came up with a 7.2% cap rate.

 

I estimated this based on $2.365B of NOI and ~$33B in EV (the stock was a bit higher when I did the math). I think this number is incorrect, however, because it neglects unconsolidstrd debt .

 

the $2.365B in NOI given in the annual report put seems to be about correct, but also seems to contain some gains from sales of apartment in mixed used project.

 

There are 960M shares outstanding, but GGP will get some cash from warrants they are exercised. U think they will get $500M roughly. mortgage  and ST debt is $11.7B, but they is only the consolidated number. I do not know how much debt is unconsolidstrd. This is important because their NOI contains the earnings from all source (including unconsolidstrd), the GHp shares of the debt in those needs to be added too, to make it consistent.

 

In the 2016 annual report the EV is given at $40.3B and the stock was then at $25. I assume this EV contains the GGP share of debt from minority JV as well, since it is higher then the EV from the consolidated balance sheet.

 

If we now correct for the decrease in share price from $25 to now $20, the correct EV from the Y2016 year end would be $35.5B. ($40.3B-0.96x$5) with the 2.365B in NOI, the cap rate would be ~6.66%.

 

My math may not be totally precise, but  I think it is approximately correct.

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Mephistopheles Newbie

Mephistopheles

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The implied cap rate of GGP is about 7.2%, which Inthink is fairly cheap for high quality RE.

 

Do you mind running me through how you came up with a 7.2% cap rate.

 

I estimated this based on $2.365B of NOI and ~$33B in EV (the stock was a bit higher when I did the math). I think this number is incorrect, however, because it neglects unconsolidstrd debt .

 

the $2.365B in NOI given in the annual report put seems to be about correct, but also seems to contain some gains from sales of apartment in mixed used project.

 

There are 960M shares outstanding, but GGP will get some cash from warrants they are exercised. U think they will get $500M roughly. mortgage  and ST debt is $11.7B, but they is only the consolidated number. I do not know how much debt is unconsolidstrd. This is important because their NOI contains the earnings from all source (including unconsolidstrd), the GHp shares of the debt in those needs to be added too, to make it consistent.

 

In the 2016 annual report the EV is given at $40.3B and the stock was then at $25. I assume this EV contains the GGP share of debt from minority JV as well, since it is higher then the EV from the consolidated balance sheet.

 

If we now correct for the decrease in share price from $25 to now $20, the correct EV from the Y2016 year end would be $35.5B. ($40.3B-0.96x$5) with the 2.365B in NOI, the cap rate would be ~6.66%.

 

My math may not be totally precise, but  I think it is approximately correct.

 

I believe with the in consolidated debt cap rate is ~6.5%, but that's going off the top of my head, will post numbers later. But I agree with your sentiment. The best mall properties transact for like 3.5-4%. If you put a 5% cap rate on ggp stock is worth significantly higher. And noi has been climbing every year. To me these malls are no brainer investments at current levels.

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rb Newbie

rb

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I don't mean to reign on any parades but I think that with where retail is today a lot of the cap rates are wrong so you can't really go on that.

 

Let's say that the current cap rate you're earning is 6.5%, but all your tenants are going bankrupt. In my mind that's a clear indication that you're over earning.

 

The thing with these large retail real estate companies is that it's a pain to analyze them. They have some super prime locations in the center of major cities. Those are under earning because you can make more money knocking them down and building office or retail condos on the land. But that is countered by loads of shit locations in the boonies or the middle of nowhere that aren't worth much without their tenants.

 

I think to value these cos you have to go location by location which is a pain when they have hundreds. But their current cap rates are meaningless. Taking those and projecting them into the future is dangerous.

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gokou3 Newbie

gokou3

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And then we have this:

 

Brookfield Property Partners L.P. Proposes to Acquire GGP Inc. for $23.00 per share in a combination of cash and BPY Units

https://bpy.brookfield.com/en/press-releases/2017/11-13-2017-130048315

Each GGP shareholder can elect to receive consideration per GGP common share of either $23.00 in cash or 0.9656 of a limited partnership unit of BPY (“BPY units”), subject in each case to pro-ration based on a maximum cash consideration of approximately $7.4 billion (50% of the aggregate offer) and a maximum of approximately 309 million BPY units valued at approximately $7.4 billion (50% of the aggregate offer). The proposal represents a premium of 21% to the unaffected closing share price of the Company’s common stock of $19.01 on November 6, 2017.

 

 

GGP stock trades above the offer price today, indicating that the market expects a higher offer down the road.  Brookfield has a history of lowballing its target in its first bid and subsequently put a higher one. Two examples:

 

Brookfield Property Partners Increases Proposed Offer To Acquire Brookfield Office Properties

https://bpy.brookfield.com/en/press-releases/2013/12-20-2013

...it has increased the offer price in connection with its proposal to acquire any or all of the common shares of Brookfield Office Properties Inc. (NYSE: BPO; TSX: BPO) (“BPO”) that it does not currently own (the “Offer”) by increasing the cash portion of the consideration by $1.00 per common share to $20.34 per common share of BPO.

 

 

 

$2.8 Billion Brookfield-Rouse Merger Takes Step Forward

https://commercialobserver.com/2016/06/brookfield-rouse-merger-deal-sealed-at-702-6m/

The company stockholders, excluding the Brookfield affiliates that collectively hold 33.5 percent of the outstanding shares of the company, will receive $18.25 per share in cash.... It was reported in January that Brookfield put in an all-cash bid at $17 a share

 

 

Hope Simon Property would come in and stir things up a bit.  ;)

 

 

 

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