RVI- Retail Value

[Gregmal]

Yup another one, but this one is different.

 

Spinoff of DDR, this company is a REIT and its sole purpose is to sell off its interests in the owned properties, pay down the mortgage, and distribute whats left to shareholders.

 

The ugly side, yes again, is they own retail shopping centers throughout the US and Puerto Rico. Perhaps most will stop there.

 

The opportunity IMO is rather clear. Immediately following the spin off, the company owned maybe 3 dozen US located centers and a dozen in PR. Fast forward a year and a half and those numbers are down to 14 in the US and still a dozen in PR. The math on this one is fairly straight though. They started with somewhere around 1.4B in debt and have cut this figure down to about $500M. The dispositions can be seen on their website but generally speaking, the valuations have been at significant premiums to implied figures imbedded in the stock, and as other operators in the space have noted, in line with private market sales. In other words, you are taking advantage of the private/public arbitrage current plaguing many public real estate companies.

 

Book Value, which is understated, is roughly $39. It is worth noting that the MBS documents listed the appraised value of these assets prior to the 2018 spin at roughly $62 per share.

 

You also get dividends along the way once a year.

 

So, yea no one likes retail and la di da da, but you've seen the asset base dwindle by 22, or 45%, in the past year and a half. and the outstanding debt basically halved. Last figures on remaining assets indicated a 91% occupancy rate and current FFO puts this sucker at a bit more than 5x based on $28 closing price.

 

The PR assets are often where people go sour, but those I think are probably accounted for in the current share price. They're 80%+ leased and include several Home Depot/Walmart type anchors; these IMO are manageable and may have some upside if PR ever gets back on decent footing.

 

If you figure 2-3 more years to wind down the remaining US assets(shopping centers are liquid and trade easily at solid valuations). I know many here play the liquidation games and often you have to deal with the typical hair. Delisting, non trading, etc. Ive been keeping tabs on First REIT on NJ which fits this box as well, but this one seems like a straight shot discount with a rather defined liquidation strategy and the added benefits of a public listing and active ability to trade and/or adjust your position as we go.

disposition-list-02262020.xlsx

[Spekulatius]

So the upside is book value , assuming they get a bit more than book and we subtract some for the corporate overhead.The downside is that the PR assets can’t be sold and with a pretty lousy 83% occupancy rate they become C mall assets and basically worthless.  I guess I would really like some PR assets sold as a proof that they are worth something or is there any mark for these assets that demonstrates value. PR is slowly recovering from the hurricane events, but I have no clue how this translates into the value of retails assets they and if they cover the mortgages.

[Gregmal]

Yea I ve pretty much been assuming a 20-25% discount to appraised value is your base cause, which translates to a mid-high $40s number. You've got a couple hundred million of preferred issue to DDR, which also gets paid down as we go. Figure 4% transaction cost to sell.

 

The PR assets they've been getting insurance payments for still due to the business disruptions of the storm. It is hard to determine the true value there, but I definitely dont think it is 0. In fact I can almost guarantee any property, especially one with an owned Walmart, arent anywhere near 0. I haven't spent a world of time on this because I have other assets that share the same exposure so this hasn't been a position Ive been jumping at, but $27.80 just seems too low for a shorter duration liquidation play. Mainland US malls like these regularly change hands at 7-8% cap rates. You can even dig around a bit and find some of the listings. The Lowe's for instance, should have no issue getting a $15M number as you can see from the offering.

 

 

[keerthiprasad]

This is an interesting one. It's gotten killed...anyone else picking some up?