Assessing Survival Potential: Seritage Growth Properties

Harrison Schwartz2020-09-30

SummarySeritage Growth Properties was struggling with chronic losses long before COVID hit.With working capital running low, Seritage is racing to sell assets during a period of very low retail ...

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jokershen
2020-09-30
jokershen
草，这篇报告害惨了我

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAssessing Survival Potential: Seritage Growth Properties\n</h2>\n\n<h4 class=\"meta\">\n\n\n2020-09-30 02:08 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4376866-assessing-survival-potential-seritage-growth-properties><strong>Harrison Schwartz</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummarySeritage Growth Properties was struggling with chronic losses long before COVID hit.With working capital running low, Seritage is racing to sell assets during a period of very low retail ...</p>\n\n<a href=\"https://seekingalpha.com/article/4376866-assessing-survival-potential-seritage-growth-properties\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SRG","symbol_name":"Seritage Growth Properties","start_time":0,"source_url":"https://seekingalpha.com/article/4376866-assessing-survival-potential-seritage-growth-properties","article_id":"2071718073","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2071718073","pubTimestamp":1601402893,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Seritage Growth Properties was struggling with chronic losses long before COVID hit.With working capital running low, Seritage is racing to sell assets during a period of very low retail commercial transactions.Seritage's NOI has been on the decline for years despite significant renovation efforts.While SRG's assets are difficult to value, they are likely worth significantly less than they appear on its balance sheet.With its covenants broken, SRG may be headed to zero in the long-run.","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SRG":"Seritage Growth Properties"},"translate_title":"评估生存潜力:丝纹生长特性","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SRG":1},"content_text":"SummarySeritage Growth Properties was struggling with chronic losses long before COVID hit.With working capital running low, Seritage is racing to sell assets during a period of very low retail commercial transactions.Seritage's NOI has been on the decline for years despite significant renovation efforts.While SRG's assets are difficult to value, they are likely worth significantly less than they appear on its balance sheet.With its covenants broken, SRG may be headed to zero in the long-run. Seritage Growth Properties (SRG) is a REIT that invests in retail locations such as shopping malls and strip malls, the worst-hit properties from COVID lockdowns. The stock is down over 65% this year and is showing little signs of recovering. Its revenue has declined 40% and the company has been rushing to sell assets in order to create liquidity.  Importantly, Seritage was struggling well before COVID. The company has hardly been able to generate a positive net-operating-income and cash-flow for years and has seen its working capital plummet. Indeed, COVID may just be the final straw that drives the REIT into bankruptcy. The company is selling assets and does have some profitable sources of income so a turnaround is theoretically possible. Let's take a closer look. COVID's Long-Run Impact on SRG In Q2, Seritage collected only 66% of rental income with deferral on an additional 21% of tenants. The company has sold at least 13 assets this year and five outparcels in order to generate $166M in cash. The company aims to use this cash for redevelopment projects and offset negative cash-flow.  Importantly, Seritage has high exposure to California where 22.8% of its assets are situated. This is problematic because there are still widespread lockdowns in the state which has caused it to see one of the most significant and lasting decreases in employment. This will be a difficult area to sell assets and is likely to see a prolonged period of poor revenue.  The company desperately needs cash. Its net-operating-income (calculated as operating income plus depreciation) has been trending lower for years and is now in negative territory. See below:\n Data by YChartsThis means the company will not be able to make interest payments once its cash reserves are depleted. Importantly, this is has been made slightly worse by COVID, but Seritage's decline has been a long-time coming as you can see by the very clear trend in its NOI.  Of course, this is partly due to its business model. Seritage was created five years ago when Sears needed cash and sold its property portfolio on the public market as Seritage. Since then, the company has made an effort to revitalize its many non-operating big-box-retail assets into multi-tenant properties with more rental income. While this seems like an intelligent strategy, five years in the company has not managed to improve the profitability of the vast majority of its assets.  The most significant impact of COVID on Seritage is not necessarily the decline in rental income since that figure was already extremely low, it is a decline in commercial sales activity. According to Real Capital Analytics, commercial property transactions are down 68% YoY in August despite record-low mortgage rates. The decline in rates has caused prices to rise for many commercial properties besides Retail which has seen property prices plummet. Seritage desperately needs cash with its working capital on the cusp of negative territory but is stuck in an environment where its properties are likely to sell at significant discounts to their original value.  Can Seritage Breakeven on Asset Sales? Seritage is a REIT that is largely dependent on asset sales. The company cannot currently generate a positive operating profit, has a lot of debt, and comparatively very little cash. Since the company has been unable to generate a decent net-operating-income, its assets cannot be valued using traditional cap-rate measures.\n Indeed, the cost of renovating many old Sears malls may be more than its worth to do so unless Seritage's assets are sold at a significant discount. It is probably fair to assume it will sell its best assets first since they will not require a significant discount. The company recently agreed to sell nine outparcels for $27M to Four Corners Property Trust (FCPT). This is in addition to an outparcel deal the company made with FCPT last year. The company also had strong sales volume early this year before COVID, but since then sales have been muted.  Seritage is currently trading very close to its book value of $736M with $2.78B in assets and $1.7B in liabilities and $275M in minority interest. That said, around $900M of its assets are \"construction in progress\" and unconsolidated joint ventures which may not have positive returns. An additional $1.13B of its assets are in buildings. Personally, only the $633M of its land assets are truly likely to be safe.  It is undoubtedly difficult to find the market value of these assets, however, they only have to be 25% overvalued for Seritage's NAV to be zero. The balance sheet value of its buildings was inherited from Sears. Since very few of these assets generate an operating profit, it is very likely they are worthless. Indeed, looking at Seritage's extremely high construction in progress, it is clear it takes a lot of capital to turn these properties around. While I cannot say with absolute certainty, it appears to take more money to improve these properties to a point of profitability than they're worth after associated liabilities are deducted. It will take time, but if this is true then it implies SRG will decline toward zero over time.  The Bottom Line Overall, I see few reasons to believe SRG will turnaround from here. Yes, some of its assets can be turned around to become more profitable. However, the cost of doing so is high enough that it will continue to eat away at SRG's equity. The company has a lot of debt, chronically negative income, and is being forced to raise capital at a very inopportune time. The net result will likely be the company selling its few profitable assets which will only serve to prolong its decline. Ironically, this is not dissimilar Sears' (OTCPK:SHLDQ) decision to create Seritage years ago.\n Berkshire (BRK.A) is Seritage's primary lender. The company is not in compliance with Berkshire's covenants which gives Berkshire control over asset sales and JV deals as well as dividend suspension and future debt financing. For now, Berkshire is being relatively lenient, but this may not last. Quite frankly, I believe SRG is a short opportunity. The stock has rallied over 100% from its March lows and has stopped rising since Summer, implying there are few willing buyers left. Over half of SRG's shares are being short-sold so there are many others betting that the stock will fall. That said, this creates significant short-squeeze risk as was seen during its June spike which saw SRG rise nearly 200% in a matter of days. There is also the relatively low but important risk that a bailout buyer will look to acquire SRG. Still, with a tight stop loss at perhaps $15, I believe it is a worthwhile short opportunity.  Interested In More Alternative Insights?\nIf you're looking for (much) more research, I run the Conviction Dossier here on Seeking Alpha. The marketplace service provides an array of in-depth portfolios as well as weekly commodity and economic research reports. Additionally, we provide actionable investment and trade ideas designed to give you an edge on the crowd.\n\nAs an added benefit, we're allowing each new member one exclusive pick where they can have us provide in-depth research on any company or ETF they'd like. You can learn about what we can do for you here. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in SRG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":977194106,"gmtCreate":1601473903605,"gmtModify":1703824441031,"author":{"id":"3543473643921575","authorId":"3543473643921575","name":"jokershen","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"草，这篇报告害惨了我","listText":"草，这篇报告害惨了我","text":"草，这篇报告害惨了我","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/977194106","repostId":2071718073,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":0,"commentSize":1,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2071718073"}