Seritage Growth Properties (NYSE: SRG) is a fairly unique REIT (Real Estate Investment Company). Rather than focusing on income generation, Seritage’s goal is to redevelop a portfolio of loss-making properties into prime commercial assets, thereby creating shareholder value. In this fool live Video clip, recorded on September 3Millionacres Senior Real Estate Analyst Matt Frankel, CFP, explains why he’s a shareholder and what investors should keep in mind.
Matt Frankel: Dev says, “SRG Stock Expert Advice.” SRG is Seritage Growth Properties, a company I own in my portfolio and one of the riskiest stocks I am. If you are not familiar, Seritage Growth Properties was created a few years ago specifically to sell real estate assets owned by Sears, that is before Sears went bankrupt.
The plan was that over time they knew Sears was going to decline, but over time they would redevelop these properties into modern, blue-chip retail assets. Remember, when most of the Sears properties were built, they were built in the best locations in town. Many of their properties, even those that are abandoned, are located in very attractive locations.
There were two small hiccups in the plan that occurred shortly after they were made public: one, the Sears bankruptcy happened much faster than expected, which left them with a lot more. vacancies and as a real estate investment trust less income than expected. on, so it was a.
Number two, the COVID pandemic has hit their business really hard, they really had no wiggle room, Seritage is actually losing money because by the nature of their business they are a REIT redevelopment, so developing properties costs money, so the COVID pandemic has hit it’s particularly hard. Seritage recently hired a new CEO, Andrea Olshan, who from what I can tell is doing a great job. I’m trying to get her on this show actually, so I hope you hear from her soon. It is a little more aggressive than its predecessor, it plans to sell around fifty properties relatively quickly, to raise a lot of capital, and to plunge them into the most promising assets of Seritage.
The company has a few, they have about 200 properties in total, but only a few of them are really very valuable, what they call their main assets which could be developed into large scale shopping malls for use. mixed with hundreds of apartment units. on them and top notch retail assets and plenty of space. They’re opening their first at the end of this year, they plan to open the second full-scale property in 2022, and if they can raise a lot of growth capital quickly, they can really accelerate that.
One of the things investors should know about Seritage is that their only creditor is Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). Warren Buffett makes him the largest shareholder in Seritage in his personal portfolio. Berkshire Hathaway gave Seritage a $ 1.6 billion term loan, this is how they fund their operations and they have a $ 400 million line of credit with Berkshire that they can only access once they have achieved certain rental goals. They aren’t there yet, but their first-rate properties could potentially get them there.
The big thing that I think would drive Seritage stock up quickly is if they could access their line of credit or if it looked like they were going to be able to. At the moment it doesn’t work that way, it’s a stock, to be clear, that’s going to have a very binary outcome. They are currently trading at around $ 15 a share. As I said before, in five years I think it’s either a $ 100 stock or a $ 0 stock. There are some very good arguments to be made, anyway, very binary results. Like I said this is a REIT losing money, it does not pay a dividend, there is no clear path to profitability yet, I hope it will get there in a few years. But I have some in my portfolio, it’s not a big investment just because of the level of risk involved, I hope that answered that.
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