market folly

We're posting up notes from the Invest For Kids Chicago Conference 2017.  Next up is Amos Meron of Empyrean Capital Partners who pitched long Seritage (SRG).


Amos Meron's Invest For Kids Chicago Presentation: Long Seritage

Looking for dramatic life-cycle changes that create opportunities in the market.  There is an ongoing misunderstanding of the Seritage (SRG) - Sears (SHLD) relationship.

SRG was created as a way to carve out (siphon) some of a SHLD’s best real estate – deal was structured as a giant sale-leaseback,  235 properties, 37 million square feet.  SRG can “claw back” certain properties from SHLD over time and redevelop them.

“I’m not dead yet” – all mall-based or retail real estate is pressured, but it’s not all the same. SRG has a national portfolio of really good assets with solid demographics.  SRG is nearing its goal of having 50% of its rent from non-SHLD tenants by FYE 2017; could be 2/3 by FYE 2018.  SHLD pays <$5 per square foot, while the average for new tenants is $19.

SRG trades at $80 per square foot versus $128 for “C” space companies.  SHLD chapter 11 would have a fleeting impact on SRG.  At a 6% cap rate on FY18 NOI, SRG has 40% upside to $60.

Risk is a further fall in retail, so short retail REITS against SRG long.



For more from this event, check out the rest of the presentations from Invest For Kids Chicago 2017.