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CBL Vs. Seritage: Hopes And Dreams Of 'Sears-Free' Income Streams


  • Seritage trades at 20X 2017 AFFO.
  • The bull rationale is that deep value resides in its portfolio.
  • We examine a scenario where Sears continues paying rent long enough for the portfolio to develop.
  • CBL still outperforms, even if Seritage maintains a 4X multiple premium.

Seritage Growth Properties (NYSE:SRG) has a large portfolio of prime real estate which it intends to develop over time. It has been touted as one of the best real estate stocks and is one of the few that trades at a large premium to NAV. From an investment standpoint we prefer CBL & Associates Properties Inc. (NYSE:CBL) to SRG. We wrote about the Long CBL/Short Seritage case earlier. The comments we got at the time suggested that the Seritage portfolio when fully developed will be a fantastic return on investment. We decided to examine how the 2 stocks would perform if Seritage was successful in doing so.

At the heart of the bull case is SRG's ability to develop Sears (SHLD) properties over time and lease them at much higher rates per Sq Ft. The total wholly owned portfolio is about 36.66 million Sq Ft. It also has 3 joint venture sets of properties totally about 2.7 million Sq Ft. Since 2015 approximately 3 million sq. ft. of the wholly owned portfolio has been developed. This resulted in a huge uplift in rents as can be seen in the details below.

Source: SRG Q1-2017

As with any portfolio, Seritage is targeting its best opportunities first. Beyond the time-value of money concept, they are in a rush to develop as Sears their largest tenant is in extreme distress and still pays the bulk of their gross rent.

While it would be hard to extrapolate the final rents on the entire portfolio, the to-date achieved returns are a good and perhaps a slightly optimistic guess.

To model the end point returns on Seritage, we assumed the following.

1) SRG is able to develop about 3 million sq. ft. of Sears rented space annually. This is quite fast and double the historic pace over the

This article was written by

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Analyst’s Disclosure: I am/we are long WPG, PEI, CBL. 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.

The author is long SRG Dec 2018 puts.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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