Seritage Growth Properties (NYSE: SRG) hasn’t given investors a ton of reasons to smile recently: The company has been losing money for years, and the COVID-19 pandemic has been a major setback to its redevelopment ambitions. Thankfully, Seritage finally appears to be making real progress towards his goals. In this fool live Video clip, recorded on October 22, Fool.com contributors Matt Frankel and Jason Hall discuss the latest developments and what it means.
Matt Frankel: This is Seritage Growth Properties. If you’re not familiar, this is a real estate investment trust that was formed to own a bunch of old Sears properties. Just using that description it probably sounds terrible, but the goal is to redevelop these properties over time into prime mixed-use assets, I guess you would say, like modern retail, restaurants, etc. things like that, places of entertainment, things like apartments, is one of their big interests.
The news today, Seritage has a fairly large portfolio, but only three of their properties are considered blue chip assets. Let me share my screen for a second before I give it to you. See that little picture right there? It’s their property, it’s in San Diego. This is the first of their top three assets, and they announced that their first tenant opened this week. If you see the red line in the middle of this image, that’s what Seritage has. You can see the ocean in the background, it gives you a really good idea of ââthe perfect spot. The large building in this red line is the former Sears property. The little outhouse that has Crate & Barrel next door, which was once a Sears Auto Center, isn’t part of this project you’re talking about, but it’s property they own.
The Sears building spans approximately 13 acres of land and its first tenant, a seafood restaurant, just opened this week. Now the big news isn’t the seafood restaurant, it’s the first of a continuous tenant opening in this new project of theirs that will take place over the next year. or will. These top-notch assets, despite being three of around 180 properties in their portfolio, where the majority of the potential for value creation is at least in the short term. This is what will hopefully make them profitable. I think Jason is a shareholder of Seritage. I’m not sure if Matt is, but we’ll move on to Jason for this one first. What do you think of this news?
Jason Hall: I think that’s one of the things we’re going to have to contextualize. First off, if we were to do the same title test here, the title would be “troubled real estate investment company signs restaurants for lease.” Just that, it’s like “Huh”. The other thing, too, is to intensify it. What does he really represent? It’s less than 200,000 square feet, these developments. It’s like a tenth of 1% of your real estate portfolio. Even looking at all of this development, it’s a small piece of all his assets.
From these points of view, it is absolutely not important. It is not material in itself. But it’s really remarkable, and it’s really important because of what it tells us in terms of trajectory. It’s a business, we’re going back there, I don’t want to dwell on that, but we go back to the creation of Seritage. It was a business to take those struggling assets, sell the scrap metal, find the gems, develop the gems, and do something huge with them. Access to credit was there. I think Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) was the main lender, but they were going to have to get some rent metrics to make it happen. Then the pandemic arrived.
Frankel: Now, they have totally admitted that they will not be able to do it. By the way, this loan matures in 2023. They admitted that they would not make it at this point.
Room: Exactly. The pandemic basically killed that. It just made it a non-thing. The business has been in a state of perpetual churn. There is a new CEO who arrived in what? Five months ago.
Frankel: New CEO, new CFO and new president, all women. The first REIT to have women in the top three positions of all time.
Room: They have a real strategy that they absolutely execute. It’s like the first major combination of this strategy. What it signals, I think, is really important and far more important than what the material result is.
Frankel: The new CEO has gotten a lot more aggressive and is doing a really great job of execution.
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