There appears to be absolutely no value at any of the publicly traded companies that have been spun off from Sears Holdings (NASDAQ: SHLD) in recent years.
Sears itself has become a zombie company – that is a corpse which somehow moves and keeps shuffling along. The catastrophe at Sears Holdings is well documented, but what about the other companies Eddie Lampert has created from its remains?
Disturbingly those companies appear to be just as bad as Sears itself. They lose money and do little or nothing for investors. A good case in point is Seritage Growth Properties (NYSE: SRG); the real estate investment trust (REIT) Lampert organized to manage or liquidate Sears’ properties.
Is Seritage Growth Properties the Worst REIT in America?
A quick look at Seritage’s financial numbers will show us as that this REIT might actually be worse than Sears itself.
For starters there’s the dividend; which is extremely low for a REIT. On September 30, 2016, Seritage investors received a dividend of 25¢; which is pretty pathetic because the company’s shares were trading at $48.82 apiece on October 10, 2016.
Another popular REIT; Annaly Capital Management (NYSE: NLY), was scheduled to pay a 26.413¢ dividend on October 31, but it was trading at $10.06 a share on October 10, 2016. If you were seeking dividend income, you would have been better off buying Annaly. You could have purchased almost five shares of it and received $1.32 in dividend income for the 25¢ Seritage paid.
Since dividend income is the reason why people buy REITs, one has to wonder why Seritage exists. Lampert is giving income investors no reason to buy it. Indeed it looks like the opposite of an income investment – you will lose money if you hold it.
Seritage has No Value
The financial numbers also call Seritage’s existence into question, because they indicate it has no value.
On June 30, 2016, Seritage delivered these dismal numbers:
- A negative net income of -$60.63
- A negative profit margin of -11.50%
- Revenues of $238.44 million.
- A free cash flow of $13.92 million.
- No cash from operations according to ycharts.
- Cash and short term investments of $63.65 million.
What’s worse is that SRG shareholders were rewarded with a return on equity of -9.21%. That’s truly awful because the company supposedly had an enterprise value of $3.861 billion and assets worth $2.775 billion.
Seritage’s Worthless Assets
Those assets; which consist of Sears and Kmart stores, are also pretty questionable. Recent news stories indicate that many of those structures are in terrible condition. The roofs leak, heating and air conditioning don’t work, escalators are broken and some may have structural damage.
That means Lampert is going to have a lot of trouble renting or leasing many of those properties. Seritage will have to spend a fortune repairing and remodeling just to get tenants to look at them.
Another problem Seritage faces is that the only real use for many of the stores is as department stores. Yet the department store business is contracting; RBC Capital Markets calculated that 692 department stores closed between 2013 and 2016. To make matters worse another 145 department stores are expected to shut down in 2017.
That means there might be no tenants or buyers for many of Seritage’s properties. Since the company will still have to pay taxes, fees to malls operators, utility bills and maintenance costs on those structures it will lose money on them.
Seritage is Junk
The only real value many of the Seritage properties have is their location. The only buyers interested will be developers; who want to demolish the old stores and use the sites for something else. That means Lampert will end up selling a lot of that real estate for pennies on the dollar.
Another expense Seritage might face is demolishing the old stores. Since some of them are sure to become eyesores and possibly threats to public health local governments might demand they be torn down. Potential buyers might tell Lampert that they will not look at the site until that old store is gone.
This means that the only people who might make money off of Seritage are the owners of demolition companies. They at least will get a paycheck for tearing down all those old Sears and Kmart locations.
Eddie Lampert Strikes Again and Creates another Lousy Stock
Seritage investors will not get a cent from this company. My prediction is that the price of SRG shares will sink as low or lower than that of Sears itself in the near future. SHLD was trading at $11.21 a share on October 10, 2016.
Seritage Growth Properties proves that Eddie Lampert is not a financial genius. Instead Eddie’s a pestilence who destroys the value of everything he touches. Investors need to stay far away from anything Lampert creates or manages if they want to make money.