Black Bear Value Partners, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. The fund had a 35% return for the full year of 2021, compared to its benchmark, the S&P 500, and the HFRI Index which had a 28.7% and 14.8% return for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Black Bear Value Partners, in its Q4 2021 investor letter, mentioned Seritage Growth Properties (NYSE:SRG) and discussed its stance on the firm. Founded in 2015, Seritage Growth Properties (NYSE:SRG) is a United States-based real estate investment trust company with a $686.6 million market capitalization and is currently spearheaded by its CEO, Andrea Olshan. Seritage Growth Properties (NYSE:SRG) delivered a -8.89% return since the beginning of the year, while its 12-month returns are down by -33.83%. The stock closed at $12.09 per share on April 07, 2022.
Here is what Black Bear Value Partners has to say about Seritage Growth Properties (NYSE:SRG) in its Q4 2021 investor letter:
“Seritage Growth Properties is the real estate formerly associated with Sears/Kmart. Most of the properties are in some form of redevelopment or sale. The stock screens terribly as the business is burning cash on an operating basis. This investment requires a longer-term view and understanding the quality of the real estate, the changing dynamics of their balance sheet/cash burn and longer-term earnings potential.
The real estate is bifurcated with some properties located at main/main with promising redevelopment opportunities. The company has been thoughtful in partnering with JV partners to lighten the financial burden on their redevelopment. At the same time management has been working on selling non-core assets both to raise cash and to focus on the projects that will move the needle. Historically it was unclear to investors what the 5–10-year focus would be, and it seemed like properties were only sold on an as-need basis. The new CEO has prioritized exiting these non-core assets and will benefit both their team and the shareholders with a renewed focus on the remaining assets.
Currently the company has a $1.6BB term loan provided by Berkshire Hathaway. The loan bears interest at 7%. Recently Berkshire amended the loan to allow the company to repay the debt early as they sell properties and/or find alternate sources of debt. SRG is already taking advantage of this by paying down the debt from recent sales. Additionally, as their projects begin producing cashflow they can get mortgages at far lower cost further reducing the cash burn.
If I am being coy on what I think the potential earnings power and asset-value is, you’re correct! This has been a stock that has been selling off dramatically in 2022 and I am more interested in keeping some of that work in-house as I contemplate our investment in the business. Roughly speaking I think the downside is fairly limited and can see outcomes that result in us making 2-3x over a 5–7-year period.”
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Our calculations show that Seritage Growth Properties (NYSE:SRG) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Seritage Growth Properties (NYSE:SRG) was in 8 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 10 funds in the previous quarter. Seritage Growth Properties (NYSE:SRG) delivered a -7.00% return in the past 3 months.
In January 2022, we published an article that includes Seritage Growth Properties (NYSE:SRG) in the Top 10 Stocks to Buy According to Guy Spier’s Aquamarine Capital Management. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
