tag:blogger.com,1999:blog-2080506270244832638.post4644719958638930649..comments2024-03-28T07:17:13.573-05:00Comments on Clark Street Value: Spirit Realty: Leveraged Shopko Spinoff Uncovering ValueMDChttp://www.blogger.com/profile/10679835609782815537noreply@blogger.comBlogger36125tag:blogger.com,1999:blog-2080506270244832638.post-27945423851208820412018-03-16T15:29:04.604-05:002018-03-16T15:29:04.604-05:00Have you modeled out what RSO will look like once ...Have you modeled out what RSO will look like once the repositioning is complete. I did this afternoon, and a little disappointed, I hope I'm missing something:<br /><br />Current core portfolio is $1.496B at a WAC of 5.84%, they've got an additional $109MM of non-core to sell/reinvest, $44MM once the preferred is paid outside of restricted cash, and additional $358MM of borrowing capacity per the 10-k, investing that at 5.84% I get a total run rate interest income number of ~$117MM.<br /><br />Interest expense assuming the additional borrowing capacity is somewhere between the 3.17% they're paying for the CRE CLO and 3.94% they're paying for the repo's, will be something close to $57MM, for a net interest income number of about $60-61MM.<br /><br />The base management fee is $11.25MM this year + $16MM in G&A (god knows why this is so high?) and then the remaining Series C Preferred dividend of $10.35MM. I get about $22.7MM in cash to common shareholders, or like $0.70/share. That's a 5% ROCE, what's the market going to pay for that?<br /><br />Maybe there's additional leverage they could put on, hard to know if the legacy CRE assets are in the repo or if those are unencumbered/unlevered today? But even at my back of the envelope, common equity to assets is like 22%. Seems about right for mREIT?MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-69194159647436747682018-03-09T21:47:13.969-06:002018-03-09T21:47:13.969-06:00yes, RSO still feels like limited downside. I miss...yes, RSO still feels like limited downside. I missed the conference call though, will try to look through the conf call transcript.<br /><br />BTW I know you had issue with DS having external management. I recently increased my position because they seem to have good plans to unlock value. More on it here - http://walnutavevalue.blogspot.com/2018/03/drive-shack-update.htmlpheonixhttps://www.blogger.com/profile/16351836915454429430noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-43755120540313614082018-03-08T06:57:33.299-06:002018-03-08T06:57:33.299-06:00The press release wasn't inspiring, but the no...The press release wasn't inspiring, but the non-core book is down to single digit percent of assets, I think it was like 20% at the end of Q3? Maybe some non-core assets naturally rolled off versus being sold? I'm not as worried about the legacy asset liquidation going forward, its mostly old CRE loans and middle market loans, I'm going under the assumption that these can be sold if/when they find new investments and need additional funds. I guess we'll learn more about how far along management thinks they are in the plan in a few minutes on their conference call, but the length of time its taken has been disappointing to date. Even if they re-instate the dividend, this probably trades at 80% or so of book? Given I've owned it since November 2016, likely still a pedestrian IRR, oh well, still feels like limited downside.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-74241470977429588202018-03-08T00:40:36.806-06:002018-03-08T00:40:36.806-06:00RSO seems to be making slow progress on legacy ass...RSO seems to be making slow progress on legacy asset liquidation. Only $39M done in Q417, and $104M still left out of $480M original plan. At this rate, seems like they will need atleast 2 more quarters to complete it, though its possible that Q4 was slow since this process is lumpypheonixhttps://www.blogger.com/profile/16351836915454429430noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-67831393291820932192018-03-01T10:48:42.166-06:002018-03-01T10:48:42.166-06:00Hmm, interesting idea. I know what you mean with J...Hmm, interesting idea. I know what you mean with Jay wanted to a developer - their website and presentations are too glitzy for REIT (more like developer bling). <br /><br />I think the spin will make the story a bit simpler and hopefully unlocks value. pheonixhttps://www.blogger.com/profile/16351836915454429430noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-36394305388143340802018-03-01T09:30:20.260-06:002018-03-01T09:30:20.260-06:00Maybe they're really hard setting this up to b...Maybe they're really hard setting this up to be a spin? Jay goes with the spinco and the new CIO manages the mREIT/NNN REIT? One of my concerns has always been Jay seems to like the glamour of being a real estate developer, this could be his chance.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-92170446517327716942018-02-26T16:30:29.297-06:002018-02-26T16:30:29.297-06:00Yeah, odd to hire an exec when trying to reduce G&...Yeah, odd to hire an exec when trying to reduce G&A.pheonixhttps://www.blogger.com/profile/16351836915454429430noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-10930556528462494002018-02-26T14:16:45.695-06:002018-02-26T14:16:45.695-06:00One day the stock will move, or so I keep telling ...One day the stock will move, or so I keep telling myself. I might have more thoughts after the 10-K is published, but plenty to like today. Although to #2, a bit strange to bring in an additional C-Suite exec when you're also trying to reduce G&A?MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-13146850103237645072018-02-26T10:32:06.139-06:002018-02-26T10:32:06.139-06:00I see some interesting stuff that might unlock val...I see some interesting stuff that might unlock value in STAR earnings release today<br /><br />1. Sold office building for $100M, and gain was $62.5M. This is just one instance but points towards undervalued properties on balance sheet.<br /><br />2. They say will try to reduce G&A<br /><br />3. Strategic review of legacy portfolio ($1.7B) with JP Morgan (sale of assets, spinoff, JV, etc) <br /><br /> pheonixhttps://www.blogger.com/profile/16351836915454429430noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-78828418412466384582018-02-23T15:29:06.384-06:002018-02-23T15:29:06.384-06:00It was a little odd, the current CFO was on the ca...It was a little odd, the current CFO was on the call, defended himself a little bit and then went on business as usual. Seemed handled pretty well? Maybe a little shakeup is good at that outset of a new path.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-63485241519746829462018-02-23T10:54:17.197-06:002018-02-23T10:54:17.197-06:00Hi, I'm sure you saw CFO departing, any concer...Hi, I'm sure you saw CFO departing, any concerns? "There are no issues involving the Company’s financial statements, internal controls or financial reporting procedures that led to Mr. Joseph’s departure." Also, he is apparently sticking around until end of April, so it's not a toxic situation, although clearly he is being let go. Hopefully just trading up. They are also releasing another exec.mhbladeshttps://www.blogger.com/profile/08535033690096270812noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-22256674846029482492018-02-20T09:29:18.627-06:002018-02-20T09:29:18.627-06:00Possibly? Timing is tricky, I guess I'm just ...Possibly? Timing is tricky, I guess I'm just covering my bases here if it doesn't work immediately after the spin and coming up with reasons why it might not. The other way to look at it, SMTA will trade poorly after the spinoff, but you could also say its not being valued at all by the market today so it doesn't matter, its almost a free call option. I'm comfortable owning going into the spin and depending how each entity trades, may buy or sell either afterwards. But good question, hard to know the best strategy.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-71128573645072477212018-02-16T17:51:49.720-06:002018-02-16T17:51:49.720-06:00Hi, thank you for the write up. Just a quick quest...Hi, thank you for the write up. Just a quick question tho. If SMTA is expected to trade horribly at the start, and new SRC may take some time before it can close the valuation gap with its peers, then wouldn't it be a better risk/reward to buy after the spin off?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-51019010450447980282018-02-08T15:53:13.749-06:002018-02-08T15:53:13.749-06:00I haven't, but I assume it will be to sharehol...I haven't, but I assume it will be to shareholders but its null to the company since its a REIT, I guess we'll find out more when they file the Form 10?MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-10887113602812314272018-02-08T15:31:57.576-06:002018-02-08T15:31:57.576-06:00Have you seen any indication if the spin will be t...Have you seen any indication if the spin will be taxable or not?Dave Ahttps://www.blogger.com/profile/06197754376138046678noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-59778536033159682192018-02-06T14:09:47.217-06:002018-02-06T14:09:47.217-06:00I probably could have worded that better, there...I probably could have worded that better, there's no equity piece coming from anywhere, SMTA is sending SRC $698MM under the current plan. That $698MM is fresh capital that can then be used to purchase assets and lever up those assets, they'll have plenty of dry powder to deploy and grow FFO.<br /><br />As for an estimate, if you assume the $698MM goes to pay down existing debt, freeing up $1B in leverage potential, further assume they can achieve a 2% spread on the cap rate they're buying versus their financing costs (~7%-5%), that adds about another ~$0.04-$0.05 of FFO. At the 15 multiple, that could increase the value for $9.75 to $10.50, all back of the envelope math. Hope that helps (and that my math is right).MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-58448251996650290152018-02-06T12:40:34.419-06:002018-02-06T12:40:34.419-06:00Can you explain in a little more detail the mechan...Can you explain in a little more detail the mechanics behind how they will use the $698 million from SMTA that you say they'll lever 2-1? My understanding is that the $698 million in debt will be paired with roughly $350 million of equity (assuming the 2-1 leverage) to invest in new revenue generating properties costing around $1 billion. Where will the equity piece come from? Any estimate of how much FFO will grow once this capital is deployed?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-9051038309209044562018-02-05T08:39:03.186-06:002018-02-05T08:39:03.186-06:00I don't know if Spirit and Vereit are "ta...I don't know if Spirit and Vereit are "tainted" in the same way, but good comment on how long it might take to re-rate, I would have thought Vereit would have performed better since their accounting issues and dividend cut. Vereit also has a more grab bag asset approach compared to the other comps, a decent amount of office and industrial assets, but sure it's cheap too. I think the difference with SRC might be the dry powder, they'll have about a $1B to invest and show some growth in FFO, that's where it'll get a valuation uplift, not necessarily on the day the spinoff happens. Totally agree that many REIT investors aren't rational, that's what makes it a fun place to look for ideas. ThanksMDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-31335436199272282382018-02-05T08:33:07.767-06:002018-02-05T08:33:07.767-06:00https://sf.citidirect.com/
They're listed as ...https://sf.citidirect.com/<br /><br />They're listed as "Spirit Master Funding".MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-26004385770767389612018-02-02T12:05:49.341-06:002018-02-02T12:05:49.341-06:00MDC, I didn't see Vereit in your comp, but tra...MDC, I didn't see Vereit in your comp, but trades at sub-10 P/FFO and 8% well-covered div yield. They do have some litigation exposure from past mgmt actions but nothing that should cripple the company. So that raises two questions: 1. How long does a multiple re-rate take? Vereit has been in their situation now for over two years. New management, doing all the right things, and metrics are terrific, yet, no re-rate. 2. If Vereit is indicative of what a "tainted" name trades like, is it possible that kind of stigma will stay with SRC even when Shopko is gone? I know the second point doesn't sound entirely rational but I think a many REIT investors do behave like Twain's cat. (“If a cat sits on a hot stove, that cat won't sit on a hot stove again. That cat won't sit on a cold stove either. That cat just doesn't like stoves.” - MT)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-24102797674399515272018-02-01T15:59:20.257-06:002018-02-01T15:59:20.257-06:00Thanks for the idea! You mentioned that you were ...Thanks for the idea! You mentioned that you were able to locate the trustee report. Could you share where this is located? Thanks!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-7825307809181464542018-01-31T17:13:14.619-06:002018-01-31T17:13:14.619-06:00Julien - could you please elaborate on what intere...Julien - could you please elaborate on what interesting opportunities you have seen in the UK? :)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-47668904573578184272018-01-30T21:29:13.960-06:002018-01-30T21:29:13.960-06:00I think its a risk you just accept in something li...I think its a risk you just accept in something like SRC, if you want to get fancy you could do a pair trade with STOR but then you'd be responsible for the dividend. Given that SRC is selling at a lower multiple, it should have lower interest rate risk than its peers, but anything can happen day-to-day. But sure, I hope the discount doesn't close because the whole group falls and SRC just falls less. I don't spend a lot of time on macro, but I'd side with rates not shooting up beyond what's already forecasted. Thanks, good question.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-12010868917591423842018-01-30T17:59:09.223-06:002018-01-30T17:59:09.223-06:00Thanks for sharing your analysis. Any more thought...Thanks for sharing your analysis. Any more thoughts on how rising interest rates might affect your investment thesis? I would think that if rates continue to increase, then the multiple applied to FFO on these types of stocks will have to decrease for the yield on these investments to stay competitive. Over the past couple of days, it looks like the price of SRC (along with its peers) has dropped as interest rates have risen. Curious if you have any other thoughts on this.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-23972909513258396442018-01-30T12:58:30.331-06:002018-01-30T12:58:30.331-06:00I have a number of alert setup. From simple one t...I have a number of alert setup. From simple one to a bit more complex, you can experiment and tweak, e.g. <br /> IPO<br /> spinoff OR spin-offs<br /> tender offer<br /> bankcruptcy AND emergence<br /> REIT AND (conversion OR spinoff OR spin-off)<br />etc.<br /><br /><br />Anonymoushttps://www.blogger.com/profile/05484498427124374378noreply@blogger.com