Following Warren Buffett’s Real Estate Play

Published on
August 16th, 2018
Topic
US Economy, Housing Market, Trading
Duration
12 minutes
Asset class
Equities

Following Warren Buffett’s Real Estate Play

Trade Ideas ·
Featuring Jeremy Shoykhet

Published on: August 16th, 2018 • Duration: 12 minutes • Asset Class: Equities • Topic: US Economy, Housing Market, Trading

Independent trader Jeremy Shoykhet is a high-conviction buyer of Seritage Growth Properties at current levels. In this interview with Brian Price, Shoykhet explains that a major loan from Berkshire Hathaway to Seritage will help shares of the REIT nearly double in the next year and a half. Filmed on August 15, 2018 in New York.

Comments

  • AR
    Anthony R.
    15 October 2018 @ 10:37
    Sears filing for Bankruptcy. Good luck with this trade! My "ad hominem attack about his (Jeremy) age", Mr Joel W., is rooted in the observed truth that inexperienced participants always underestimate risk. Jeremy's about to learn the folly of aping his hero (Mr Buffet) who holds a different risk/reward position ($35 entry + loan) to his trade idea.
  • AR
    Anthony R.
    24 August 2018 @ 09:18
    Jeremy is a young man with (3yrs out of uni). He has spotted an opportunity for the discount between SRG & the market leader (31x bigger) to close. He draws comfort from WB's personal stake in SRG. Buffet bought @ $35, de-risked himself with a loan to SRG and has nobody to answer to if the trade fails. Buying SRG today @ 49 on an 18m view = picking a subjective argument with Mr Market over the size of the discount. Hopefully JS gets lucky and locks in a profit, but he's kidding himself think he's getting "same exact exposure as Buffett".
    • JW
      Joel W.
      30 August 2018 @ 20:55
      Anthony R, you made some really good points about Mr. Shoykhet’s thesis, and I appreciate having your perspective on his trade idea. However, your ad hominem attack about his age detracts from your otherwise thought-provoking comments.
  • PB
    Patrick B.
    21 August 2018 @ 22:26
    I would love to know the math behind the assertion that the stock is currently trading below its Net Asset Value. I did the numbers and could not arrive at the same conclusion, but I am no expert on the real estate.
    • JS
      Jeremy S.
      22 August 2018 @ 19:41
      It's not below its Net Asset Value in the accounting sense of the term - the properties on the balance sheet are not reflected at fair market value so the accounting book value is not what matters. The way I have been thinking about it is at a discount to SPG's TEV / Gross Leasable Area, after accounting for the $150 / sf of development cost Seritage needs to spend.
  • AR
    Anthony R.
    17 August 2018 @ 09:46
    Comparing SRG with a REIT, 31x bigger = picking an argument with the market over how big the discount should be. Too subjective. WB's entry @ $35 + loan = vastly different risk/reward. Owning a different stock to WB, that share the same code. HFs love to short the "slow bleeds". They make great funding trades for their longs.
    • JS
      Jeremy S.
      17 August 2018 @ 16:13
      The point is, if you do the math on what SRG's NOI will look like in 12-18 months and apply a reasonable multiple on that, which is just saying take the current NOI and add in the NOI of properties that have already been redeveloped and properties that are currently being redeveloped, and then use that NOI you get to a much higher valuation. Also, Buffett in his personal account owns the exact some instrument - SRG common equity. For Berkshire's account he did the loan. So yes, you are getting the same exact exposure as Buffett *personally*
  • AR
    Anthony R.
    16 August 2018 @ 19:09
    Contrarian trades are seductive because that's how WB made his fortune, plus you feel and sound smarter than you would discussing a consensus trade. Q : Can you demonstrate (in numbers) how you arrive at the $1.7bn of value that the market is ignoring?
    • JS
      Jeremy S.
      16 August 2018 @ 19:33
      the way I have been thinking about it is Simon which I think is a reasonable comp trades at ~430 TEV / Gross Leasable Area (per square foot), I took a reasonable discount to that, and then factored in the ~$150 / square foot of development costs SRG is spending to repurpose the real estate - that is where the $80 number comes from. I think there is additional upside over time as the valuation gap between SRG and SPG / other comps narrows.
  • AH
    Andrew H.
    16 August 2018 @ 14:25
    Since you have studied this spin off from Sears, have you studied SHOS? Another misunderstood spin off from sears that looks to be way undervalued if they can get operations stabilized.
    • JS
      Jeremy S.
      16 August 2018 @ 15:49
      Sorry. Have not had a chance to look at SHOS buy certainly could be interesting. I'm not really a bull on the broader Sears umbrella enterprise. Problem is they underinvested in capex for so long that I'm not sure they can turn it around now.
    • JS
      Jeremy S.
      12 September 2018 @ 04:03
      https://drive.google.com/viewerng/viewer?url=https://gallery.mailchimp.com/f5064af0f6e5340816e525710/files/a8b9732a-4660-4610-b206-0a7f43d3207f/BestIdeasSHOS_Final.pdf&wmode=opaque

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