Daniel Schmerin: To what extent does Seritage get dragged down by the challenges that Sears has faced in its retail operations? Can Seritage effectively absorb properties that Sears is turning over to them, while continuing the pace of redevelopment on its other projects?
Bruce Berkowitz (Trades, Portfolio): There’s no doubt that Seritage has been tarnished by perceptions of Sears. But the company will be able to continue its pace of redevelopment, especially given the nature of the calls and the puts. Seritage will call a property when they have tenants lined up for that space with much higher rental rates. And if Sears puts part or all of a property to Seritage, then Seritage receives one year’s worth of rent and operating expenses and most likely, they’ve already identified potential customers for the space. So, I don’t envision any problems at the current pace or even at a somewhat accelerated pace.
Daniel Schmerin: What do you think the potential dividend per share of Seritage could be three years from now?
Bruce Berkowitz (Trades, Portfolio): I expect Seritage (SRG, Financial) to eventually refinance what I call its IPO debt in a much more sensible fashion and a lower cost, which will allow faster expansion, more revenue, more operating income, and higher dividends.
I wouldn’t be surprised if three years from now, it has roughly doubled its dividend to about two dollars per share while still continuing to grow over the next three year period. I would not be surprised over a roughly six to ten year period if Seritage doubled its dividend twice from a dollar to two dollars, and then from two to four dollars.
And there’ll still be some growth after that, on an organic basis, without the need to acquire any other properties.
Daniel Schmerin: Right, just based on the properties that they have under their umbrella today.
Bruce Berkowitz (Trades, Portfolio): Yes.
From Bruce Berkowitz (Trades, Portfolio)'s June 29, 2017, public conference call commentary part I.
