Editors Note:

Seritage Growth Properties was spun off from Sears Holdings in July 2015 in an effort to raise cash. It was a good plan for Sears but bad for Seritage.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays

The markets rallied more than 2% in a monster short squeeze and making new long entries at this level without knowing who won the election would be very risky. The results on Tuesday will be pivotal for the markets. I will add long plays once we know the market direction.


NEW DIRECTIONAL PUT PLAYS

SRG - Seritage Growth Properties - Company Profile

Seritage Growth Properties (Seritage) is a self-administered and self-managed real estate investment trust (REIT). The Company is engaged in the acquisition, ownership, development, redevelopment, and management and leasing of diversified retail real estate across the United States. The Company's assets are held by and its operations are primarily conducted through directly or indirectly, by Seritage Growth Properties, L.P. Its portfolio include approximately 42.4 million square feet of gross leasable area (GLA), which consists of approximately 230 owned properties totaling over 37.0 million square feet of GLA across approximately 49 states and Puerto Rico and interests in approximately 30 joint venture properties totaling over 5.4 million square feet of GLA across approximately 17 states. Its portfolio includes over 3,000 acres of land, or approximately 10 acres per site for its owned properties. The Company's portfolio include approximately 42.4 million square feet of gross leasable area (GLA), which consists of approximately 230 owned properties totaling over 37.0 million square feet of GLA across approximately 49 states and Puerto Rico and interests in approximately 30 joint venture properties totaling over 5.4 million square feet of GLA across approximately 17 states. Company description from Reuters.com.

When Seritage was spun off from Sears it held about 230 properties with either a Sears store or a Kmart as the anchor tenant. Almost immediately, Sears began serving notice of intent to terminate leases. In September, Sears notified Seritage it was terminating 17 more properties. These properties are normally older malls with Sears of Kmart as the anchor tenant. Once Sears or Kmart leaves, the malls have a good chance of dying.

Seritage is rapidly remodeling and trying to release these malls and strip centers. However, in their recent earnings they disclosed the average rent before Sears/Kmart terminated was $19.25 per square foot. The average rent they are receiving after those anchor stores leave is now $13.75 per square foot.

There are two big challenges. The first is the death of the mall. Average rents are going to deteriorate until the mall finally closes. Numerous malls have already been shutdown and bulldozed to make way for office buildings of some type. That is not bad for Seritage since each center they own averages about 10 acres. However, they cannot just terminate all the leases just because Sears terminates. They will try to replace the anchor tenant and continue to operate as a mall as long as possible but income will continue to decline.

The second challenge is the current weakness in the Sears/Kmart business. There is a constant stream of rumors that Kmart will file bankruptcy after the holidays. Some distributors are no longer shipping them product for fear of not being paid.

Since the majority of Seritage properties are occupied by Sears/Kmart they are at extreme risk for further declines in those retail businesses.

Earnings Feb 2nd.

Monday's market rally lifted Seritage from a 7-month low but shares only managed to gain 26 cents. If the prior decline continues it should return to the lows and test $40 in the weeks ahead. I am recommending an April option to get us past any January closing announcements by Sears.

Buy April $40 put, currently $2.00, no initial stop loss.