RE:RE:RE:RE:RE:RE:RE:RE:Time to Reload Here Hi,
I hope you had a nice weekend.
Thank you very much for the thoughtful response.
Although I see things differently with regard to SmartCentre, we are clearly aligned on Riocan and FCR. That said, I haven't poured more than 100 hours into SmartCentres as I have other REITs so forgive me if I am mistaken in responses to your points - see below.
Walmart as a tenant has both positives and negatives, in my opinion. As you note, it is a negative how much less they pay relative to our mean rent per sq ft. I also think the concentration risk of revenue is a negative. That said, the strength of tenant and value that they bring by simply existing in a plaza is noteworthy.
I do not concern myself with details such as rent per sq... although relevant, my analysis is focused very much on the entity level valuation, cashflow, development pipeline, and quality of underlying assets.
I agree that the distribution has some degree of risk of being cut. That said, I respectfully disagree that the business cannot sustain the distribution as is. Assuming additional cash flow from developments coming online offsets increasing interest expense - I believe the distribution is sustainable - albeit marginally.
% of rent and % of sq ft by tenant has always been disclosed. It's always been transparent that Walmart pays lower rents as an anchor tenant.
The two Walmart execs sitting on the board just strengthens the realationship in my eyes. Given the amount of sq ft leased to Walmart, it is important to maintain that relationship. That said, diversification across anchor tenants, as well as tenants more broadly would be welcomed in my opinion.
Mitch buying is all I need to know for this one beyond my quantitative analysis. And as I said, I personally like the Highway 7 assets.
Only ~10% of my real estate portfolio is retail specific REITs (portfolio is roughly 20% retail)... and SRU is only 30% of that (3% of total real estate portfolio).
Thanks again for the thoughtful reply. I appreciate being challenged and forced to think about my investment decisions. All the best and enjoy the football games tonight.
Frankie
hroark7 wrote: Hi Frankie,
The problem with SRU vs. REI or FCR which are in the same industry is the average rent $ per sq ft.
SRU on the surface looks great because Walmart is a huge tenant.
But when you look at SRU's average rent per square foot, it is half of REI and FCR.
Also when you realize that 2 Walmart execs sit on SRU's board, it's clear as day that Walmart is paying far below market rent to SRU.
So Walmart is not a positive, it's a negative, and SRU shareholders are subsidizing Walmart.
Also Mitch (SRU CEO) has been using gains from selling land to pay the distribution because the NOI does not support the distribution. Without that SRU is in danger of a distribution cut.
In SRU's most recent annual report, they split out their top renters by revenue and sq ft so it is now possible to calculate how much of a discount Walmart is getting on their rent from Mitch.
Everyone else is paying $25/sq ft while Walmart is paying $14 per sq ft.
Keeping in mind that there are 2 Walmart execs on SRU's board and Walmart makes such a huge % of SRU's rents, basically Walmart is a black hole sucking value away from the shareholders.
I wouldn't touch SRU.UN with someone else's 10-foot pole.