https://seekingalpha.com/article/4345293-buffett-will-not-be-rescuing-seritage
Baseline results were exceptionally bad, but the forward impact of the pandemic is what will deliver the death blow.
We estimate cash required just in the next 12 months and tell you why there is a very high risk of bankruptcy.
Seritage as of May 6, 2020, had collected approximately 47% of contractual base rent and tenant reimbursements billed for the month of April. There were multiple rent relief requests and these will only get worse for May rent. We do expect things to slowly get back on track, but the company's biggest issue will be signing new leases. Every retailer that they are trying to target currently is bruised and battered. The idea that they will be ready to jump in with new leases is rather far-fetched. We expect leasing activity to be minimal (80% reduction versus pre-Covid levels) at least over the next 12 months.
Seritage has a $120 million deficit to fill just from its basic cash flow.
In addition, there will be more losses of rent in its core portfolio. The Sears/Kmart stores were struggling before the pandemic and they are likely to shut down for good.
In addition, Seritage needs another approximately $1.0 billion total for developing its properties. We stress that this is just the projects immediately over the horizon. Total planned spending is likely another $3 .0 billion over and above this.
This is the tell. Berkshire is abandoning ship. In other words, Seritage needs to fix itself via asset sales. Seritage had cash of $96.7 million, but based on an estimated $125 million a quarter burn rate, that is not nearly enough.
Seritage was always a "hope and a prayer" stock as it had a long list of things to accomplish before it reached a self-sustaining model. The current cash burn is absolutely epic and Berkshire may force a default if Seritage cannot manage to fund the capex and the ongoing expenses. The investment climate is incredibly hostile for mall REITs, and we suspect that Seritage may have to fold. Berkshire bailed on Airlines recently and we think this is another error which Warren Buffett will happily admit to, before moving on. Although in this case he will have to find a way to extract Berkshire's massive loan out of what looks like a really crummy asset base.