Is SEG a diamond in the rough or a gamble? This recent spinoff of Howard Hughes Holdings (HHH) boasts prime real estate assets in New York City and Las Vegas, piquing investor interest. But before we dive in, let’s explore the potential upside and reasons to be cautious.
Reasons for optimism
- Luxury properties: SEG owns valuable properties in prime locations: the South Street Seaport in New York and assets in Las Vegas, including a minor league baseball team and air rights near the Las Vegas Strip.
- Valuation gap: Analysts estimate that there is a significant gap between the current price of SEG shares and the value of the underlying assets, potentially amounting to double the current price.
- Ackman Fall Protection: Bill Ackman’s Pershing Square Capital Management pledges $25-per-share minimum for company’s rights offering, showing confidence in SEG’s future.
Reasons for caution
- Execution risk: Transforming potential into reality is critical. Revitalizing South Street Seaport and developing Las Vegas assets requires successful execution to deliver expected returns.
- Historical examples: Past real estate spinoff ventures such as Seritage Growth Properties (SRG) and Trinity Place Holdings (TPHS) promised redevelopment gains that ultimately failed to materialize.
- Short-term losses: SEG is likely to continue to post net losses for the foreseeable future, with potential profitability a few years away.
The conclusion
While SEG represents an intriguing opportunity, there is a waiting game involved. Consider these factors:
- Wait for signs of progress: Wait to invest until early efforts to revitalize SEG’s assets show promise.
- Potential withdrawal: The recent excitement may cool, offering a better entry point at a lower price than the current one.
