Plural Partners Fund: Seaport Entertainment ($SEG) Investment Case
Investment Overview
Despite the complexities of Seaport Entertainment’s asset base and the underwhelming performance of some properties, Plural Partners views $SEG as an undervalued asset with potential for significant value realization over the next three years.
Why $SEG?
Plural Partners identifies $SEG as an overlooked opportunity stemming from indiscriminate selling following the spinoff. They see the current price as a compelling entry point with a combination of downside protection from asset value and upside potential through operational improvements and strategic management.
Key drivers of the bullish outlook include:
- Substantial Asset Value: $SEG trades at a fraction of the investment cost for its assets.
- Operational Turnaround: The appointment of an experienced CEO specializing in hospitality and entertainment.
- Strategic Alignment: A large insider commitment signals confidence in $SEG’s prospects.
Business Overview
Seaport Entertainment is the result of a spinout from Howard Hughes, designed to separate less desirable assets into a standalone entity. The portfolio includes:
- Pier 17: A mixed-use development in New York City with office space, restaurants, and a rooftop concert venue.
- The Tin Building: A high-end food court facing operational challenges.
- 250 Water Street: A fully entitled development site in Manhattan.
- Miscellaneous assets, including a baseball team and air rights.
Investment Thesis
- Deep Value Opportunity: $SEG trades at approximately $0.25 per dollar invested in its assets, creating a potential mispricing due to market complexity and lack of investor focus.
- Turnaround Potential: New management led by Anton Nikodemus, with expertise in entertainment and hospitality, is implementing plans to revitalize Pier 17 and optimize the Tin Building’s operations.
- Insider Confidence: Pershing Square, a significant shareholder, has committed to supporting $SEG through rights issues and has guaranteed oversubscription, effectively setting a floor price for the stock.
Valuation and Expected Returns
- Current Market Cap: ~$330M
- Post-Rights Net Cash: $50M
- Historical Investment Value: ~$1.5B
- Base Case: Plural Partners expects asset monetization and operational improvements to unlock significant value, targeting multi-bagger returns over three years.
Risks
- Operational challenges at key properties like the Tin Building.
- Continued weak demand for office spaces in New York City.
- Potential dilution from insider-backed rights offerings.
Conclusion
Plural Partners believes that $SEG represents an asymmetric risk-reward opportunity, with a solid asset base, promising turnaround potential, and significant insider alignment. This stock exemplifies Plural Partners’ focus on hidden gems and long-term value creation.
Click here for the full pro investor letter.
Disclaimer: The information provided in this blog post is for informational and educational purposes only and does not constitute financial, investment, or other professional advice. The content is based on a third-party investor letter and does not represent an endorsement, recommendation, or solicitation to buy or sell any particular security or investment product mentioned.
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