UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______to _______

Commission File Number 001-37420

SERITAGE GROWTH PROPERTIES

(Exact name of registrant as specified in its charter)

Maryland	38-3976287
(State of Incorporation)	(I.R.S. Employer Identification No.)

500 Fifth Avenue, Suite 1530, New York, New York	10110
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 355-7800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Class A common shares of beneficial interest, par value $0.01 per share	SRG	New York Stock Exchange
7.00% Series A cumulative redeemable preferred shares of beneficial interest, par value $0.01 per share	SRG-PA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 29, 2021, the registrant had the following common shares outstanding:

Class	Shares Outstanding
Class A common shares of beneficial interest, par value $0.01 per share	43,631,345
Class B common shares of beneficial interest, par value $0.01 per share	0
Class C common shares of beneficial interest, par value $0.01 per share	0

SERITAGE GROWTH PROPERTIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED September 30, 2021

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
		Page
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	38
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
SIGNATURES		42

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands, except share and per share amounts)

	September 30, 2021			December 31, 2020
ASSETS
Investment in real estate
Land	$	516,488		$	592,770
Buildings and improvements		999,343			1,107,532
Accumulated depreciation		(159,347	)		(142,206	)
		1,356,484			1,558,096
Construction in progress		390,443			352,776
Net investment in real estate		1,746,927			1,910,872
Real estate held for sale		12,273			1,864
Investment in unconsolidated entities		464,244			457,033
Cash and cash equivalents		153,378			143,728
Restricted cash		7,150			6,526
Tenant and other receivables, net		27,499			46,570
Lease intangible assets, net		15,970			18,595
Prepaid expenses, deferred expenses and other assets, net		67,265			63,755
Total assets (1)	$	2,494,706		$	2,648,943
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Term Loan Facility, net	$	1,599,226		$	1,598,909
Sales-leaseback financing obligations		20,613			20,425
Accounts payable, accrued expenses and other liabilities		123,178			146,882
Total liabilities (1)		1,743,017			1,766,216
Commitments and contingencies (Note 9)
Shareholders' Equity
Class A common shares $0.01 par value; 100,000,000 shares authorized;    43,631,345 and 38,896,428 shares issued and outstanding    as of September 30, 2021 and December 31, 2020, respectively		436			389
Series A preferred shares $0.01 par value; 10,000,000 shares authorized;    2,800,000 shares issued and outstanding as of September 30, 2021    December 31, 2020; liquidation preference of $70,000		28			28
Additional paid-in capital		1,240,311			1,177,260
Accumulated deficit		(625,491	)		(528,637	)
Total shareholders' equity		615,284			649,040
Non-controlling interests		136,405			233,687
Total equity		751,689			882,727
Total liabilities and shareholders' equity	$	2,494,706		$	2,648,943
(1) The Company's condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The condensed consolidated balance sheets, as of September 30, 2021, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(0.9) million of accumulated depreciation and $4.3 million of other assets included in other line items. The Company's condensed consolidated balance sheets as of December 31, 2020, do not include assets and liabilities of consolidated variable interest entities.

The accompanying notes are an integral part of these condensed consolidated financial statements. 

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SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
REVENUE
Rental income	$	28,819		$	33,966		$	87,560		$	88,724
Management and other fee income / (expense)		184			(259	)		598			119
Total revenue		29,003			33,707			88,158			88,843
EXPENSES
Property operating		11,585			11,154			33,514			30,152
Real estate taxes		8,542			9,487			27,758			28,096
Depreciation and amortization		13,159			23,647			39,629			81,446
General and administrative		8,780			11,203			32,002			29,267
Total expenses		42,066			55,491			132,903			168,961
Gain / (loss) on sale of real estate, net		22,774			(14,706	)		65,079			59,959
Impairment of real estate assets		(3,814	)		(14,594	)		(70,053	)		(16,407	)
Equity in loss of unconsolidated entities		(5,535	)		(335	)		(9,024	)		(2,551	)
Interest and other income		48			1,986			8,202			2,460
Interest expense		(26,721	)		(22,742	)		(81,847	)		(66,400	)
Loss before taxes		(26,311	)		(72,175	)		(132,388	)		(103,057	)
Provision for taxes		(38	)		(226	)		(198	)		(215	)
Net loss		(26,349	)		(72,401	)		(132,586	)		(103,272	)
Net loss attributable to non-controlling interests		5,815			22,348			31,492			32,627
Net loss attributable to Seritage	$	(20,534	)	$	(50,053	)	$	(101,094	)	$	(70,645	)
Preferred dividends		(1,225	)		(1,225	)		(3,675	)		(3,675	)
Net loss attributable to Seritage common shareholders	$	(21,759	)	$	(51,278	)	$	(104,769	)	$	(74,320	)
Net loss per share attributable to Seritage Class A    common shareholders - Basic	$	(0.50	)	$	(1.33	)	$	(2.50	)	$	(1.95	)
Net loss per share attributable to Seritage Class A    common shareholders - Diluted	$	(0.50	)	$	(1.33	)	$	(2.50	)	$	(1.95	)
Weighted average Class A common shares    outstanding - Basic		43,631			38,645			41,976			38,172
Weighted average Class A common shares    outstanding - Diluted		43,631			38,645			41,976			38,172

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, amounts in thousands, except per share amounts)

	Class A Common				Class B Common						Series A Preferred				Additional Paid-In			Accumulated			Non- Controlling			Total
	Shares		Amount		Shares			Amount			Shares		Amount		Capital			Deficit			Interests			Equity
Balance at January 1, 2020		36,897	$	369		1,243		$	12			2,800	$	28	$	1,149,721		$	(418,711	)	$	311,951		$	1,043,370
Net loss		—		—		—			—			—		—		—			(70,645	)		(32,627	)		(103,272	)
Preferred dividends declared ($1.3125    per share)		—		—		—			—			—		—		—			(3,675	)		—			(3,675	)
Vesting of restricted share units		98		1		—			—			—		—		(1	)		—			—			—
Share-based compensation		—		—		—			—			—		—		3,372			—			—			3,372
Share class surrenders (1,242,536 common    shares)		—		—		(1,243	)		(12	)		—		—		12			—			—			—
OP Units exchanges (1,650,000 units)		1,650		16		—			—			—		—		26,623			—			(26,639	)		—
Balance at September 30, 2020		38,645	$	386		—			—		$	2,800	$	28	$	1,179,727		$	(493,031	)	$	252,685		$	939,795
Balance at January 1, 2021		38,896	$	389		—		$	—			2,800	$	28	$	1,177,260		$	(528,637	)	$	233,687		$	882,727
Net loss		—		—		—			—			—		—		—			(101,094	)		(31,492	)		(132,586	)
Preferred dividends declared ($1.3125    per share)		—		—		—			—			—		—		—			(3,675	)		—			(3,675	)
Vesting of restricted share units		87		1		—			—			—		—		(1	)		—			—			—
Share-based compensation		—		—		—			—			—		—		1,263			—			—			1,263
OP Unit exchanges (4,647,943 units)		4,648		46		—			—			—		—		61,789			—			(61,835	)		—
Contributions to consolidated variable interest entities		—				—			—			—		—		—			7,915			(3,955	)		3,960
Balance at September 30, 2021		43,631	$	436		—		$	—			2,800	$	28	$	1,240,311		$	(625,491	)	$	136,405		$	751,689

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, amounts in thousands, except per share amounts)

	Class A Common				Class B Common				Series A Preferred				Additional Paid-In		Accumulated			Non- Controlling			Total
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Interests			Equity
Balance at July 1, 2020		38,645	$	386		—	$	—		2,800	$	28	$	1,178,268	$	(441,753	)	$	275,033			1,011,962
Net loss		—		—		—		—		—		—		—		(50,053	)		(22,348	)		(72,401	)
Preferred dividends declared ($0.4375    per share)		—		—		—		—		—		—		—		(1,225	)		—			(1,225	)
Vesting of restricted share units		—		—		—		—		—		—		—		—			—			-
Share-based compensation		—		—		—		—		—		—		1,459		—			—			1,459
Balance at September 30, 2020		38,645	$	386		—	$	—		2,800	$	28	$	1,179,727	$	(493,031	)	$	252,685		$	939,795
Balance at July 1, 2021		42,795	$	428		—	$	—		2,800	$	28	$	1,230,009	$	(611,647	)	$