UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
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(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
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).
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
On June 30, 2021, the last business day of the most recently completed second quarter of the registrant, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $
As of March 11, 2022, the registrant had the following common shares outstanding:
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Class A common shares of beneficial interest, par value $0.01 per share |
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Class B common shares of beneficial interest, par value $0.01 per share |
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Class C common shares of beneficial interest, par value $0.01 per share |
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Seritage Growth Properties’ Proxy Statement for its 2022 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
SERITAGE GROWTH PROPERTIES
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2021
TABLE OF CONTENTS
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Item 1. |
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1 |
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Item 1A. |
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Item 1B. |
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32 |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Item 7. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. |
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Item 9. |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. |
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Item 9B. |
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Item 9C. |
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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Item 10. |
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Item 11. |
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Item 12. |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. |
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Certain Relationships and Related Transactions, and Director Independence |
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Item 15. |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (the “Annual Report”) of Seritage Growth Properties contains statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the opposite of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Except as required by law, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could impact our future results, performance or transactions, see “Item 1A. Risk Factors.”
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PART I
ITEM 1. BUSINESS
The Company
Seritage Growth Properties (“Seritage”) (NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, is a fully integrated, self-administered and self-managed real estate investment trust (“REIT”) as defined under Section 856(c) of the Internal Revenue Code (the “Code”). Seritage’s assets are held by and its operations are primarily conducted, directly or indirectly, through Seritage Growth Properties, L.P., a Delaware limited partnership (the “Operating Partnership”). Under the partnership agreement of the Operating Partnership, Seritage, as the sole general partner, has exclusive responsibility for and discretion in the management and control of the Operating Partnership. Unless otherwise expressly stated or the context otherwise requires, the “Company”, “we,” “us,” and “our” as used herein refer to Seritage, the Operating Partnership and its owned and controlled subsidiaries.
Seritage is principally engaged in the ownership, development, redevelopment, management, sale and leasing of diversified retail and mixed-use properties throughout the United States. As of December 31, 2021, the Company’s portfolio consisted of interests in 162 properties comprised of approximately 19.2 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately 600 acres held for or under development and approximately 9.4 million square feet or approximately 800 acres to be disposed of. The portfolio consists of approximately 15.4 million square feet of GLA held by 137 wholly owned properties (such properties, the “Consolidated Properties”) and 3.9 million square feet of GLA held by 25 unconsolidated entities (such properties, the “Unconsolidated Properties”).
The Company’s mission is to create long-term value for our shareholders by unlocking the value of our portfolio whether through re-leasing, redevelopment, dispositions, formation of strategic partnerships or other bespoke solutions.
Background
The Company commenced operations on July 7, 2015 following a rights offering to the shareholders of Sears Holding Corporation (“Sears Holdings” or “Sears”) to purchase common shares of Seritage in order to fund, in part, the $2.7 billion acquisition of certain of Sears Holdings’ owned properties and its 50% interests in three joint ventures which were simultaneously leased back to Sears Holdings under master lease agreements (the “Original Master Lease” and the “JV Original Master Leases”, respectively).
On October 15, 2018, Sears Holdings and certain of its affiliates filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). Subsequently, the Company and certain affiliates of Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., executed a master lease (the “Holdco Master Lease”) with respect to 51 Consolidated Properties, which became effective when the Bankruptcy Court issued an order approving the rejection of the Original Master Lease.
As of December 31, 2021, the Company did not have any remaining properties leased to Holdco or Sears Holdings after giving effect to the termination of the remaining five Consolidated Properties, which were completed in March 2021.
Edward S. Lampert is the Chairman and Chief Executive Officer of ESL Investments, Inc, which owns Holdco. Mr. Lampert was also the Chairman of Seritage prior to his retirement, effective March 1, 2022, and controlled each of the tenant entities that was a party to the Holdco Master Lease prior to the termination of the remaining five Consolidated Properties in March 2021.
Board of Trustees Matters
On March 1, 2022, the Company announced that Mr. Lampert retired as its Chairman and resigned from its board of trustees (the “Board of Trustees”) effective March 1, 2022, and that each of Messrs. David S. Fawer and Thomas M. Steinberg, members of the Board of Trustees, notified the Board of Trustees that he would not stand for reelection as a trustee. Messrs. Fawer’s and Steinberg’s terms will each end at our 2022 annual meeting of shareholders.
Review of Strategic Alternatives
On March 1, 2022, the Company announced that its Board of Trustees has commenced a process to review a broad range of strategic alternatives to enhance shareholder value. The Board of Trustees created a special committee of the Board of Trustees (the “Special Committee”) to oversee the process. The Special Committee has retained a financial advisor. The Company is in the early stages of the strategic review process and its current intention is not to disclose or comment on interim developments with respect to the process. There can be no assurance that the review process will result in any transaction or any strategic change at this time. See “Item 1A. Risk Factors—Risks Related to Our Business and Operations— There can be no assurance that our review of strategic alternatives will result in any transaction or any strategic change at this time.”
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Business Strategies
The Company’s primary objective is to create value for its shareholders through the re-leasing and redevelopment of its core Consolidated Properties and Unconsolidated Properties, except for certain of its non-core assets which have been identified for near term disposition. In particular, we have identified various sites that we believe have the demand and demographic profile to support other uses such as residential, biotechnology, office and others. Given our fee ownership of these properties and control over parking lots and outparcels, we believe that these sites are well positioned for such value creation opportunities. We additionally look to further lease our built retail footprint and densify any excess parking land through the addition of triple net (“NNN”) pad sites, which are standalone sites upon which a customized space can be built or leased for a tenant.
In order to achieve its objective, the Company intends to execute the following strategies:
On March 1, 2022, the Company announced that its Board of Trustees has commenced a process to review a broad range of strategic alternatives to enhance shareholder value. The Company will continue to evaluate its portfolio strategy and corporate structure to optimize the outcome of such review. See “—Review of Strategic Alternatives.”
COVID-19 Pandemic
The COVID-19 pandemic continues to have a significant impact on conditions in the real estate industry in the United States, including the Company’s properties.
These conditions may change, significantly, in future periods and results for the year ended December 31, 2021 may not be indicative of the impact of the COVID-19 pandemic on the Company's business for future periods. As such, the Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operations or cash flows over the foreseeable future.
As of December 31, 2021, the Company had collected 97% of rental income for the year ended December 31, 2021 and agreed to defer an additional 1%. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.
Significant Tenants
Management believes the Company’s portfolio is reasonably diversified and does not contain any significant concentrations of credit risk. As of December 31, 2021, the Company has one tenant that comprises 10.2% annualized based rent, with no other tenants exceeding 10% of annualized base rent. The Company's portfolio of 137 Consolidated Properties and 25 Unconsolidated Properties was diversified by location across 38 states and Puerto Rico.
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Competition
We compete for investment opportunities and prospective tenants with other REITs, real estate partnerships and other real estate companies, private individuals, investment companies, private equity and hedge fund investors, sovereign funds, pension funds, insurance companies, lenders and other investors, including retailer operators that may close stores and pursue similar real estate strategies. In addition, revenues from our properties are dependent on the ability of our tenants and operators to compete.
Some of our competitors are significantly larger and have greater financial resources and lower costs of capital than we have. Increased competition will make it more challenging to identify and successfully capitalize on investment opportunities that meet our objectives. Our ability to compete is also impacted by national and local economic trends, availability of investment alternatives, availability and cost of capital, construction and renovation costs, existing laws and regulations, new legislation and population trends.
As a landlord, we compete in the real estate market with numerous developers and owners of properties, including the shopping centers in which our properties are located. Some of our competitors have greater economies of scale, relationships with national tenants at multiple properties which are owned or operated by such competitors, access to more resources and greater name recognition than we do. If our competitors offer space at rental rates below the current market rates or below the rentals we currently charge, or on terms and conditions which include locations at multiple properties, we may lose our existing and/or potential tenants and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options in order to win new tenants and retain tenants when our leases expire.
Environmental Matters
Our properties are subject to environmental laws regulating, among other things, air emissions, wastewater discharges and the handling and disposal of wastes. Certain of the properties were built during the time that asbestos-containing building materials were routinely installed in residential and commercial structures. In addition, a substantial portion of the properties we acquired from Sears Holdings currently include, or previously included, automotive care center facilities and retail fueling facilities, and are or were subject to laws and regulations governing the handling, storage and disposal of hazardous substances contained in some of the products or materials used or sold in the automotive care center facilities (such as motor oil, fluid in hydraulic lifts, antifreeze and solvents and lubricants), the recycling/disposal of batteries and tires, air emissions, wastewater discharges and waste management. In addition to these products or materials, the equipment in use or previously used at such properties, such as service equipment, car lifts, oil/water separators, and storage tanks, has been subject to increasing environmental regulation relating to, among other things, the storage, handling, use, disposal, and transportation of hazardous materials. Our leases include, or are expected to include, provisions obligating the operator to comply with applicable environmental laws and to indemnify us if such operator’s noncompliance results in losses or claims against us with respect to environmental matters first arising during such operator’s occupancy. An operator’s failure to comply could result in fines and penalties or the requirement to undertake corrective actions which may result in significant costs to the operator and thus adversely affect their ability to meet their obligations to us.
Pursuant to U.S. federal, state and local environmental laws and regulations, a current or previous owner or operator of real property may be required to investigate, remove and/or remediate a release of hazardous substances or other regulated materials at, or emanating from, such property. Further, under certain circumstances, such owners or operators of real property may be held liable for property damage, personal injury and/or natural resource damage resulting from or arising in connection with such releases. Certain of these laws have been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. We also may be liable under certain of these laws for damage that occurred prior to our ownership of a property or at a site where we sent wastes for disposal. The failure to properly remediate a property may also adversely affect our ability to lease, sell or rent the property or to borrow funds using the property as collateral.
Under the Holdco Master Lease, Holdco is required to indemnify us from certain environmental liabilities at the Consolidated Properties before or during the period in which any such Consolidated Property was leased to Holdco, including removal and remediation of all affected facilities and equipment constituting the automotive care center facilities. In addition, an environmental reserve was funded concurrently with the formation of the Company in the amount of approximately $12.0 million. As of December 31, 2021, the balance of the environmental reserve was approximately $9.5 million.
In connection with the ownership of our current or past properties and any properties that we may acquire in the future, we could be legally responsible for environmental liabilities or costs relating to a release of hazardous substances or other regulated materials at or emanating from such property. We are not aware of any environmental issues that are expected to have a material impact on the operations of our properties. However, we can make no assurances that the discovery of previously unknown environmental conditions or future laws, ordinances or regulations will not impose material environmental liabilities on us, or the current environmental condition of our properties will not be affected by tenants, the condition of land or operations in the vicinity of our properties (such as releases from underground storage tanks), or by third parties unrelated to us.
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Insurance
We have comprehensive liability, property and rental loss insurance with respect to our portfolio of properties. We believe that such insurance provides adequate coverage.
REIT Qualification
We elected to be treated as a REIT commencing with the taxable year ended December 31, 2015. So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on net taxable income that we distribute annually to our shareholders, but net taxable income generated by our taxable REIT subsidiary (our “TRS”) will be subject to U.S. federal, state and local income tax. In order to qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, including, but not limited to, the real estate qualification of sources of our income, the composition and values of our assets, the amounts we distribute to our shareholders and the diversity of ownership of our stock. In order to comply with REIT requirements, we may need to forego otherwise attractive opportunities and limit our expansion opportunities and the manner in which we conduct our operations. See “Risk Factors—Risks Related to Status as a REIT.”
Financial Information about Industry Segments
We currently operate in a single reportable segment, which includes the ownership, development, redevelopment, management, sale and leasing of real estate properties. We review operating and financial results for each property on an individual basis. We, therefore, aggregate all of our properties into one reportable segment due to their similarities with regard to the nature and economics of the properties, tenants and operational process.
Human Capital
We believe that our employees are our most important asset. As of December 31, 2021, we had 40 full-time employees, all of whom are located in the United States, with the majority located in New York. We strive to hire and develop the top talent in the industry, and we believe that our business offers a unique opportunity for individuals to grow and learn.
During 2021, our number one priority was the health and safety of our team, our families and loved ones, our communities and our partners, including our tenants, contractors, and other stakeholders. We understand the importance of the mental, physical and social health and well-being of our employees and take actions to promote good health such as providing mental health days off.
Our core principles guide how we conduct ourselves and approach the challenges and opportunities that we face. Our core principles are:
We believe that diversity and inclusion at all levels of our organization are imperative to our future successes. This means that bringing your authentic self to work every day is seen as an asset. We have focused our diversity and inclusion efforts on employee recruitment, employee engagement, community outreach and partnering with like-minded organizations. As of December 31, 2021, our organization was comprised of 45% women and 30% people of color. Our management team, which is defined as Senior Vice Presidents and above, was comprised of 33% women. We had three diverse members of our Board of Trustees. We also take diversity into consideration when evaluating vendor selection. We regularly review our compensation practices to ensure employees from underrepresented groups are not being underpaid relative to others doing the same or similar work. All employees receive training in the prevention and reporting of sexual harassment, discriminatory and abusive conduct in the workplace.
Because the engagement of our employees is important, we encourage a work environment that fosters collaboration across departments and levels. We take pride in being able to have the newest member of the team work side-by-side with our most tenured and senior executives. We believe this encourages creativity, creates opportunities for improvements and efficiencies, and strengthens our team. We regularly solicit feedback from our employees and take actions designed to increase employee engagement.
We depend on our people to create value in our portfolio and company. We offer attractive compensation with comprehensive benefits for employees and their dependents.
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Available Information
Our office is located at 500 Fifth Avenue, New York, New York 10110 and our telephone number is (212) 355-7800. Our website address is www.seritage.com. Our reports electronically filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act can be accessed through this site, free of charge, as soon as reasonably practicable after we electronically file or furnish such reports. These filings are also available on the SEC’s website at www.sec.gov. Our website also contains copies of our corporate governance guidelines and code of business conduct and ethics as well as the charters of our audit, compensation and nominating and corporate governance committees. The information on our website is not part of this or any other report we file with or furnish to the SEC.
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ITEM 1A. RISK FACTORS
Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our common shares of beneficial interest could decline, and you could lose part or all of your investment.
Risk Factor Summary
The following is a summary of the principal factors that make an investment in our securities speculative or risky.
Risks Related to Our Business and Operations
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Risks Related to Status as a REIT
Risks Related to Ownership of our Securities
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Risks Related to Our Business and Operations
We are dependent on the ability of our major tenants, to successfully operate their businesses. Our tenants’ failure to operate their businesses successfully, or the occurrence of an event that has a material adverse effect on the business, financial condition or results of operations of any of our major tenants, could have a material adverse effect on our business, financial condition or results of operations.
A significant portion of our leased properties are leased to our major tenants. As a result, the success of our investments, at least in the short-term, is materially dependent on the financial condition of our major tenants. At any time, our tenants may experience a downturn in their respective businesses that may significantly weaken their financial condition, particularly during periods of economic uncertainty. This uncertainty may be exacerbated as a result of actual changes in economic conditions, including as a result of market dynamics, trends in consumer income, rising energy prices, tariffs or trade disputes, and natural or manmade disasters, including epidemic or pandemic disease, or the impact of the fear of such changes on consumer behavior. As a result, our tenants may delay lease commencements, decline to extend or renew leases upon expiration, fail to make rental payments when due, close a number of locations or declare bankruptcy.
The inability or unwillingness of our any of major tenants to meet rent obligations and other obligations could materially adversely affect our business, financial condition or results of operations, including a reduction in operating cash flow that can be used to pay the interest, principal and other costs and expenses under our financings, or to pay cash dividends to our shareholders.
In addition, certain of our lease agreements require our tenants to pay certain insurance, taxes, utilities and maintenance and repair expenses in connection with the leased properties and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective business, subject to proportionate sharing of expenses and certain other limitations. Our exposure to rental payments from our major tenants as a material source of our rental income may limit our ability to enforce our rights under our lease agreements with such tenants.
The risk of financial failure of, or default in payment by, a major tenant is magnified in situations where we lease multiple properties to a single tenant under a master lease, and we may be limited in our ability to enforce our rights under such agreements. In such event, we may have been unable to locate a suitable master lessee or a lessee for individual properties at similar rental rates and other obligations and in a timely manner at all, which would have had the effect of reducing our rental revenues.
There can be no assurance as to how our major tenants will perform in the future. Outcomes not currently foreseen by us may occur, any of which could have a material and adverse impact on our business, results of operations and financial condition.
The future bankruptcy or insolvency of any of our tenants could result in the termination of such tenant’s lease and material losses to us.
The future bankruptcy or insolvency of any of our tenants, could diminish the rental revenue we receive from that property or could force us to “take back” tenant space as a result of a default or a rejection of the lease by a tenant in bankruptcy. Any claims against bankrupt tenants for unpaid future rent are subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under their leases or no payments at all. In addition, any claim we have for unpaid past rent may not be paid in full. Federal law may prohibit us from evicting a tenant based solely upon its recent bankruptcy filing (or a tenant in the event of such tenant’s bankruptcy or insolvency). We may also be unable to re-lease a terminated or rejected space or re-lease it on comparable or more favorable terms. If we do re-lease rejected space, we may incur costs for brokerage, marketing and tenant expenses.
Bankruptcy laws afford certain protections to tenants that may also affect the treatment of master leases. Subject to certain restrictions, a tenant under a master lease generally is required to assume or reject the master lease as a whole, rather than making the decision on a property-by-property basis. This prevents the tenant from assuming only the better performing properties and terminating the master lease with respect to the poorer performing properties.
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We may not be able to renew leases or re-lease space at our properties and property vacancies could result in significant capital expenditures.
When leases for our properties expire or are terminated, the premises may not be re-leased in a timely manner or at all, or the terms of re-leasing, including the cost of allowances and concessions to tenants, may be less favorable than the then-existing lease terms. The loss of a tenant through lease expiration or other circumstances may require us to spend (in addition to other re-letting expenses) significant amounts of capital to renovate the property before it is suitable for a new tenant and cause us to incur significant costs in the form of ongoing expenses for property maintenance, taxes, insurance and other expenses. Many of the leases we will enter into or acquire may be for properties that are especially suited to the particular business of the tenants operating on those properties. Because these properties have been designed or physically modified for a particular tenant, if the current lease is terminated or not renewed, we may be required to renovate the property at substantial costs, decrease the rent we charge or provide other concessions to re-lease the property. In addition, if we are required or otherwise determine to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed or modified. This potential illiquidity may limit our ability to quickly modify our portfolio in response to changes in economic or other conditions, including tenant demand. Also, we may not be able to lease new properties to an appropriate mix of tenants or for rents that are consistent with our expectations. To the extent that our leasing plans are not achieved or we incur significant capital expenditures as a result of property vacancies, our business, results of operations and financial condition could be materially adversely affected.
Following the Sears Holdings bankruptcy, we have been named as a defendant in litigation that could adversely affect our business and financial condition, divert management’s attention from our business, and subject us to significant liabilities, including remedies that may be imposed as a result of a finding of fraudulent conveyance.
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, plaintiffs Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC commenced a litigation (the “Litigation”) in the Bankruptcy Court naming us and certain of our affiliates, as well as affiliates of ESL Investments, Inc. and Sears Holdings, and certain other third parties, as defendants. The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD). The initial complaint has been superseded by the Amended Complaint described below.
On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter 11 Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Official Committee of Unsecured Creditors’ (the “Creditors’ Committee”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.
On November 25, 2019, the Creditors’ Committee filed a first amended complaint (the “Amended Complaint”) in the Bankruptcy Court naming us and certain of our affiliates, as well as affiliates of ESL Investments, Inc. and Sears Holdings, and certain other third parties, as defendants. The Amended Complaint alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 (including the July 2015 transactions giving rise to Seritage, the execution of the Master Lease with Sears Holdings (the “Original Master Lease”), and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings and that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth hundreds of millions of dollars more than the purchase price paid. The Amended Complaint further alleges that certain releases provided to Seritage and certain other defendants in connection with the Sears Holdings derivative litigation in the Delaware Court of Chancery in 2017 should be avoided and/or declared null and void as an actual and/or constructive fraudulent conveyance. The Amended Complaint seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers, disgorgement, recovery of the property fraudulently transferred or, in the alternative, compensatory damages in an unspecified amount to be determined at trial, equitable subordination and disallowance of defendants’ claims as creditors, punitive and exemplary damages for any intentional wrongdoing, and reasonable attorneys’ fees, costs, and expenses. On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the Amended Complaint relating to the release received in the Sears Holdings derivative litigation unjust enrichment and equitable subordination.
On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions were completed in August 2020, and the parties are awaiting a decision. The Company believes that the claims against the Seritage Defendants in the Litigation are without merit and intends to defend against them vigorously.
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On March 15, 2021, the Court consolidated the Litigation with a case captioned Sears Holding Corp. et al. v. Andrew H. Tisch, et al., Case No. 20-07007 (RDD) (the “Shareholder Litigation,” and, together with the Litigation, the “Consolidated Litigation”). The Shareholder Litigation was brought by the UCC, Sears Holdings Corporation, and Sears, Roebuck and Co., against certain shareholders of Sears Holdings or its related companies. Seritage was not named as a defendant in the Shareholder Litigation, which alleges, among other things, that certain transactions undertaken by Sears Holdings since 2014 (including the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends. The Company believes that the claims against the Seritage Defendants in the Consolidated Litigation are without merit and intends to defend against them vigorously.
Fraudulent transfers or conveyances include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors, or transfers made or obligations incurred in exchange for less than reasonably equivalent value when the debtor was, or was rendered, insolvent, inadequately capitalized or unable to pay its debts as they become due. To remedy a fraudulent conveyance, a court could void the challenged transfer or obligation, requiring us to return consideration that we received, or impose substantial liabilities upon us for the benefit of unpaid creditors of the debtor that made the fraudulent conveyance, which could adversely affect our financial condition and our results of operations. Among other things, a court could require our shareholders to return to Sears Holdings or its creditors some or all of the securities issued in the distribution made in connection with the formation of Seritage.
Although we believe that the claims against us in the Litigation are without merit and intend to defend against them vigorously, we are not able to predict the ultimate outcome of the Litigation, the magnitude of any potential losses or the effect such litigation may have on us or our operations. It is possible that the Litigation could cause us to incur substantial costs and that they could be resolved adversely to us, result in substantial damages or other forms of relief, result in or be connected to additional claims, affect our relations with counterparties to commercial transactions and divert management’s attention and resources, any of which could harm our business. Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, results of operations or financial condition and could subject us to adverse publicity and require us to incur significant legal fees. Please see Note 9 – Commitments and Contingencies – in this Annual Report on Form 10-K for additional information regarding the Litigation.
Real estate investments are relatively illiquid.
Our properties represent a substantial portion of our total consolidated assets, and these investments are relatively illiquid. Significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes, insurance, and repair and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. If income from a property declines while the related expenses do not decline, our income and cash available to us would be adversely affected. If it becomes necessary or desirable for us to dispose of one or more of our mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt or other costs and expenses. As a result, our ability to sell one or more of our properties or investments in real estate in response to any changes in economic or other conditions may be limited. If we want to sell a property, we may not be able to dispose of it in the desired time period or at a sale price that would exceed the cost of our investment in that property. In addition, our ability to enter into asset sales or joint ventures is subject to among other uncertainties, our ability to identify prospective purchasers, the willingness of prospective purchasers to enter into transactions on commercially reasonable terms, negotiations with counterparties, satisfactory examination of property and title by the purchasers, the ability to obtain title and other relevant insurance, applicable consent rights of the lender under our term loan facility, the ability of purchasers to obtain adequate financing, and customary closing conditions.
The number of potential buyers for certain properties that we may seek to sell may be limited by the presence of such properties in retail or mall complexes owned or managed by other property owners. If we decide to sell any of our properties, we may provide financing to purchasers and bear the risk that the purchasers may default, which may delay or prevent our use of the proceeds of the sales for other purposes or the distribution of such proceeds to our shareholders.
E-commerce and other changes in consumer buying practices present challenges for many of our tenants and may require us to modify our properties, diversify our tenant composition and adapt our leasing practices to remain competitive.
Many of our tenants face increasing competition from e-commerce and other sources that could cause them to reduce their size, limit the number of locations and/or suffer a general downturn in their businesses and ability to pay rent. We may also fail to anticipate the effects of changes in consumer buying practices, particularly of growing online sales and the resulting change in retailing practices and space needs of our tenants, which could have an adverse effect on our results of operations and cash flows. We are focused on anchoring and diversifying our properties with tenants that are more resistant to competition from e-commerce (e.g. groceries, essential retailers, restaurants and service providers), but there can be no assurance that we will be successful in modifying our properties, diversifying our tenant composition and/or adapting our leasing practices.
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Both we and our tenants face a wide range of competition that could affect our ability to operate profitably.
The presence of competitive alternatives, both to our properties and the businesses that lease our properties, affects our ability to lease space and the level of rents we can obtain. Our properties operate in locations that compete with other retail properties and also compete with other forms of retailing, such as catalogs and e-commerce websites. Competition may also come from strip centers, outlet centers, lifestyle centers and malls, and both existing and future development projects. New construction, renovations and expansions at competing sites could also negatively affect our properties. In addition, we compete with other retail property companies for tenants and qualified management. These other retail property companies may have relationships with tenants that we do not have since we have a limited operating history, including with respect to national chains that may be desirable tenants. If we are unable to successfully compete, our business, results of operations and financial condition could be materially adversely affected. See also “Item 1. Business - Competition.”
In addition, the retail business is highly competitive and if our retail tenants fail to differentiate their shopping experiences, create an attractive value proposition or execute their business strategies, they may terminate, default on, or fail to renew their leases with us, and our results of operations and financial condition could be materially adversely affected. Furthermore, we believe that the increase in digital and mobile technology usage has increased the speed of the transition from shopping at physical locations to web-based purchases and that our tenants, including Holdco, may be negatively affected by these changing consumer spending habits. If our tenants are unsuccessful in adapting their businesses, and, as a result terminate, default on, or fail to renew their leases with us, our results of operations and financial condition could be materially adversely affected.
Our pursuit of investments in and redevelopment of properties, and investments in and acquisitions or development of additional properties, may be unsuccessful or fail to meet our expectations.
We intend to grow our business through investments in, and acquisitions or development of, properties, including through the recapture and redevelopment of space at many of our properties. However, our industry is highly competitive, and we face competition from other REITs, investment companies, private equity and hedge fund investors, sovereign funds, lenders, and other investors, some of whom are significantly larger and have greater resources and lower costs of capital. This competition will make it more challenging to identify and successfully capitalize on acquisition and development opportunities that meet our investment objectives. If we are unable to finance acquisitions or other development opportunities on commercially favorable terms, our business, financial condition or results of operations could be materially adversely affected. Additionally, the fact that we must distribute 90% of our net taxable income in order to maintain our qualification as a REIT may limit our ability to rely upon rental payments from leased properties or subsequently acquired properties in order to finance acquisitions. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions or other development opportunities might be limited or curtailed.
Investments in, and acquisitions of, properties we might seek to acquire entail risks associated with real estate investments generally, including (but not limited to) the following risks and as noted elsewhere in this section:
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In addition, we intend to redevelop a significant portion of the properties after termination or recapture of asset from the Holdco Master Lease or Original Master Lease in order to make space available for lease to additional retail tenants and potentially other lessees for other uses. The redevelopment of these properties involves the risks associated with real estate development activities generally. If we are unable to successfully redevelop properties or to lease the redeveloped properties to third parties on acceptable terms, our business, results of operations and financial condition could be materially adversely affected.
There can be no assurance that our review of strategic alternatives will result in any transaction or any strategic change at this time.
On March 1, 2022, we announced that our Board of Trustees has commenced a process to review a broad range of strategic alternatives to enhance shareholder value. The Board of Trustees created a Special Committee to oversee the process. The Special Committee has retained a financial advisor. We are in the early stages of the strategic review process and our current intention is not to disclose or comment on interim developments with respect to the process. There can be no assurance that the review process will result in any transaction or any strategic change at this time.
Current and future redevelopment may not yield expected returns.
We expect to undertake redevelopment, expansion and reinvestment projects involving our properties as part of our long-term strategy. Likewise, each unconsolidated entity expects to undertake redevelopment, expansion and reinvestment projects involving its Unconsolidated Properties, with respect to which we may be required to make additional capital contributions to the applicable unconsolidated entity under certain circumstances. These projects are subject to a number of risks, including (but not limited to):
If any of these events occur at any time during the process with respect to any project, overall project costs may significantly exceed initial cost estimates, which could result in reduced returns or losses from such investments. In addition, we may not have sufficient liquidity to fund such projects, and delays in the completion of a redevelopment project may provide various tenants the right to withdraw from a property.
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We have ongoing capital needs and may not be able to obtain additional financing or other sources of funding on acceptable terms.
As of December 31, 2021, we had aggregate outstanding indebtedness of $1.44 billion. We may incur additional indebtedness in the future to refinance our existing indebtedness, to finance newly acquired properties or capital contributions to joint ventures, or to fund retenanting and redevelopment projects. Our existing debt and any significant additional indebtedness could require a substantial portion of our cash flow to make interest and principal payments. Demands on our cash resources from debt service will reduce funds available to us to pay dividends, make capital expenditures and acquisitions or carry out other aspects of our business strategy. Our indebtedness may also limit our ability to adjust rapidly to changing market conditions, make us more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for us compared to other companies with relatively lower debt levels. Increased future debt service obligations may limit our operational flexibility, including our ability to acquire properties, finance or refinance our properties, contribute properties to joint ventures or sell properties as needed.
Our primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service, and the reinvestment in and redevelopment of our properties. As a result of a decrease in occupancy levels due to our recapture of space for redevelopment purposes and the execution of termination rights under the Original Master Lease and Holdco Master Lease, our property rental income, which is our primary source of operating cash flow, did not fully fund property operating and other expenses incurred during the year ended December 31, 2021. Property operating and other expenses are projected to continue to exceed property rental income until such time as additional tenants commence paying rent, and we plan to incur additional development expenditures as we continue to invest in the redevelopment of our portfolio. While we do not currently have the liquid funds available to fully fund projected property and other expenses and planned development expenditures, we expect to fund these uses of cash with a combination of capital sources including, but not limited to, sales of Consolidated Properties, sales of interests in Unconsolidated Properties and potential credit and capital markets transactions, subject to compliance with certain conditions and/or the consent of our lender under our Term Loan Facility.
As of December 31, 2021, we were not in compliance with certain financial metrics applicable to us under the agreements governing our term loan facility. As a result, we must receive the consent of the lender to dispose of assets via sale or joint venture and, as of December 31, 2021, the lender had provided such consent for all such transactions submitted for approval. There can be no assurance that the lender will consent to future dispositions of assets. Additionally, the lender has the right to request mortgages against our assets pursuant to the mortgage and collateral requirement. During the year ended December 31, 2019, the lender requested mortgages on a majority of our portfolio, and then during the year ended December 31, 2020, the lender requested mortgages on the remaining unencumbered assets.
The Term Loan Facility also provides for a $400 million incremental facility (the “Incremental Funding Facility”). Our ability to access the Incremental Funding Facility is subject to (i) our achieving rental income from non-Sears Holdings tenants, on an annualized basis (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $200 million, (ii) our good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under the amendment to the Term Loan Agreement (as defined below) as further described below. As of December 31, 2021, the Company has not yet achieved the requirements to access the Incremental Funding Facility.
We may be unable to obtain additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under any indebtedness outstanding from time to time. Among other things, the absence of an investment grade credit rating or any credit rating downgrade could increase our financing costs and could limit our access to financing sources. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to enhance our properties or develop new properties, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. A decrease in available liquidity could also impair our ability to pay dividends to our shareholders.
If additional funds are raised through the issuance of equity securities, our shareholders may experience significant dilution. Additionally, sales of substantial amounts of Class A common shares in the public market, or the perception that such sales could occur, could adversely affect the market price of Class A common shares, may make it more difficult for our shareholders to sell their common shares at a time and price that they deem appropriate, and could impair our future ability to raise capital through an offering of our equity securities.
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Real estate related taxes may increase, and if these increases are not passed on to tenants, our income will be reduced.
Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisitions and/or redevelopment of properties. Generally, from time to time, our property taxes increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some leases may permit us to pass through such tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will reduce our income and the cash available for distributions to our shareholders.
Changes in building and/or zoning laws may require us to update a property or prevent us from fully restoring a property in the event of a substantial casualty loss and/or require us to meet additional or more stringent construction requirements.
Due to changes in, among other things, applicable building and zoning laws, ordinances and codes that may affect certain of our properties that have come into effect after the initial construction of the properties, certain properties may not comply fully with current building and/or zoning laws, including electrical, fire, health and safety codes and regulations, use, lot coverage, parking and setback requirements, but may qualify as permitted non-conforming uses. Such changes in building and zoning laws may require updating various existing physical conditions of buildings in connection with our recapture, renovation, and/or redevelopment of properties. In addition, such changes in building and zoning laws may limit our or our tenants’ ability to restore the premises of a property to its previous condition in the event of a substantial casualty loss with respect to the property or the ability to refurbish, expand or renovate such property to remain compliant, or increase the cost of construction in order to comply with changes in building or zoning codes and regulations. If we are unable to restore a property to its prior use after a substantial casualty loss or are required to comply with more stringent building or zoning codes and regulations, we may be unable to re-lease the space at a comparable effective rent or sell the property at an acceptable price, which may materially and adversely affect us.
Our real estate assets may be subject to impairment charges.
On a periodic basis, we must assess whether there are any indicators that the value of our real estate assets and other investments may be impaired. If an impairment indicator is identified, a property’s value is considered to be impaired only if management’s estimate of current and projected operating cash flows (undiscounted and unlevered), taking into account the anticipated and probability weighted holdings periods, are less than the carrying value of the property. In our estimate of cash flow projections, we consider factors such as expected future operating income, trends and prospects, the effects of demand, competition and other factors. If we are evaluating the potential sale of an asset or development alternatives, the undiscounted future cash flows consider the most likely course of action at the balance sheet date based on current plans, intended holding periods and available market information. We are required to make subjective assessments as to whether there are impairments in the value of our real estate assets and other investments. These assessments may have a direct impact on our earnings because recording an impairment charge results in an immediate negative adjustment to earnings. We may take impairment charges in the future related to the impairment of our assets, and any future impairment could have a material adverse effect on our results of operations in the period in which the impairment charge is taken.
Properties in our portfolio may be subject to ground leases; if we are found to be in breach of these ground leases or are unable to renew them, we could be materially and adversely affected.
We currently have two properties in our consolidated portfolio that are on land subject to a ground lease. Accordingly, we only own a long-term leasehold in the land underlying these properties, and we own the improvements thereon only during the term of the ground lease. In the future, our portfolio may include additional properties subject to ground leases or similar interests. If we are found to be in breach of a ground lease, we could lose the right to use the property and could also be liable to the ground lessor for damages. In addition, unless we can purchase a fee interest in the underlying land or extend the terms of these leases before their expiration, which we may be unable to do, we will lose our right to operate these properties and our interest in the improvements upon expiration of the leases. Our ability to exercise options to extend the term of our ground lease is subject to the condition that we are not in default under the terms of the ground lease at the time that we exercise such options, and we may not be able to exercise our options at such time. In addition, two Unconsolidated Properties are currently ground leased or leased and, therefore, subject to similar risks. Furthermore, we may not be able to renew our ground lease or future ground leases upon their expiration (after the exercise of all renewal options). If we were to lose the right to use a property due to a breach or non-renewal or final expiration of the ground lease, we would be unable to derive income from such property, which could materially and adversely affect our business, financial conditions or results of operations.
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Certain properties within our portfolio are subject to restrictions pursuant to reciprocal easement agreements, operating agreements, or similar agreements, some of which contain a purchase option or right of first refusal or right of first offer in favor of a third party.
Many of the properties in our portfolio are, and properties that we acquire in the future may be, subject to use restrictions and/or operational requirements imposed pursuant to ground leases, restrictive covenants or conditions, reciprocal easement agreements or operating agreements (collectively, “Property Restrictions”) that could adversely affect our ability to redevelop the properties or lease space to third parties. Such Property Restrictions could include, for example, limitations on alterations, changes, expansions, or reconfiguration of properties; limitations on use of properties, including for retail uses only; limitations affecting parking requirements; restrictions on exterior or interior signage or facades; or access to an adjoining mall, among other things. In certain cases, consent of the other party or parties to such agreements may be required when altering, reconfiguring, expanding, redeveloping or re-leasing properties. Failure to secure such consents when necessary may harm our ability to execute leasing, redevelopment or expansion strategies, which could adversely affect our business, financial condition or results of operations. In certain cases, a third party may have a purchase option or right of first refusal or right of first offer that is activated by a sale or transfer of the property, or a change in use or operations, including a closing of the Sears operation or cessation of business operations, on the encumbered property. From time to time, we have been involved in disputes or legal proceedings relating to such Property Restrictions, which may result in the incurrence of legal costs and diversion of management resources to resolve.
Economic conditions may affect the cost of borrowing, which could materially adversely affect our business.
Our business is affected by a number of factors that are largely beyond our control but may nevertheless have a significant negative impact on us. These factors include, but are not limited to:
In addition, economic conditions such as inflation or deflation could materially adversely affect our business, financial condition and results of operations. Deflation may have an impact on our ability to repay our debt. Deflation may delay consumption and thus weaken tenant sales, which may reduce our tenants’ ability to pay rents. Deflationary pressure on retailers may diminish their ability to rent our space and decrease our ability to re-lease the space on favorable terms to us.
The U.S. economy is currently experiencing and may continue to experience higher inflation than in prior periods. During inflationary periods, interest rates have historically increased, which may materially increase the interest expense we pay in connection with our indebtedness. Our general and administrative expenses would also be expected to increase at a rate higher than rents we collect. Also, inflation may adversely affect tenant leases with stated rent increases, which could be lower than the increase in inflation at any given time. Inflation could also have an adverse effect on consumer spending, which could impact our tenants’ sales and, in turn, our own results of operations.
Restricted lending practices may impact our ability to obtain financing for our properties and may also negatively impact our tenants’ ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
Rising expenses could reduce cash flow and funds available for future development.
If any property is not fully occupied or becomes vacant in whole or in part, or if rents are being paid in an amount that is insufficient to cover operating costs and expenses, we could be required to expend funds with respect to that property for operating expenses. Our properties are subject to increases in tax rates and tax assessments, utility costs, insurance costs, repairs, maintenance and administrative expenses, and other operating expenses. We may also incur significant expenditures as a result of deferred maintenance for the properties we have already acquired (subject to reserved funds to cover certain of these costs) and other properties we may acquire in the future. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions and other operating expenses, we could be required to pay those costs which could adversely affect funds available for future development or cash available for distributions.
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We may face increased risks and costs associated with volatility in commodity and labor prices or as a result of supply chain or procurement disruptions, which may adversely affect the status of our construction projects.
The price of commodities and skilled labor for our construction projects may increase unpredictably due to external factors, including, but not limited to, performance of third-party suppliers and contractors; overall market supply and demand; government regulation; international trade; supply chain disruptions; and changes in general business, economic, or political conditions. As a result, the costs of raw construction materials and skilled labor required for the completion of our development and redevelopment projects may fluctuate significantly from time to time.
While we do not rely on any single supplier or vendor for the majority of our materials and skilled labor, we may experience difficulties obtaining necessary materials from suppliers or vendors whose supply chains might become impacted by economic or political changes, or difficulties obtaining adequate skilled labor from third-party contractors in a tightening labor market. It is uncertain whether we would be able to source the essential commodities, supplies, materials, and skilled labor timely or at all without incurring significant costs or delays, particularly during times of economic uncertainty resulting from events outside of our control. We may be forced to seek new third-party suppliers or contractors, who we have not worked with in the past.
During 2021, industry prices for certain construction materials, including steel, copper, lumber, plywood, electrical materials, and heating, ventilation, and air conditioning materials, experienced significant increases as a result of low inventories; surging demand fueled by the U.S. economy rebounding from the effects of COVID-19; tariffs imposed on imports of foreign steel, including on products from key competitors in the European Union and China; and significant changes in the U.S. steel production landscape stemming from the consolidation of certain steel-producing companies. Price surges on construction materials may result in corresponding increases in our overall construction costs as our projects undergo construction.
In addition, as of December 31, 2021, the U.S. is widely reported to be experiencing serious supply chain disruptions as a result of substantial backlogs of container ships seeking to unload cargo at major ports on both the west and east coasts, with delays caused or exacerbated by port and trucking labor shortages, railway logistics issues and a shortage of warehouse space in close proximity to the affected ports. Supply chain constraints have impacted the cost, availability, and timing of certain materials deliveries. If not resolved, these backlogs and related logistics issues could result in project delays and increased costs for our construction activities and the US economy generally.
Compliance with the Americans with Disabilities Act may require us to make expenditures that adversely affect our cash flows.
The Americans with Disabilities Act (the “ADA”) has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. While the tenants to whom our properties are leased are generally obligated by law or lease to comply with the ADA provisions applicable to the property being leased to them, if required changes involve other property not being leased to such tenants, if the required changes include greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs could be adversely affected. Moreover, certain other leases may require the landlord to comply with the ADA with respect to the building as a whole and/or the tenant’s space. As a result of any of the foregoing circumstances, we could be required to expend funds to comply with the provisions of the ADA, which could adversely affect our results of operations and financial condition.
Environmental, health, safety and land use laws and regulations may limit or restrict some of our operations or otherwise cause us to incur significant costs.
As the owner or operator of various real properties and facilities, we must comply with various federal, state and local environmental, health, safety and land use laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances and employee health and safety, as well as zoning restrictions. A substantial portion of our properties that have resulted in certain remediation activities currently include, or previously included, automotive care center facilities and retail fueling facilities, and/or above-ground or underground storage tanks, and are or were subject to laws and regulations governing the handling, storage and disposal of hazardous substances contained in some of the products or materials used or sold in the automotive care center facilities (such as gasoline, motor oil, fluid in hydraulic lifts, antifreeze, solvents and lubricants), the recycling/disposal of batteries and tires, air emissions, wastewater discharges and waste management. In addition to these products, the equipment in use or previously used at such properties, such as service equipment, car lifts, oil/water separators, and storage tanks, has been subject to increasing environmental regulation relating to, among other things, the storage, handling, use, disposal and transportation of hazardous materials. There are also federal, state and local laws, regulations and ordinances that govern the use, removal and/or replacement of underground storage tanks in the event of a release on, or an upgrade or redevelopment of, certain properties. Such laws, as well as common-law standards, may impose liability for any releases of hazardous substances associated with the underground storage tanks and may provide for third parties to seek recovery from owners or operators of such properties for damages associated with such releases. If hazardous substances are released from any underground storage tanks on any of our properties, we may be materially and adversely affected. In a few states, transfers of some types of sites
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are conditioned upon clean-up of contamination. If any of our properties are subject to such contamination, we may be subject to substantial clean-up costs in order to sell or otherwise transfer the property.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material (or “ACM”). Environmental, health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment. In addition, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or increase ventilation and/or expose us to liability from our tenants, employees of our tenants, or others if property damage or personal injury occurs.
Moreover, additional laws which may be passed in the future, or a finding of a violation of or liability under existing laws, could require us and/or one or more of the unconsolidated entities to make significant expenditures and otherwise limit or restrict some of our or its or their operations, which could have an adverse effect on our business, financial condition and results of operations.
Environmental costs and liabilities associated with contamination at real estate properties owned by us may materially and adversely affect us.
Our properties may be subject to known and unknown environmental liabilities under various federal, state and local laws and regulations relating to human health and the environment. Certain of these laws and regulations may impose joint and several liability on certain statutory classes of persons, including current and former owners or operators, for the costs of investigation or remediation of contaminated properties. These laws and regulations apply to past and present business operations on the properties, including the use, storage, handling and recycling or disposal of hazardous substances or wastes. We may face liability for costs relating to the investigation and clean-up of any of our properties from which there has been a release or threatened release of hazardous substances or other regulated material or any third-party sites to which we have arranged for the disposed of hazardous substances, regardless of our knowledge of the contamination, the timing of the contamination, the cause of the contamination or the party responsible for the contamination of the property.
In addition to these costs, which could exceed a property’s value, we could be liable for certain other costs, including governmental fines, and injuries to persons, property or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs the government incurs in connection with such contamination. Any such costs or liens could have a material adverse effect on our business or financial condition. Moreover, the presence of contamination or the failure to remediate contamination may adversely affect our ability to sell or lease the real estate or to borrow using the real estate as collateral.
The Original Master Lease contained requirements that Sears Holdings indemnify us from certain environmental liabilities; however, following Sears Holdings’ bankruptcy, there can be no assurance that we would be able to collect any amounts due under such indemnification obligations. Under the Holdco Master Lease, Holdco is required to indemnify us from certain environmental liabilities at certain properties, including removal and remediation of all affected facilities and equipment constituting the automotive care center facilities. Although existing and future leases are expected to require tenants generally to indemnify us for their non-compliance with environmental laws as a result of their occupancy, such tenants typically will not be required to indemnify us for environmental non-compliance arising prior to their occupancy. In such cases, we may incur costs and expenses under such leases or as a matter of law. The amount of any environmental liabilities could exceed the amounts for which Holdco or other third parties would be required to indemnify us (or the applicable unconsolidated entity) or their financial ability to do so. In addition, under the terms of the agreements governing our indebtedness, we have deposited funds in a reserve account that will be used to fund costs incurred in correcting certain environmental and other conditions. The amount of such funds may not be sufficient to correct the environmental and other conditions to which they are expected to be applied.
Each unconsolidated entity is subject to similar risks relating to environmental compliance costs and liabilities associated with its Unconsolidated Properties, which may reduce the value of our investment in, or distributions to us by, one or more unconsolidated entities, or require that we make additional capital contributions to one or more unconsolidated entities.
Our business faces potential risks associated with natural disasters, severe weather conditions and climate change and related legislation and regulations, which could have an adverse effect on our cash flow and operating results.
Climate change may add to the unpredictability and frequency of natural disasters and severe weather conditions and create additional uncertainty as to future trends and exposures. Certain of our properties are located in areas that are subject to natural disasters and severe weather conditions, such as hurricanes, droughts, snow storms, floods and fires. Over time, the impact of climate change or the occurrence of natural disasters can delay new development and redevelopment projects, increase the costs of such projects if required to include resiliency measures to address climate-related risks, increase investment costs to repair or replace damaged properties, increase operating costs, create additional investment costs to make improvements to existing properties to comply with climate change regulations, increase future property insurance costs, and otherwise negatively impact the tenant demand for space. In addition,
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changes in federal, state and local legislation and regulations relating to climate change, such as “green building codes,” could result in increased operating expenses and capital expenditures to improve the energy efficiency of our properties, or potentially result in fines for noncompliance. We may not be able to effectively pass on such costs to our tenants. Moreover, any such legislation and regulations could impose substantial costs on our tenants, thereby impacting the financial condition of our tenants and their ability to meet their lease obligations and to lease or re-lease our properties.
Possible acts of war, terrorist activity or other acts of violence could adversely affect our financial condition and results of operations.
Acts of war, terrorist attacks or other acts of violence may result in declining economic activity, which could harm the demand for goods and services offered by our tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand, could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. War, terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be lower or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent that our tenants are affected by future attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our new or redeveloped properties, and limit our access to capital or increase our cost of raising capital.
Cybersecurity incidents could cause a disruption to our operations, a compromise of confidential information and damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.
We are susceptible to cybersecurity risks that include, among other things, theft, unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks; unauthorized access to relevant systems, compromises to networks or devices; or operational disruption or failures in the physical infrastructure or operating systems of Our information systems. Our information systems are essential to the operation of our business and our ability to perform day-to-day operations, including for the secure processing, storage and transmission of confidential and personal information. We must continuously monitor and develop its systems to protect its technology infrastructure and data from misappropriation, corruption and disruption. Cybersecurity risks may also impact properties in which we invest on behalf of clients and tenants of those properties, which could result in a loss of value in our clients’ investment. In addition, due to our interconnectivity with third-party service providers and other entities with which we conduct business, we could be adversely impacted if any of them is subject to a successful cyber incident. Although we and our service providers have implemented processes, procedures and controls to help mitigate these risks, there can be no assurance that these measures will be effective or that security breaches or disruptions will not occur. The result of these incidents may include disrupted operations, liability for loss or misappropriation of data, stolen assets or information, increased cybersecurity protection and insurance costs, increased compliance costs, litigation, regulatory enforcement actions and damage to our reputation or business relationships.
We may incur mortgage indebtedness and other borrowings, which may increase our business risks.
We may incur mortgage debt and pledge all or some of our real properties as security for that debt to finance newly acquired properties or capital contributions to joint ventures, or to fund retenanting and redevelopment projects. As of December 31, 2019, we were required to provide mortgages to the lender under our term loan facility on a majority of our portfolio. This restriction, together with the other provisions of the Term Loan Facility, limits our ability to obtain additional secured financing using such properties as collateral. We may also borrow if we need funds or deem it necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on a property, then the amount available for distributions to shareholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default. For U.S. federal income tax purposes, a foreclosure of any of our properties generally would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In such event, the Company may be unable to pay the amount of distributions required in order to maintain its REIT status. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any properties are foreclosed upon due to a default, our ability to pay cash distributions to our shareholders may be adversely affected.
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Covenants in our Term Loan Facility may limit our operational flexibility and a covenant breach or default could adversely affect our business and financial condition.
Our Term Loan Facility includes certain financial metrics to govern certain collateral and covenant exceptions set forth in the agreement, including: (i) a total fixed charge coverage ratio of not less than 1.00 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.20 to 1.00 for each fiscal quarter thereafter; (ii) an unencumbered fixed charge coverage ratio of not less than 1.05 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.30 to 1.00 for each fiscal quarter thereafter; (iii) a total leverage ratio of not more than 65%; (iv) an unencumbered ratio of not more than 60%; and (v) a minimum net worth of at least $1.2 billion. Any failure to satisfy any of these financial metrics will limit our ability to dispose of assets via sale or joint venture and trigger a requirement for us to provide mortgage collateral to our lender, but will not result in an event of default, mandatory amortization, cash flow sweep or similar provision. Since the year ended December 31, 2019, we have been in breach of one or more of the financial metrics described above, as a result of which we were required to provide mortgages to the lender under the Term Loan Facility with respect to a majority of our portfolio. Additionally, the lender under our Term Loan Facility has the right to consent to dispositions of properties via asset sales and formation of new joint ventures. This consent right may have the effect of limiting our ability to dispose of properties, whether for strategic reasons or to raise liquidity to fund our operations. The Term Loan Facility also includes certain limitations relating to, among other activities, our ability to: sell assets or merge, consolidate or transfer all or substantially all of our assets; incur additional debt; incur certain liens; enter into, terminate or modify certain material leases and/or the material agreements for our properties; make certain investments (including limitations on joint ventures) and other restricted payments; pay distributions on or repurchase our capital stock; and enter into certain transactions with affiliates.
The Term Loan Facility also provides for the Incremental Funding Facility. Our ability to access the incremental facility is subject to (i) our achieving rental income from non-Sears Holdings tenants, on an annualized basis (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $200 million, (ii) our good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under the amendment to the Term Loan Agreement. As of December 31, 2021, we have not achieved this level of rental income from non-Sears Holdings tenants.
Our rights and the rights of our shareholders to take action against our trustees and officers are limited.
As permitted by the Maryland REIT Law, the Company’s Declaration of Trust limits the liability of its trustees and officers to Seritage and its shareholders for money damages, except for liability resulting from:
In addition, our Declaration of Trust authorizes us and our bylaws obligate us to indemnify our present and former trustees and officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by Maryland law, and we have entered into indemnification agreements with our trustees and executive officers. As a result, the Company and our shareholders may have more limited rights against our trustees and officers than might otherwise exist absent the provisions in our Declaration of Trust and bylaws or that might exist with other companies. Accordingly, in the event that actions taken by any of our trustees or officers are immune or exculpated from, or indemnified against, liability but which impede our performance, the Company and our shareholders’ ability to recover damages from that trustee or officer will be limited.
Our Declaration of Trust and bylaws, Maryland law, and the partnership agreement of the Operating Partnership contain provisions that may delay, defer or prevent an acquisition of Class A common shares or a change in control.
The Company’s Declaration of Trust and bylaws, Maryland law and the partnership agreement of Operating Partnership contain a number of provisions, the exercise or existence of which could delay, defer or prevent a transaction or a change in control that might involve a premium price for our shareholders or otherwise be in their best interests, including the following:
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The Board of Trustees has, by resolution, exempted from the provisions of the Maryland Business Combination Act all business combinations (a) between us and (i) Sears Holdings or its affiliates or (ii) ESL or Fairholme Capital Management L.L.C. (“FCM”) and/or certain clients of FCM or their respective affiliates and (b) between us and any other person, provided that in the latter case the business combination is first approved by the Board of Trustees (including a majority of our trustees who are not affiliates or associates of such person). In addition, our bylaws contain a provision opting out of the Maryland control share acquisition act.
We may experience uninsured or underinsured losses, or insurance proceeds may not otherwise be available to us which could result in a significant loss of the capital we have invested in a property, decrease anticipated future revenues or cause us to incur unanticipated expense.
While many of our existing leases require, and new lease agreements are expected to require, that comprehensive general insurance and hazard insurance be maintained by the tenants with respect to their premises, and we have obtained casualty insurance with respect to our properties, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, that may be uninsurable or not economically insurable. Insurance coverage (net of deductibles) may not be effective or be sufficient to pay the full current market value or current replacement cost of a loss. Inflation, changes in building and zoning codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to restore or replace the property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore the economic position with respect to such property or to comply with the requirements of our mortgages and Property Restrictions. Moreover, the holders of any mortgage indebtedness may require some or all property insurance proceeds to be applied to reduce such indebtedness, rather than being made available for property restoration.
If we experience a loss that is uninsured or that exceeds our policy coverage limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties were subject to recourse indebtedness, Property Restrictions or ground leases, we could continue to be liable for the indebtedness or subject to claims for damages even if these properties were irreparably damaged.
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In addition, even if damage to our properties is covered by insurance, a disruption of our business or that of our tenants caused by a casualty event may result in the loss of business and/or tenants. The business interruption insurance we or our tenants carry may not fully compensate us for the loss of business or tenants due to an interruption caused by a casualty event. Further, if one of our tenants has insurance but is underinsured, that tenant may be unable to satisfy its payment obligations under its lease with us or its other payment or other obligations.
A disruption in the financial markets may make it more difficult to evaluate the stability, net assets and capitalization of insurance companies and any insurer’s ability to meet its claim payment obligations. A failure of an insurance company to make payments to us upon an event of loss covered by an insurance policy, losses in excess of our policy coverage limits or disruptions to our business or the business of our tenants caused by a casualty event could adversely affect our business, financial condition and results of operations.
Each unconsolidated entity may also experience uninsured or underinsured losses, and also faces other risks related to insurance that are similar to those we face, which could reduce the value of our investment in, or distributions to us by, one or more unconsolidated entities, or require that we make additional capital contributions to one or more unconsolidated entities.
Conflicts of interest may exist or could arise in the future between the interests of our shareholders and the interests of holders of Operating Partnership units, and the partnership agreement of Operating Partnership grants holders of Operating Partnership units certain rights, which may harm the interests of our shareholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between Seritage and its affiliates, on the one hand, and Operating Partnership or any of its partners, on the other. Our trustees and officers have duties to Seritage under Maryland law in connection with their oversight and management of the company. At the same time, Seritage, as general partner of Operating Partnership, will have duties and obligations to Operating Partnership and its limited partners under Delaware law, as modified by the partnership agreement of Operating Partnership in connection with the management of Operating Partnership.
For example, without the approval of the majority of the Operating Partnership units not held by Seritage and entities controlled by it, Seritage will be prohibited from taking certain extraordinary actions, including change of control transactions of Seritage or Operating Partnership.
ESL owns a substantial percentage of the Operating Partnership units, which may be exchanged for cash or, at our election, Class A common shares, and which will result in certain transactions involving our or Operating Partnership requiring the approval of ESL.
As of December 31, 2021, ESL owns approximately 22.1% of the Operating Partnership units, with the remainder of the units held by the Company. In addition, ESL will have the right to acquire additional Operating Partnership units in order to allow it to maintain its relative ownership interest in Operating Partnership if Operating Partnership issues additional units to the Company under certain circumstances, including if we issue additional equity and contribute the funds to Operating Partnership to fund acquisitions or redevelopment of properties, among other uses. In addition, ESL will have the right to require the Operating Partnership to redeem its Operating Partnership units in whole or in part in exchange for cash or, at the election of the Company, Class A common shares, except as described below. Due to the ownership limits set forth in our Declaration of Trust, ESL may dispose of some or all of the Class A common shares it beneficially owns prior to exercising its right to require Operating Partnership to redeem Operating Partnership units, and the partnership agreement of Operating Partnership will permit ESL (and only ESL) to transfer its Operating Partnership units to one or more underwriters to be exchanged for Class A common shares in connection with certain dispositions in order to achieve the same effect as would occur if ESL were to exchange a larger portion of its Operating Partnership units for Class A common shares and then dispose of those shares in an underwritten offering. Sales of a substantial number of Class A common shares in connection with or to raise cash proceeds to facilitate, such a redemption, or the perception that such sales may occur, could adversely affect the market price of the Class A common shares.
In addition, the partnership agreement of Operating Partnership requires the approval of a majority of the Operating Partnership units not held by the Company and entities controlled by it for certain transactions and other actions, including certain modifications to the partnership agreement, withdrawal or succession of the Company as general partner of Operating Partnership, limits on the right of holders of Operating Partnership units to redeem their units, tax elections and certain other matters. Because ESL currently owns a majority of the outstanding Operating Partnership units not held by the Company and entities controlled by it, ESL’s approval will be required in order for the general partner to undertake such actions unless ESL no longer owns a majority of such units. If ESL refuses to approve any such action, our business could be materially adversely affected. Furthermore, ESL owns approximately 9.3% of the outstanding Class A common shares. In any of these matters, the interests of ESL may differ from or conflict with the interests of our other shareholders.
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ESL exerts substantial influence over us, and its interests may differ from or conflict with the interests of our other shareholders.
ESL beneficially owns approximately 22.1% of the Operating Partnership units, and approximately 9.3% of the outstanding Class A common shares, which corresponds to 9.3% of the voting power of Seritage. Sears Holdings was, and Holdco is, an affiliate of ESL. In addition, Mr. Lampert, who previously served as the Chairman of the Board of Directors and Chief Executive Officer of Sears Holdings, is the Chairman and Chief Executive Officer of ESL, and was previously the Chairman of the Seritage Board of Trustees. As a result, ESL and its affiliates have substantial influence over us and Holdco. In any matter affecting us, including our relationship with Holdco, the interests of ESL may differ from or conflict with the interests of our other shareholders.
On March 1, 2022, Mr. Lampert filed a Schedule 13D/A with the SEC disclosing his support for our Board of Trustees’ efforts to explore and pursue strategic alternatives and his intention to explore alternatives for his investment in the Company, which may include, among other things, participating with third-parties that may be interested in acquiring some or all of the our assets and buying or selling our shares in open market transactions. In the event of any such transaction, the interests of Mr. Lampert and his affiliates, including ESL, may differ from or conflict with the interests of our other shareholders.
The businesses of each of the GGP joint ventures, the Simon joint venture and the Macerich joint venture are similar to each other and the occurrence of risks that adversely affect one unconsolidated entity, could also adversely affect our investment in the other unconsolidated entities.
The GGP joint ventures are joint ventures that own and operate certain Unconsolidated Properties, which consist of seven properties formerly owned or leased by Sears Holdings, the Simon joint venture is a joint venture that owns and operates certain other Unconsolidated Properties, which consist of five other properties formerly owned by Sears Holdings and the Macerich joint venture is a joint venture that owns and operates certain other Unconsolidated Properties, which consist of seven other properties formerly owned by Sears Holdings. As a result, each unconsolidated entity’s business is similar to our business, and each unconsolidated entity is subject to many of the same risks that we face. The occurrence of risks that adversely affect us could also adversely affect one or more unconsolidated entities and reduce the value of our investment in, or distributions to us from, one or more joint ventures, or require that we make additional capital contributions to one or more unconsolidated entities. Our influence over each unconsolidated entity may be limited by the fact that day-to-day operation of the GGP joint ventures, the Simon joint venture and the Macerich joint venture, and responsibility for leasing and redevelopment activities related to the Unconsolidated Properties owned by the GGP joint ventures, the Simon joint venture and the Macerich joint venture, as applicable, are generally delegated to GGP, Simon and Macerich, respectively, subject to certain exceptions. The Unconsolidated Properties owned by the GGP joint ventures are located at malls owned and operated by Brookfield Properties Retail (formerly GGP Inc.), the Unconsolidated Properties owned by the Simon joint venture are located at malls owned and operated by the Simon joint venture and the Unconsolidated Properties owned by the Macerich joint venture are located at malls owned and operated by the Macerich joint venture. As a result, conflicts of interest may exist or could arise in the future between the interests of GGP, Simon or Macerich and our interests as a holder of 50% interests in the GGP joint ventures, the Simon joint venture and the Macerich joint venture, respectively, including, for example, with respect to decisions as to whether to lease to third parties space at an Unconsolidated Property or other space at the mall at which such Unconsolidated Property is located.
The COVID-19 pandemic has continued to, and the future outbreak of other highly infectious or contagious diseases may, materially and adversely impact the business of our tenants and materially or adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service our debt obligations and our ability to pay dividends and other distributions to our shareholders.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic has had, and other pandemics in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity, the U.S. economy and the local economies in which our properties are located and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.
Certain states and cities, including where our tenants conduct their business and where we own properties, have development sites and where our corporate offices are located, have also reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. The Company cannot predict if additional states and cities will implement similar restrictions, when restrictions currently in place will expire or if such restrictions will be implemented again. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate.
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These containment measures and other factors have affected operations at the Company’s properties. As of December 31, 2021, the Company had collected 97% of rental income for the year ended December 31, 2021, and agreed to defer an additional 1%. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary. Some of our tenants may not re-open even after the aforementioned restrictions are lifted, which could have a material impact on occupancy at our properties which could result in an increase in the number of co-tenancy claims due to falling below required occupancy thresholds and may impact our results.
Furthermore, in the event of any default by a tenant for non-payment of lease charges or early or limited cessation of operations, we might not be able to fully recover and/or experience delays and additional costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with such parties due to potential moratoriums imposed by various jurisdictions in light of the COVID-19 pandemic on landlord initiated commercial eviction and collection actions. One or more of our tenants may seek the protection of the bankruptcy laws as a result of the prolonged impact of the COVID-19 pandemic, which could result in the termination of such tenants’ leases, and consequently causing a reduction in our income. Tenant bankruptcies may make it more difficult for us to lease the remainder of the property or properties in which the bankrupt tenant operates and adversely impact our ability to successfully execute our re-leasing strategy.
A sustained downturn in the U.S. economy and reduced consumer spending as well as consumer activity at brick-and-mortar commercial establishments due to the prolonged existence and threat of the COVID-19 pandemic, or a future pandemic, could impose an economic slowdown or recession in the United States which could impact our tenants’ ability to meet their lease obligations due to poor operating results, lack of liquidity or other reasons and therefore decrease the revenue generated by our properties or the value of our properties. Our ability to lease space and negotiate and maintain favorable rents could also be negatively impacted by a prolonged recession in the U.S. economy. Moreover, the demand for leasing space in our properties could substantially decline during a significant downturn in the U.S. economy which could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates and lead us to incur significant re-leasing costs.
The COVID-19 pandemic has also led to complete or partial shutdowns of manufacturing facilities and distribution centers in many countries and disruptions in our tenants’ supply chains, and may otherwise delay the delivery of inventory or other goods necessary for our tenants’ operations. Our tenants may also be negatively impacted if the outbreak of COVID-19 occurs within their workforce or otherwise disrupts their management.
The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations, liquidity and cash flows due to, among other factors:
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The extent to which the COVID-19 pandemic, or a future pandemic, impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional closures by our tenants of their stores and early terminations by our tenants of their leases could reduce our cash flows, which could impact our ability to pay dividends.
The fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents, and future outbreak of other highly infectious or contagious diseases may present, material uncertainty and risk with respect to our business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service our debt obligations and our ability to pay dividends and other distributions to our shareholders.
Risks Related to Status as a REIT
If we do not qualify to be taxed as a REIT, or fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders.
We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our initial taxable year ended December 31, 2015 and have operated to qualify as a REIT. We believe we have continued to operate in conformity with the requirements to qualify as a REIT and that we continue to satisfy all requirements to maintain our REIT status. However, qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which only a limited number of judicial and administrative interpretations exist.
If we were to fail to qualify as a REIT in any taxable year, and no available relief provision applied, we would be subject to U.S. federal income tax, including, for any taxable year ending on or before December 31, 2017, any applicable alternative minimum tax, on our taxable income at regular corporate rates (which, in the case of U.S. federal income tax, is a maximum of 35% for periods ending on or before December 31, 2017 and 21% thereafter), as well as U.S. state and local income tax, and dividends paid to our shareholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of our common shares. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a REIT.
Qualifying as a REIT involves highly technical and complex provisions of the Code.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT depends on the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the requirements to qualify as a REIT may depend in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.
We could fail to qualify to be taxed as a REIT if income we receive is not treated as qualifying income.
Under applicable provisions of the Code, we will not be treated as a REIT unless we satisfy various requirements, including requirements relating to the sources of our gross income. Rents we receive or accrue from tenants may not be treated as qualifying rent for purposes of these requirements if the applicable lease is not respected as a true lease for U.S. federal income tax purposes and is instead treated as a service contract, joint venture, financing, or some other type of arrangement. We believe that the Holdco Master Lease should be respected as a true lease for U.S. federal income tax purposes for the years in which such lease was in effect. If, contrary to expectations, the Holdco Master Lease is not respected as a true lease for U.S. federal income tax purposes, the IRS may determine that we failed to qualify to be taxed as a REIT during such time, and we may be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a REIT. Furthermore, our qualification as a REIT depends on the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for some of which we will not obtain independent appraisals.
In addition, subject to certain exceptions, rents we receive or accrue from our tenants will not be treated as qualifying rent for purposes of these requirements if we or an actual or constructive owner of 10% or more of our outstanding shares (by value) actually or constructively owns 10% or more of the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock of such tenant entitled to vote or 10% or more of the total value of all classes of stock of such tenant. For purposes of determining whether rental payments received by a REIT are treated as qualifying rent, the stock, assets or net profits owned by a partner in an entity classified as a partnership for U.S. federal income tax
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purposes are attributed to such partnership only if the partner owns (directly or indirectly) 25% or more of the capital interest or profits interest in the partnership. As a result of these constructive ownership rules, it is possible that we could be treated as owning 10% or more of a tenant, and in such case rent payments received from such tenant may not be treated as qualifying rent for purposes of these requirements. Our Declaration of Trust provides for restrictions on ownership and transfer of Class A common shares and Series A Preferred Shares, including restrictions on such ownership or transfer that would cause the rents we receive or accrue from a tenant to be treated as non-qualifying rent for purposes of the REIT gross income requirements. Nevertheless, such restrictions may not be effective in ensuring that rents we receive or accrue from our tenants will be treated as qualifying rent for purposes of REIT qualification requirements.
Dividends payable by REITs do not qualify for the reduced tax rates available for certain “qualified dividends,” but would generally qualify for a partial deduction with respect to certain taxpayers.
The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable by U.S. corporations to U.S. shareholders that are individuals, trusts and estates is currently 20%. Ordinary dividends payable by REITs, however, generally are not eligible for the reduced rates. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the Class A common shares. However, for taxable years beginning after December 31, 2017 and ending before January 1, 2026, a U.S. shareholder that is an individual, trust or estate would generally be entitled to deduct up to 20% of certain ordinary REIT dividends, effectively reducing the rate at which such ordinary REIT dividends are subject to tax. U.S. shareholders should consult their own tax advisors regarding all aspects of such rules and their potential application to dividends from us.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. We declared a dividend on the Company’s Class A and Class C common shares for the first quarter of 2019 and have not declared dividends on the Company’s Class A and Class C common shares since that time, based on our Board of Trustees’ current assessment of the Company’s investment opportunities and its expectations of taxable income.
From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year; alternatively, we may distribute taxable stock dividends to our shareholders in the form of additional shares of stock. See “—We may from time to time make distributions to our shareholders in the form of taxable stock dividends, which could result in shareholders incurring tax liability without receiving sufficient cash to pay such tax”. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of Class A common shares.
Restrictions in our indebtedness, including restrictions on our ability to incur additional indebtedness or make certain distributions, could preclude us from meeting the 90% distribution requirement. Decreases in funds from operations due to unfinanced expenditures for acquisitions of properties or increases in the number of Class A common shares outstanding without commensurate increases in funds from operations each would adversely affect our ability to maintain distributions to our shareholders. Moreover, the failure of tenants to make rental payments under any applicable lease could materially impair our ability to make distributions. Consequently, we may be unable to make distributions at the anticipated distribution rate or any other rate.
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We may from time to time make distributions to our shareholders in the form of taxable stock dividends, which could result in shareholders incurring tax liability without receiving sufficient cash to pay such tax.
Although we have no current intention to do so, we may in the future distribute taxable stock dividends to our shareholders in the form of additional shares of our stock. Taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash distributions received. If a U.S. shareholder sells our shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in its common stock.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state, local and foreign taxes on our income and assets, including taxes on any undistributed income and state, local or foreign income, property and transfer taxes. For example, in order to meet the REIT qualification requirements, we hold some of our assets and conduct certain of our activities through a taxable REIT subsidiary that is subject to federal, state and local corporate-level income taxes as a regular C corporation. For taxable years beginning after December 31, 2017, taxpayers, including TRSs, are subject to a limitation on their ability to deduct net business interest (i.e., interest paid or accrued on indebtedness allocable to a trade or business), generally up to 30% of adjusted taxable income, subject to certain exceptions. This provision may limit the ability of our TRS to deduct interest, which could increase its taxable income and corporate income tax. Further, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis. Any of these taxes would decrease cash available for distribution to our shareholders.
Complying with REIT requirements may cause us to liquidate or forgo otherwise attractive opportunities.
To qualify to be taxed as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and securities, REIT stock and debt instruments issued by publicly offered REITs. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets can consist of the securities of any one issuer (other than government securities, qualified real estate assets and securities issued by a TRS), and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.
In addition to the asset tests set forth above, to qualify to be taxed as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our shareholders and the ownership of our shares of beneficial interest. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make and, in certain cases, maintain ownership of certain attractive investments.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging transaction that we enter into to manage the risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets (or that we enter into to manage risk with respect to a prior hedge entered into in connection with property that has been disposed of or liabilities that have been extinguished) does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRS will generally not provide any tax benefit, except that such losses may only be carried forward and may only be deducted against 80% of future taxable income in the TRS.
- 27 -
Changes in federal tax law affected the taxation of us and may affect the desirability of investing in a REIT relative to a regular non-REIT corporation.
The TCJA reduced the relative competitive advantage of operating as a REIT as compared with operating as a regular non-REIT corporation by reducing the maximum tax rate applicable to regular corporations from 35% to 21% beginning on January 1, 2018. On the other hand, the TCJA also decreased the U.S. federal income tax rate applicable to non-corporate shareholders on ordinary REIT dividends by lowering the maximum applicable individual rate from 39.6% to 37% and permitting non-corporate shareholders of REITs to deduct 20% of ordinary REIT dividends from their taxable income for the taxable years beginning after December 31, 2017 and ending before January 1, 2026 (as discussed above). The TCJA and the CARES Act also provided a new limitation on the deduction of net business interest (as discussed above). A taxpayer engaged in certain businesses relating to real property may elect out of the business interest provision; however, the requirements of this election may be onerous to implement and would require the REIT to utilize potentially disadvantageous depreciation methods on some or all of its assets, including certain “qualified improvement property.” We will determine whether or not to make such an election in our sole discretion and based on all the facts and circumstances. In addition, finalized U.S. Treasury regulations could limit the deduction we may claim for our proportionate share of the compensation expense attributable to the remuneration paid by the Operating Partnership to certain of our employees who are or have been highly ranked and highly compensated employees.
The prohibited transactions tax may limit our ability to engage in sale transactions.
A REIT’s income from “prohibited transactions” is subject to a 100% tax. In general, “prohibited transactions” are sales or other dispositions of property other than foreclosure property, held primarily for sale to customers in the ordinary course of business. We may be subject to the prohibited transactions tax equal to 100% of net gain upon a disposition of real property that we hold. Although a safe harbor is available, for which certain sales of property by a REIT are not subject to the 100% prohibited transaction tax, we cannot assure you that we can comply with the safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of our properties or we may conduct such sales through our TRS, which would be subject to U.S. federal and state income taxation.
The 100% tax described above may limit our ability to enter into transactions that would otherwise be beneficial to us. For example, if circumstances make it not profitable or otherwise uneconomical for us to remain in certain states or geographical markets, the 100% tax could delay our ability to exit those states or markets by selling our assets in those states or markets other than through a TRS, which could harm our operating profits and the trading price of our shares.
Our ownership of our TRS is subject to limitations and our transactions with our TRS will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
The Code provides that no more than 20% of the value of a REIT’s assets may consist of shares or securities of one or more TRSs. Our TRS earns income that otherwise may be nonqualifying income if earned by us. Our TRS also may hold certain properties the sale of which may not qualify for the safe harbor for prohibited transactions described above. The limitation on ownership of TRS stock could limit the extent to which we can conduct these activities and other activities through our TRS. In addition, taxpayers, including our TRS, are subject to a limitation on their ability to deduct net business interest generally equal to 30% of adjusted taxable income, subject to certain exceptions. This provision may limit the ability of our TRS to deduct interest, which could increase its taxable income. The Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. There can be no assurance that we will be able to comply with the TRS limitation or avoid application of the 100% excise tax.
Legislative or other actions affecting REITs or other entities could have a negative effect on us.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws or interpretations thereof, with or without retroactive application, including those contemplated by the new presidential administration in the United States, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the U.S. federal income tax consequences to us and our investors of such qualification.
- 28 -
Risks Related to Ownership of our Securities
The market price and trading volume of our securities may be volatile.
The market price of our securities may be volatile, and the trading volume in our securities may fluctuate and cause significant price variations to occur. Some of the factors that could negatively affect the market price of our securities or result in fluctuations in the price or trading volume of our securities include:
We have issued Series A Preferred Shares, which, along with future offerings of debt or preferred equity securities, rank senior to our common shares for purposes of distributions or upon liquidation, may adversely affect the market price of our common shares.
We have issued 2,800,000 Series A Cumulative Redeemable Preferred Shares, which are senior to our common shares for purposes of distributions or upon liquidation. The Series A Preferred Shares may limit our ability to make distributions to holders of our common shares.
In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred shares. Upon liquidation, holders of our debt securities, Series A Preferred Shares and any additional preferred shares and lenders with respect to other borrowings may receive distributions of our available assets prior to the holders of our common shares. Any additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common shares, or both. Holders of our common shares are not entitled to preemptive rights or other protections against dilution, and will have no voting rights in connection with the issuance of these securities. Our Series A Preferred Shares have, and any additional preferred shares of beneficial interest issued could have, a preference on liquidating distributions or a preference on distribution payments that could limit our ability to make a distribution to the holders of our common shares. Since our decision to issue securities in any future offering will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common shares and diluting their holdings in us.
The transactions with Sears Holdings and Holdco could give rise to disputes or other unfavorable effects, which could have a material adverse effect on our business, financial condition or results of operations.
Disputes with third parties could arise out of our historical transactions with Sears Holdings or future transactions with Holdco, and we could experience unfavorable reactions from employees, ratings agencies, regulators or other interested parties. These disputes and reactions of third parties could have a material adverse effect on our business, financial condition or results of operations. In addition, disputes between us and Sears Holdings or Holdco could arise in connection with any of our past or future agreements with those counterparties.
- 29 -
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC commenced the Litigation in the Bankruptcy Court against the Seritage Defendants. The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD). On November 25, 2019, acting pursuant to the Confirmation Order, the Creditors’ Committee filed the Amended Complaint alleging, among other things, that certain transactions undertaken by Sears Holdings since 2011 (including the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings and that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth hundreds of millions of dollars more than the purchase price paid. The Amended Complaint further alleges, among other things, that certain releases provided to Seritage and certain other defendants in connection with the Sears Holdings derivative litigation in the Delaware Court of Chancery in 2017 should be avoided and/or declared null and void as an actual and/or constructive fraudulent conveyance. The Amended Complaint seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers, disgorgement, recovery of the property fraudulently transferred or, in the alternative, compensatory damages in an unspecified amount to be determined at trial, equitable subordination and disallowance of defendants’ claims as creditors, punitive and exemplary damages for any intentional wrongdoing, and reasonable attorneys’ fees, costs, and expenses. On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the Amended Complaint relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions were completed in August 2020, and the parties are awaiting a decision.
On March 15, 2021, the Court consolidated the Litigation with a case captioned Sears Holding Corp. et al. v. Andrew H. Tisch, et al., Case No. 20-07007 (RDD) (the “Shareholder Litigation,” and, together with the Litigation, the “Consolidated Litigation”). The Shareholder Litigation was brought by the UCC, Sears Holdings Corporation, and Sears, Roebuck and Co., against certain shareholders of Sears Holdings or its related companies. Seritage was not named as a defendant in the Shareholder Litigation, which alleges, among other things, that certain transactions undertaken by Sears Holdings since 2014 (including the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends. The Company believes that the claims against the Seritage Defendants in the Consolidated Litigation are without merit and intends to defend against them vigorously.
The number of shares available for future sale could adversely affect the market price of Class A common shares.
We cannot predict whether future issuances of Class A common shares, the availability of Class A common shares for resale in the open market or the conversion of Class C non-voting common shares into Class A common shares will decrease the market price per share of Class A common shares. Sales of a substantial number of Class A common shares in the public market, or the perception that such sales might occur, could adversely affect the market price of the Class A common shares.
Our earnings and cash distributions will affect the market price of Class A common shares.
We believe that the market value of a REIT’s equity securities is based primarily upon market perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales, acquisitions, development or refinancing, and is secondarily based upon the value of the underlying assets. For these reasons, Class A common shares may trade at prices that are higher or lower than the net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes rather than distributing the cash flow to shareholders, these retained funds, while increasing the value of our underlying assets, may negatively impact the market price of Class A common shares. Our failure to meet market expectations with regard to future earnings and cash distributions would likely adversely affect the market price of Class A common shares.
The Series A Preferred Shares have not been rated.
The Series A Preferred Shares have not been rated, and may never be rated, by any nationally recognized statistical rating organization, which may negatively affect their market value and your ability to sell such shares. It is possible, however, that one or more rating agencies might independently determine to assign a rating to the Series A Preferred Shares or that we may elect to obtain a rating of the Series A Preferred Shares in the future. Furthermore, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to the Series A Preferred Shares in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the Series A Preferred Shares. Ratings only reflect the views of the issuing rating agency or agencies, and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. Any such downward revision or withdrawal of a rating could have an adverse effect on the market price of the Series A Preferred Shares. Further, a rating is not a recommendation to purchase, sell or hold any particular security, including the Series A Preferred Shares. In addition, ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of the Series A Preferred Shares may not reflect all risks related to us and our business, or the structure or market value of the Series A Preferred Shares.
- 30 -
An active trading market may not develop for the Series A Preferred Shares or, even if it does develop, may not continue, which may negatively affect the market value of, and the ability of holders of our Series A Preferred Shares to transfer or sell, their shares.
Since the Series A Preferred Shares have no stated maturity date, investors seeking liquidity will be limited to selling their shares in the secondary market. The Series A Preferred Shares are listed on the NYSE under the symbol “SRG PRA,” but there can be no assurance that an active trading market on the NYSE for the Series A Preferred Shares will develop or continue, in which case the market price of the Series A Preferred Shares could be materially and adversely affected and the ability to transfer or sell Series A Preferred Shares would be limited. The market price of the shares will depend on many factors, including:
The Series A Preferred Shares are subordinate in right of payment to our existing and future debt, and the interests of the holders of Series A Preferred Shares could be diluted by the issuance of additional preferred shares, including additional Series A Preferred Shares, and by other transactions.
The Series A Preferred Shares rank junior to all of our existing and future debt and to other non-equity claims on us and our assets available to satisfy claims against us, including claims in bankruptcy, liquidation or similar proceedings. Our future debt may include restrictions on our ability to pay dividends to preferred shareholders. As of December 31, 2021, our total indebtedness was $1.44 billion. In addition, we may incur additional indebtedness in the future. Our Declaration of Trust currently authorizes the issuance of up to 10,000,000 shares of preferred shares in one or more classes or series. Our board of trustees has the power to reclassify unissued common shares and preferred shares and to amend our Declaration of Trust, without any action by our shareholders, to increase the aggregate number of shares of beneficial interest of any class or series, including preferred shares, that we are authorized to issue. The issuance of additional preferred shares on parity with or senior to the Series A Preferred Shares with respect to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up would dilute the interests of the holders of the Series A Preferred Shares, and any issuance of preferred shares senior to the Series A Preferred Shares or of additional indebtedness could adversely affect our ability to pay dividends on, redeem or pay the liquidation preference on the Series A Preferred Shares. Other than the limited conversion right afforded to holders of Series A Preferred Shares that may occur in connection with a Change of Control, none of the provisions relating to the Series A Preferred Shares contain any provisions relating to or limiting our indebtedness or affording the holders of the Series A Preferred Shares protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or business, that might adversely affect the holders of the Series A Preferred Shares, so long as the rights of holders of the Series A Preferred Shares are not materially and adversely affected.
Dividends on our preferred shares, including the Series A Preferred Shares, are discretionary. We cannot guarantee that we will be able to pay dividends in the future or what the actual dividends will be for any future period.
Future dividends on our preferred shares, including the Series A Preferred Shares, will be authorized by our Board of Trustees and declared by us at the discretion of our board of trustees and will depend on, among other things, our results of operations, cash flow from operations, financial condition and capital requirements, any debt service requirements and any other factors our Board of Trustees deems relevant. Accordingly, we cannot guarantee that we will be able to make cash dividends on our preferred shares or what the actual dividends will be for any future period. However, until we declare payment and pay or set apart the accrued dividends on the Series A Preferred Shares, our ability to pay dividends and make other distributions on our common shares and non-voting shares (including redemptions) will be limited by the terms of the Series A Preferred Shares.
- 31 -
Holders of Series A Preferred Shares will have limited voting rights.
Holders of the Series A Preferred Shares have limited voting rights. Our Class A common shares and our non-economic shares are currently the only shares of beneficial interest of our company with full voting rights. Voting rights for holders of Series A Preferred Shares exist primarily with respect to the right to elect two additional trustees to our Board of Trustees in the event that six quarterly dividends (whether or not consecutive) payable on the Series A Preferred Shares are in arrears, and with respect to voting on amendments to our Declaration of Trust or articles supplementary relating to the Series A Preferred Shares that would materially and adversely affect the rights of holders of the Series A Preferred Shares or create additional classes or series of our shares that are senior to the Series A Preferred Shares with respect to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up of our affairs. Other than in limited circumstances, holders of Series A Preferred Shares will not have any voting rights.
ITEM 1B. UNRESOLVED STAFF COMMENTS
There are no unresolved comments from the staff of the SEC as of the date of this Annual Report.
- 32 -
ITEM 2. PROPERTIES
As of December 31, 2021, the Company’s portfolio consisted of interests in 162 properties comprised of approximately 19.2 million square feet of GLA or build-to-suit leased area, approximately 3.9 million of which consists of Unconsolidated Properties, approximately 600 acres held for or under development and approximately 9.4 million square feet or approximately 800 acres to be disposed of. The following tables set forth certain information regarding our Consolidated Properties and Unconsolidated Properties based on signed leases as of December 31, 2021, including signed but not yet open leases (“SNO” or “SNO Leases”):
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|
|
|
|
GLA (1) |
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||||||||||||
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|
|
City |
|
State |
|
Planned |
|
Total |
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Leased |
|
|
Not |
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Land Acres |
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Significant Tenants (1) |
|
Leased (1) |
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||||||
|
1 |
|
|
Phoenix |
|
AZ |
|
Multi-tenant Retail |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
n/a |
|
|
0.0 |
% |
|
2 |
|
|
El Cajon |
|
CA |
|
Multi-tenant Retail |
|
|
244,900 |
|
|
|
184,400 |
|
|
|
60,500 |
|
|
|
20 |
|
|
Ashley Furniture, Bob’s Discount Furniture, Burlington Stores, Extra Space Storage |
|
|
75.3 |
% |
|
3 |
|
|
Riverside - Retail |
|
CA |
|
Multi-tenant Retail |
|
|
33,200 |
|
|
|
33,200 |
|
|
|
— |
|
|
|
5 |
|
|
Bank of America, Aldi |
|
|
100.0 |
% |
|
4 |
|
|
Roseville |
|
CA |
|
Multi-tenant Retail |
|
|
125,800 |
|
|
|
107,800 |
|
|
|
17,900 |
|
|
|
7 |
|
|
AAA, Cinemark, Round One Entertainment |
|
|
85.7 |
% |
|
5 |
|
|
Temecula |
|
CA |
|
Multi-tenant Retail |
|
|
120,100 |
|
|
|
112,800 |
|
|
|
7,300 |
|
|
|
10 |
|
|
Round One Entertainment, Dick’s Sporting Goods |
|
|
93.9 |
% |
|
6 |
|
|
Thousand Oaks |
|
CA |
|
Multi-tenant Retail |
|
|
161,400 |
|
|
|
113,700 |
|
|
|
47,700 |
|
|
|
11 |
|
|
Dave & Busters, DSW, Nordstrom Rack |
|
|
70.4 |
% |
|
7 |
|
|
West Covina - Retail |
|
CA |
|
Multi-tenant Retail |
|
|
11,000 |
|
|
|
11,000 |
|
|
|
— |
|
|
|
7 |
|
|
n/a |
|
|
100.0 |
% |
|
8 |
|
|
Rehoboth Beach |
|
DE |
|
Multi-tenant Retail |
|
|
102,100 |
|
|
|
75,900 |
|
|
|
26,200 |
|
|
|
13 |
|
|
andThat!, PetSmart, Aldi |
|
|
74.3 |
% |
|
9 |
|
|
Hialeah (2) |
|
FL |
|
Multi-tenant Retail |
|
|
106,300 |
|
|
|
106,300 |
|
|
|
— |
|
|
|
9 |
|
|
Aldi, Bed Bath & Beyond, Ross Dress for Less, dd’s Discounts |
|
|
100.0 |
% |
|
10 |
|
|
North Miami |
|
FL |
|
Multi-tenant Retail |
|
|
129,400 |
|
|
|
129,400 |
|
|
|
— |
|
|
|
11 |
|
|
Aldi, Burlington Stores, Ross Dress for Less, Michaels Stores |
|
|
100.0 |
% |
|
11 |
|
|
Orlando |
|
FL |
|
Multi-tenant Retail |
|
|
118,400 |
|
|
|
96,800 |
|
|
|
21,600 |
|
|
|
18 |
|
|
Floor & Décor |
|
|
81.7 |
% |
|
12 |
|
|
St. Petersburg |
|
FL |
|
Multi-tenant Retail |
|
|
141,600 |
|
|
|
141,600 |
|
|
|
— |
|
|
|
15 |
|
|
Dick’s Sporting Goods, Five Below, PetSmart |
|
|
100.0 |
% |
|
13 |
|
|
Lombard |
|
IL |
|
Multi-tenant Retail |
|
|
139,300 |
|
|
|
139,300 |
|
|
|
— |
|
|
|
8 |
|
|
The Dump |
|
|
100.0 |
% |
|
14 |
|
|
North Riverside |
|
IL |
|
Multi-tenant Retail |
|
|
216,400 |
|
|
|
183,800 |
|
|
|
32,600 |
|
|
|
13 |
|
|
Round One Entertainment, Aldi, Blink Fitness, Amita Health |
|
|
84.9 |
% |
|
15 |
|
|
Springfield |
|
IL |
|
Multi-tenant Retail |
|
|
119,500 |
|
|
|
110,000 |
|
|
|
9,500 |
|
|
|
5 |
|
|
Binny’s Beverage Depot, Burlington Stores, Marshalls |
|
|
92.0 |
% |
|
16 |
|
|
Ft. Wayne |
|
IN |
|
Multi-tenant Retail |
|
|
84,400 |
|
|
|
76,700 |
|
|
|
7,700 |
|
|
|
19 |
|
|
Five Below, HomeGoods |
|
|
90.9 |
% |
|
17 |
|
|
Merrillville |
|
IN |
|
Multi-tenant Retail |
|
|
170,900 |
|
|
|
163,000 |
|
|
|
7,900 |
|
|
|
9 |
|
|
At Home, Dollar Tree |
|
|
95.4 |
% |
|
18 |
|
|
Braintree |
|
MA |
|
Multi-tenant Retail |
|
|
89,800 |
|
|
|
85,100 |
|
|
|
4,600 |
|
|
|
34 |
|
|
Nordstrom Rack, Ulta Beauty |
|
|
94.8 |
% |
|
19 |
|
|
Greensboro |
|
NC |
|
Multi-tenant Retail |
|
|
178,500 |
|
|
|
168,200 |
|
|
|
10,300 |
|
|
|
16 |
|
|
Floor & Décor, Gabriel Brothers |
|
|
94.3 |
% |
|
20 |
|
|
Kearney |
|
NE |
|
Multi-tenant Retail |
|
|
64,900 |
|
|
|
64,900 |
|
|
|
— |
|
|
|
8 |
|
|
Ross Dress for Less, Five Below, Marshall’s |
|
|
100.0 |
% |
|
21 |
|
|
Manchester |
|
NH |
|
Multi-tenant Retail |
|
|
106,600 |
|
|
|
80,400 |
|
|
|
26,200 |
|
|
|
11 |
|
|
Dick’s Sporting Goods, Dave & Buster’s |
|
|
75.4 |
% |
|
22 |
|
|
Watchung |
|
NJ |
|
Multi-tenant Retail |
|
|
117,100 |
|
|
|
117,100 |
|
|
|
— |
|
|
|
12 |
|
|
Cinemark, HomeGoods, Sierra Trading Post, Ulta Beauty, Chick-fil-A, City MD |
|
|
100.0 |
% |
|
23 |
|
|
East Northport |
|
NY |
|
Multi-tenant Retail |
|
|
179,700 |
|
|
|
93,300 |
|
|
|
86,400 |
|
|
|
18 |
|
|
24 Hour Fitness, AMC |
|
|
51.9 |
% |
|
24 |
|
|
Victor |
|
NY |
|
Multi-tenant Retail |
|
|
138,600 |
|
|
|
119,600 |
|
|
|
19,000 |
|
|
|
14 |
|
|
Dick’s House of Sport |
|
|
86.3 |
% |
|
25 |
|
|
Canton |
|
OH |
|
Multi-tenant Retail |
|
|
190,600 |
|
|
|
128,300 |
|
|
|
62,300 |
|
|
|
19 |
|
|
Dick’s Sporting Goods, Dave & Busters, Cheddar’s |
|
|
67.3 |
% |
|
26 |
|
|
King of Prussia (2) |
|
PA |
|
Multi-tenant Retail |
|
|
210,900 |
|
|
|
208,700 |
|
|
|
2,200 |
|
|
|
14 |
|
|
Dick’s Sporting Goods, Primark, Outback Steakhouse, Yardhouse |
|
|
99.0 |
% |
|
27 |
|
|
Anderson |
|
SC |
|
Multi-tenant Retail |
|
|
117,100 |
|
|
|
117,100 |
|
|
|
— |
|
|
|
12 |
|
|
Burlington Stores, Sportsman’s Warehouse |
|
|
100.0 |
% |
|
28 |
|
|
Charleston |
|
SC |
|
Multi-tenant Retail |
|
|
106,400 |
|
|
|
52,900 |
|
|
|
53,500 |
|
|
|
15 |
|
|
Burlington Stores |
|
|
49.7 |
% |
|
29 |
|
|
Memphis |
|
TN |
|
Multi-tenant Retail |
|
|
112,700 |
|
|
|
101,200 |
|
|
|
11,500 |
|
|
|
11 |
|
|
LA Fitness, Hopdoddy, Nordstrom Rack, Ulta Beauty |
|
|
89.8 |
% |
|
30 |
|
|
Austin |
|
TX |
|
Multi-tenant Retail |
|
|
52,700 |
|
|
|
45,000 |
|
|
|
7,700 |
|
|
|
13 |
|
|
AMC |
|
|
85.4 |
% |
|
31 |
|
|
Houston |
|
TX |
|
Multi-tenant Retail |
|
|
134,000 |
|
|
|
134,000 |
|
|
|
— |
|
|
|
11 |
|
|
At Home |
|
|
100.0 |
% |
|
32 |
|
|
San Antonio |
|
TX |
|
Multi-tenant Retail |
|
|
164,200 |
|
|
|
121,100 |
|
|
|
43,100 |
|
|
|
17 |
|
|
Tru Fit, Bed Bath & Beyond |
|
|
73.8 |
% |
|
33 |
|
|
Layton |
|
UT |
|
Multi-tenant Retail |
|
|
86,500 |
|
|
|
67,500 |
|
|
|
19,000 |
|
|
|
7 |
|
|
Vasa Fitness |
|
|
78.0 |
% |
|
34 |
|
|
Fairfax |
|
VA |
|
Multi-tenant Retail |
|
|
211,000 |
|
|
|
154,400 |
|
|
|
56,600 |
|
|
|
15 |
|
|
Dave & Busters, Dick’s Sporting Goods |
|
|
73.2 |
% |
|
35 |
|
|
Virginia Beach |
|
VA |
|
Multi-tenant Retail |
|
|
166,200 |
|
|
|
132,000 |
|
|
|
34,200 |
|
|
|
15 |
|
|
DSW, The Fresh Market, Nordstrom Rack, Smokey Bones |
|
|
79.4 |
% |
|
36 |
|
|
Warrenton |
|
VA |
|
Multi-tenant Retail |
|
|
75,500 |
|
|
|
62,200 |
|
|
|
13,300 |
|
|
|
9 |
|
|
HomeGoods |
|
|
82.4 |
% |
|
37 |
|
|
Greendale |
|
WI |
|
Multi-tenant Retail |
|
|
187,400 |
|
|
|
133,700 |
|
|
|
53,800 |
|
|
|
19 |
|
|
Dick’s Sporting Goods, Round One Entertainment |
|
|
71.3 |
% |
|
38 |
|
|
Madison |
|
WI |
|
Multi-tenant Retail |
|
|
110,600 |
|
|
|
110,600 |
|
|
|
— |
|
|
|
17 |
|
|
Dave & Busters, Total Wine & More, Hobby Lobby |
|
|
100.0 |
% |
|
39 |
|
|
Aventura |
|
FL |
|
Premier Mixed Use |
|
|
215,400 |
|
|
|
116,100 |
|
|
|
99,300 |
|
|
|
13 |
|
|
Pinstripes, Industrious |
|
|
53.9 |
% |
|
40 |
|
|
Boca Raton |
|
FL |
|
Premier Mixed Use |
|
|
4,200 |
|
|
|
4,200 |
|
|
|
— |
|
|
|
19 |
|
|
Washington Mutual |
|
|
100.0 |
% |
- 33 -
|
|
|
City |
|
State |
|
Planned |
|
Total |
|
|
Leased |
|
|
Not |
|
|
Land Acres |
|
|
Significant Tenants (1) |
|
Leased (1) |
|
||||||
|
41 |
|
|
Hicksville |
|
NY |
|
Premier Mixed Use |
|
|
57,900 |
|
|
|
57,900 |
|
|
|
— |
|
|
|
30 |
|
|
Chase Bank, Chipotle |
|
|
100.0 |
% |
|
42 |
|
|
Dallas |
|
TX |
|
Premier Mixed Use |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
|
n/a |
|
|
0.0 |
% |
|
43 |
|
|
Redmond |
|
WA |
|
Premier Mixed Use |
|
|
7,500 |
|
|
|
7,500 |
|
|
|
— |
|
|
|
15 |
|
|
n/a |
|
|
100.0 |
% |
|
44 |
|
|
Glendale |
|
AZ |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
n/a |
|
|
0.0 |
% |
|
45 |
|
|
Mesa |
|
AZ |
|
Residential |
|
|
16,800 |
|
|
|
16,800 |
|
|
|
— |
|
|
|
5 |
|
|
Carvana |
|
|
100.0 |
% |
|
46 |
|
|
Phoenix |
|
AZ |
|
Residential |
|
|
151,200 |
|
|
|
151,200 |
|
|
|
— |
|
|
|
11 |
|
|
At Home |
|
|
100.0 |
% |
|
47 |
|
|
Citrus Heights |
|
CA |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
n/a |
|
|
0.0 |
% |
|
48 |
|
|
Florin |
|
CA |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
n/a |
|
|
0.0 |
% |
|
49 |
|
|
Palm Desert |
|
CA |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
n/a |
|
|
0.0 |
% |
|
50 |
|
|
Riverside |
|
CA |
|
Residential |
|
|
132,600 |
|
|
|
38,100 |
|
|
|
94,500 |
|
|
|
13 |
|
|
Jack in the Box, Stater Brothers |
|
|
28.8 |
% |
|
51 |
|
|
San Bernardino |
|
CA |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
n/a |
|
|
0.0 |
% |
|
52 |
|
|
Waterford |
|
CT |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
53 |
|
|
Ft. Myers |
|
FL |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
54 |
|
|
Hialeah |
|
FL |
|
Residential |
|
|
145,200 |
|
|
|
7,400 |
|
|
|
137,800 |
|
|
|
15 |
|
|
Panera Bread |
|
|
5.1 |
% |
|
55 |
|
|
Lakeland |
|
FL |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
56 |
|
|
Miami |
|
FL |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
57 |
|
|
Plantation |
|
FL |
|
Residential |
|
|
184,400 |
|
|
|
76,700 |
|
|
|
107,700 |
|
|
|
18 |
|
|
GameTime, Powerhouse Gym |
|
|
41.6 |
% |
|
58 |
|
|
Joliet |
|
IL |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
n/a |
|
|
0.0 |
% |
|
59 |
|
|
Bowie |
|
MD |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
60 |
|
|
Edgewater |
|
MD |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
n/a |
|
|
0.0 |
% |
|
61 |
|
|
Burnsville |
|
MN |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
62 |
|
|
Maplewood |
|
MN |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
n/a |
|
|
0.0 |
% |
|
63 |
|
|
St. Paul |
|
MN |
|
Residential |
|
|
100 |
|
|
|
100 |
|
|
|
— |
|
|
|
17 |
|
|
n/a |
|
|
100.0 |
% |
|
64 |
|
|
Nashua |
|
NH |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
65 |
|
|
Mentor |
|
OH |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
n/a |
|
|
0.0 |
% |
|
66 |
|
|
Middleburg Heights |
|
OH |
|
Residential |
|
|
35,800 |
|
|
|
35,800 |
|
|
|
— |
|
|
|
19 |
|
|
Carvana |
|
|
100.0 |
% |
|
67 |
|
|
Happy Valley |
|
OR |
|
Residential |
|
|
144,300 |
|
|
|
45,000 |
|
|
|
99,300 |
|
|
|
12 |
|
|
Dick’s Sporting Goods |
|
|
31.2 |
% |
|
68 |
|
|
Cordova |
|
TN |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
69 |
|
|
Friendswood |
|
TX |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
n/a |
|
|
0.0 |
% |
|
70 |
|
|
Houston |
|
TX |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
71 |
|
|
Ingram |
|
TX |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
72 |
|
|
Irving |
|
TX |
|
Residential |
|
|
12,500 |
|
|
|
12,500 |
|
|
|
— |
|
|
|
18 |
|
|
Carvana, CareNow, Chick-fil-A |
|
|
100.0 |
% |
|
73 |
|
|
Riverside - Resi |
|
CA |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
n/a |
|
|
0.0 |
% |
|
74 |
|
|
West Covina - Resi |
|
CA |
|
Residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
n/a |
|
|
0.0 |
% |
|
75 |
|
|
Anchorage |
|
AK |
|
Non-core |
|
|
158,500 |
|
|
|
134,000 |
|
|
|
24,500 |
|
|
|
18 |
|
|
Guitar Center, Nordstrom Rack, Planet Fitness, Safeway |
|
|
84.5 |
% |
|
76 |
|
|
North Little Rock |
|
AR |
|
Non-core |
|
|
177,100 |
|
|
|
13,000 |
|
|
|
164,100 |
|
|
|
15 |
|
|
Aspen Dental, Longhorn Steakhouse |
|
|
7.4 |
% |
|
77 |
|
|
Sierra Vista |
|
AZ |
|
Non-core |
|
|
94,700 |
|
|
|
— |
|
|
|
94,700 |
|
|
|
7 |
|
|
n/a |
|
|
0.0 |
% |
|
78 |
|
|
Tucson |
|
AZ |
|
Non-core |
|
|
218,800 |
|
|
|
50,600 |
|
|
|
168,300 |
|
|
|
20 |
|
|
Round One Entertainment |
|
|
23.1 |
% |
|
79 |
|
|
Yuma |
|
AZ |
|
Non-core |
|
|
90,400 |
|
|
|
— |
|
|
|
90,400 |
|
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
80 |
|
|
Big Bear Lake |
|
CA |
|
Non-core |
|
|
80,000 |
|
|
|
4,000 |
|
|
|
76,000 |
|
|
|
7 |
|
|
Subway, Wells Fargo Bank |
|
|
5.0 |
% |
- 34 -
|
|
|
City |
|
State |
|
Planned |
|
Total |
|
|
Leased |
|
|
Not |
|
|
Land Acres |
|
|
Significant Tenants (1) |
|
Leased (1) |
|
||||||
|
81 |
|
|
El Centro |
|
CA |
|
Non-core |
|
|
139,700 |
|
|
|
9,700 |
|
|
|
130,000 |
|
|
|
13 |
|
|
n/a |
|
|
6.9 |
% |
|
82 |
|
|
Fairfield |
|
CA |
|
Non-core |
|
|
150,000 |
|
|
|
32,000 |
|
|
|
118,000 |
|
|
|
9 |
|
|
Dave & Busters |
|
|
21.3 |
% |
|
83 |
|
|
Fresno |
|
CA |
|
Non-core |
|
|
216,600 |
|
|
|
43,400 |
|
|
|
173,200 |
|
|
|
13 |
|
|
Ross Dress for Less, dd’s Discounts |
|
|
20.0 |
% |
|
84 |
|
|
Merced |
|
CA |
|
Non-core |
|
|
98,200 |
|
|
|
5,600 |
|
|
|
92,600 |
|
|
|
9 |
|
|
Burlington Stores, dd’s Discounts, Five Below |
|
|
5.7 |
% |
|
85 |
|
|
Ramona |
|
CA |
|
Non-core |
|
|
107,500 |
|
|
|
14,700 |
|
|
|
92,800 |
|
|
|
11 |
|
|
Dollar Tree |
|
|
13.7 |
% |
|
86 |
|
|
Salinas |
|
CA |
|
Non-core |
|
|
133,000 |
|
|
|
32,200 |
|
|
|
100,700 |
|
|
|
10 |
|
|
Burlington |
|
|
24.2 |
% |
|
87 |
|
|
San Jose |
|
CA |
|
Non-core |
|
|
262,500 |
|
|
|
— |
|
|
|
262,500 |
|
|
|
22 |
|
|
n/a |
|
|
0.0 |
% |
|
88 |
|
|
Santa Maria |
|
CA |
|
Non-core |
|
|
108,600 |
|
|
|
— |
|
|
|
108,600 |
|
|
|
7 |
|
|
n/a |
|
|
0.0 |
% |
|
89 |
|
|
Ventura |
|
CA |
|
Non-core |
|
|
178,600 |
|
|
|
— |
|
|
|
178,600 |
|
|
|
2 |
|
|
n/a |
|
|
0.0 |
% |
|
90 |
|
|
Westminster |
|
CA |
|
Non-core |
|
|
197,900 |
|
|
|
— |
|
|
|
197,900 |
|
|
|
14 |
|
|
n/a |
|
|
0.0 |
% |
|
91 |
|
|
Lakewood |
|
CO |
|
Non-core |
|
|
153,000 |
|
|
|
— |
|
|
|
153,000 |
|
|
|
8 |
|
|
n/a |
|
|
0.0 |
% |
|
92 |
|
|
Thornton |
|
CO |
|
Non-core |
|
|
203,100 |
|
|
|
61,700 |
|
|
|
141,300 |
|
|
|
23 |
|
|
Vasa Fitness |
|
|
30.4 |
% |
|
93 |
|
|
Clearwater |
|
FL |
|
Non-core |
|
|
211,200 |
|
|
|
75,500 |
|
|
|
135,700 |
|
|
|
14 |
|
|
Whole Foods, Nordstrom Rack |
|
|
35.8 |
% |
|
94 |
|
|
Doral |
|
FL |
|
Non-core |
|
|
212,900 |
|
|
|
— |
|
|
|
212,900 |
|
|
|
13 |
|
|
n/a |
|
|
0.0 |
% |
|
95 |
|
|
Ocala |
|
FL |
|
Non-core |
|
|
146,200 |
|
|
|
— |
|
|
|
146,200 |
|
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
96 |
|
|
Panama City |
|
FL |
|
Non-core |
|
|
139,300 |
|
|
|
— |
|
|
|
139,300 |
|
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
97 |
|
|
Pensacola |
|
FL |
|
Non-core |
|
|
7,200 |
|
|
|
7,200 |
|
|
|
— |
|
|
|
14 |
|
|
Bubba’s 33 |
|
|
100.0 |
% |
|
98 |
|
|
Sarasota |
|
FL |
|
Non-core |
|
|
212,400 |
|
|
|
— |
|
|
|
212,400 |
|
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
99 |
|
|
Cedar Rapids |
|
IA |
|
Non-core |
|
|
146,000 |
|
|
|
— |
|
|
|
146,000 |
|
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
100 |
|
|
Charles City |
|
IA |
|
Non-core |
|
|
96,600 |
|
|
|
— |
|
|
|
96,600 |
|
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
101 |
|
|
Webster City |
|
IA |
|
Non-core |
|
|
40,800 |
|
|
|
— |
|
|
|
40,800 |
|
|
|
4 |
|
|
n/a |
|
|
0.0 |
% |
|
102 |
|
|
Chicago |
|
IL |
|
Non-core |
|
|
120,700 |
|
|
|
17,200 |
|
|
|
103,600 |
|
|
|
9 |
|
|
n/a |
|
|
14.2 |
% |
|
103 |
|
|
Orland Park |
|
IL |
|
Non-core |
|
|
140,000 |
|
|
|
— |
|
|
|
140,000 |
|
|
|
16 |
|
|
n/a |
|
|
0.0 |
% |
|
104 |
|
|
Steger |
|
IL |
|
Non-core |
|
|
87,400 |
|
|
|
— |
|
|
|
87,400 |
|
|
|
3 |
|
|
n/a |
|
|
0.0 |
% |
|
105 |
|
|
Elkhart |
|
IN |
|
Non-core |
|
|
86,600 |
|
|
|
86,600 |
|
|
|
— |
|
|
|
8 |
|
|
n/a |
|
|
100.0 |
% |
|
106 |
|
|
Hopkinsville |
|
KY |
|
Non-core |
|
|
85,100 |
|
|
|
64,600 |
|
|
|
20,500 |
|
|
|
13 |
|
|
Bargain Hunt, Farmer’s Furniture, Harbor Freight |
|
|
76.0 |
% |
|
107 |
|
|
Paducah |
|
KY |
|
Non-core |
|
|
97,300 |
|
|
|
64,400 |
|
|
|
32,900 |
|
|
|
9 |
|
|
Burlington Stores, Ross Dress for Less |
|
|
66.2 |
% |
|
108 |
|
|
Lafayette |
|
LA |
|
Non-core |
|
|
194,900 |
|
|
|
— |
|
|
|
194,900 |
|
|
|
16 |
|
|
n/a |
|
|
0.0 |
% |
|
109 |
|
|
Saugus |
|
MA |
|
Non-core |
|
|
210,700 |
|
|
|
— |
|
|
|
210,700 |
|
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
110 |
|
|
Madawaska |
|
ME |
|
Non-core |
|
|
49,700 |
|
|
|
— |
|
|
|
49,700 |
|
|
|
2 |
|
|
n/a |
|
|
0.0 |
% |
|
111 |
|
|
Lincoln Park |
|
MI |
|
Non-core |
|
|
297,900 |
|
|
|
— |
|
|
|
297,900 |
|
|
|
16 |
|
|
n/a |
|
|
0.0 |
% |
|
112 |
|
|
Manistee |
|
MI |
|
Non-core |
|
|
94,700 |
|
|
|
— |
|
|
|
94,700 |
|
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
113 |
|
|
Roseville |
|
MI |
|
Non-core |
|
|
364,600 |
|
|
|
154,600 |
|
|
|
210,000 |
|
|
|
20 |
|
|
At Home, Hobby Lobby |
|
|
42.4 |
% |
|
114 |
|
|
Sault Ste. Marie |
|
MI |
|
Non-core |
|
|
92,700 |
|
|
|
— |
|
|
|
92,700 |
|
|
|
5 |
|
|
n/a |
|
|
0.0 |
% |
|
115 |
|
|
Ypsilanti |
|
MI |
|
Non-core |
|
|
91,700 |
|
|
|
91,700 |
|
|
|
— |
|
|
|
11 |
|
|
At Home |
|
|
100.0 |
% |
|
116 |
|
|
Florissant |
|
MO |
|
Non-core |
|
|
119,000 |
|
|
|
4,300 |
|
|
|
114,700 |
|
|
|
11 |
|
|
n/a |
|
|
3.6 |
% |
|
117 |
|
|
Springfield |
|
MO |
|
Non-core |
|
|
112,900 |
|
|
|
112,900 |
|
|
|
— |
|
|
|
8 |
|
|
At Home |
|
|
100.0 |
% |
|
118 |
|
|
Columbus |
|
MS |
|
Non-core |
|
|
117,100 |
|
|
|
— |
|
|
|
117,100 |
|
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
119 |
|
|
Portsmouth |
|
NH |
|
Non-core |
|
|
127,100 |
|
|
|
— |
|
|
|
127,100 |
|
|
|
13 |
|
|
n/a |
|
|
0.0 |
% |
|
120 |
|
|
Salem |
|
NH |
|
Non-core |
|
|
251,600 |
|
|
|
123,800 |
|
|
|
127,800 |
|
|
|
12 |
|
|
Cinemark, Dick’s Sporting Goods |
|
|
49.2 |
% |
- 35 -
|
|
|
City |
|
State |
|
Planned |
|
Total |
|
|
Leased |
|
|
Not |
|
|
Land Acres |
|
|
Significant Tenants (1) |
|
Leased (1) |
|
||||||
|
121 |
|
|
Las Vegas |
|
NV |
|
Non-core |
|
|
130,300 |
|
|
|
42,500 |
|
|
|
87,800 |
|
|
|
11 |
|
|
Round One Entertainment |
|
|
32.6 |
% |
|
122 |
|
|
Reno |
|
NV |
|
Non-core |
|
|
162,700 |
|
|
|
41,300 |
|
|
|
121,400 |
|
|
|
3 |
|
|
Round One Entertainment |
|
|
25.4 |
% |
|
123 |
|
|
Albany |
|
NY |
|
Non-core |
|
|
277,900 |
|
|
|
59,600 |
|
|
|
218,300 |
|
|
|
21 |
|
|
Whole Foods, REI, Ethan Allen |
|
|
21.4 |
% |
|
124 |
|
|
Clay |
|
NY |
|
Non-core |
|
|
146,500 |
|
|
|
— |
|
|
|
146,500 |
|
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
125 |
|
|
Olean |
|
NY |
|
Non-core |
|
|
120,700 |
|
|
|
55,400 |
|
|
|
65,300 |
|
|
|
13 |
|
|
Marshall’s, Ollie’s Bargain Hunt |
|
|
45.9 |
% |
|
126 |
|
|
Rochester |
|
NY |
|
Non-core |
|
|
128,500 |
|
|
|
— |
|
|
|
128,500 |
|
|
|
14 |
|
|
n/a |
|
|
0.0 |
% |
|
127 |
|
|
Sidney |
|
NY |
|
Non-core |
|
|
94,400 |
|
|
|
— |
|
|
|
94,400 |
|
|
|
19 |
|
|
n/a |
|
|
0.0 |
% |
|
128 |
|
|
Yorktown Heights |
|
NY |
|
Non-core |
|
|
160,000 |
|
|
|
38,500 |
|
|
|
121,500 |
|
|
|
12 |
|
|
24 Hour Fitness |
|
|
24.1 |
% |
|
129 |
|
|
Dayton |
|
OH |
|
Non-core |
|
|
180,200 |
|
|
|
13,400 |
|
|
|
166,800 |
|
|
|
22 |
|
|
Outback Steakhouse |
|
|
7.4 |
% |
|
130 |
|
|
Toledo |
|
OH |
|
Non-core |
|
|
218,700 |
|
|
|
— |
|
|
|
218,700 |
|
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
131 |
|
|
Oklahoma City |
|
OK |
|
Non-core |
|
|
223,700 |
|
|
|
50,300 |
|
|
|
173,300 |
|
|
|
19 |
|
|
Vasa Fitness |
|
|
22.5 |
% |
|
132 |
|
|
Walnutport |
|
PA |
|
Non-core |
|
|
121,200 |
|
|
|
— |
|
|
|
121,200 |
|
|
|
17 |
|
|
n/a |
|
|
0.0 |
% |
|
133 |
|
|
Caguas |
|
PR |
|
Non-core |
|
|
138,700 |
|
|
|
— |
|
|
|
138,700 |
|
|
|
8 |
|
|
n/a |
|
|
0.0 |
% |
|
134 |
|
|
Carolina |
|
PR |
|
Non-core |
|
|
198,000 |
|
|
|
— |
|
|
|
198,000 |
|
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
135 |
|
|
Warwick |
|
RI |
|
Non-core |
|
|
131,500 |
|
|
|
123,100 |
|
|
|
8,400 |
|
|
|
20 |
|
|
At Home, Hook & Reel, Skechers |
|
|
93.6 |
% |
|
136 |
|
|
El Paso |
|
TX |
|
Non-core |
|
|
114,200 |
|
|
|
99,100 |
|
|
|
15,100 |
|
|
|
11 |
|
|
dd’s Discount, Ross Dress for Less, Five Below, Burlington Stores |
|
|
86.8 |
% |
|
137 |
|
|
Chesapeake |
|
VA |
|
Non-core |
|
|
169,700 |
|
|
|
— |
|
|
|
169,700 |
|
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
|
|
Total - Consolidated Properties |
|
|
15,373,000 |
|
|
|
6,379,200 |
|
|
|
8,993,600 |
|
|
|
1,802 |
|
|
|
|
|
41.5 |
% |
|||||
|
|
|
Average - Consolidated Properties |
|
|
112,200 |
|
|
|
46,600 |
|
|
|
65,600 |
|
|
|
13 |
|
|
|
|
|
41.5 |
% |
|||||
- 36 -
Unconsolidated Properties |
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
GLA (1) |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
City |
|
State |
|
Planned |
|
Total |
|
|
Leased |
|
|
Not Leased |
|
|
Joint Venture |
|
Land Acres |
|
|
Significant Tenants (1) |
|
Leased (1) |
|
||||||
|
1 |
|
|
Chandler |
|
AZ |
|
Retail |
|
|
139,500 |
|
|
|
74,000 |
|
|
|
65,500 |
|
|
Macerich JV |
|
|
10 |
|
|
Firestone |
|
|
53.0 |
% |
|
2 |
|
|
Carson |
|
CA |
|
Retail |
|
|
182,200 |
|
|
|
109,700 |
|
|
|
72,500 |
|
|
Carson JV |
|
|
13 |
|
|
Burlington Stores, Chipotle, Ross Dress for Less |
|
|
60.2 |
% |
|
3 |
|
|
Modesto |
|
CA |
|
Retail |
|
|
120,500 |
|
|
|
80,500 |
|
|
|
40,000 |
|
|
Macerich JV |
|
|
12 |
|
|
Dave & Busters, Dick’s Sporting Goods |
|
|
66.8 |
% |
|
4 |
|
|
Santa Rosa |
|
CA |
|
Retail |
|
|
165,400 |
|
|
|
— |
|
|
|
165,400 |
|
|
Simon JV |
|
|
7 |
|
|
n/a |
|
|
0.0 |
% |
|
5 |
|
|
Danbury |
|
CT |
|
Retail |
|
|
178,500 |
|
|
|
70,100 |
|
|
|
108,400 |
|
|
Macerich JV |
|
|
12 |
|
|
Primark |
|
|
39.3 |
% |
|
6 |
|
|
West Hartford |
|
CT |
|
Retail |
|
|
163,700 |
|
|
|
117,400 |
|
|
|
46,300 |
|
|
West Hartford JV |
|
|
15 |
|
|
buybuy Baby, REI, Cost Plus World Market, Shake Shack, Saks OFF 5th |
|
|
71.7 |
% |
|
7 |
|
|
Naples |
|
FL |
|
Retail |
|
|
67,400 |
|
|
|
67,400 |
|
|
|
— |
|
|
GGP II JV |
|
|
12 |
|
|
CMX Cinebistro, Uncle Julio’s |
|
|
100.0 |
% |
|
8 |
|
|
Natick |
|
MA |
|
Retail |
|
|
190,700 |
|
|
|
88,500 |
|
|
|
102,200 |
|
|
GGP I JV |
|
|
2 |
|
|
Dave & Busters, Open World Entertainment |
|
|
46.4 |
% |
|
9 |
|
|
Cockeysville |
|
MD |
|
Retail |
|
|
160,200 |
|
|
|
131,200 |
|
|
|
29,000 |
|
|
Cockeysville JV |
|
|
12 |
|
|
HomeGoods, Michaels Stores, OneLife Fitness, Ashley Furniture |
|
|
81.9 |
% |
|
10 |
|
|
Wayne |
|
NJ |
|
Retail |
|
|
281,000 |
|
|
|
205,400 |
|
|
|
75,600 |
|
|
GGP II JV |
|
|
41 |
|
|
Cinemark, Dave & Busters, Yardhouse, BJ’s Wholesale |
|
|
73.1 |
% |
|
11 |
|
|
Deptford |
|
NJ |
|
Retail |
|
|
191,700 |
|
|
|
149,200 |
|
|
|
42,500 |
|
|
Macerich JV |
|
|
14 |
|
|
Dick’s Sporting Goods, Round One Entertainment, Crunch Fitness |
|
|
77.8 |
% |
|
12 |
|
|
Freehold |
|
NJ |
|
Retail |
|
|
138,800 |
|
|
|
66,600 |
|
|
|
72,200 |
|
|
Macerich JV |
|
|
10 |
|
|
Primark |
|
|
48.0 |
% |
|
13 |
|
|
Nanuet |
|
NY |
|
Retail |
|
|
221,400 |
|
|
|
— |
|
|
|
221,400 |
|
|
Simon JV |
|
|
14 |
|
|
n/a |
|
|
0.0 |
% |
|
14 |
|
|
Tulsa |
|
OK |
|
Retail |
|
|
150,200 |
|
|
|
— |
|
|
|
150,200 |
|
|
Simon JV |
|
|
12 |
|
|
n/a |
|
|
0.0 |
% |
|
15 |
|
|
Austin |
|
TX |
|
Retail |
|
|
164,600 |
|
|
|
— |
|
|
|
164,600 |
|
|
Simon JV |
|
|
16 |
|
|
n/a |
|
|
0.0 |
% |
|
16 |
|
|
Santa Monica |
|
CA |
|
Premier Mixed Use |
|
|
103,000 |
|
|
|
— |
|
|
|
103,000 |
|
|
Mark 302 JV |
|
|
3 |
|
|
n/a |
|
|
0.0 |
% |
|
17 |
|
|
San Diego |
|
CA |
|
Premier Mixed Use |
|
|
226,200 |
|
|
|
60,600 |
|
|
|
165,600 |
|
|
UTC JV |
|
|
13 |
|
|
Equinox, CB2 |
|
|
26.8 |
% |
|
18 |
|
|
Cerritos |
|
CA |
|
Mixed Use |
|
|
277,600 |
|
|
|
— |
|
|
|
277,600 |
|
|
Macerich JV |
|
|
20 |
|
|
n/a |
|
|
0.0 |
% |
|
19 |
|
|
Altamonte Springs |
|
FL |
|
Mixed Use |
|
|
125,700 |
|
|
|
— |
|
|
|
125,700 |
|
|
GGP II JV |
|
|
17 |
|
|
n/a |
|
|
0.0 |
% |
|
20 |
|
|
Portland |
|
OR |
|
Mixed Use |
|
|
220,000 |
|
|
|
— |
|
|
|
220,000 |
|
|
Macerich JV |
|
|
4 |
|
|
n/a |
|
|
0.0 |
% |
|
21 |
|
|
Ann Arbor |
|
TX |
|
Mixed Use |
|
|
170,600 |
|
|
|
— |
|
|
|
170,600 |
|
|
Simon JV |
|
|
15 |
|
|
n/a |
|
|
0.0 |
% |
|
22 |
|
|
Austin |
|
TX |
|
Mixed Use |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
RD Development JV |
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
23 |
|
|
Alexandria |
|
VA |
|
Mixed Use |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foulger Pratt/Howard Hughes |
|
— |
|
|
n/a |
|
|
0.0 |
% |
|
|
24 |
|
|
Lynnwood |
|
WA |
|
Residential |
|
|
49,300 |
|
|
|
49,300 |
|
|
|
— |
|
|
Brookfield |
|
|
12 |
|
|
Dave & Busters, Cheesecake Factory |
|
|
100.0 |
% |
|
25 |
|
|
Frisco |
|
TX |
|
Residential |
|
|
162,900 |
|
|
|
— |
|
|
|
162,900 |
|
|
GGP I JV |
|
|
11 |
|
|
n/a |
|
|
0.0 |
% |
|
|
|
Total - Unconsolidated Properties |
|
3,851,100 |
|
|
|
1,269,900 |
|
|
|
2,581,200 |
|
|
|
|
|
308 |
|
|
|
|
|
33.0 |
% |
||||||
|
|
|
Average - Unconsolidated Properties |
|
154,000 |
|
|
|
50,800 |
|
|
|
103,200 |
|
|
|
|
|
13 |
|
|
|
|
|
33.0 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(1) Based on signed leases as of December 31, 2021, including SNO Leases. |
|
|
|
|||||||||||||||||||||||||||||
(2) Property subject to a lease or ground lease. |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
(3) Planned usage may be subject to entitlements. |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
162 |
|
|
Grand Total - All Properties |
|
|
19,224,100 |
|
|
|
7,649,100 |
|
|
|
11,574,800 |
|
|
|
|
|
|
|
|
|
|
39.8 |
% |
|||||
|
162 |
|
|
Grand Total - All Properties (at share) |
|
|
17,243,900 |
|
|
|
6,981,200 |
|
|
|
10,262,500 |
|
|
|
|
|
|
|
|
|
|
40.5 |
% |
|||||
- 37 -
|
|
|
|
GLA (1) |
|
|
|
|
||||||||||
Planned Usage |
|
Total |
|
Total |
|
|
Leased |
|
|
Not Leased |
|
|
Land Acres |
|
||||
Consolidated Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Multi-tenant Retail |
|
38 |
|
|
4,826 |
|
|
|
4,083 |
|
|
|
743 |
|
|
|
491 |
|
Residential |
|
31 |
|
|
823 |
|
|
|
384 |
|
|
|
439 |
|
|
|
429 |
|
Premier Mixed Use |
|
5 |
|
|
285 |
|
|
|
186 |
|
|
|
99 |
|
|
|
99 |
|
Non-core |
|
63 |
|
|
9,439 |
|
|
|
1,727 |
|
|
|
7,712 |
|
|
|
784 |
|
Unconsolidated Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Multi-tenant Retail |
|
15 |
|
|
2,516 |
|
|
|
1,160 |
|
|
|
1,356 |
|
|
|
202 |
|
Residential |
|
2 |
|
|
212 |
|
|
|
49 |
|
|
|
163 |
|
|
|
23 |
|
Premier Mixed Use |
|
2 |
|
|
329 |
|
|
|
61 |
|
|
|
269 |
|
|
|
16 |
|
Mixed Use |
|
6 |
|
|
794 |
|
|
|
— |
|
|
|
794 |
|
|
|
67 |
|
(1) Based on signed leases as of December 31, 2021; GLA presented at the Company’s proportional share
Multi-Tenant Retail Portfolio
Geographic Diversification
The following table sets forth information regarding the geographic diversification of the multi-tenant retail portfolio based on signed leases as of December 31, 2021, including Unconsolidated Properties presented at the Company’s proportional share and after giving effect to the pending termination:
State |
|
Number of |
|
|
Annual |
|
|
% of Total |
|
|
Rent |
|
||||
California |
|
|
6 |
|
|
$ |
11,167 |
|
|
|
15.6 |
% |
|
$ |
19.84 |
|
Florida |
|
|
4 |
|
|
|
9,341 |
|
|
|
13.1 |
% |
|
|
19.71 |
|
Virginia |
|
|
3 |
|
|
|
6,969 |
|
|
|
9.8 |
% |
|
|
19.99 |
|
Pennsylvania |
|
|
1 |
|
|
|
5,878 |
|
|
|
8.2 |
% |
|
|
28.16 |
|
Illinois |
|
|
3 |
|
|
|
5,134 |
|
|
|
7.2 |
% |
|
|
11.85 |
|
New York |
|
|
2 |
|
|
|
4,404 |
|
|
|
6.2 |
% |
|
|
20.68 |
|
Wisconsin |
|
|
2 |
|
|
|
3,882 |
|
|
|
5.4 |
% |
|
|
15.89 |
|
Texas |
|
|
3 |
|
|
|
3,520 |
|
|
|
4.9 |
% |
|
|
11.73 |
|
New Jersey |
|
|
1 |
|
|
|
3,515 |
|
|
|
4.9 |
% |
|
|
30.02 |
|
Tennessee |
|
|
1 |
|
|
|
2,802 |
|
|
|
3.9 |
% |
|
|
27.69 |
|
Total Top 10 |
|
|
26 |
|
|
$ |
56,612 |
|
|
|
79.3 |
% |
|
$ |
18.85 |
|
Other (1) |
|
|
12 |
|
|
|
14,813 |
|
|
|
20.7 |
% |
|
|
12.03 |
|
Total |
|
|
38 |
|
|
$ |
71,425 |
|
|
|
100.0 |
% |
|
$ |
16.87 |
|
- 38 -
Tenant Overview
The following table provides a summary of annual base rent for the multi-tenant retail portfolio based on signed leases as of December 31, 2021, including Unconsolidated Properties presented at the Company’s proportional share and after giving effect to the pending termination:
(in thousands except number of leases and PSF data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Number of |
|
|
Leased |
|
|
% of Total |
|
|
Annual |
|
|
% of Total |
|
|
Annual |
|
||||||
Tenant |
|
Leases |
|
|
GLA |
|
|
Leased GLA |
|
|
Rent |
|
|
Annual Rent |
|
|
Rent PSF |
|
||||||
In-place leases |
|
|
138 |
|
|
|
3,668 |
|
|
|
86.6 |
% |
|
$ |
61,979 |
|
|
|
86.8 |
% |
|
$ |
16.90 |
|
SNO leases |
|
|
25 |
|
|
|
566 |
|
|
|
13.4 |
% |
|
|
9,446 |
|
|
|
13.2 |
% |
|
|
16.68 |
|
Total |
|
163 |
|
|
|
4,234 |
|
|
|
100.0 |
% |
|
$ |
71,425 |
|
|
|
100.0 |
% |
|
$ |
16.87 |
|
|
Top Tenants
The following table lists the top tenants in our multi-tenant retail portfolio based on signed leases as of December 31, 2021, including Unconsolidated Properties presented at the Company’s proportional share and giving effect to the pending termination:
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tenant |
|
Number of |
|
|
Annual |
|
|
% of Total |
|
|
Concepts/Brands |
|
|
|
|
|
|
|||
Dick's Sporting Goods |
|
|
8 |
|
|
$ |
10,177 |
|
|
|
14.2 |
% |
|
House of Sport |
||||||
Dave & Buster's |
|
|
6 |
|
|
|
6,087 |
|
|
|
8.5 |
% |
|
|
||||||
Round One Entertainment |
|
|
4 |
|
|
|
4,100 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
Cinemark |
|
|
2 |
|
|
|
3,404 |
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
Nordstrom Rack |
|
|
5 |
|
|
|
3,033 |
|
|
|
4.2 |
% |
|
|
||||||
Burlington Stores |
|
|
4 |
|
|
|
2,943 |
|
|
|
4.1 |
% |
|
|
||||||
At Home |
|
|
2 |
|
|
|
2,803 |
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
Primark |
|
|
4 |
|
|
|
2,190 |
|
|
|
3.1 |
% |
|
|
||||||
Ross Dress For Less |
|
|
7 |
|
|
|
1,984 |
|
|
|
2.8 |
% |
|
Ross Dress for Less, dd's Discounts |
||||||
AMC |
|
|
1 |
|
|
|
1,837 |
|
|
|
2.6 |
% |
|
|
||||||
Bed Bath & Beyond |
|
|
5 |
|
|
|
1,820 |
|
|
|
2.5 |
% |
|
Bed Bath & Beyond, BuyBuyBaby, Cost Plus World Market, andThat! |
||||||
TJX |
|
|
3 |
|
|
|
1,699 |
|
|
|
2.4 |
% |
|
TJ Maxx, Marhsalls, HomeGoods, HomeSense, Sierra Trading Post |
||||||
Amazon |
|
|
2 |
|
|
|
1,691 |
|
|
|
2.4 |
% |
|
|
||||||
Floor & Décor |
|
|
3 |
|
|
|
1,171 |
|
|
|
1.6 |
% |
|
|
||||||
Aldi |
|
|
2 |
|
|
|
865 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
PetSmart |
|
|
1 |
|
|
|
816 |
|
|
|
1.1 |
% |
|
|
||||||
Ulta Salon |
|
|
1 |
|
|
|
766 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
Bob's Discount Furniture |
|
|
4 |
|
|
|
707 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
- 39 -
Lease Expirations
The following table sets forth a summary schedule of lease expirations for signed leases, including SNO leases, of our multi-tenant portfolio as of December 31, 2021, including Unconsolidated Properties presented at the Company’s proportional share and giving effect to the pending termination. The information set forth in the table assumes that no other tenants exercise renewal options or early termination rights:
(in thousands except number of leases) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Year |
|
Number of |
|
|
Leased |
|
|
% of Total |
|
|
Annual |
|
|
% of Total |
|
|||||
Month-to-Month |
|
|
4 |
|
|
|
18 |
|
|
|
0.4 |
% |
|
$ |
240 |
|
|
|
0.3 |
% |
2022 |
|
|
2 |
|
|
|
9 |
|
|
|
0.2 |
% |
|
|
144 |
|
|
|
0.2 |
% |
2023 |
|
|
10 |
|
|
|
338 |
|
|
|
8.0 |
% |
|
|
6,331 |
|
|
|
8.9 |
% |
2024 |
|
|
6 |
|
|
|
194 |
|
|
|
4.6 |
% |
|
|
1,049 |
|
|
|
1.5 |
% |
2025 |
|
|
6 |
|
|
|
204 |
|
|
|
4.8 |
% |
|
|
1,942 |
|
|
|
2.7 |
% |
2026 |
|
|
10 |
|
|
|
268 |
|
|
|
6.3 |
% |
|
|
3,705 |
|
|
|
5.2 |
% |
2027 |
|
|
7 |
|
|
|
206 |
|
|
|
4.9 |
% |
|
|
2,587 |
|
|
|
3.6 |
% |
2028 |
|
|
17 |
|
|
|
278 |
|
|
|
6.6 |
% |
|
|
5,044 |
|
|
|
7.1 |
% |
2029 |
|
|
28 |
|
|
|
675 |
|
|
|
15.9 |
% |
|
|
12,680 |
|
|
|
17.8 |
% |
2030 |
|
|
7 |
|
|
|
119 |
|
|
|
2.8 |
% |
|
|
1,596 |
|
|
|
2.2 |
% |
2031 |
|
|
21 |
|
|
|
704 |
|
|
|
16.6 |
% |
|
|
10,936 |
|
|
|
15.3 |
% |
Thereafter |
|
|
20 |
|
|
|
653 |
|
|
|
15.4 |
% |
|
|
15,725 |
|
|
|
22.0 |
% |
SNO Leases |
|
|
25 |
|
|
|
566 |
|
|
|
13.4 |
% |
|
|
9,446 |
|
|
|
13.2 |
% |
Total |
|
|
163 |
|
|
|
4,232 |
|
|
|
100.0 |
% |
|
$ |
71,425 |
|
|
|
100.0 |
% |
Premier Portfolio
Geographic Diversification
The following table sets forth information regarding the geographic diversification of the premier portfolio based on signed leases as of December 31, 2021, including Unconsolidated Properties presented at the Company’s proportional share and after giving effect to the pending termination:
(in thousands except property count and PSF data) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
State |
|
Number of |
|
|
Annual |
|
|
% of Total |
|
|
Rent |
|
||||
Florida |
|
|
2 |
|
|
$ |
8,172 |
|
|
|
63.1 |
% |
|
$ |
67.91 |
|
New York |
|
|
1 |
|
|
|
2,389 |
|
|
|
18.5 |
% |
|
|
41.24 |
|
California |
|
|
2 |
|
|
|
2,173 |
|
|
|
16.8 |
% |
|
|
71.79 |
|
Washington |
|
|
1 |
|
|
|
213 |
|
|
|
1.6 |
% |
|
|
28.34 |
|
Texas |
|
|
1 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
- |
|
Total |
|
|
7 |
|
|
$ |
12,947 |
|
|
|
100.0 |
% |
|
$ |
59.94 |
|
- 40 -
Tenant Overview
The following table provides a summary of annual base rent for the premier portfolio based on signed leases as of December 31, 2021, including Unconsolidated Properties presented at the Company’s proportional share and after giving effect to the pending termination:
(in thousands except number of leases and PSF data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Number of |
|
|
Leased |
|
|
% of Total |
|
|
Annual |
|
|
% of Total |
|
|
Annual |
|
||||||
Tenant |
|
Leases |
|
|
GLA |
|
|
Leased GLA |
|
|
Rent |
|
|
Annual Rent |
|
|
Rent PSF |
|
||||||
In-place leases |
|
|
15 |
|
|
|
53 |
|
|
|
24.4 |
% |
|
$ |
2,974 |
|
|
|
23.0 |
% |
|
$ |
56.49 |
|
SNO leases |
|
|
22 |
|
|
|
163 |
|
|
|
75.6 |
% |
|
|
9,973 |
|
|
|
77.0 |
% |
|
|
61.04 |
|
Total |
|
37 |
|
|
|
216 |
|
|
|
100.0 |
% |
|
$ |
12,947 |
|
|
|
100.0 |
% |
|
$ |
59.93 |
|
|
Residential Portfolio
Geographic Diversification
The following table sets forth information regarding the geographic diversification of the residential portfolio based on signed leases as of December 31, 2021, including Unconsolidated Properties presented at the Company’s proportional share and after giving effect to the pending termination:
State |
|
Number of |
|
|
Annual |
|
|
% of Total |
|
|
Total Acreage |
|
||||
Florida |
|
|
5 |
|
|
$ |
1,948 |
|
|
|
38.1 |
% |
|
|
72 |
|
Washington |
|
|
1 |
|
|
|
866 |
|
|
|
16.9 |
% |
|
|
12 |
|
Oregon |
|
|
1 |
|
|
|
765 |
|
|
|
14.9 |
% |
|
|
12 |
|
California |
|
|
7 |
|
|
|
650 |
|
|
|
12.7 |
% |
|
|
104 |
|
Texas |
|
|
5 |
|
|
|
270 |
|
|
|
5.3 |
% |
|
|
65 |
|
Minnesota |
|
|
3 |
|
|
|
216 |
|
|
|
4.2 |
% |
|
|
47 |
|
Ohio |
|
|
2 |
|
|
|
195 |
|
|
|
3.8 |
% |
|
|
39 |
|
Arizona |
|
|
3 |
|
|
|
195 |
|
|
|
3.8 |
% |
|
|
19 |
|
Maryland |
|
|
2 |
|
|
|
13 |
|
|
|
0.3 |
% |
|
|
25 |
|
Illinois |
|
|
1 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
17 |
|
Total Top 10 |
|
|
30 |
|
|
$ |
5,118 |
|
|
|
100.0 |
% |
|
|
412 |
|
Other (1) |
|
|
3 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
34 |
|
Total |
|
|
33 |
|
|
$ |
5,118 |
|
|
|
100.0 |
% |
|
|
446 |
|
- 41 -
Non-Core Portfolio
Geographic Diversification
The following table sets forth information regarding the geographic diversification of the non-core portfolio based on signed leases as of December 31, 2021, including Unconsolidated Properties presented at the Company’s proportional share and after giving effect to the pending termination:
State |
|
Number of |
|
|
Annual |
|
|
% of Total |
|
|
Rent |
|
||||
Alaska |
|
|
1 |
|
|
$ |
2,967 |
|
|
|
13.3 |
% |
|
$ |
22.15 |
|
New York |
|
|
6 |
|
|
|
2,497 |
|
|
|
11.2 |
% |
|
|
16.27 |
|
California |
|
|
11 |
|
|
|
2,259 |
|
|
|
10.1 |
% |
|
|
15.95 |
|
New Hampshire |
|
|
2 |
|
|
|
1,781 |
|
|
|
8.0 |
% |
|
|
14.39 |
|
Florida |
|
|
6 |
|
|
|
1,724 |
|
|
|
7.7 |
% |
|
|
20.83 |
|
Nevada |
|
|
2 |
|
|
|
1,686 |
|
|
|
7.6 |
% |
|
|
20.12 |
|
Michigan |
|
|
5 |
|
|
|
1,616 |
|
|
|
7.2 |
% |
|
|
6.56 |
|
Rhode Island |
|
|
1 |
|
|
|
1,533 |
|
|
|
6.9 |
% |
|
|
12.46 |
|
Kentucky |
|
|
2 |
|
|
|
1,082 |
|
|
|
4.9 |
% |
|
|
8.38 |
|
Arizona |
|
|
3 |
|
|
|
1,015 |
|
|
|
4.6 |
% |
|
|
20.07 |
|
Total Top 10 |
|
|
39 |
|
|
$ |
18,160 |
|
|
|
81.5 |
% |
|
$ |
14.32 |
|
Other (1) |
|
|
24 |
|
|
|
4,136 |
|
|
|
18.5 |
% |
|
|
9.02 |
|
Total |
|
|
63 |
|
|
$ |
22,296 |
|
|
|
100.0 |
% |
|
$ |
12.91 |
|
Other Unconsolidated Properties
Geographic Diversification
The following table sets forth information regarding the geographic diversification of the other consolidated properties based on signed leases as of December 31, 2021, presented at the Company’s proportional share and after giving effect to the pending termination:
State |
|
Number of |
|
|
Annual |
|
|
% of Total |
|
|
Rent |
|
||||
New Jersey |
|
|
3 |
|
|
$ |
4,424 |
|
|
|
38.7 |
% |
|
$ |
21.01 |
|
Connecticut |
|
|
2 |
|
|
|
2,009 |
|
|
|
17.6 |
% |
|
|
21.43 |
|
California |
|
|
4 |
|
|
|
1,330 |
|
|
|
11.6 |
% |
|
|
21.38 |
|
Massachusetts |
|
|
1 |
|
|
|
1,108 |
|
|
|
9.7 |
% |
|
|
25.05 |
|
Maryland |
|
|
1 |
|
|
|
1,044 |
|
|
|
9.1 |
% |
|
|
15.92 |
|
Florida |
|
|
2 |
|
|
|
967 |
|
|
|
8.5 |
% |
|
|
28.71 |
|
Arizona |
|
|
1 |
|
|
|
554 |
|
|
|
4.8 |
% |
|
|
14.99 |
|
New York |
|
|
1 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
Virginia |
|
|
1 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
Texas |
|
|
2 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
Total Top 10 |
|
|
18 |
|
|
$ |
11,436 |
|
|
|
100.0 |
% |
|
$ |
20.91 |
|
Other (1) |
|
|
3 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
Total |
|
|
21 |
|
|
$ |
11,436 |
|
|
|
100.0 |
% |
|
$ |
20.91 |
|
- 42 -
Tenant Overview
The following table provides a summary of annual base rent for the other unconsolidated properties based on signed leases as of December 31, 2021, presented at the Company’s proportional share and after giving effect to the pending termination:
(in thousands except number of leases and PSF data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Number of |
|
|
Leased |
|
|
% of Total |
|
|
Annual |
|
|
% of Total |
|
|
Annual |
|
||||||
Tenant |
|
Leases |
|
|
GLA |
|
|
Leased GLA |
|
|
Rent |
|
|
Annual Rent |
|
|
Rent PSF |
|
||||||
In-place leases |
|
|
39 |
|
|
|
409 |
|
|
|
74.8 |
% |
|
$ |
8,841 |
|
|
|
77.3 |
% |
|
$ |
21.59 |
|
SNO leases |
|
|
8 |
|
|
|
138 |
|
|
|
25.2 |
% |
|
|
2,596 |
|
|
|
22.7 |
% |
|
|
18.86 |
|
Total |
|
47 |
|
|
|
547 |
|
|
|
100.0 |
% |
|
$ |
11,437 |
|
|
|
100.0 |
% |
|
$ |
20.91 |
|
|
Lease Expirations
The following table sets forth a summary schedule of lease expirations for signed leases, including SNO leases, of our other unconsolidated properties as of December 31, 2021, presented at the Company’s proportional share and giving effect to the pending termination. The information set forth in the table assumes that no other tenants exercise renewal options or early termination rights:
(in thousands except number of leases) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Year |
|
Number of |
|
|
Leased |
|
|
% of Total |
|
|
Annual |
|
|
% of Total |
|
|||||
Month-to-Month |
|
|
- |
|
|
|
- |
|
|
|
0.0 |
% |
|
$ |
- |
|
|
|
0.0 |
% |
2022 |
|
|
- |
|
|
|
- |
|
|
|
0.0 |
% |
|
|
- |
|
|
|
0.0 |
% |
2023 |
|
|
- |
|
|
|
- |
|
|
|
0.0 |
% |
|
|
- |
|
|
|
0.0 |
% |
2024 |
|
|
- |
|
|
|
- |
|
|
|
0.0 |
% |
|
|
- |
|
|
|
0.0 |
% |
2025 |
|
|
1 |
|
|
|
4 |
|
|
|
0.7 |
% |
|
|
77 |
|
|
|
0.7 |
% |
2026 |
|
|
5 |
|
|
|
69 |
|
|
|
12.7 |
% |
|
|
1,387 |
|
|
|
12.1 |
% |
2027 |
|
|
1 |
|
|
|
2 |
|
|
|
0.4 |
% |
|
|
100 |
|
|
|
0.9 |
% |
2028 |
|
|
3 |
|
|
|
36 |
|
|
|
6.7 |
% |
|
|
792 |
|
|
|
6.9 |
% |
2029 |
|
|
9 |
|
|
|
56 |
|
|
|
10.2 |
% |
|
|
1,072 |
|
|
|
9.4 |
% |
2030 |
|
|
6 |
|
|
|
95 |
|
|
|
17.4 |
% |
|
|
1,523 |
|
|
|
13.3 |
% |
2031 |
|
|
6 |
|
|
|
55 |
|
|
|
10.0 |
% |
|
|
1,065 |
|
|
|
9.3 |
% |
Thereafter |
|
|
8 |
|
|
|
92 |
|
|
|
16.8 |
% |
|
|
2,825 |
|
|
|
24.7 |
% |
SNO Leases |
|
|
8 |
|
|
|
138 |
|
|
|
25.2 |
% |
|
|
2,596 |
|
|
|
22.7 |
% |
Total |
|
|
47 |
|
|
|
547 |
|
|
|
100.0 |
% |
|
$ |
11,437 |
|
|
|
100.0 |
% |
- 43 -
ITEM 3. LEGAL PROCEEDINGS
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, and the Company, the Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD). The Litigation alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $649 to $749 million more than the purchase price paid. The Litigation seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, in the alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.
On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Unsecured Creditors’ Committee (the “UCC”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.
On November 25, 2019, the Creditors’ Committee filed a first amended complaint (the “Amended Complaint”) in the Bankruptcy Court naming us and certain of our affiliates, as well as affiliates of ESL and Sears Holdings, and certain other third parties, as defendants. The Amended Complaint alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 (including the July 2015 transactions giving rise to Seritage, the execution of the Master Lease with Sears Holdings (the “Original Master Lease”), and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings and that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth hundreds of millions of dollars more than the purchase price paid. The Amended Complaint further alleges that certain releases provided to Seritage and certain other defendants in connection with the Sears Holdings derivative litigation in the Delaware Court of Chancery in 2017 should be avoided and/or declared null and void as an actual and/or constructive fraudulent conveyance. The Amended Complaint seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers, disgorgement, recovery of the property fraudulently transferred or, in the alternative, compensatory damages in an unspecified amount to be determined at trial, equitable subordination and disallowance of defendants’ claims as creditors, punitive and exemplary damages for any intentional wrongdoing, and reasonable attorneys’ fees, costs, and expenses.
On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions were completed in August 2020, and the parties are awaiting a decision. The Company believes that the claims against the Seritage Defendants in the Litigation are without merit and intends to defend against them vigorously.
On March 15, 2021, the Court consolidated the Litigation with a case captioned Sears Holding Corp. et al. v. Andrew H. Tisch, et al., Case No. 20-07007 (RDD) (the “Shareholder Litigation,” and, together with the Litigation, the “Consolidated Litigation”). The Shareholder Litigation was brought by the UCC, Sears Holdings Corporation, and Sears, Roebuck and Co., against certain shareholders of Sears Holdings or its related companies. Seritage was not named as a defendant in the Shareholder Litigation, which alleges, among other things, that certain transactions undertaken by Sears Holdings since 2014 (including the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends. We believe that the claims against the Seritage Defendants in the Litigation are without merit and intend to defend against them vigorously.
On March 2, 2021, the Company brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O insurance providers of the Company (the “D&O Insurers”). The Company’s lawsuit is seeking, among other things, declaratory relief
- 44 -
and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the Litigation discussed above.
In addition to the litigation described above, the Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business and due to the current environment. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material effect on the consolidated financial position, results of operations, cash flows or liquidity of the Company. As of December 31, 2021, and December 31, 2020, the Company did not record any amounts for litigation or other matters.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
- 45 -
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s Class A common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “SRG”.
The following graph provides a comparison, from December 31, 2016 through December 31, 2021, of the cumulative total shareholder return (assuming reinvestment of dividends) on $100 invested in each of Class A shares of the Company, the Standard & Poor's ("S&P") 500 Index and the MSCI US REIT Index, an industry index of publicly-traded REITs, including the Company.
Index |
|
|
12/31/2016 |
|
12/31/2017 |
|
12/31/2018 |
|
12/31/2019 |
|
12/31/2020 |
|
12/31/2021 |
|
||||||
Seritage Growth Properties |
Cumulative$ |
|
|
100 |
|
|
95 |
|
|
76 |
|
|
94 |
|
|
34 |
|
|
31 |
|
|
Return % |
|
|
|
|
(5 |
) |
|
(24 |
) |
|
(6 |
) |
|
(66 |
) |
|
(69 |
) |
|
S&P 500 |
Cumulative$ |
|
|
100 |
|
|
119 |
|
|
112 |
|
|
144 |
|
|
168 |
|
|
213 |
|
|
Return % |
|
|
|
|
19 |
|
|
12 |
|
|
44 |
|
|
68 |
|
|
113 |
|
|
MSCI US REIT Index |
Cumulative$ |
|
|
100 |
|
|
101 |
|
|
92 |
|
|
111 |
|
|
99 |
|
|
137 |
|
|
Return % |
|
|
|
|
1 |
|
|
(8 |
) |
|
11 |
|
|
(1 |
) |
|
37 |
|
|
Common Shares and Operating Partnership Units
On March 11, 2022, the reported closing sale price per share of our Class A common stock on the NYSE was $11.47.
As of March 11, 2022, there were 43,632,364 Class A common shares issued and outstanding which were held by approximately 139 shareholders of record. The number of shareholders of record does not reflect persons or entities that held their shares in nominee or “street” name.
In addition, as of March 11, 2022, there were 12,354,963 outstanding Operating Partnership units (“OP Units”) held by limited partners other than the Company. As of March 11, 2022, there are no Class B non-economic common shares outstanding and there are no Class C non-voting common shares outstanding.
The Class B non-economic common shares have voting rights, but do not have economic rights and, as such, do not receive dividends and are not included in earnings per share computations.
- 46 -
Class C non-voting common shares have economic rights, but do not have voting rights. Upon any transfer of a Class C non-voting common share to any person other than an affiliate of the holder of such share, such share shall automatically convert into one Class A common share.
The OP Units are generally exchangeable into shares of Class A common stock on a one-for-one basis.
Share-Based Compensation
The following table provides information with respect to the Company’s equity compensation plan as of December 31, 2021:
|
|
Number of securities to |
|
|
Weighted-average |
|
|
Number of securities |
|
|
|||
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|||
Equity compensation plans approved |
|
|
288,068 |
|
(1) |
n/a |
|
(2) |
|
2,445,410 |
|
(3) |
|
Equity compensation plans not |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
|
288,068 |
|
|
|
— |
|
|
|
2,445,410 |
|
|
Dividends and Distributions
The timing, amount and composition of all distributions will be made by the Company at the discretion of its Board of Trustees. Such distributions will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the Board of Trustees of Seritage deems relevant.
The Company declared a dividend on the Company’s Class A and Class C common shares for the first quarter of 2019 and has not declared dividends on the Company’s Class A and Class C common shares since that time, based on our Board of Trustees’ assessment of the Company’s investment opportunities and its expectations of taxable income for the remainder of 2021.
REIT Election
We have elected to be treated as a REIT for U.S. federal income tax. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including requirements to distribute at least 90% of its ordinary taxable income and to either distribute capital gains to shareholders, or pay corporate income tax on the undistributed capital gains. A REIT will generally not pay U.S. federal income tax if it distributes 100% of its capital gains and ordinary income.
- 47 -
ITEM 6. RESERVED
- 48 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains forward-looking statements that involve risks and uncertainties. Our actual results may vary materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in “Risk Factors” and the other matters set forth in this Annual Report. See “Cautionary Statement Regarding Forward-Looking Statements.”
For discussion of 2019 items and year-over-year comparisons between 2020 and 2019 that are not included in this Annual Report, refer to “Item 7. – Management Discussion and Analysis of Financial Condition and Results of Operations” found in our Annual Report for the fiscal year ended December 31, 2020, that was filed with the Securities and Exchange Commission on March 15, 2021.
All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements included in this Annual Report. You should read this discussion in conjunction with our Consolidated Financial Statements, the notes thereto and other financial information included elsewhere in this Annual Report. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) have the same meanings as in such Notes.
Overview
We are principally engaged in the ownership, development, redevelopment, management, sale and leasing of diversified retail and mixed-use properties throughout the United States. As of December 31, 2021, our portfolio consisted of interests in 162 properties comprised of approximately 19.2 million square feet of GLA or build-to-suit leased area, approximately 600 acres held for or under development and approximately 9.4 million square feet or approximately 800 acres to be disposed of. The portfolio consists of approximately 15.4 million square feet of GLA held by 137 Consolidated Properties and 3.9 million square feet of GLA held by 25 Unconsolidated Properties.
In the second quarter of 2021, we announced an organizational restructuring and in conjunction commenced a portfolio review resulting in the modification of the business plans for certain assets. We continue to evaluate our strategy and at this time, we expect to reposition our portfolio into three business lines: residential developments, premier mixed-use assets, and multi-tenant retail destinations.
COVID-19 Pandemic
The COVID-19 pandemic has caused and continues to cause significant impacts on the real estate industry in the United States, including the Company’s properties.
As a result of the development, fluidity and uncertainty surrounding this situation, the Company expects that these conditions may change, potentially significantly, in future periods and results for the year ended December 31, 2021 may not be indicative of the impact of the COVID-19 pandemic on the Company’s business for future periods. As such, the Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operations or cash flows over the foreseeable future.
As of December 31, 2021, we had collected 97% of rental income for the year ended December 31, 2021, and agreed to defer an additional 1%. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.
Board of Trustees Matters
On March 1, 2022, the Company announced that Mr. Lampert retired as its Chairman and resigned from the Board of Trustees effective March 1, 2022, and that each of Messrs. David S. Fawer and Thomas M. Steinberg, members of the Board of Trustees, notified the Board of Trustees that he would not stand for reelection as a trustee. Messrs. Fawer’s and Steinberg’s terms will each end at the Company’s 2022 annual meeting of shareholders.
Review of Strategic Alternatives
On March 1, 2022, the Company announced that its Board of Trustees has commenced a process to review a broad range of strategic alternatives to enhance shareholder value. The Board of Trustees created a Special Committee to oversee the process. The Special Committee has retained a financial advisor. The Company is in the early stages of the strategic review process and its current intention is not to disclose or comment on interim developments with respect to the process. There can be no assurance that the review process will result in any transaction or any strategic change at this time. See “Item 1A. Risk Factors—Risks Related to Our Business and Operations— There can be no assurance that our review of strategic alternatives will result in any transaction or any strategic change at this time.”
- 49 -
Asset Sales and Unconsolidated Properties
During the year ended December 31, 2021, the Company sold 21 properties, plus additional outparcels, and generated gross proceeds of $395.4 million and also contributed a property to an unconsolidated entity that generated an additional $30.0 million of gross proceeds.
As of March 11, 2022, we had 13 assets under contract to sell for total anticipated proceeds of $146.3 million, subject to buyer diligence and closing conditions.
Effects of Natural Disasters
The Company assessed the impact of the natural disasters that occurred during the year ended December 31, 2021 and determined that natural disasters did not have a material impact on our operating results or financial position. The Company did not experience interruptions in rental payments related to natural disasters nor has it incurred material capital expenditures to repair any property damage. As a result of changes to weather patterns caused by climate change, our properties could experience increased storm intensity and other natural disasters in future periods and, as such, we cannot provide assurance that natural disasters will not have a material impact on our financial condition, results of operations or cash flows over the foreseeable future.
Impairment of real estate assets and investments in unconsolidated entities
In the second quarter of 2021, we announced an organizational restructuring and in conjunction commenced a portfolio review resulting in the modification of the business plans for certain assets. As a result of the foregoing, our intent, anticipated holding periods and/or projected cash flows with respect to certain assets evolved. This triggered a recoverability analysis of the carrying value of those assets over their respective holding periods. We have recognized $95.8 million of impairment losses in the year ended December 31, 2021, which are included in impairment on real estate assets within the condensed consolidated statements of operations, in part as a result of this portfolio review. We continue to evaluate our portfolio, including our development plans and holding periods, which may result in additional impairments in future periods on our Consolidated Properties and investments in unconsolidated entities.
- 50 -
Results of Operations
We derive substantially all of our revenue from rents received from tenants under existing leases at each of our properties. This revenue generally includes fixed base rents and recoveries of expenses that we have incurred and that we pass through to the individual tenants, in each case as provided in the respective leases.
Our primary cash expenses consist of our property operating expenses, general and administrative expenses, interest expense, and construction and development related costs. Property operating expenses include: real estate taxes, repairs and maintenance, management fees, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is on our term loan facility. In addition, we incur substantial non-cash charges for depreciation of our properties and amortization of intangible assets and liabilities.
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
The following table presents selected data on comparative results from the Company’s consolidated statements of operations for the year ended December 31, 2021, as compared to the year ended December 31, 2020 (in thousands):
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental income |
|
$ |
|
115,651 |
|
|
$ |
|
116,202 |
|
|
$ |
|
(551 |
) |
|
|
0 |
% |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating |
|
$ |
|
45,007 |
|
|
$ |
|
41,164 |
|
|
$ |
|
3,843 |
|
|
|
9 |
% |
Real estate taxes |
|
|
|
35,256 |
|
|
|
|
36,768 |
|
|
|
|
(1,512 |
) |
|
|
-4 |
% |
Depreciation and amortization |
|
|
|
51,199 |
|
|
|
|
95,997 |
|
|
|
|
(44,798 |
) |
|
|
-47 |
% |
General and administrative |
|
|
|
41,949 |
|
|
|
|
28,849 |
|
|
|
|
13,100 |
|
|
|
45 |
% |
Gain on sale of real estate |
|
|
|
221,681 |
|
|
|
|
88,555 |
|
|
|
|
133,126 |
|
|
|
150 |
% |
Gain on sale of interests in unconsolidated entities |
|
|
|
— |
|
|
|
|
1,758 |
|
|
|
|
(1,758 |
) |
|
|
-100 |
% |
Impairment on real estate assets |
|
|
|
(95,826 |
) |
|
|
|
(64,108 |
) |
|
|
|
(31,718 |
) |
|
|
49 |
% |
Equity in loss of unconsolidated entities |
|
|
|
(9,226 |
) |
|
|
|
(4,712 |
) |
|
|
|
(4,514 |
) |
|
|
96 |
% |
Interest and other income |
|
|
|
9,285 |
|
|
|
|
3,394 |
|
|
|
|
5,891 |
|
|
|
174 |
% |
Interest expense |
|
|
|
(107,975 |
) |
|
|
|
(91,316 |
) |
|
|
|
(16,659 |
) |
|
|
18 |
% |
Rental Income
The following table presents the results for rental income for the year ended December 31, 2021, as compared to the corresponding period in 2020 (in thousands):
|
|
Year Ended December 31, |
|
|
|
|
||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
|
|
|||||||||||
|
|
Rental Income |
|
|
% of Total |
|
|
Rental Income |
|
|
% of Total |
|
|
$ Change |
|
|||||
Sears/Kmart |
|
$ |
4,510 |
|
|
|
4 |
% |
|
$ |
14,693 |
|
|
|
13 |
% |
|
$ |
(10,183 |
) |
Diversified tenants |
|
|
108,845 |
|
|
|
94 |
% |
|
|
104,699 |
|
|
|
90 |
% |
|
|
4,146 |
|
Straight-line rent |
|
|
2,269 |
|
|
|
2 |
% |
|
|
(4,983 |
) |
|
|
-5 |
% |
|
|
7,252 |
|
Amortization of above/below market leases |
|
|
27 |
|
|
|
0 |
% |
|
|
1,793 |
|
|
|
2 |
% |
|
|
(1,766 |
) |
Total rental income |
|
$ |
115,651 |
|
|
|
100 |
% |
|
$ |
116,202 |
|
|
|
100 |
% |
|
$ |
(551 |
) |
The decrease of $10.2 million in Sears or Kmart rental income during 2021 is due to a reduction in the number of properties leased to Sears or Kmart under the Holdco Master Lease, as a result of termination activity. As of March 11, 2021, Sears no longer occupies space at any properties.
The increase of $4.1 million in rental income during 2021 was due primarily to releasing space at higher rates.
The decrease of $7.3 million in straight-line rental income during 2021 was due primarily to (i) the accelerated amortization of straight-line rent receivables was a result of termination activity under the Holdco Master Lease and (ii) the reversal of previously recorded straight-line rent that the Company deemed was no longer probable of being collected.
The decrease of $1.8 million in amortization of above/below market leases during 2021 was due primarily to the termination of certain leases previously acquired by the Company.
- 51 -
Property Operating Expenses and Real Estate Taxes
The following table presents the comparative results for property operating expenses and real estate taxes for the year ended December 31, 2021 as compared to the corresponding period in 2020 (in thousands):
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
2021 |
|
|
|
2020 |
|
|
|
$ Change |
|
|
% Change |
|
|
||||
Property operating expenses |
|
|
$ |
45,007 |
|
|
|
$ |
41,164 |
|
|
|
$ |
3,843 |
|
|
|
9 |
% |
|
Real estate taxes |
|
|
|
35,256 |
|
|
|
|
36,768 |
|
|
|
|
(1,512 |
) |
|
|
-4 |
% |
|
The increase of $3.8 million in property operating expense for the year ended December 31, 2021 was due primarily to an increase in utility and certain common area maintenance expenses at properties for which Sears or Kmart paid such expenses directly and a decrease in amounts capitalized.
The decrease of $1.5 million in real estate taxes for the year ended December 31, 2021 was due primarily to asset sales and partially offset by a decrease in amounts capitalized due.
Depreciation and Amortization Expenses
The decrease of $44.8 million in depreciation and amortization expenses for the year ended December 31, 2021 was due primarily to a decrease of $23.3 million in accelerated amortization from terminations and $21.5 million in lower net scheduled depreciation.
Accelerated amortization results from the recapture of space from, or termination of space by Holdco. Such recaptures and terminations are deemed lease modifications and require related lease intangibles to be amortized over the shorter of the shortened lease term or the remaining useful life of the asset.
General and Administrative Expenses
General and administrative expenses consist of personnel costs, including share-based compensation, professional fees, office expenses and overhead expenses.
The $13.1 million increase was primarily related to a $5.5 million increase in severance and restructuring costs, an increase in share-based compensation as a result of forfeitures and reversals of the bonus accrual related to the resignations of our former chief executive officer and chief financial officer in 2020, and decreased capitalized wages. This was partially offset by a $1.0 million decrease in legal fees related to our litigation and reduced asset management fees.
Gain on Sale of Real Estate
During the year ended December 31, 2021, the Company sold 21 properties, including outparcels, for aggregate consideration of $395.4 million and recorded gains totaling $197.0 million, which are included in gain on sale of real estate within the consolidated statements of operations. The Company also contributed its property located in Alexandria, VA to an unconsolidated entity for a contribution value of $30.0 million and recorded a gain of $22.6 million which is included in gain on sale of real estate within the consolidated statements of operations.
Impairment of Real Estate Assets
During 2021, the Company recognized $95.8 million in impairment of 39 real estate assets, which is included within the consolidated statements of operations.
Interest Expense
The increase of $16.7 million in interest expense for the year ended December 31, 2021 was driven by a decrease in amounts capitalized due to a decrease in development activity and an increase of costs incurred related to one-time mortgage recording costs.
- 52 -
Liquidity and Capital Resources
Our primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service (collectively, “Obligations”), and the reinvestment in and redevelopment of our properties (“development expenditures”). Property rental income, which is the Company’s primary source of operating cash flow, did not fully fund Obligations incurred during the year ended December 31, 2021 and the Company recorded net operating cash outflows of $136.0 million. Additionally, the Company’s generated investing cash inflows of $260.7 million during the year ended December 31, 2021, which were driven by asset sales and partially offset by development expenditures.
Obligations are projected to continue to exceed property rental income and we expect to fund such Obligations and any development expenditures with cash on hand and a combination of capital sources including, but not limited to the following, subject to any approvals that may be required under the Term Loan Agreement.
As of March 11, 2022, we had 13 assets under contract to sell for total anticipated proceeds of $146.3 million, subject to customary due diligence and closing conditions.
As previously disclosed, on May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment (the “Term Loan Amendment”) to the Term Loan Agreement by and among the Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the Term Loan Agreement if, as of the first day of each applicable month, (x) the amount of unrestricted and unencumbered (other than liens created under the Term Loan Agreement) cash on hand of the Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or less than $30.0 million. In such instances, for each interest period, the Operating Partnership is obligated to make payments of interest in an amount equal to the difference between (i) Available Cash and (ii) $20.0 million (provided that such payment shall not exceed the amount of current interest otherwise due under the Term Loan Agreement). Any deferred interest shall accrue interest at 2.0% in excess of the then applicable interest rate and shall be due and payable on July 31, 2023; provided, that the Operating Partnership is required to pay any deferred interest from Available Cash in excess of $30.0 million (unless otherwise agreed to by the administrative agent under the Term Loan Agreement in its sole discretion). In addition, repayment of any outstanding deferred interest is a condition to any borrowings under the $400.0 million incremental funding facility under the Term Loan Agreement (the “Incremental Funding Facility”).
Additionally, the Term Loan Amendment provides that the administrative agent and the lenders express their continued support for asset dispositions, subject to the administrative agent’s right to approve the terms of individual transactions due to the occurrence of a Financial Metric Trigger Event, as such term is defined under the Term Loan Agreement.
Our Term Loan Facility includes a $400.0 million Incremental Funding Facility (as defined below), access to which is subject to rental income from non-Sears Holdings tenants of at least $200.0 million, on an annualized basis and after giving effect to SNO leases expected to commence rent payment within 12 months, which we have not yet achieved. The timing of our ability to access the Incremental Funding Facility.
The availability of liquidity from the above sources or initiatives is subject to a range of risks and uncertainties, including those discussed under “Risk Factors—Real estate investments are relatively illiquid” and “Risk Factors—We have ongoing capital needs and may not be able to obtain additional financing or other sources of funding on acceptable terms.”
- 53 -
Term Loan Facility
On July 31, 2018, the Operating Partnership, as borrower, and the Company, as guarantor, entered into a Senior Secured Term Loan Agreement (as amended, the “Term Loan Agreement”) providing for a $2.0 billion term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire Hathaway”) as lender and Berkshire Hathaway as administrative agent. The Term Loan Facility provided for an initial funding of $1.6 billion at closing (the “Initial Funding”) and includes a $400 million incremental funding facility (the “Incremental Funding Facility”). The Term Loan Facility matures on July 31, 2023, with the ability to extend based on meeting certain criteria.
Funded amounts under the Term Loan Facility bear interest at an annual rate of 7.0% and unfunded amounts under the Incremental Funding Facility are subject to an annual fee of 1.0% until drawn. The Company prepays the annual fee and amortizes the expense to interest expense on the consolidated statements of operations.
As of December 31, 2021, the aggregate principal amount outstanding under the Term Loan Facility was $1.44 billion.
The Company’s ability to access the Incremental Funding Facility is subject to (i) the Company achieving rental income from non-Sears Holdings tenants, on an annualized basis (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $200 million, (ii) the Company’s good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under Term Loan Amendment as further described below.
The Term Loan Facility is guaranteed by the Company and, subject to certain exceptions, is required to be guaranteed by all existing and future subsidiaries of the Operating Partnership. The Term Loan Facility is secured on a first lien basis by a pledge of the capital stock of the direct subsidiaries of the Operating Partnership and the guarantors, including its joint venture interests, except as prohibited by the organizational documents of such entities or any joint venture agreements applicable to such entities.
The Term Loan Facility includes certain financial metrics to govern springing collateral requirements and certain covenant exceptions set forth in the Term Loan Agreement, including: (i) a total fixed charge coverage ratio of not less than 1.00 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.20 to 1.00 for each fiscal quarter thereafter; (ii) an unencumbered fixed charge coverage ratio of not less than 1.05 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.30 to 1.00 for each fiscal quarter thereafter; (iii) a total leverage ratio of not more than 65%; (iv) an unencumbered ratio of not more than 60%; and (v) a minimum net worth of at least $1.2 billion. Any failure to satisfy any of these financial metrics limits the Company’s ability to dispose of assets via sale or joint venture and triggers the springing mortgage and collateral requirements but will not result in an event of default. The Term Loan Facility also includes certain limitations relating to, among other activities, the Company’s ability to: sell assets or merge, consolidate or transfer all or substantially all of its assets; incur additional debt; incur certain liens; enter into, terminate or modify certain material leases and/or the material agreements for the Company’s properties; make certain investments (including limitations on joint ventures) and other restricted payments; pay distributions on or repurchase the Company’s capital stock; and enter into certain transactions with affiliates.
The Term Loan Facility contains customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, material inaccuracy of representations or warranties, and bankruptcy or insolvency proceedings. If there is an event of default, the lenders may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights they might have under any of the Term Loan Facility documents, and require the Company to pay a default interest rate on overdue amounts equal to 2.0% in excess of the then applicable interest rate.
As of December 31, 2021, the Company was not in compliance with certain of the financial metrics described above. As a result, the Company must receive the consent of Berkshire Hathaway to dispose of assets via sale or joint venture and, as of December 31, 2021, Berkshire Hathaway had provided such consent for all such transactions submitted for approval. There can be no assurance that the lender will consent to future dispositions of assets. During 2019, Berkshire Hathaway requested mortgages on a majority of the Company’s portfolio which were recorded in accordance with the mortgage and collateral requirement (the “Lender Request”). There are no other changes to the terms and conditions of the Term Loan Facility, or the Company’s ability to operate thereunder, as a result of providing mortgages against any of the Company’s assets pursuant to the mortgage and collateral requirement. The Company accounted for the Lender Request transaction as a modification of debt as of December 31, 2019.
The Company believes it is in compliance with all other terms and conditions of the Term Loan Agreement.
The Company incurred $2.1 million of debt issuance costs related to the Term Loan Facility which are recorded as a direct deduction from the carrying amount of the Term Loan Facility and amortized over the term of the Term Loan Agreement. As of December 30, 2021 and 2020, the unamortized balance of the Company’s debt issuance costs were $0.7 million and $1.1 million, respectively.
- 54 -
On May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into the Term Loan Amendment by and among the Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the Term Loan Agreement if, as of the first day of each applicable month, (x) the amount of unrestricted and unencumbered (other than liens created under the Term Loan Agreement) cash on hand of the Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or less than $30.0 million. In such instances, for each interest period, the Operating Partnership is obligated to make payments of interest in an amount equal to the difference between (i) Available Cash and (ii) $20.0 million (provided that such payment shall not exceed the amount of current interest otherwise due under the Term Loan Agreement). Any deferred interest shall accrue interest at 2.0% in excess of the then applicable interest rate and shall be due and payable on July 31, 2023; provided, that the Operating Partnership is required to pay any deferred interest from Available Cash in excess of $30.0 million (unless otherwise agreed to by the administrative agent under the Term Loan Agreement in its sole discretion). In addition, repayment of any outstanding deferred interest is a condition to any borrowings under the Incremental Funding Facility under the Term Loan Agreement. The Company has paid all interest due under the Term Loan Agreement and has not deferred any interest as permitted under the Term Loan Amendment.
Additionally, the Term Loan Amendment provides that the administrative agent and the lenders express their continued support for asset dispositions, subject to the administrative agent’s right to approve the terms of individual transactions due to the occurrence of a Financial Metric Trigger Event, as such term is defined under the Term Loan Facility.
On November 24, 2021, the Operating Partnership, the Company and Berkshire Hathaway entered into an amendment (the “Second Term Loan Amendment”) to the Term Loan Agreement by and among the Operating Partnership, the Company and Berkshire Hathaway to which the Operating Partnership, the Company and Berkshire Hathaway mutually agreed that (i) the “make whole” provision in the Senior Secured Term Loan Agreement shall not be applicable to prepayments of principal ; and (ii) the Senior Secured Term Loan Agreement, as amended for (i) above, may at the Operating Partnership's election be extended for two years from July 31, 2023 to July 31, 2025 (the “Maturity Date”) if its principal has been reduced to $800 million by the Maturity Date. If it has not been reduced to this limit by the Maturity Date, the loan will be due and payable on that date. In all other respects, the Senior Secured Term Loan Agreement remains unchanged.
The Company currently anticipates it will continue to use sales of Consolidated Properties as the primary source of capital to repay principal on the Term Loan and its obligations.
Preferred Shares
As of December 31, 2021, we had 2,800,000 7.00% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”) outstanding. We may not redeem the Series A Preferred Shares before December 14, 2022, except to preserve our status as a REIT or upon the occurrence of a Change of Control, as defined in the trust agreement addendums designating the Series A Preferred Shares. On and after December 14, 2022, we may redeem any or all of the Series A Preferred Shares at $25.00 per share plus any accrued and unpaid dividends.
Dividends and Distributions
The Company’s Board of Trustees did not declare dividends on the Company’s Class A common shares during 2021. The last dividend on the Company’s Class A and C common shares that the Board of Trustees declared was on February 25, 2019, which was paid on April 11, 2019 to shareholders of record on March 29, 2019.
The Company’s Board of Trustees also declared the following dividends on Company’s Series A Preferred Shares during 2022, 2021 and 2020:
Declaration Date |
|
Record Date |
|
Payment Date |
|
Preferred Share |
|
|
2022 |
|
|
|
|
|
|
|
|
February 16 |
|
March 31 |
|
April 15 |
|
$ |
0.43750 |
|
2021 |
|
|
|
|
|
|
|
|
October 26 |
|
December 31 |
|
January 14, 2022 |
|
$ |
0.43750 |
|
July 27 |
|
September 30 |
|
October 15 |
|
|
0.43750 |
|
April 27 |
|
June 30 |
|
July 15 |
|
|
0.43750 |
|
February 23 |
|
March 31 |
|
April 15 |
|
|
0.43750 |
|
2020 |
|
|
|
|
|
|
|
|
December 17 |
|
December 31 |
|
January 15, 2021 |
|
$ |
0.43750 |
|
September 17 |
|
September 30 |
|
October 15 |
|
|
0.43750 |
|
June 9 |
|
June 30 |
|
July 15 |
|
|
0.43750 |
|
February 18 |
|
March 31 |
|
April 15 |
|
|
0.43750 |
|
Our Board of Trustees will continue to assess the Company’s investment opportunities and its expectations of taxable income in its determination of future distributions, if any.
- 55 -
Minimum Cash Requirements
Our contractual obligations relate to our Term Loan Facility and non-cancelable operating leases in the form of a ground lease at one of our properties, as well as an operating lease for our corporate office.
Information concerning our obligations and commitments to make future payments under contracts for these loan and lease agreements as of December 31, 2021 is aggregated in the following table (in thousands):
|
|
|
|
|
Payments due by Period |
|
||||||||||||||
|
|
|
|
|
Within |
|
|
|
|
|
|
|
|
After |
|
|||||
Minimum Cash Requirements |
|
Total |
|
|
1 year |
|
|
1 - 3 years |
|
|
3 -5 years |
|
|
5 years |
|
|||||
Long-term debt (1) |
|
$ |
1,610,538 |
|
|
$ |
106,698 |
|
|
$ |
1,503,840 |
|
|
$ |
— |
|
|
$ |
— |
|
Operating leases |
|
|
9,731 |
|
|
|
1,044 |
|
|
|
3,412 |
|
|
|
3,250 |
|
|
|
2,025 |
|
Total |
|
$ |
1,620,269 |
|
|
$ |
107,742 |
|
|
$ |
1,507,252 |
|
|
$ |
3,250 |
|
|
$ |
2,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(1) Includes expected interest payments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Capital Expenditures
During the year ended December 31, 2021 the Company invested $105.7 million in our consolidated development and operating properties and an additional $38.6 million into our unconsolidated joint ventures.
The Company also continued to advance its previously underway premier projects in Aventura, FL, Santa Monica, CA, and La Jolla, CA, and its pipeline of such projects, including its two previously announced multifamily projects, in Redmond, WA, and Dallas, TX, each of which represents the first phase of larger, mixed-use developments. A premier mixed use project in San Diego, CA and a multifamily project in Lynwood, WA, both in Unconsolidated Entities, opened in the fourth quarter of 2021.
During the year ended December 31, 2021, the Company, together with Foulger-Pratt and The Howard Hughes Corporation (NYSE: HHC), announced that it had entered into an agreement to advance the development of a 4.0 million-square-foot mixed-use community to include a new hospital campus at its Alexandria, VA property.
During the years ended December 31, 2021 and 2020, we incurred maintenance capital expenditures of approximately $2.6 million that were not associated with retenanting and redevelopment projects, respectively.
Cash Flows for the Year Ended December 31, 2021 Compared to December 31, 2020
The following table summarizes the Company’s cash flow activities for the years ended December 31, 2021 and 2020 (in thousands):
|
|
Year Ended December 31, |
|
|
|
|
||||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|||
Net cash (used in) operating activities |
|
$ |
(135,996 |
) |
|
$ |
(47,314 |
) |
|
$ |
(88,682 |
) |
Net cash provided by investing activities |
|
|
260,707 |
|
|
|
42,868 |
|
|
|
217,839 |
|
Net cash (used in) provided by financing activities |
|
|
(161,212 |
) |
|
|
15,440 |
|
|
|
(176,652 |
) |
Cash Flows from Operating Activities
Significant components of net cash used in operating activities include:
Cash Flows from Investing Activities
Significant components of net cash provided by (used in) investing activities include:
- 56 -
Cash Flows from Financing Activities
Significant components of net cash provided by financing activities include:
Litigation and Other Matters
In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued or discloses the fact that such a range of loss cannot be estimated. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. We do not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. In such cases, we disclose the nature of the contingency, and an estimate of the possible loss, range of loss, or disclose the fact that an estimate cannot be made.
During the Sears Holdings bankruptcy proceedings, the Official Committee of Unsecured Creditors of Sears Holdings (the “UCC”) and others, including the Restructuring Subcommittee of the Board of Directors of Sears Holdings, alleged that the 2015 Transactions between us and Sears Holdings constituted a fraudulent conveyance, and indicated an intent to pursue litigation challenging the 2015 Transactions on that and other grounds. The approval of the Holdco Acquisition by the Bankruptcy Court expressly preserved claims relating to the 2015 Transactions between us and Sears Holdings.
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, and the Company, the Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD).
The Litigation alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $649 to $749 million more than the purchase price paid. The Litigation seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, in the alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.
On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Unsecured Creditors’ Committee (the “UCC”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.
On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions were completed in August 2020, and the parties are awaiting a decision. The Company believes that the claims against the Seritage Defendants in the Litigation are without merit and intends to defend against them vigorously.
- 57 -
On March 15, 2021, the Court consolidated the Litigation with a case captioned Sears Holding Corp. et al. v. Andrew H. Tisch, et al., Case No. 20-07007 (RDD) (the “Shareholder Litigation,” and, together with the Litigation, the “Consolidated Litigation”). The Shareholder Litigation was brought by the UCC, Sears Holdings Corporation, and Sears, Roebuck and Co., against certain shareholders of Sears Holdings or its related companies. Seritage was not named as a defendant in the Shareholder Litigation, which alleges, among other things, that certain transactions undertaken by Sears Holdings since 2014 (including the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends. We believe that the claims against the Seritage Defendants in the Litigation are without merit and intend to defend against them vigorously.
On March 2, 2021, the Company brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O insurance providers of the Company (the “D&O Insurers”). The Company’s lawsuit is seeking, among other things, declaratory relief and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the Litigation discussed above.
The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, the final outcome of such ordinary course legal proceedings and claims will not have a material effect on the consolidated financial position, results of operations or liquidity of the Company.
Critical Accounting Estimates
In preparing the consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Refer to the discussion of our accounting policies included in Note 2 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report.
Real Estate Investments
The Company on a periodic basis, assesses whether there are indicators, including macroeconomic conditions, that the value of the real estate assets may be impaired. If an indicator is identified, management will estimate the real estate asset recoverability based on projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated holding period and capitalization rates, to determine if the undiscounted cash flows are less than a real estate asset’s carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the estimated fair value of the real asset. In estimating the fair value of an asset, various factors are considered, including expected future operating income, trends and leasing prospects including the effects of demand, competition, and other economic factors such as discount rates and market comparables. Changes in any estimates and/or assumptions, including the anticipated holding period, could have a material impact on the projected operating cash flows. If management determines that the carrying value of a real estate asset is impaired, a loss will be recorded for the excess of its carrying amount over its estimated fair value. The Company recognized $95.8 million and $64.1 million in impairment losses for the years ended December 31, 2021 and 2020.
- 58 -
Investments in Unconsolidated Entities
On a periodic basis, management assesses whether there are indicators, including the operating performance of the underlying real estate and general market conditions which include macroeconomic conditions that the value of the Company’s investments in unconsolidated entities may be impaired. An investment’s value is impaired if management’s estimate of the fair value of the Company’s investment is less than its carrying value and such difference is deemed to be other-than-temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over its estimated fair value. No such impairment losses were recognized for the years ended December 31, 2021 or 2020.
Revenue Recognition
We evaluate on an individual lease basis whether it is probable that we will collect substantially all amounts due from our tenants and recognize changes in the collectability assessment of our operating leases as adjustments to rental revenue. Management exercises judgment in assessing collectability of tenant receivables and considers payment history, current credit status, publicly available information about the financial condition of the tenant, the impact of COVID-19 on tenants' businesses, and other factors. Our assessment of the collectability of tenant receivables can have a significant impact on the rental revenue recognized in our consolidated statements of income.
Recent Accounting Pronouncements
Refer to Note 2 of the consolidated financial statements for recently issued accounting pronouncements.
Non-GAAP Supplemental Financial Measures and Definitions
The Company makes reference to NOI, Total NOI, FFO and Company FFO which are financial measures that include adjustments to GAAP.
Net Operating Income (“NOI”) and Total NOI
NOI is defined as income from property operations less property operating expenses. Other REITs may use different methodologies for calculating NOI, and accordingly, the Company's depiction of NOI may not be comparable to other REITs. The Company believes NOI provides useful information regarding Seritage, its financial condition, and results of operations because it reflects only those income and expense items that are incurred at the property level.
The Company also uses Total NOI, which includes its proportional share of Unconsolidated Properties. The Company believes this form of presentation offers insights into the financial performance and condition of the Company as a whole given our ownership of Unconsolidated Properties that are accounted for under GAAP using the equity method.
The Company also considers NOI and Total NOI to be a helpful supplemental measure of its operating performance because it excludes from NOI variable items such as termination fee income, as well as non-cash items such as straight-line rent and amortization of lease intangibles.
Due to the adjustments noted, NOI and Total NOI should only be used as an alternative measure of the Company's financial performance.
Funds from Operations (“FFO”) and Company FFO
FFO is calculated in accordance with National Association of REITs (“Nareit”) which defines FFO as net income computed in accordance with GAAP, excluding gains (or losses) from property sales, real estate related depreciation and amortization, and impairment charges on depreciable real estate assets. The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry.
The Company makes certain adjustments to FFO, which it refers to as Company FFO, to account for certain non-cash and non-comparable items, such as termination fee income, unrealized loss on interest rate cap, litigation charges, acquisition-related expenses, amortization of deferred financing costs and certain up-front-hiring costs, that it does not believe are representative of ongoing operating results.
Due to the adjustments noted, FFO and Company FFO should only be used as an alternative measure of the Company's financial performance.
- 59 -
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
None of NOI, Total NOI, FFO and Company FFO are measures that (i) represent cash flow from operations as defined by GAAP; (ii) are indicative of cash available to fund all cash flow needs, including the ability to make distributions; (iii) are alternatives to cash flow as a measure of liquidity; or (iv) should be considered alternatives to net income (which is determined in accordance with GAAP) for purposes of evaluating the Company’s operating performance. Reconciliations of these measures to the respective GAAP measures we deem most comparable are presented below on a comparative basis for all periods.
The following table reconciles NOI and Total NOI to GAAP net loss for the years ended December 31, 2021, 2020 and 2019 (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
NOI and Total NOI |
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Net loss |
|
$ |
(38,985 |
) |
|
$ |
(152,964 |
) |
|
$ |
(90,603 |
) |
Termination fee income |
|
|
(3,378 |
) |
|
|
(7,604 |
) |
|
|
(5,545 |
) |
Management and other fee income |
|
|
(1,032 |
) |
|
|
(293 |
) |
|
|
(1,598 |
) |
Depreciation and amortization |
|
|
51,199 |
|
|
|
95,997 |
|
|
|
104,581 |
|
General and administrative expenses |
|
|
41,949 |
|
|
|
28,849 |
|
|
|
39,156 |
|
Equity in loss of Unconsolidated Properties |
|
|
9,226 |
|
|
|
4,712 |
|
|
|
17,994 |
|
Gain on sale of interests in Unconsolidated Properties |
|
|
— |
|
|
|
(1,758 |
) |
|
|
— |
|
Gain on sale of real estate |
|
|
(221,681 |
) |
|
|
(88,555 |
) |
|
|
(71,104 |
) |
Impairment on real estate assets |
|
|
95,826 |
|
|
|
64,108 |
|
|
|
— |
|
Interest and other income |
|
|
(9,285 |
) |
|
|
(3,394 |
) |
|
|
(6,824 |
) |
Interest expense |
|
|
107,975 |
|
|
|
91,316 |
|
|
|
94,519 |
|
Provision for income taxes |
|
|
196 |
|
|
|
252 |
|
|
|
196 |
|
Straight-line rent adjustment |
|
|
(2,269 |
) |
|
|
4,983 |
|
|
|
(15,590 |
) |
Above/below market rental income/expense |
|
|
176 |
|
|
|
(1,793 |
) |
|
|
(495 |
) |
NOI |
|
$ |
29,917 |
|
|
$ |
33,856 |
|
|
$ |
64,687 |
|
Unconsolidated entities (1) |
|
|
|
|
|
|
|
|
|
|||
NOI of Unconsolidated Properties (2) |
|
|
6,942 |
|
|
|
6,122 |
|
|
|
9,851 |
|
Straight-line rent |
|
|
(885 |
) |
|
|
(681 |
) |
|
|
(152 |
) |
Above/below market rental income/expense |
|
|
131 |
|
|
|
(713 |
) |
|
|
(1,719 |
) |
Termination fee income |
|
|
(588 |
) |
|
|
(827 |
) |
|
|
— |
|
Total NOI |
|
$ |
35,517 |
|
|
$ |
37,757 |
|
|
$ |
72,667 |
|
|
|
|
|
|
|
|
|
|
|
|||
(1) Activity represents the Company's proportionate share of unconsolidated entity activity. |
|
|||||||||||
(2) NOI of Unconsolidated Properties excludes depreciation and amortization, gains, losses and impairments and management and administrative costs. |
|
|||||||||||
- 60 -
The following table reconciles FFO and Company FFO to GAAP net loss the years ended December 31, 2021, 2020, and 2019 (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
FFO and Company FFO |
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Net loss |
|
$ |
(38,985 |
) |
|
$ |
(152,964 |
) |
|
$ |
(90,603 |
) |
Real estate depreciation and amortization |
|
|
49,758 |
|
|
|
93,963 |
|
|
|
102,439 |
|
Real estate depreciation and amortization |
|
|
13,771 |
|
|
|
9,108 |
|
|
|
30,375 |
|
Gain on sale of interests in Unconsolidated Properties |
|
|
— |
|
|
|
(1,758 |
) |
|
|
— |
|
Gain on sale of real estate |
|
|
(221,681 |
) |
|
|
(88,555 |
) |
|
|
(71,104 |
) |
Impairment on real estate assets |
|
|
95,826 |
|
|
|
64,108 |
|
|
|
— |
|
Gains, losses and impairments of real estate |
|
|
544 |
|
|
|
— |
|
|
|
— |
|
Dividends on preferred shares |
|
|
(4,900 |
) |
|
|
(4,900 |
) |
|
|
(4,900 |
) |
FFO attributable to common shareholders |
|
$ |
(105,667 |
) |
|
$ |
(80,998 |
) |
|
$ |
(33,793 |
) |
Termination fee income |
|
|
(3,378 |
) |
|
|
(7,604 |
) |
|
|
(5,545 |
) |
Unconsolidated Property termination fee income |
|
|
(588 |
) |
|
|
(827 |
) |
|
|
— |
|
Amortization of deferred financing costs |
|
|
422 |
|
|
|
421 |
|
|
|
434 |
|
Mortgage recording costs |
|
|
2,383 |
|
|
|
— |
|
|
|
5,008 |
|
Severance costs |
|
|
3,506 |
|
|
|
425 |
|
|
|
— |
|
Restructuring costs |
|
|
2,009 |
|
|
|
— |
|
|
|
— |
|
Company FFO attributable to common |
|
$ |
(101,313 |
) |
|
$ |
(88,583 |
) |
|
$ |
(33,896 |
) |
|
|
|
|
|
|
|
|
|
|
|||
FFO per diluted common share and unit |
|
$ |
(1.89 |
) |
|
$ |
(1.45 |
) |
|
$ |
(0.61 |
) |
Company FFO per diluted common share and unit |
|
$ |
(1.81 |
) |
|
$ |
(1.59 |
) |
|
$ |
(0.61 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Weighted Average Common Shares and Units Outstanding |
|
|
|
|
|
|
|
|
|
|||
Weighted average common shares outstanding |
|
|
42,393 |
|
|
|
38,298 |
|
|
|
36,413 |
|
Weighted average OP Units outstanding |
|
|
13,566 |
|
|
|
17,576 |
|
|
|
19,387 |
|
Weighted average common shares and |
|
|
55,959 |
|
|
|
55,874 |
|
|
|
55,800 |
|
- 61 -
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2021, we had $1.44 billion of consolidated debt, all of which is borrowed under our fixed-rate Term Loan Facility and an additional $20.6 million of sales-leaseback financing which is based on a fixed term and imputed interest rate and therefore, neither are subject to interest rate fluctuations.
As of December 31, 2021, the estimated fair value of our consolidated debt was $1.5 billion. The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements and Consolidated Financial Statement Schedule beginning on page F-1 for the required information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2021, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated Framework (2013).” Based on this assessment, management believes that, as of December 31, 2021, the Company maintained effective internal controls over financial reporting. Deloitte & Touche LLP, the independent registered public accounting firm who audited our consolidated financial statements contained in this Form 10-K, has issued a report on our internal control over financial reporting, which is included herein.
Changes in Internal Controls over Financial Reporting
There were no changes in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 62 -
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
- 63 -
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by Item 10 is hereby incorporated by reference to our definitive proxy statement with respect to our 2022 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference to our definitive proxy statement with respect to our 2022 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is hereby incorporated by reference to our definitive proxy statement with respect to our 2022 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.
The information required by Item 13 is hereby incorporated by reference to our definitive proxy statement with respect to our 2022 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is hereby incorporated by reference to our definitive proxy statement with respect to our 2022 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.
- 64 -
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and consolidated financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule are filed as part of this Annual Report.
Exhibit No. |
|
Description |
|
SEC Document Reference |
|
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2.1 |
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Incorporated by reference to Exhibit 2.1 to our Registration Statement on Form S-11, filed on June 9, 2015. |
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3.1 |
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Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on July 10, 2015. |
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3.2 |
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Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form 8-A, filed on December 14, 2017. |
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3.3 |
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Incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q, filed on May 3, 2019. |
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4.1 |
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Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K, filed on July 10, 2015. |
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4.2 |
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Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form 8-A, filed on December 14, 2017. |
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4.3 |
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Incorporated by reference to Exhibit 4.3 to our Annual Report on Form 10-K, filed on March 2, 2020. |
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10.1 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 10, 2015. |
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10.2 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on December 14, 2017. |
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10.3* |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on March 15, 2019. |
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10.4* |
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Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed on March 15, 2019. |
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10.5 |
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Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K, filed on July 10, 2015. |
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10.6 |
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Incorporated by reference to Exhibit 10.6 to our Annual Report on Form 10-K, filed on March 1, 2017. |
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10.7 |
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Incorporated by reference to Exhibit 10.7 to our Annual Report on Form 10-K, filed on March 1, 2017. |
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10.8 |
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Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K, filed on July 10, 2015. |
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10.9 |
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Incorporated by reference to Exhibit 10.9 to our Annual Report on Form 10-K, filed on March 1, 2017. |
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10.10 |
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Incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K, filed on March 1, 2017. |
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10.11 |
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Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K, filed on February 28, 2018. |
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10.12 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on February 24, 2017. |
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10.13 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on December 28, 2017. |
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10.14† |
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Incorporated by reference to Exhibit 10.6 to our Registration Statement on Form S-11, filed on May 11, 2015. |
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10.15† |
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Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K, filed on July 10, 2015. |
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10.16† |
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Form of Seritage Growth Properties Restricted Share Agreement |
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Incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K, filed on March 1, 2017. |
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- 66 -
10.17† |
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Form of Seritage Growth Properties Sign-On P-RSU Restricted Share Agreement |
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Incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K, filed on July 10, 2015. |
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10.18† |
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Form of Seritage Growth Properties Time-Vesting Restricted Share Unit Agreement |
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Incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K, filed on July 10, 2015. |
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10.19† |
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Form of Seritage Growth Properties Annual P-RSU Restricted Share Agreement |
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Incorporated by reference to Exhibit 10.9 to our Current Report on Form 8-K, filed on July 10, 2015. |
10.20† |
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Employment Agreement with Brian Dickman, dated as of July 6, 2015 |
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Incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K, filed on July 10, 2015. |
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10.21† |
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Employment Agreement with Mary Rottler, dated as of June 2, 2015 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on June 19, 2015. |
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10.22† |
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Employment Agreement, dated April 17, 2015, between Benjamin Schall and Seritage Growth Properties |
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Incorporated by reference to Exhibit 10.8 to our Registration Statement on Form S-11, filed on May 26, 2015. |
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10.23† |
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Incorporated by reference to Exhibit 10.9 to our Registration Statement on Form S-11, filed on May 26, 2015. |
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10.24† |
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Letter Agreement, dated May 15, 2015, between Matthew Fernand and Seritage Growth Properties |
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Incorporated by reference to Exhibit 10.10 to our Registration Statement on Form S-11, filed on May 26, 2015. |
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10.25† |
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Letter Agreement, dated May 13, 2015, between James Bry and Seritage Growth Properties |
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Incorporated by reference to Exhibit 10.11 to our Registration Statement on Form S-11, filed on May 26, 2015. |
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10.26 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 2, 2015. |
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10.27 |
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Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed on July 2, 2015. |
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10.28 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 31, 2018. |
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10.29† |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 7, 2018. |
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10.30† |
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Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q, filed on August 3, 2018. |
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10.31† |
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Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q, filed on August 3, 2018. |
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10.32† |
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Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q, filed on August 3, 2018. |
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10.33 |
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Incorporated by reference to Exhibit 10.33 to our Annual Report on Form 10-K, filed on March 2, 2020. |
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10.34 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on May 8, 2020. |
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10.35 |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on June 4, 2020. |
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10.36 |
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Incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K, filed on March 15, 2021.
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10.37† |
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Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on February 9, 2021. |
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10.38 |
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21.1 |
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Filed herewith. |
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23.1 |
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Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm |
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Filed herewith. |
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31.1 |
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Filed herewith. |
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31.2 |
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Filed herewith. |
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32.1 |
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Furnished herewith. |
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32.2 |
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Furnished herewith. |
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101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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Filed herewith. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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Filed herewith. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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Filed herewith. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Filed herewith. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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Filed herewith. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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Filed herewith. |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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Filed herewith. |
* Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
† Management contract or compensatory plan or arrangement.
- 68 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SERITAGE GROWTH PROPERTIES |
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Dated: March 15, 2022 |
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/s/ Andrea Olshan |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
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Title |
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Date |
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/s/ Andrea Olshan |
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Chief Executive Officer and President (principal executive officer) |
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March 15, 2022 |
Andrea Olshan |
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/s/ John Garilli |
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Interim Chief Financial Officer (principal financial and accounting officer) |
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March 15 2022 |
John Garilli |
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/s/ David S. Fawer |
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Trustee |
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March 15, 2022 |
David S. Fawer |
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/s/ John T. McClain |
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Trustee |
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March 15, 2022 |
John T. McClain |
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/s/ Sharon Osberg |
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Trustee |
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March 15, 2022 |
Sharon Osberg |
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/s/ Thomas M. Steinberg |
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Trustee |
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March 15, 2022 |
Thomas M. Steinberg |
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/s/ Allison Thrush |
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Trustee |
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March 15, 2022 |
Allison Thrush |
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- 69 -
SERITAGE GROWTH PROPERTIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Financial Statements
All other schedules are omitted since the required information is either not present in any amounts, is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and related notes.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Seritage Growth Properties
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Seritage Growth Properties and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Liquidity — Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company’s primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service (collectively, “Obligations”), and certain development expenditures. Property rental income, which is the Company’s primary source of operating cash flow, did not fully fund Obligations and certain development expenditures incurred during the year ended December 31, 2021. Obligations and certain development expenditures are projected to continue to exceed property rental income until the Company has redeveloped a majority of its portfolio and additional tenants have moved into the redeveloped sites and commenced paying rent.
The Company expects to fund its Obligations and certain development expenditures with cash on hand and sales of properties, subject to any approvals that may be required under the Company’s term loan facility.
F-2
We identified the Company’s liquidity disclosure as a critical audit matter because of the significant judgments in management’s plans to fund its Obligations and certain development expenditures. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s conclusion that it is probable the Company’s plans will be effectively implemented within one year after the date the financial statements are issued and will provide the necessary cash flows to fund the Company’s Obligations and certain development expenditures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s liquidity disclosure included the following, among others:
Real Estate Investments – Impairment — Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company, on a periodic basis, assesses whether there are indicators that carrying value of real estate assets may not be recoverable. If an indicator is identified, management will estimate the real estate asset recoverability based on projected operating cash flows to determine whether the undiscounted cash flows exceed the real estate asset’s carrying value. If the undiscounted cash flows are less than carrying value of a real estate asset, an analysis is performed to determine the estimated fair value of the real estate asset. If management determines that the carrying value of a real estate asset is impaired, a loss will be recorded on a real estate asset for the excess of its carrying value over its estimated fair value.
The Company makes significant assumptions in estimating future undiscounted cash flows, including capitalization rates and, as necessary, the discount rate and sales comparables to determine the estimated fair value of real estate assets. The Company recorded approximately $96 million of impairment losses for the year ended December 31, 2021.
The Company’s assumptions used in estimating the undiscounted cash flow for real estate assets and the estimated fair value for real estate assets when not recoverable, is subjective and requires judgment. Because of this, auditing these assumptions required a high degree of auditor judgment and extensive auditor effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to evaluating management’s estimated undiscounted cash flows and the estimated fair value of real estate assets included the following, among others:
F-3
/s/
March 15, 2022
We have served as the Company’s auditor since 2015.
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Seritage Growth Properties
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Seritage Growth Properties and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 15, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
March 15, 2022
F-5
SERITAGE GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
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December 31, 2021 |
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December 31, 2020 |
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ASSETS |
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Investment in real estate |
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Land |
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$ |
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$ |
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Buildings and improvements |
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Accumulated depreciation |
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Construction in progress |
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Net investment in real estate |
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Real estate held for sale |
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Investment in unconsolidated entities |
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Cash and cash equivalents |
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Restricted cash |
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Tenant and other receivables, net |
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Lease intangible assets, net |
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Prepaid expenses, deferred expenses and other assets, net |
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Total assets (1) |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Liabilities |
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Term loan facility, net |
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$ |
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$ |
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Sales-leaseback financing obligations |
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Accounts payable, accrued expenses and other liabilities |
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Total liabilities (1) |
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(Note 9) |
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Shareholders’ Equity |
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Class A common shares $ |
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Series A preferred shares $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total shareholders’ equity |
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Non-controlling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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(1)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
SERITAGE GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
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Year Ended December 31, |
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2021 |
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2020 |
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2019 |
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REVENUE |
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Rental income |
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$ |
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$ |
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Total revenue |
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EXPENSES |
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Property operating |
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Real estate taxes |
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Depreciation and amortization |
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General and administrative |
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Total expenses |
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Gain on sale of real estate |
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Gain on sale of interests in unconsolidated entities |
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— |
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— |
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Impairment of real estate assets |
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( |
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( |
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— |
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Equity in loss of unconsolidated entities |
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( |
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( |
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( |
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Interest and other income |
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|
|
|||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Provision for income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss attributable to |
|
|
|
|
|
|
|
|
|
|||
Net loss attributable to Seritage |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Preferred dividends |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss attributable to Seritage common |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Net loss per share attributable to Seritage |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share attributable to Seritage |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average Class A common |
|
|
|
|
|
|
|
|
|
|||
Weighted average Class A common |
|
|
|
|
|
|
|
|
|
|||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
SERITAGE GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF EQUITY
(Amounts in thousands, except per share and unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Non- |
|
|
|
|
||||||||||
|
|
Class A Common |
|
|
Class B Common |
|
|
Series A Preferred |
|
|
Paid-In |
|
|
Accumulated |
|
|
Controlling |
|
|
Total |
|
|||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interests |
|
|
Equity |
|
||||||||||
Balance at January 1, 2019 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cumulative effect of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Common dividends and |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Preferred dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Vesting of restricted share units |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Share class surrenders |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
OP Unit exchanges |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|||
Balance at December 31, 2019 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||||
F-8
SERITAGE GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF EQUITY (Continued)
(Amounts in thousands, except per share and unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Non- |
|
|
|
|
||||||||||
|
|
Class A Common |
|
|
Class B Common |
|
|
Series A Preferred |
|
|
Paid-In |
|
|
Accumulated |
|
|
Controlling |
|
|
Total |
|
|||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interests |
|
|
Equity |
|
||||||||||
Balance at January 1, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Preferred dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Vesting of restricted share units |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Share class surrenders |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
OP Unit exchanges |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|||
Balance at December 31, 2020 |
|
|
|
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
F-9
SERITAGE GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF EQUITY (Continued)
(Amounts in thousands, except the per share and unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Non- |
|
|
|
|
||||||||||
|
|
Class A Common |
|
|
Class B Common |
|
|
Series A Preferred |
|
|
Paid-In |
|
|
Accumulated |
|
|
Controlling |
|
|
Total |
|
|||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interests |
|
|
Equity |
|
||||||||||
Balance at January 1, 2021 |
|
|
|
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Preferred dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Vesting of restricted share units |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
OP Unit exchanges |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|||
Contributions to consolidated joint ventures |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-10
SERITAGE GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|||
Equity in loss of unconsolidated entities |
|
|
|
|
|
|
|
|
|
|||
Distributions from unconsolidated entities |
|
|
|
|
|
|
|
|
|
|||
Gain on sale of interest in unconsolidated entities |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Gain on sale of real estate |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Impairment of real estate assets |
|
|
|
|
|
|
|
|
— |
|
||
Share-based compensation |
|
|
|
|
|
( |
) |
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|||
Amortization of deferred financing costs |
|
|
|
|
|
|
|
|
|
|||
Amortization of above and below market leases, net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Straight-line rent adjustment |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Interest on sale-leaseback financing obligations |
|
|
|
|
|
— |
|
|
|
— |
|
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|||
Tenants and other receivables |
|
|
|
|
|
|
|
|
|
|||
Prepaid expenses, deferred expenses and other assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
CASH FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|||
Investment in unconsolidated entities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net proceeds from disposition of interest in unconsolidated entities |
|
|
— |
|
|
|
|
|
|
— |
|
|
Distributions from unconsolidated entities |
|
|
|
|
|
|
|
|
|
|||
Net proceeds from sale of real estate |
|
|
|
|
|
|
|
|
|
|||
Development of real estate |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
|
|
( |
) |
||
CASH FLOW FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|||
Repayment of Term Loan Facility |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Proceeds from sale-leaseback financing obligations |
|
|
— |
|
|
|
|
|
|
— |
|
|
Purchase of shares related to stock grant recipients’ tax withholdings |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Preferred dividends paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Common dividends paid |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Non-controlling interests distributions paid |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Contributions from noncontrolling interests in other partnerships |
|
|
|
|
|
— |
|
|
|
— |
|
|
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net (decrease) increase in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
|||
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-11
SERITAGE GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Amounts in thousands)
|
|
Year Ended December 31, |
|
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
|||
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
|||
Restricted cash at beginning of period |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
Cash and cash equivalents and restricted cash at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
|||
Restricted cash at end of period |
|
|
|
|
|
|
|
|
— |
|
|
||
Cash and cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
|||
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|||
Cash payments for interest |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Capitalized interest |
|
|
|
|
|
|
|
|
|
|||
Income taxes paid |
|
|
|
|
|
|
|
|
|
|||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND |
|
|
|
|
|
|
|
|
|
|||
Development of real estate financed with accounts payable |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Preferred dividends declared and unpaid |
|
|
|
|
|
|
|
|
|
|||
Decrease in real estate, net resulting from deconsolidated properties |
|
|
|
|
|
|
|
|
|
|||
Real estate, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Tenants and other receivables, net |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Lease intangible assets, net |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Prepaid expenses, deferred expenses and other assets, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
— |
|
|
|
|
|
|
|
||
Transfer to real estate assets held for sale |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Transfer of below market asset to right of use asset |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Recording (removal) of right of use assets |
|
|
( |
) |
|
|
|
|
|
|
||
Recording (removal) of lease liabilities |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Property delivered in exchange |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Property received in exchange |
|
|
— |
|
|
|
— |
|
|
|
|
|
Property received in JV distribution |
|
|
— |
|
|
|
|
|
|
— |
|
|
Non-cash property investment in JV distribution |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-12
SERITAGE GROWTH PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization
Seritage Growth Properties (“Seritage”) (NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, is a fully integrated, self-administered and self-managed real estate investment trust (“REIT”) as defined under Section 856(c) of the Internal Revenue Code (the “Code”). Seritage’s assets are held by and its operations are primarily conducted, directly or indirectly, through Seritage Growth Properties, L.P., a Delaware limited partnership (the “Operating Partnership”). Under the partnership agreement of the Operating Partnership, Seritage, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership. Unless otherwise expressly stated or the context otherwise requires, the “Company” and “Seritage” refer to Seritage, the Operating Partnership and its owned and controlled subsidiaries.
Seritage is principally engaged in the ownership, development, redevelopment, management, sale and leasing of diversified retail and mixed-use properties throughout the United States. As of December 31, 2021, the Company’s portfolio consisted of interests in
The Company commenced operations on July 7, 2015 following a rights offering to the shareholders of Sears Holdings Corporation (“Sears Holdings” or “Sears”) to purchase common shares of Seritage in order to fund, in part, the $
As of December 31, 2021, the Company no longer had any remaining properties leased to Holdco or Sears Holdings after giving effect to the termination of the remaining
COVID-19 Pandemic
The Coronavirus (“COVID-19”) pandemic has caused and continues to cause significant impacts on the real estate industry in the United States, including the Company's properties.
As a result of the development, fluidity and uncertainty surrounding the situation, the Company expects that these conditions may change, potentially significantly, in future periods and results for the year ended December 31, 2021 may not be indicative of the impact of the COVID-19 pandemic on the Company's business for future periods. As such, the Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operation or cash flows over the foreseeable future.
As of December 31, 2021, the
Liquidity
The Company’s primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service (collectively, “Obligations”), and certain development expenditures. Property rental income, which is the Company’s primary source of operating cash flow, did not fully fund Obligations incurred during the year ended December 31, 2021 and the Company recorded net operating cash outflows of $
Obligations are projected to continue to exceed property rental income and the Company expects to fund such costs with a combination of capital sources including, cash on hand, and sales of Consolidated Properties, subject to any approvals that may be required under the Company’s Term Loan Facility, as described in Note 6. As of March 11, 2022, the Company had
F-13
With regard to the period beyond one year after the financial statements are issued, the Company’s Term Loan Facility, which had an outstanding balance at December 31, 2021 of $
On March 1, 2022, the Company announced that its Board of Trustees had commenced a process to review a broad range of strategic alternatives. The Board has created a Special Committee (the “Special Committee”) of the Company’s Board of Trustees to oversee the process. The Special Committee has retained Barclays as its financial advisor. The Company is in the early stages of the strategic review process. There can be no assurance that the review process will result in any transaction or any strategic change at this time.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of the Company, the Operating Partnership, each of their consolidated properties, and all other entities in which they have a controlling financial interest. For entities that meet the definition of a variable interest entity (“VIE”), the Company consolidates those entities when the Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it possesses both the unilateral power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company continually evaluates whether it qualifies as the primary beneficiary and reconsiders its determination of whether an entity is a VIE upon reconsideration events. As of December 31, 2021, the Company consolidates
As of December 31, 2021, the Company holds a
To the extent such variable interests are in entities that are not evaluated under the VIE model, the Company evaluates its interests using the voting interest entity model.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant assumptions and estimates relate to real estate impairment assessments, and assessing the recoverability of accounts receivable. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from these estimates.
Segment Reporting
The Company currently operates in a single reportable segment which includes the ownership, development, redevelopment, management, sale and leasing of real estate properties. The Company’s chief operating decision maker, its principal executive officer, assesses and measures the operating and financial results for each property on an individual basis and does not distinguish or group properties based on geography, size, or type. The Company, therefore, aggregates all properties into
F-14
Real Estate Investments
Real estate assets are recorded at cost, less accumulated depreciation and amortization.
Expenditures for ordinary repairs and maintenance will be expensed as incurred. Significant renovations which improve the property or extend the useful life of the assets are capitalized. As real estate is undergoing redevelopment activities, all amounts directly associated with and attributable to the project, including planning, development and construction costs, interest costs, personnel costs of employees directly involved, and other miscellaneous costs incurred during the period of redevelopment, are capitalized. The capitalization period begins when redevelopment activities are underway and ends when the project is substantially complete.
Depreciation of real estate assets, excluding land, is recognized on a straight-line basis over their estimated useful lives which generally range between:
Buildings: |
|
Site improvements: |
|
Tenant improvements: |
shorter of the estimated useful life or non-cancelable term of lease |
The Company amortizes identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired, generally the remaining non-cancelable term of a related lease.
The Company, on a periodic basis, assesses whether there are indicators that the value of the real estate assets may be impaired. If an indicator is identified, management will estimate the real estate asset recoverability based on projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated holding period and capitalization rates, to determine if the undiscounted cash flows are less than a real estate asset’s carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the estimated fair value of the real asset. In estimating the fair value of an asset, various factors are considered, including expected future operating income, trends and leasing prospects, including the effects of demand, competition, and other economic factors, such as discount rates and market comparables. Changes in any estimates and/or assumptions, including the anticipated holding period, could have a material impact on the projected operating cash flows. If management determines that the carrying value of a real estate asset is impaired, a loss will be recorded for the excess of its carrying amount over its estimated fair value. The Company recognized impairment losses of $
Real Estate Dispositions
When the Company disposes of all or a portion of a real estate asset, it recognizes a gain or loss on sale of real estate as the difference between the carrying value and consideration received. Consideration consists of cash proceeds received and in certain circumstances, non-cash consideration which is typically in the form of equity in unconsolidated entities when the asset is contributed to a joint venture. Gains and losses from the disposition if real estate are recorded as gain (loss) on sale of real estate on the Company’s consolidated statements of operations. Refer to Note 4 for more information on the Company’s unconsolidated entity transactions.
The following table summarizes the Company’s gain on sale of real estate, net during the years ended December 31, 2021, 2020, and 2019 (in millions):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Contributions to unconsolidated entities |
|
|
|
|
|
|
|
|
|
|||
Gross proceeds |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Gain (loss) on sale of real estate, net |
|
|
|
|
|
( |
) |
|
|
|
||
Dispositions to third parties |
|
|
|
|
|
|
|
|
|
|||
Gross proceeds |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Gain on sale of real estate, net (1)(2)(3) |
|
|
|
|
|
|
|
|
|
|||
Total gains on contributions and dispositions, net |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-15
Real Estate Held for Sale
When a real estate asset is identified by management as held for sale, the Company ceases depreciation of the asset and estimates its fair value, net of estimated costs to sell. If the estimated fair value, net of estimated costs to sell, of an asset is less than its net carrying value, an adjustment is recorded to reflect the estimated fair value. Properties classified as real estate held for sale generally represent properties that are under contract for sale and are expected to close within a year.
In evaluating whether a property meets the held for sale criteria, the Company makes a determination as to the point in time that it is probable that a sale will be consummated. Given the nature of all real estate sales contracts, it is not unusual for such contracts to allow potential buyers a period of time to evaluate the property prior to formal acceptance of the contract. In addition, certain other matters critical to the final sale, such as financing arrangements, often remain pending even upon contract acceptance. As a result, properties under contract may not close within the expected time period or at all.
As of December 31, 2021,
Investments in Unconsolidated Entities
The Company accounts for its investments in unconsolidated entities using the equity method of accounting as the Company exercises significant influence but does not have a controlling financial interest. These investments are initially recorded at cost and are subsequently adjusted for cash contributions, cash distributions, and earnings which are recognized in accordance with the terms of the applicable agreement.
On a periodic basis, management assesses whether there are indicators, including the operating performance of the underlying real estate and general market conditions which include macroeconomic conditions, that the value of the Company’s investments in unconsolidated entities may be impaired. An investment’s value is impaired if management’s estimate of the fair value of the Company’s investment is less than its carrying value and such difference is deemed to be other-than-temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over its estimated fair value. .
Restricted Cash
As of December 31, 2021, restricted cash represents cash collateral for a letter of credit. As of December 31, 2020 restricted cash represents cash received as proceeds for a sale which did not meet the criteria for sale accounting at December 31, 2020, as well as cash collateral for a letter of credit.
Rental Revenue Recognition and Tenant Receivables
Rental income is comprised of base rent and reimbursements of property operating expenses. The Company commences rental revenue recognition when the lessee takes control of the physical use of the leased asset based on an evaluation of several factors. Base rent is recognized on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable base rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded as straight-line rent receivable and included as a component of tenant and other receivables on the consolidated balance sheets. Reimbursement of property operating expenses arises from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective property. This revenue is accrued in the same periods as the expenses are incurred.
The Company periodically reviews its receivables for collectability, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area where the property is located. Tenant receivables, including receivables arising from the straight-lining of rents, are written-off directly when management deems that the collectability of substantially all future lease payments from a specified lease is not probable of collection, at which point, the Company will begin recognizing revenue on a cash basis, based on actual amounts received. Any receivables that are deemed to be uncollectible are recognized as a reduction to rental income in the Company’s consolidated statements of operations. If future circumstances change such that the Company believes that it is reasonably certain that the Company will collect all rental income remaining on such leases, the Company will resume accruing rental income and recognize a cumulative catch up for previously written-off receivables.
F-16
The Company recorded a reduction to rental income of $
Due to the COVID-19 pandemic, the Company has entered into amendments to existing leases with certain tenants (the “Rent Deferral Agreements”), that provide for the deferral of all or some portion of rental payments due during the period which such tenant was affected by the COVID-19 pandemic (“Deferred Rent”). The Rent Deferral Agreements typically provide for repayment of the Deferred Rent within six to 12 months following the end of the rent deferral period and, in many instances, waive certain other conditions in favor of the Company while Deferred Rent is outstanding. Deferred Rent generally becomes immediately due and payable under the Rent Deferral Agreements if the tenant does not make the minimum contractual payments or otherwise defaults on the lease. We recognize lease concessions related to the COVID-19 pandemic such as rent deferrals and abatements in accordance with the Lease Modification Q&A issued by the Financial Accounting Standards Board (“FASB”), in April 2020, which provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. As a result, the Company has not adjusted accrued rental revenues or the portion of accrued rental revenues related to the straight-line method for the portion which has been deferred. When the Deferred Rent is repaid, the Company will relieve the accrual in tenant and other receivables.
In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company will determine whether the allowance represents funding for the construction of leasehold improvements and evaluate the ownership of such improvements. If the Company is considered the owner of the improvements for accounting purposes, the Company will capitalize the amount of the tenant allowance and depreciate it over the shorter of the useful life of the improvements or the related lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered a lease incentive and is recognized over the lease term as a reduction of rental revenue on a straight-line basis.
Tenant and Other Receivables
Tenant and other receivables includes unpaid amounts billed to tenants, accrued revenues for future billings to tenants for property expenses, and amounts arising from the straight-lining of rent, as discussed above. Tenant and other receivables also includes management fees receivable for services performed for the benefit of certain unconsolidated entities. In the event that the collectability of a management fee receivable is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made.
Management and Other Fee Income
Management and other fee income represents property management, construction, leasing and development fees for services performed for the benefit of certain unconsolidated entities.
Property management fee income is reported at
Leasing and development fees are initially reported at the portion of revenue earned attributable to outside ownership of the related unconsolidated entities. The Company’s share in leasing and development fee income is recognized over the useful life of the associated development project, in the case of development fees, or lease term, in the case of leasing fees, as the associated asset is depreciated over the same term and included in equity in income (loss) of unconsolidated entities on the consolidated statements of operations and in other expenses in the combined financial data in Note 4.
F-17
Conversely, leasing services are considered to be performance obligations, satisfied as of a point in time. The Company’s leasing fee is typically paid upon the occurrence of certain contractual event(s) that may be contingent and the pattern of revenue recognition may differ from the timing of payment. For these services, the obligations are typically satisfied at lease execution and tenant opening date, and revenue is recognized in accordance with the related agreement at the point in time when the obligation has been satisfied.
Share-Based Compensation
The Company generally recognizes equity awards to employees as compensation expense and includes such expense within general and administrative expenses in the consolidated statements of operations. Compensation expense for equity awards is based on the grant date fair value of the awards. Compensation expense is recognized ratably over the vesting period for awards with time-based vesting and awards with market-based vesting conditions (e.g. total shareholder return). For awards with performance-based vesting determined by Company operating criteria, the Company recognizes compensation expense at the date the achievement of performance criteria is deemed probable for the amount which would have been recognized ratably from the date of the grant through the date the achievement of performance criteria is deemed probable, and then ratably from the date the achievement of performance criteria is deemed probable through the remainder of the vesting period. The Company utilizes a third-party valuation firm to measure the grant date fair value of restricted stock unit awards with market-based criteria using the Monte Carlo model. Forfeitures are recorded on an actual basis.
Concentration of Credit Risk
Earnings per Share
The Company has three classes of common stock. The rights, including the liquidation and dividend rights, of the holders of the Company’s Class A common shares and Class C non-voting common shares are identical, except with respect to voting. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. The net earnings (loss) per share amounts are the same for Class A and Class C common shares because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. Since August 29, 2018, all outstanding Class C common shares had been exchanged for Class A common shares and there are currently
Class B non-economic common shares are excluded from earnings per share computations as they do not have economic rights. As of December 31, 2020, all outstanding Class B common shares had been surrendered and there are currently
All outstanding non-vested shares that contain non-forfeitable rights to dividends are considered participating securities and are included in computing earnings per share pursuant to the two-class method which specifies that all outstanding non-vested share-based payment awards that contain non-forfeitable rights to distributions are considered participating securities and should be included in the computation of earnings per share.
F-18
Recently Issued Accounting Pronouncements
The Company has not adopted any Accounting Standards Updates (“ASUs”) issued by the FASB during the year ended December 31, 2021. Any other recently issued accounting standards or pronouncements not disclosed have been excluded as they either are not applicable to the Company, or they are not expected to have a material effect on the consolidated financial statements of the Company.
The following presents ASUs issued by FASB which have been adopted by the Company:
ASU |
Description |
Adoption Date |
Effect on the financial statements or other significant matters |
ASU 2016-02, Leases (“Topic 842”)
ASU 2018-10, Codification Improvements
ASU 2018-11, Leases, Targeted Improvements
ASU 2018-20, Leases |
This standard, as amended by subsequent ASUs on the topic, sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Additional guidance and targeted improvements to the February 2016 ASU were made through the issuance of supplementary ASUs in July 2018, December 2018 and March 2019. The accounting applied by the lessor is largely unchanged from that applied under the existing lease standard. However, ASU 2016-02 requires lessees to apply a two-method approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less should be accounted for consistent with earlier guidance under ASC 840 for operating leases. Lessees should recognize an expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. |
January 1, 2019 |
The Company adopted this standard by electing the package of practical expedients without hindsight which permits the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the adoption date. |
F-19
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
ASU 2018-19, Codification improvements to Topic 326, Financial Instruments – Credit Losses |
ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, requiring the use of an “expected credit loss” model and adding more disclosure requirements. ASU 2018-19 clarifies that impairment of receivables arising from operating leases should accounted for in accordance with Topic 842, Leases. |
January 1, 2020 |
The Company’s adoption of ASU 2016-13 and 2018-19 did not have a material impact on our consolidated financial statements. |
The Lease Modification Q&A |
In April 2020, the FASB staff issued the Lease Modification Q&A focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant or if a lease concession was under the enforceable rights and obligations within the existing lease agreement. The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. |
April 10, 2020 |
The Company elected to avail itself of the relief provided in the Lease Modification Q&A for all leases which were modified during the second quarter of 2020. The Company entered into Rent Deferral Agreements on |
F-20
Note 3 – Lease Intangible Assets and Liabilities
The following tables summarize the Company’s lease intangible assets (acquired in-place leases and above-market leases) and liabilities (acquired below-market leases, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets), net of accumulated amortization, as of December 31, 2021 and 2020 (in thousands):
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|||
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|||
Lease Intangible Assets |
|
Asset |
|
|
Amortization |
|
|
Balance |
|
|||
In-place leases |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Above-market leases |
|
|
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|||
Lease Intangible Liabilities |
|
Liability |
|
|
Amortization |
|
|
Balance |
|
|||
Below-market leases |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|||
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|||
Lease Intangible Assets |
|
Asset |
|
|
Amortization |
|
|
Balance |
|
|||
In-place leases |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Above-market leases |
|
|
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|||
Lease Intangible Liabilities |
|
Liability |
|
|
Amortization |
|
|
Balance |
|
|||
Below-market leases |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of $
|
|
(Above) / below market leases, net |
|
|
Below market ground leases |
|
|
In-place leases |
|
|||
2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
|
|
|
|||
2024 |
|
|
|
|
|
|
|
|
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
2026 |
|
|
|
|
|
|
|
|
|
|||
Thereafter |
|
|
|
|
|
|
|
|
|
|||
F-21
Note 4 – Investments in Unconsolidated Entities
The Company conducts a portion of its property rental activities through investments in unconsolidated entities. The Company’s partners in these unconsolidated entities are unrelated real estate entities or commercial enterprises. The Company and its partners in these unconsolidated entities make initial and/or ongoing capital contributions to these unconsolidated entities. The obligations to make capital contributions are governed by each unconsolidated entity’s respective operating agreement and related governing documents.
As of December 31, 2021, the Company had investments in ten unconsolidated entities as follows:
|
|
|
|
|
|
Seritage % |
|
|
# of |
|
|
Total |
|
|
|||
Unconsolidated Joint Venture |
|
Joint Venture Partner |
|
Ownership |
|
|
Properties |
|
|
GLA |
|
|
|||||
GS Portfolio Holdings II LLC |
|
Brookfield Properties Retail |
|
|
% |
|
|
|
|
|
|
|
|||||
GS Portfolio Holdings (2017) LLC |
|
Brookfield Properties Retail |
|
|
% |
|
|
|
|
|
|
|
|||||
MS Portfolio LLC |
|
The Macerich Company |
|
|
% |
|
|
|
|
|
|
|
|||||
SPS Portfolio Holdings II LLC |
|
Simon Property Group, Inc. |
|
|
% |
|
|
|
|
|
|
|
|||||
Mark 302 JV LLC |
|
An investment fund managed |
|
|
% |
|
|
|
|
|
|
|
|||||
SI UTC LLC |
|
A separate account advised by |
|
|
% |
|
|
|
|
|
|
|
|||||
SF WH Joint Venture LLC |
|
An affiliate of First Washington |
|
|
% |
|
|
|
|
|
|
|
|||||
GGCAL SRG HV LLC |
|
An affiliate of |
|
|
% |
|
|
|
|
|
|
|
|||||
Tech Ridge JV Holding LLC |
|
An affiliate of |
|
|
% |
|
|
|
|
|
— |
|
|
||||
J&J Baldwin Park LLC |
|
An affiliate of |
|
|
% |
|
|
|
|
|
|
|
|||||
Landmark Land Holdings, LLC |
|
Landmark Land Holdings, LLC |
|
|
|
|
% |
|
|
|
|
|
— |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Company has contributed certain properties to unconsolidated entities in exchange for equity interests in those unconsolidated entities. The contribution of property to unconsolidated entities is accounted for as a sale of real estate and the Company recognizes the gain or loss on the sale (the “Gain (Loss)”) based upon the transaction price attributed to the property at the closing of the unconsolidated entities transaction (the “Contribution Value”). The Gain or (Loss) is included in gain on sale of real estate on the consolidated statements of operations.
In certain circumstances, the Contribution Value is subject to revaluation as defined in the respective unconsolidated entity agreements, which may result in an adjustment to the gain or loss recognized. If the Contribution Value is subject to revaluation, the Company initially recognizes the gain or loss at the value that is the expected amount within the range of possible outcomes and will re-evaluate the expected amount on a quarterly basis through the final determination date.
Upon revaluation, the primary inputs in determining the Contribution Value will be updated for actual results and may result in a cash settlement or capital account adjustment between the unconsolidated entity partners, as well as an adjustment to the initial gain or loss.
F-22
Each reporting period, the Company re-analyzes the primary inputs that determine the Contribution Value and the gain or loss for those unconsolidated entities subject to a revaluation.
|
|
|
|
December 31, 2021 |
|
|||||
Unconsolidated Entity |
|
Contribution Date |
|
Contribution Value |
|
|
Gain (Loss) |
|
||
2018 |
|
|
|
|
|
|
|
|
||
Mark 302 JV (1) |
|
|
$ |
|
|
$ |
|
|||
2019 |
|
|
|
|
|
|
|
|
||
Cockeysville JV (2) |
|
|
$ |
|
|
$ |
|
|||
Tech Ridge JV (3) |
|
|
$ |
|
|
$ |
|
|||
Alexandria Investment
On November 17, 2021, the Company contributed its property located in Alexandria, VA to the Landmark JV and retained a
F-23
Unconsolidated Entity Management and Related Fees
The Company acts as the operating partner and day-to-day manager for Mark 302 JV, West Hartford JV, UTC JV and Tech Ridge JV. The Company is entitled to receive fees for providing management, leasing, and construction supervision services to certain of its unconsolidated entities. Refer to Note 2 for the Company’s accounting policies. The Company also acted as the development manager for one of the properties in the GGP II JV which entitled the Company to receive certain development fees. The Company earned $
The following tables present combined financial data for all of the Company’s unconsolidated entities (in thousands):
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
ASSETS |
|
|
|
|
|
|
||
Investment in real estate |
|
|
|
|
|
|
||
Land |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Net investment in real estate |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Investment in unconsolidated entities |
|
|
|
|
|
|
||
Tenant and other receivables, net |
|
|
|
|
|
|
||
Other assets, net |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND MEMBERS’ INTERESTS |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Mortgage loans payable, net |
|
$ |
|
|
$ |
|
||
Accounts payable, accrued expenses |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Members’ Interests |
|
|
|
|
|
|
||
Additional paid in capital |
|
|
|
|
|
|
||
Retained earnings |
|
|
( |
) |
|
|
( |
) |
Total members’ interests |
|
|
|
|
|
|
||
Total liabilities and members’ interests |
|
$ |
|
|
$ |
|
||
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES |
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Property operating expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gains, losses and impairments |
|
|
( |
) |
|
|
|
|
|
|
||
Net (loss) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Equity in loss of unconsolidated entities |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
F-24
Note 5 – Leases
Lessor Disclosures
Future minimum rental receipts, excluding variable payments and tenant reimbursements of expenses, under non-cancelable operating leases executed as of December 31, 2021 is approximately as follows:
(in thousands) |
|
December 31, 2021 |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
$ |
|
|
The components of lease revenues for the years ended December 31, 2021, 2020 and 2019 were as follows:
|
|
Year Ended December 31, |
|
|||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Fixed rental income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Variable rental income |
|
|
|
|
|
|
|
|
|
|||
Total rental income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Lessee Disclosures
The Company has
The Company recorded rent expense related to leased corporate office space of $
In addition, the Company recorded ground rent expense of approximately $
The Company expects to make cash payments on operating leases of $
The following table sets forth information related to the measurement of our lease liabilities as of December 31, 2021:
(dollar amounts in thousands) |
|
As of December 31, |
|
|
Weighted average remaining lease term (in years) |
|
|
|
|
Weighted average discount rate |
|
|
% |
|
Cash paid for operating leases |
|
$ |
|
|
F-25
Sale-leaseback Financing Obligations
During the year ended December 31, 2020, the Company completed a sale-leaseback transaction for its property in Hialeah, Florida for $
Future sale-leaseback financing obligations as of December 31, 2021 are approximately as follows:
(in thousands) |
|
December 31, 2021 |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Interest portion |
|
|
( |
) |
|
$ |
|
||
Original Master Lease and Holdco Master Lease
On February 28, 2019, the Company and certain affiliates of Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc. (“ESL”), executed the Holdco Master Lease (the “Holdco Master Lease”) which became effective on March 12, 2019 when the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) issued an order approving the rejection of the Original Master Lease. The Company analyzed this transaction under applicable accounting guidance and determined that the termination of the Original Master Lease and entering into the Holdco Master Lease should be accounted for as a modification. The Holdco Master Lease provided the Company with the right to recapture the space occupied by the tenant at all properties (other than five specified properties) and the right to recapture any automotive care centers which are free-standing or attached as “appendages” to the properties, all outparcels or outlots and certain portions of parking areas and common areas.
Revenues from the Holdco Master Lease and the Original Master Lease for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Fixed rental income |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Variable rental income |
|
|
|
|
|
|
|
|
|
|||
Total rental income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-26
Note 6 – Debt
Term Loan Facility
On
Funded amounts under the Term Loan Facility bear interest at an annual rate of
On December 31, 2021, the Company paid down $
The Company’s ability to access the Incremental Funding Facility is subject to (i) the Company achieving rental income from non-Sears Holdings tenants, on an annualized basis (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $
The Term Loan Facility is guaranteed by the Company and, subject to certain exceptions, is required to be guaranteed by all existing and future subsidiaries of the Operating Partnership. The Term Loan Facility is secured on a first lien basis by a pledge of the capital stock of the direct subsidiaries of the Operating Partnership and the guarantors, including its joint venture interests, except as prohibited by the organizational documents of such entities or any joint venture agreements applicable to such entities, and contains a requirement to provide mortgages and other customary collateral upon the breach of certain financial metrics described below, the occurrence and continuation of an event of default and certain other conditions set forth in the Term Loan Agreement. During 2019, mortgages were recorded on a majority of the Company’s portfolio and during the year ended December 31, 2021, mortgages were recorded on the remaining unmortgaged properties in all but three locations.
The Term Loan Facility includes certain financial metrics to govern springing collateral requirements and certain covenant exceptions set forth in the Term Loan Agreement, including: (i) a total fixed charge coverage ratio of not less than
The Term Loan Facility contains customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, material inaccuracy of representations or warranties, and bankruptcy or insolvency proceedings. If there is an event of default, the lenders may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights they might have under any of the Term Loan Facility documents, and require the Company to pay a default interest rate on overdue amounts equal to
As of December 31, 2021, the Company was not in compliance with certain of the financial metrics described above. As a result, the Company must receive the consent of Berkshire Hathaway to dispose of assets via sale or contribution to another entity and, as of December 31, 2021, Berkshire Hathaway had provided such consent for all such transactions submitted for approval. There can be no assurance that the lender will consent to future dispositions of assets. The Company believes it is in compliance with all other terms and conditions of the Term Loan Agreement.
F-27
The Company incurred $
On May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment (the “Term Loan Amendment”) to the Term Loan Agreement by and among the Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the Term Loan Agreement if, as of the first day of each applicable month, (x) the amount of unrestricted and unencumbered (other than liens created under the Term Loan Agreement) cash on hand of the Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or less than $30.0 million. In such instances, for each interest period, the Operating Partnership is obligated to make payments of interest in an amount equal to the difference between (i) Available Cash and (ii) $20.0 million (provided that such payment shall not exceed the amount of current interest otherwise due under the Term Loan Agreement). Any deferred interest shall accrue interest at
Additionally, the Term Loan Amendment provides that the administrative agent and the lenders express their continued support for asset dispositions, subject to the administrative agent’s right to approve the terms of individual transactions due to the occurrence of a Financial Metric Trigger Event, as such term is defined under the Term Loan Agreement.
On November 24, 2021, the Operating Partnership, the Company and Berkshire Hathaway entered into an amendment (the “Second Term Loan Amendment”) to the Term Loan Agreement by and among the Operating Partnership, the Company and Berkshire Hathaway to which the Operating Partnership, the Company and Berkshire Hathaway mutually agreed that (i) the “make whole” provision in the Senior Secured Term Loan Agreement shall not be applicable to prepayments of principal ; and (ii) the Senior Secured Term Loan Agreement, as amended for (i) above, may at the Operating Partnership's election be extended for
Note 7 – Income Taxes
The Company has elected to be taxed as a REIT as defined under Section 856 of the Code for U.S. federal income tax purposes. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to currently distribute at least
As a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to its shareholders. If the Company fails to qualify as a REIT or does not distribute 100% of its taxable income in any taxable year, it will be subject to U.S. federal income tax at regular corporate rates (including, for any taxable year ended on or before December 31, 2017, any applicable alternative minimum tax) and any applicable state and local income taxes. In addition, if the Company fails to qualify as a REIT, it may not be able to qualify as a REIT for four subsequent taxable years in some cases.
Even if the Company qualifies for taxation as a REIT, the Company is subject to certain U.S. state, local and Puerto Rico taxes on its income and property, and to U.S. federal income and excise taxes on its undistributed REIT taxable income. The Company’s taxable REIT subsidiaries are subject to corporate income tax.
As of December 31, 2020, the Company had $
The Company evaluated whether any uncertain tax positions existed as of December 31, 2021 and 2020 and concluded that there are
F-28
Note 8 – Fair Value Measurements
ASC 820, Fair Value Measurement, defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:
Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities
Level 2 - observable prices based on inputs not quoted in active markets, but corroborated by market data
Level 3 - unobservable inputs used when little or no market data is available
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value.
Assets Measured at Fair Value on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist of real estate assets that have been written down to estimated fair value and are classified as Level 3 within the fair value hierarchy.
For the years ended December 31, 2021, 2020 and 2019, in accordance with ASC 360-10, Property, Plant and Equipment, the Company recorded impairment losses of $
The fair value estimates used to determine the impairment charges were determined primarily by discounted cash flow analyses, market comparable data, and/or third-party appraisals, as applicable. The cash flows utilized in such analyses are comprised of unobservable inputs which include, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates based upon market conditions and future expectations. The capitalization rates and discount rates used in the analysis ranged from
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on the consolidated balance sheets include cash equivalents and term loan facility. The fair value of term loan facility is classified as Level 2. Cash equivalents and restricted cash are carried at cost, which approximates fair value. The fair value of debt obligations is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings. As of December 31, 2021 and 2020, the estimated fair values of the Company’s debt obligations were $
Note 9 – Commitments and Contingencies
Insurance
The Company maintains general liability insurance and all-risk property and rental value, with sub-limits for certain perils such as floods and earthquakes on each of the Company’s properties. The Company also maintains coverage for terrorism acts as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2027.
Insurance premiums are charged directly to each of the properties. The Company will be responsible for deductibles and losses in excess of insurance coverage, which could be material. The Company continues to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, the Company cannot anticipate what coverage will be available on commercially reasonable terms in the future.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, the Company may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances. As a result, the Company may be liable for certain costs including removal, remediation, government fines and injuries to persons and property.
Under the Original Master Lease and Holdco Master Lease, Holdco is required to indemnify the Company from certain environmental liabilities at the Consolidated Properties before or during the period in which any such Consolidated Property was leased to Holdco,
F-29
including removal and remediation of all affected facilities and equipment constituting the automotive care center. In addition, an environmental reserve was funded at the closing of the transactions in connection with the Company commencing operations in the amount of approximately $
Litigation and Other Matters
In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued or discloses the fact that such a range of loss cannot be estimated. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, and the Company, the Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD). The Litigation alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $
On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Unsecured Creditors’ Committee (the “UCC”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.
On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions have been completed, and the parties are awaiting a decision. Briefing and oral argument on the motions were completed in August 2020, and the parties are awaiting a decision. The Company believes that the claims against the Seritage Defendants in the Litigation are without merit and intends to defend against them vigorously.
On March 15, 2021, the Court consolidated the Litigation with a case captioned Sears Holding Corp. et al. v. Andrew H. Tisch, et al., Case No. 20-07007 (RDD) (the “Shareholder Litigation,” and, together with the Litigation, the “Consolidated Litigation”). The Shareholder Litigation was brought by the UCC, Sears Holdings Corporation, and Sears, Roebuck and Co., against certain shareholders of Sears Holdings or its related companies. Seritage was not named as a defendant in the Shareholder Litigation, which alleges, among other things, that certain transactions undertaken by Sears Holdings since 2014 (including the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends. The Company believes that the claims against the Seritage Defendants in the Consolidated Litigation are without merit and intends to defend against them vigorously.
In addition to the litigation described above, the Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business and due to the current environment. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material effect on the condensed consolidated financial position, results of operations, cash flows or liquidity of the Company. As of December 31, 2021, and 2020, the Company did not record any amounts for litigation or other matters.
F-30
Note 10 – Related Party Disclosure
Edward S. Lampert
Edward S. Lampert is the Chairman and Chief Executive Officer of ESL, which owns Holdco, and was Chairman of Sears Holdings. Mr. Lampert was also the Chairman of Seritage prior to his retirement effective March 1, 2022.
As of December 31, 2021, Mr. Lampert beneficially owned a
Subsidiaries of Holdco, as lessees, and subsidiaries of the Company, as lessors, are parties to the Holdco Master Lease and subsidiaries of Sears Holdings, as lessees, and subsidiaries of the Company, as lessors, were parties to the Original Master Lease (see Note 5).
Unconsolidated Entities
Certain unconsolidated entities have engaged the Company to provide management, leasing, construction supervision and development services at the properties owned by the unconsolidated entities. Refer to Note 2 for the Company’s significant accounting policies.
In addition, as of December 31, 2021, the Company had incurred $
Note 11 – Non-Controlling Interests
Partnership Agreement
On July 7, 2015, Seritage and ESL entered into the agreement of limited partnership of the Operating Partnership which was amended and restated on December 14, 2017. Pursuant to this partnership agreement, as the sole general partner of the Operating Partnership, Seritage exercises exclusive and complete responsibility and discretion in its day-to-day management, authority to make decisions, and control of the Operating Partnership, and may not be removed as general partner by the limited partners.
As of December 31, 2021, the Company held a
Note 12 – Shareholders’ Equity
Class A Common Shares
As of December 31, 2021,
During the year ended December 31, 2021,
Class B Non-Economic Common Shares
As of December 31, 2021, there were
F-31
Series A Preferred Shares
In December 2017, the Company issued
The Company may not redeem the Series A Preferred Shares before December 14, 2022 except to preserve its status as a REIT or upon the occurrence of a Change of Control, as defined in the trust agreement addendum designating the Series A Preferred Shares. On and after December 14, 2022, the Company may redeem any or all of the Series A Preferred Shares at $
Dividends and Distributions
The Company’s Board of Trustees has not declared dividends on the Company’s Class A common shares during 2021 or 2020. The last dividend on the Company’s Class A and C common shares that the Board of Trustees declared was on February 25, 2019, which was paid on April 11, 2019 to shareholders of record on March 29, 2019.
Our Board of Trustees will continue to assess the Company’s investment opportunities and its expectations of taxable income in its determination of future distributions, if any.
The Company declared total dividend of $
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Ordinary income |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Capital gain distributions |
|
|
— |
|
|
|
|
|
|
|
||
Return of capital |
|
|
— |
|
|
|
|
|
|
|
||
Dividends reallocation (1) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
The Company’s Board of Trustees also declared the following dividends on preferred shares during 2022, 2021 and 2020:
Declaration Date |
|
Record Date |
|
Payment Date |
|
Preferred Share |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
||||
|
|
|
|
|
||||
|
|
|
|
|
||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
||||
|
|
|
|
|
||||
|
|
|
|
|
||||
F-32
Note 13 – Earnings per Share
The table below provides a reconciliation of net loss and the number of common shares used in the computations of “basic” earnings per share (“EPS”), which utilizes the weighted-average number of common shares outstanding without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares. Potentially dilutive securities consist of shares of non-vested restricted stock and the redeemable non-controlling interests in the Operating Partnership.
All outstanding non-vested shares that contain non-forfeitable rights to dividends are considered participating securities and are included in computing EPS pursuant to the two-class method which specifies that all outstanding non-vested share-based payment awards that contain non-forfeitable rights to distributions are considered participating securities and should be included in the computation of EPS.
Earnings per share has not been presented for Class B shareholders, as they do not have economic rights.
|
|
Year Ended December 31, |
|
|||||||||
(in thousands except per share amounts) |
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Numerator - Basic and Diluted |
|
|
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|||
Preferred dividends |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss attributable to common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Earnings allocated to unvested participating securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss available to common shareholders - Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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|
|||
Denominator - Basic and Diluted |
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|
|||
Weighted average Class A common shares outstanding |
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|||
Weighted average Class A common shares outstanding |
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|||
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|
|||
Net loss per share attributable to Class A and |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
No adjustments were made to the numerator for the years ended December 31, 2021, 2020 or 2019 because the Company generated a net loss. During periods of net loss, undistributed losses are not allocated to the participating securities as they are not required to absorb losses.
No adjustments were made to the denominator for the years ended December 31, 2021, 2020 or 2019 because (i) the inclusion of outstanding non-vested restricted shares would have had an anti-dilutive effect and (ii) including the non-controlling interest in the Operating Partnership would also require that the share of Operating Partnership loss attributable to such interests be added back to net loss, therefore, resulting in no effect on earnings per share.
As of December 31, 2021, 2020 and 2019, there were
Note 14 – Share-Based Compensation
On July 7, 2015, the Company adopted the Seritage Growth Properties 2015 Share Plan (the “Plan”). The number of shares of common stock reserved for issuance under the Plan is
Restricted Shares and Share Units
Pursuant to the Plan, the Company has periodically made grants of restricted shares or share units. The vesting terms of these grants are specific to the individual grant and vary in that a portion of the restricted shares and share units vest in equal annual amounts over the subsequent
F-33
In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). Restricted shares and share units that do not vest are forfeited. Dividends on restricted shares and share units with time-based vesting are paid to holders of such shares and share units and are not returnable, even if the underlying shares or share units do not ultimately vest. Dividends on restricted shares and share units with performance-based vesting are accrued when declared and paid to holders of such shares on the third, and in some instances, the fourth anniversary of the initial grant subject to the vesting of the underlying shares. See Note 2 for valuation information related to the grants of the awards that are subject to market-based vesting conditions.
The following table summarizes restricted share and share unit activity for the grant periods ended December 31, 2021 and 2020:
|
|
Year Ended December 31, 2021 |
|
|
Year Ended December 31, 2020 |
|
||||||||||
|
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|
|
|
Weighted- |
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|
|
|
|
Weighted- |
|
||||
|
|
Shares and |
|
|
Average Grant |
|
|
Shares and |
|
|
Average Grant |
|
||||
|
|
Share Units |
|
|
Date Fair Value |
|
|
Share Units |
|
|
Date Fair Value |
|
||||
Unvested restricted shares and share units at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Restricted shares and share units granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted shares and share units vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
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|
||
Restricted shares and share units forfeited |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Unvested restricted shares and share units at end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The Company recognized $
As of December 31, 2021, there were approximately $
In light of the recent actions taken by the Board of Trustees to commence a process to review a broad range of strategic alternatives, on March 9, 2022, the Compensation Committee of the Board (the “Compensation Committee”) approved certain modifications to the Company’s existing performance-based compensation programs to reflect the Company’s current focus on this strategic process and approved retention incentives to employees whose efforts will be critical to the execution of the strategic review process in the coming months.
These actions include: (i) amending the Company’s 2021 annual equity award program, pursuant to which grants are scheduled to be made in 2022 to be comprised entirely of time-based restricted stock units (rather than a mix of time-based and performance-based restricted stock units), which will vest ratably over a period of
Note 15 – Revision of Quarterly Cash Flow Statements (unaudited)
We identified and corrected an immaterial classification error in the previously reported consolidated statement of cash flows for the periods ended March 31, 2021, June 30, 2021, and September 30, 20. The correction of the immaterial error resulted in an increase in cash used in operating activities and cash provided by investing activities of approximately $
F-34
SERITAGE GROWTH PROPERTIES
SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(Dollars in thousands)
|
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Costs Capitalized |
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Gross Amount at Which Carried |
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Life Upon |
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Acquisition Costs |
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Subsequent to Acquisition (1) |
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at Close of Period (2) |
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Which |
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Buildings and |
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Buildings and |
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Buildings and |
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Accumulated |
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Date |
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Depreciation |
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City |
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State |
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Encumbrances |
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Land |
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Improvements |
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Land |
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Improvements |
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Land |
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Improvements |
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Total |
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Depreciation |
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Acquired |
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is Computed |
|||||||||
Anchorage(Sur) |
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AK |
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(3 |
) |
|
$ |
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$ |
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$ |
( |
) |
|
$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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(4) |
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North Little Rock |
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AR |
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(3 |
) |
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— |
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( |
) |
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(4) |
|||||||
Mesa/East |
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AZ |
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(3 |
) |
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Park Mall |
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AZ |
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(3 |
) |
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( |
) |
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( |
) |
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|
(4) |
|||||||
Phoenix-Desert Sky |
|
AZ |
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(3 |
) |
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Sierra Vista |
|
AZ |
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(3 |
) |
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( |
) |
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( |
) |
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( |
) |
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(4) |
||||||
Yuma |
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AZ |
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(3 |
) |
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Phoenix |
|
AZ |
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(3 |
) |
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Glendale |
|
AZ |
|
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(3 |
) |
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- |
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( |
) |
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( |
) |
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(4) |
||||||
Ramona |
|
CA |
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(3 |
) |
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Riverside |
|
CA |
|
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(3 |
) |
|
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— |
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( |
) |
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( |
) |
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|
(4) |
||||||
Big Bear Lake |
|
CA |
|
|
(3 |
) |
|
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|
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Temecula |
|
CA |
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(3 |
) |
|
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— |
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( |
) |
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(4) |
|||||||
Ventura |
|
CA |
|
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(3 |
) |
|
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( |
) |
|
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( |
) |
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( |
) |
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|
(4) |
||||||
Roseville |
|
CA |
|
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(3 |
) |
|
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( |
) |
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( |
) |
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(4) |
|||||||
Fairfield |
|
CA |
|
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(3 |
) |
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( |
) |
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( |
) |
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(4) |
|||||||
West Covina |
|
CA |
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(3 |
) |
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— |
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— |
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( |
) |
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(4) |
||||||
West Covina |
|
CA |
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(3 |
) |
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— |
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— |
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( |
) |
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(4) |
||||||
Fresno |
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CA |
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(3 |
) |
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( |
) |
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( |
) |
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(4) |
|||||||
Riverside |
|
CA |
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(3 |
) |
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— |
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— |
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( |
) |
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(4) |
||||||
Riverside |
|
CA |
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(3 |
) |
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— |
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— |
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( |
) |
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(4) |
||||||
San Bernardino |
|
CA |
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(3 |
) |
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Florin |
|
CA |
|
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(3 |
) |
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— |
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( |
) |
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( |
) |
|
|
(4) |
||||||
El Cajon |
|
CA |
|
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(3 |
) |
|
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— |
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( |
) |
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|
(4) |
|||||||
San Jose-Eastridge |
|
CA |
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(3 |
) |
|
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|
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— |
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( |
) |
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( |
) |
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|
(4) |
||||||
Citrus Hts-Sunrise |
|
CA |
|
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(3 |
) |
|
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|
|
|
— |
|
|
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( |
) |
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|
( |
) |
|
|
(4) |
||||||
Westminster |
|
CA |
|
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(3 |
) |
|
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|
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|
|
— |
|
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( |
) |
|
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|
( |
) |
|
|
(4) |
||||||
Salinas |
|
CA |
|
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(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Palm Desert |
|
CA |
|
|
(3 |
) |
|
|
|
|
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|
|
|
( |
) |
|
|
( |
) |
|
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|
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|
|
|
|
( |
) |
|
|
(4) |
||||||
El Centro |
|
CA |
|
|
(3 |
) |
|
|
|
|
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( |
) |
|
|
( |
) |
|
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|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Santa Maria |
|
CA |
|
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(3 |
) |
|
|
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|
( |
) |
|
|
( |
) |
|
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|
|
|
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|
|
|
( |
) |
|
|
(4) |
||||||
Merced |
|
CA |
|
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(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
F-35
|
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|
|
|
|
|
|
Costs Capitalized |
|
|
Gross Amount at Which Carried |
|
|
|
|
|
|
|
Life Upon |
||||||||||||||||||
|
|
|
|
|
|
|
Acquisition Costs |
|
|
Subsequent to Acquisition (1) |
|
|
at Close of Period (2) |
|
|
|
|
|
|
|
Which |
|||||||||||||||||||||
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|
Buildings and |
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|
Buildings and |
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|
|
|
Buildings and |
|
|
|
|
|
Accumulated |
|
|
Date |
|
Depreciation |
|||||||||
City |
|
State |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
Land |
|
|
Improvements |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Depreciation |
|
|
Acquired |
|
is Computed |
|||||||||
Thousand Oaks |
|
CA |
|
|
(3 |
) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
(4) |
|||||||
Thornton |
|
CO |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
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|
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|
|
|
|
( |
) |
|
|
(4) |
|||||||
Lakewood |
|
CO |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
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|
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|
|
( |
) |
|
|
(4) |
||||||
Waterford |
|
CT |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
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|
|
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|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Rehoboth Beach |
|
DE |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
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|
( |
) |
|
|
(4) |
|||||||
Hialeah |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
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|
|
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|
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|
|
( |
) |
|
|
(4) |
|||||||
North Miami |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
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|
( |
) |
|
|
(4) |
|||||||
Ocala |
|
FL |
|
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(3 |
) |
|
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|
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|
|
— |
|
|
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( |
) |
|
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|
|
( |
) |
|
|
(4) |
||||||
Pensacola |
|
FL |
|
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(3 |
) |
|
|
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|
|
( |
) |
|
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( |
) |
|
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|
|
( |
) |
|
|
(4) |
||||||
Orlando Colonial |
|
FL |
|
|
(3 |
) |
|
|
|
|
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|
( |
) |
|
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|
|
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|
( |
) |
|
|
(4) |
|||||||
St Petersburg |
|
FL |
|
|
(3 |
) |
|
|
|
|
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|
|
( |
) |
|
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( |
) |
|
|
(4) |
|||||||
Hialeah/Westland |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Miami/Cutler Rdg |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Clearwater/Cntrysd |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Ft Myers |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Plantation |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Sarasota |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Boca Raton |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Miami |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
(4) |
|||||
Doral(Miami) |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Lakeland |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Panama City |
|
FL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Charles City |
|
IA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Webster City |
|
IA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Cedar Rapids |
|
IA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Springfield |
|
IL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Chicago |
|
IL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Steger |
|
IL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
N Riverside |
|
IL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Joliet |
|
IL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Orland Park |
|
IL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Lombard |
|
IL |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
F-36
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized |
|
|
Gross Amount at Which Carried |
|
|
|
|
|
|
|
Life Upon |
||||||||||||||||||
|
|
|
|
|
|
|
Acquisition Costs |
|
|
Subsequent to Acquisition (1) |
|
|
at Close of Period (2) |
|
|
|
|
|
|
|
Which |
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
|
|
|
Buildings and |
|
|
|
|
|
Buildings and |
|
|
|
|
|
Accumulated |
|
|
Date |
|
Depreciation |
|||||||||
City |
|
State |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
Land |
|
|
Improvements |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Depreciation |
|
|
Acquired |
|
is Computed |
|||||||||
Merrillville |
|
IN |
|
|
(3 |
) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
(4) |
||||||
Elkhart |
|
IN |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Ft Wayne |
|
IN |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Hopkinsville |
|
KY |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Paducah |
|
KY |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Lafayette |
|
LA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Braintree |
|
MA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Saugus |
|
MA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Edgewater |
|
MD |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Bowie |
|
MD |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Madawaska |
|
ME |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Manistee |
|
MI |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Sault Ste. Marie |
|
MI |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Lincoln Park |
|
MI |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Roseville |
|
MI |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Ypsilanti |
|
MI |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
St Paul |
|
MN |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Maplewood |
|
MN |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Burnsville |
|
MN |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Florissant |
|
MO |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Springfield |
|
MO |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Columbus |
|
MS |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Greensboro |
|
NC |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Kearney |
|
NE |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Salem |
|
NH |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Nashua |
|
NH |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Manchester |
|
NH |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Portsmouth |
|
NH |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Las Vegas(Meadows) |
|
NV |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Reno |
|
NV |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Sidney |
|
NY |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Olean |
|
NY |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
F-37
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized |
|
|
Gross Amount at Which Carried |
|
|
|
|
|
|
|
Life Upon |
||||||||||||||||||
|
|
|
|
|
|
|
Acquisition Costs |
|
|
Subsequent to Acquisition (1) |
|
|
at Close of Period (2) |
|
|
|
|
|
|
|
Which |
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
|
|
|
Buildings and |
|
|
|
|
|
Buildings and |
|
|
|
|
|
Accumulated |
|
|
Date |
|
Depreciation |
|||||||||
City |
|
State |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
Land |
|
|
Improvements |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Depreciation |
|
|
Acquired |
|
is Computed |
|||||||||
Albany |
|
NY |
|
|
(3 |
) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
|
(4) |
|||||||
Rochester-Greece |
|
NY |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Victor |
|
NY |
|
|
(3 |
) |
|
|
|
|
|
|
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— |
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( |
) |
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(4) |
|||||||
Clay |
|
NY |
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(3 |
) |
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( |
) |
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( |
) |
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( |
) |
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(4) |
||||||
East Northport |
|
NY |
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(3 |
) |
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— |
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( |
) |
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(4) |
|||||||
Yorktown Hts |
|
NY |
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(3 |
) |
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( |
) |
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( |
) |
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(4) |
|||||||
Hicksville |
|
NY |
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(3 |
) |
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( |
) |
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( |
) |
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( |
) |
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(4) |
||||||
Watchung |
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NJ |
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(3 |
) |
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— |
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( |
) |
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(4) |
|||||||
Toledo |
|
OH |
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(3 |
) |
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( |
) |
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( |
) |
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( |
) |
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(4) |
||||||
Canton |
|
OH |
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(3 |
) |
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— |
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( |
) |
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(4) |
|||||||
Middleburg Hts |
|
OH |
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(3 |
) |
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Dayton Mall |
|
OH |
|
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(3 |
) |
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— |
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( |
) |
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(4) |
|||||||
Mentor |
|
OH |
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(3 |
) |
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— |
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( |
) |
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( |
) |
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(4) |
||||||
Okla City/Sequoyah |
|
OK |
|
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(3 |
) |
|
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( |
) |
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( |
) |
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(4) |
|||||||
Happy Valley |
|
OR |
|
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(3 |
) |
|
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( |
) |
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( |
) |
|
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(4) |
|||||||
Walnutport |
|
PA |
|
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(3 |
) |
|
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|
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|
|
— |
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( |
) |
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|
( |
) |
|
|
(4) |
||||||
King of Prussia |
|
PA |
|
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(3 |
) |
|
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|
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— |
|
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|
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|
|
- |
|
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( |
) |
|
|
(4) |
||||||
Caguas |
|
PR |
|
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(3 |
) |
|
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|
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( |
) |
|
|
( |
) |
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( |
) |
|
|
(4) |
||||||
Carolina |
|
PR |
|
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(3 |
) |
|
|
|
|
|
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|
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— |
|
|
|
— |
|
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|
|
( |
) |
|
|
(4) |
||||||
Warwick |
|
RI |
|
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(3 |
) |
|
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|
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( |
) |
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|
( |
) |
|
|
(4) |
|||||||
Anderson |
|
SC |
|
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(3 |
) |
|
|
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|
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|
|
( |
) |
|
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|
|
|
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|
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|
|
|
( |
) |
|
|
(4) |
|||||||
Chrlstn/Northwoods |
|
SC |
|
|
(3 |
) |
|
|
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|
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|
|
( |
) |
|
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|
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|
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|
( |
) |
|
|
(4) |
|||||||
Cordova |
|
TN |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Memphis/Poplar |
|
TN |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
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|
|
|
|
|
|
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|
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|
|
( |
) |
|
|
(4) |
|||||||
El Paso |
|
TX |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Valley View |
|
TX |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
(4) |
|||||
Shepherd |
|
TX |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Central Park |
|
TX |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Friendswd/Baybrk |
|
TX |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Ingram |
|
TX |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Austin |
|
TX |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Irving |
|
TX |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
F-38
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized |
|
|
Gross Amount at Which Carried |
|
|
|
|
|
|
|
Life Upon |
||||||||||||||||||
|
|
|
|
|
|
|
Acquisition Costs |
|
|
Subsequent to Acquisition (1) |
|
|
at Close of Period (2) |
|
|
|
|
|
|
|
Which |
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
|
|
|
Buildings and |
|
|
|
|
|
Buildings and |
|
|
|
|
|
Accumulated |
|
|
Date |
|
Depreciation |
|||||||||
City |
|
State |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
Land |
|
|
Improvements |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
Depreciation |
|
|
Acquired |
|
is Computed |
|||||||||
Houston |
|
TX |
|
|
(3 |
) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
(4) |
||||||
Layton |
|
UT |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Virginia Beach |
|
VA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Chspk/Greenbrier |
|
VA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
||||||
Fairfax |
|
VA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Warrenton |
|
VA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Redmond-Overlake Pk |
|
WA |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Greendale |
|
WI |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Madison-West |
|
WI |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
(4) |
|||||||
Various |
|
|
|
|
(3 |
) |
|
|
- |
|
|
|
- |
|
|
|
— |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
n/a |
|
(4) |
|||
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|||||||
Building: |
|
|
Site improvements: |
|
|
Tenant improvements: |
|
F-39
SERITAGE GROWTH PROPERTIES
NOTES TO SCHEDULE III
(Dollars in thousands)
Reconciliation of Real Estate
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Balance at beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additions |
|
|
|
|
|
|
|
|
|
|||
Impairments |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
Dispositions |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Write-offs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Reconciliation of Accumulated Depreciation
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Balance at beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Depreciation expense |
|
|
|
|
|
|
|
|
|
|||
Dispositions |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Write-offs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-40