Organization	9 Months Ended
Sep. 30, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Organization	Note 1 – Organization Seritage Growth Properties (“Seritage”) (NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, operated as 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”) from formation through December 31, 2021. On March 31, 2022, Seritage revoked its REIT election and became a taxable C Corporation effective January 1, 2022. 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. Prior to the adoption of the Company’s Plan of Sale (defined below), Seritage was principally engaged in the ownership, development, redevelopment, disposition, management and leasing of diversified retail and mixed-use properties throughout the United States. Seritage will continue to actively manage each remaining location until such time as each property is sold. As of September 30, 2022, the Company’s portfolio consisted of interests in 121 properties comprised of approximately 16.1 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately 313 acres held for or under development until time of sale and approximately 7.9 million square feet or approximately 631 acres to be disposed of in its current state. The portfolio consists of approximately 13.5 million square feet of GLA held by 104 wholly owned properties (such properties, the “Consolidated Properties”) and 2.6 million square feet of GLA held by 17 unconsolidated properties (such properties, the “Unconsolidated Properties”). 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 $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 a master lease agreement (the “Original Master Lease” and the “Original JV Master Leases”, respectively). As of March 15, 2021, the Company no longer had any remaining properties leased to Holdco (as defined below) or Sears Holdings, as further described in Note 5. 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 of Trustees 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’s strategic review process remains ongoing as the Company executes sales pursuant to the Plan of Sale. There can be no assurance that the review process will result in any transaction or that the Company will be successful in fully executing the Plan of Sale. On March 31, 2022, the Company announced that its Board of Trustees, with the recommendation of the Special Committee, approved a plan to terminate the Company’s REIT status and become a taxable C Corporation, effective for the year ending December 31, 2022. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least 90% of REIT taxable income to its stockholders, which provides the Company with greater flexibility to use its free cash flow. Effective January 1, 2022, the Company is subject to federal and state income taxes on its taxable income at applicable tax rates and is no longer entitled to a tax deduction for dividends paid. The Company operated as a REIT for the 2021 tax year, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place until December 31, 2021. As a result of the Company’s change in corporate structure to a taxable C Corporation in fiscal year 2022 as announced by the Board of Trustees, the Company incurred a one-time, non-cash deferred tax benefit of approximately $160.3 million during the quarter ended March 31, 2022. The Company also recorded a full valuation allowance against the deferred tax asset pursuant to ASC 740, as discussed in more detail below. The Company sought a shareholder vote to approve a proposed plan of sale of the Company’s assets and dissolution (the “Plan of Sale”) that would allow the Board to sell all of the Company’s assets, distribute the net proceeds to shareholders and dissolve the Company. The Plan of Sale is expected to increase the universe of potential buyers by allowing Seritage and potential buyers to enter into and complete value maximizing transactions without subjecting any such transaction to the delay and conditionality associated with having to seek and obtain shareholder approval. On July 6, 2022, Edward Lampert, the Company’s former Chairman, entered into a Voting and Support Agreement under which he exchanged his equity interest in the Operating Partnership for Class A common shares and agreed to vote his shares in favor of the Plan of Sale. As of September 30, 2022, after giving effect to the exchange of his Operating Partnership interests, Mr. Lampert owns approximately 29.0% of the Company’s outstanding Class A common shares, and Seritage, including its consolidated subsidiaries, is the sole owner of all outstanding Operating Partnership interests. The affirmative vote of at least two-thirds of all outstanding common shares of the Company was required to approve the Plan of Sale. The 2022 Annual Meeting of Shareholders occurred on October 24, 2022, following our filing of a final proxy statement with the SEC on September 14, 2022. During the meeting, the Plan of Sale was approved by the shareholders. The strategic review process remains ongoing as the Company executes the Plan of Sale. There can be no assurance that the review process will result in any transaction or that the Company will be successful in fully executing on the Plan of Sale. 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.” 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. Currently, debt service obligations are comprised of interest expense and annual fees required by the Term Loan Facility (as defined in Note 6 below). The Term Loan Facility requires payments of interest only until maturity on July 31, 2023, unless the maturity is extended beyond July 31, 2023 at the Company’s option pursuant to the Second Term Loan Amendment (as defined below). 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 nine months ended September 30, 2022 and the Company incurred net operating cash outflows of $73.5 million. The Company generated investing cash inflows of $296.1 million during the nine months ended September 30, 2022, which were driven by asset sales partially offset by development expenditures and investments in unconsolidated entities. 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 and Unconsolidated Properties. During the period from October 1, 2022 through November 4, 2022, the Company sold 12 assets for gross proceeds of $176.4 million and made a $110.0 million principal payment on the Term Loan Facility, bringing the outstanding Term Loan Facility balance as of November 4, 2022 to $1.16 billion. As of November 4, 2022, the Company had 10 assets under contract for sale with no due diligence contingencies for total anticipated proceeds of $124.9 million and 26 assets under contract for sale subject to customary due diligence for total anticipated proceeds of $421.5 million. All assets sales are subject to closing conditions. Additionally, the Company is currently negotiating the pricing on three put options that it has exercised. The Company anticipates proceeds from the exercise of two put options will be at least $65.7 million. Management believes that the Company will successfully sell enough assets to pay down its debt by at least $360 million by July 2023, which would allow the Company to exercise the two year extension option on its Term Loan Facility. Going Concern In accordance with ASC 205-40, for each annual and interim reporting period, management evaluates whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. As part of this evaluation, the Company takes into consideration all obligations due within the subsequent 12 months, as well as cash on hand and expected cash receipts. Management has determined that it is probable its plans, as described under Liquidity, will be effectively implemented within one year after the date the financial statements are issued and that these actions will provide the necessary cash flows to fund the Company’s obligations and development expenditures for the one-year period. Starting in July 2022 and until the Company’s Term Loan Facility is extended or repaid, the full amount of the Company’s Term Loan Facility will be factored in this analysis as a current obligation. This may result in the Company not being able to assert that it will continue as a going concern until either the extension is executed or asset sales under contract are sufficient to increase the Company’s projected cash flows such that they exceed the outstanding balance on the Term Loan Facility and other obligations. The anticipated proceeds from the sales of the aforementioned $546.4 million of assets under contract, combined with the expected minimum proceeds from the exercise of its put options of $65.7 million, would allow the Company to meet the $360 million Term Loan Facility principal pay down required to extend the facility. As a result, the Company has concluded that management’s plans do alleviate substantial doubt about the Company’s ability to continue as a going concern. COVID-19 Pandemic The Coronavirus (“COVID-19”) pandemic has caused 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 three and nine months ended September 30, 2022 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 September 30, 2022, the Company had collected 99% of base rent for the three months ended September 30, 2022. 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.

Organization

9 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Note 1 – Organization

Seritage Growth Properties (“Seritage”) (NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, operated as 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”) from formation through December 31, 2021. On March 31, 2022, Seritage revoked its REIT election and became a taxable C Corporation effective January 1, 2022. 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.

Prior to the adoption of the Company’s Plan of Sale (defined below), Seritage was principally engaged in the ownership, development, redevelopment, disposition, management and leasing of diversified retail and mixed-use properties throughout the United States. Seritage will continue to actively manage each remaining location until such time as each property is sold. As of September 30, 2022, the Company’s portfolio consisted of interests in 121 properties comprised of approximately 16.1 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately 313 acres held for or under development until time of sale and approximately 7.9 million square feet or approximately 631 acres to be disposed of in its current state. The portfolio consists of approximately 13.5 million square feet of GLA held by 104 wholly owned properties (such properties, the “Consolidated Properties”) and 2.6 million square feet of GLA held by 17 unconsolidated properties (such properties, the “Unconsolidated Properties”).

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 $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 a master lease agreement (the “Original Master Lease” and the “Original JV Master Leases”, respectively).

As of March 15, 2021, the Company no longer had any remaining properties leased to Holdco (as defined below) or Sears Holdings, as further described in Note 5.

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 of Trustees 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’s strategic review process remains ongoing as the Company executes sales pursuant to the Plan of Sale. There can be no assurance that the review process will result in any transaction or that the Company will be successful in fully executing the Plan of Sale.

On March 31, 2022, the Company announced that its Board of Trustees, with the recommendation of the Special Committee, approved a plan to terminate the Company’s REIT status and become a taxable C Corporation, effective for the year ending December 31, 2022. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least 90% of REIT taxable income to its stockholders, which provides the Company with greater flexibility to use its free cash flow. Effective January 1, 2022, the Company is subject to federal and state income taxes on its taxable income at applicable tax rates and is no longer entitled to a tax deduction for dividends paid. The Company operated as a REIT for the 2021 tax year, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place until December 31, 2021.

As a result of the Company’s change in corporate structure to a taxable C Corporation in fiscal year 2022 as announced by the Board of Trustees, the Company incurred a one-time, non-cash deferred tax benefit of approximately $160.3 million during the quarter ended March 31, 2022. The Company also recorded a full valuation allowance against the deferred tax asset pursuant to ASC 740, as discussed in more detail below.

The Company sought a shareholder vote to approve a proposed plan of sale of the Company’s assets and dissolution (the “Plan of Sale”) that would allow the Board to sell all of the Company’s assets, distribute the net proceeds to shareholders and dissolve the Company. The Plan of Sale is expected to increase the universe of potential buyers by allowing Seritage and potential buyers to enter into and complete value maximizing transactions without subjecting any such transaction to the delay and conditionality associated with having to seek and obtain shareholder approval. On July 6, 2022, Edward Lampert, the Company’s former Chairman, entered into a Voting and Support Agreement under which he exchanged his equity interest in the Operating Partnership for Class A common shares and agreed to vote his shares in favor of the Plan of Sale. As of September 30, 2022, after giving effect to the exchange of his Operating Partnership interests, Mr. Lampert owns approximately 29.0% of the Company’s outstanding Class A common shares, and Seritage, including its consolidated subsidiaries, is the sole owner of all outstanding Operating Partnership interests.

The affirmative vote of at least two-thirds of all outstanding common shares of the Company was required to approve the Plan of Sale. The 2022 Annual Meeting of Shareholders occurred on October 24, 2022, following our filing of a final proxy statement with the SEC on September 14, 2022. During the meeting, the Plan of Sale was approved by the shareholders. The strategic review process remains ongoing as the Company executes the Plan of Sale. There can be no assurance that the review process will result in any transaction or that the Company will be successful in fully executing on the Plan of Sale. 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.”

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. Currently, debt service obligations are comprised of interest expense and annual fees required by the Term Loan Facility (as defined in Note 6 below). The Term Loan Facility requires payments of interest only until maturity on July 31, 2023, unless the maturity is extended beyond July 31, 2023 at the Company’s option pursuant to the Second Term Loan Amendment (as defined below). 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 nine months ended September 30, 2022 and the Company incurred net operating cash outflows of $73.5 million. The Company generated investing cash inflows of $296.1 million during the nine months ended September 30, 2022, which were driven by asset sales partially offset by development expenditures and investments in unconsolidated entities.

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 and Unconsolidated Properties. During the period from October 1, 2022 through November 4, 2022, the Company sold 12 assets for gross proceeds of $176.4 million and made a $110.0 million principal payment on the Term Loan Facility, bringing the outstanding Term Loan Facility balance as of November 4, 2022 to $1.16 billion. As of November 4, 2022, the Company had 10 assets under contract for sale with no due diligence contingencies for total anticipated proceeds of $124.9 million and 26 assets under contract for sale subject to customary due diligence for total anticipated proceeds of $421.5 million. All assets sales are subject to closing conditions. Additionally, the Company is currently negotiating the pricing on three put options that it has exercised. The Company anticipates proceeds from the exercise of two put options will be at least $65.7 million. Management believes that the Company will successfully sell enough assets to pay down its debt by at least $360 million by July 2023, which would allow the Company to exercise the two year extension option on its Term Loan Facility.

Going Concern

In accordance with ASC 205-40, for each annual and interim reporting period, management evaluates whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. As part of this evaluation, the Company takes into consideration all obligations due within the subsequent 12 months, as well as cash on hand and expected cash receipts. Management has determined that it is probable its plans, as described under Liquidity, will be effectively implemented within one year after the date the financial statements are issued and that these actions will provide the necessary cash flows to fund the Company’s obligations and development expenditures for the one-year period.

Starting in July 2022 and until the Company’s Term Loan Facility is extended or repaid, the full amount of the Company’s Term Loan Facility will be factored in this analysis as a current obligation. This may result in the Company not being able to assert that it will continue as a going concern until either the extension is executed or asset sales under contract are sufficient to increase the Company’s projected cash flows such that they exceed the outstanding balance on the Term Loan Facility and other obligations.

The anticipated proceeds from the sales of the aforementioned $546.4 million of assets under contract, combined with the expected minimum proceeds from the exercise of its put options of $65.7 million, would allow the Company to meet the $360 million Term Loan Facility principal pay down required to extend the facility. As a result, the Company has concluded that management’s plans do alleviate substantial doubt about the Company’s ability to continue as a going concern.

COVID-19 Pandemic

The Coronavirus (“COVID-19”) pandemic has caused 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 three and nine months ended September 30, 2022 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 September 30, 2022, the Company had collected 99% of base rent for the three months ended September 30, 2022. 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.