0001564590-21-012168.txt : 20210311 0001564590-21-012168.hdr.sgml : 20210311 20210310192621 ACCESSION NUMBER: 0001564590-21-012168 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20210310 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20210311 DATE AS OF CHANGE: 20210310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Seritage Growth Properties CENTRAL INDEX KEY: 0001628063 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 383976287 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-37420 FILM NUMBER: 21731371 BUSINESS ADDRESS: STREET 1: 500 FIFTH AVENUE STREET 2: SUITE 1530 CITY: NEW YORK STATE: NY ZIP: 10110 BUSINESS PHONE: 2123557800 MAIL ADDRESS: STREET 1: 500 FIFTH AVENUE STREET 2: SUITE 1530 CITY: NEW YORK STATE: NY ZIP: 10110 FORMER COMPANY: FORMER CONFORMED NAME: Seritage Growth Properties, Inc. DATE OF NAME CHANGE: 20141215 8-K 1 srg-8k_20210310.htm 8-K srg-8k_20210310.htm
false 0001628063 0001628063 2021-03-10 2021-03-10 0001628063 us-gaap:CommonClassAMember 2021-03-10 2021-03-10 0001628063 us-gaap:SeriesAPreferredStockMember 2021-03-10 2021-03-10

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  March 10, 2021

 

SERITAGE GROWTH PROPERTIES

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

 

001-37420

 

38-3976287

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

 

 

 

 

500 Fifth Avenue, Suite 1530

New York, New York

 

10110

(Address of principal executive offices)

 

(Zip code)

 

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

 

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

 

Title of each class

Trading Symbols

Name of each exchange on which registered

Class A common shares of beneficial interest, par value $0.01 per share

SRG

New York Stock Exchange

7.00% Series A cumulative redeemable preferred shares of beneficial interest, par value $0.01 per share

SRG-PA

New York Stock Exchange

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company 

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

 

 


 

Item 2.02

Results of Operations and Financial Condition.

On March 10, 2021 the Company issued a press release regarding its financial results for the quarter and year ended December 31, 2020. A copy of the press release is furnished as Exhibit 99.1 to this report.

In addition, on March 10, 2021 the Company published certain supplementary financial information relating to the quarter and year ended December 31, 2020.  Such information is furnished as Exhibit 99.2 to this report.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01

Regulation FD.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press release dated March 10, 2021.

 

 

 

99.2

 

Supplementary Financial Information dated March 10, 2021.

 

 

 

104

 

Cover Page Interactive Data File (embedded within Inline XBRL document)

 


 

SIGNATURE

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 hereunto duly authorized.

 

SERITAGE GROWTH PROPERTIES 

 

By:

 

/s/ Matthew Fernand

 

 

Matthew Fernand

 

 

Executive Vice President, General

Counsel & Secretary

 

Date: March 10, 2021

 

EX-99.1 2 srg-ex991_7.htm EX-99.1 srg-ex991_7.htm

Exhibit 99.1

 

Seritage Growth Properties Reports Fourth Quarter and Full Year 2020 Operating Results

New York, NY – March 10, 2021 – Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 183 retail and mixed-use properties totaling approximately 26.5 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the quarter and year ended December 31, 2020.

Summary Financial Results

For the quarter ended December 31, 2020:

Net loss attributable to common shareholders of $35.6 million, or $0.92 per share

Total Net Operating Income (“Total NOI”) of $8.7 million

Funds from Operations (“FFO”) of ($16.2) million, or ($0.29) per share

Company FFO of ($17.9) million, or ($0.32) per share

For the year ended December 31, 2020:

Net loss attributable to common shareholders of $109.9 million, or $2.87 per share

Total NOI of $37.8 million

FFO of ($81.0) million, or ($1.45) per share

Company FFO of ($88.6) million, or ($1.59) per share

 

“During the fourth quarter of 2020, we continued to recommence redevelopment projects paused during the pandemic. Our active development spend on suburban projects of $85 million should generate annual base rent of $19 million, with $6 million in annual base rent already commenced in 2020. Overall in 2020, we opened stores representing 875,000 square feet and $15 million of annual base rent, with substantially all of that activity occurring during the COVID-19 pandemic. Throughout the fourth quarter and as we look forward to 2021, we remain focused on advancing our premier projects. Finally, we continued with our asset monetization efforts, generating $145 million in gross proceeds during the fourth quarter and $417 million in gross proceeds for 2020, while culling our portfolio to a more focused group of 183 assets in the process,” said Edward S. Lampert, Chairman of the Board of Trustees.  

 

“We are also very pleased to have appointed Andrea Olshan, an experienced real estate executive, as our new Chief Executive Officer and President who will join the Company on March 16th. We are looking forward to Andrea’s fresh perspective on how to maximize value across the Company and throughout the portfolio,” Mr. Lampert continued.

Operating Results

Leasing

During the quarter ended December 31, 2020, the Company signed new leases totaling 173,000 square feet at an average base rent of $15.07 PSF, and for the year ended December 31, 2020, the Company signed new leases totaling 445,000 square feet at an average base rent of $18.12 PSF.

The table below provides a summary of all signed leases as of December 31, 2020, including unconsolidated entities at the Company’s proportional share:

 

1


(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 diversified leases

 

 

251

 

 

 

6,196

 

 

 

72.3

%

 

$

96,065

 

 

 

63.8

%

 

$

15.50

 

SNO diversified leases

 

 

125

 

 

 

2,369

 

 

 

27.7

%

 

 

54,538

 

 

 

36.2

%

 

 

23.02

 

Total

 

 

376

 

 

 

8,565

 

 

 

100.0

%

 

$

150,603

 

 

 

100.0

%

 

$

17.58

 

 

 

(1)

SNO = signed not yet opened leases.

The table below provides a reconciliation of SNO leases from December 31, 2020 to December 31, 2019, including unconsolidated entities at the Company’s proportional share:

 

 

 

 

 

 

 

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Annual

 

 

Annual

 

 

 

SNO Leases

 

 

GLA

 

 

Rent

 

 

Rent PSF

 

As of December 31, 2019

 

 

174

 

 

 

4,204

 

 

$

84,348

 

 

$

20.07

 

Opened (1)

 

 

(26

)

 

 

(803

)

 

 

(13,896

)

 

 

17.31

 

Sold / contributed to JVs / terminated

 

 

(53

)

 

 

(1,454

)

 

 

(23,459

)

 

 

16.14

 

Signed (1)

 

 

30

 

 

 

422

 

 

 

7,545

 

 

 

17.89

 

As of December 31, 2020

 

 

125

 

 

 

2,369

 

 

$

54,538

 

 

$

23.02

 

 

 

(1)

Opened and signed excludes 3 leases that were both signed and opened in 2020

During the year ended December 31, 2020, the majority of the $23.5 million of SNO leases that were sold, contributed to unconsolidated entities or terminated were comprised of leases terminated with fitness, entertainment and food & beverage tenants for which the Company had not yet deployed significant amounts of capital.  The Company continues to evaluate and prioritize its SNO leases based upon tenant health, asset quality, risk-adjusted returns and near-term income opportunities.

In addition, during the fourth quarter of 2020, Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., terminated the five remaining leases related to wholly owned properties effective in March 2021, and as a result, the Company has no remaining properties leased to Sears or Kmart.

Redevelopment

During the quarter ended December 31, 2020, the Company continued work on certain suburban retail redevelopment projects. The Company had previously resumed $46 million of suburban retail development activity which was expected to generate total potential annual base rent of $13 million. As of December 31, 2020, for those projects $31 million has been incurred and $6 million of annual base rent has commenced with the remaining potential annual base rent expected to commence in the next twelve months, subject to tenant opening schedules. In addition, during the fourth quarter, the Company resumed $39 million of additional suburban retail development activity with total potential annual base rent of $6 million, with the majority expected to commence in the next twelve months, subject to tenant opening schedules.

The Company also continued to advance both 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 multifamily project in Lynwood (WA) in its joint venture with Brookfield Properties Retail and AvalonBay Communities (NYSE: AVB), is also underway and has been scheduled for opening in the fourth quarter of 2021. A previously announced multifamily project in Chicago (IL) was sold during the year ended December 31, 2020.

During the quarter ended December 31, 2020, the Company, together with Foulger-Pratt and The Howard Hughes Corporation (NYSE: HHC), announced that it had entered into an initial agreement with the City of Alexandria and Inova Health System to advance the development of a 4.0 million square-foot mixed-use community to include a new hospital campus at the site of the former Landmark Mall.

The remainder of the Company’s previously announced redevelopment projects remain on hold due to the COVID-19 pandemic. The Company deems this approach to capital deployment prudent given the uncertainty regarding tenants’ ability to construct and open new stores and the feasibility of sustaining labor levels with safe working conditions.  

Transactions

Total monetization activity for the year ended December 31, 2020 consisted of 32 properties and 16 outparcels totaling 4.8 million square feet and $417 million of gross proceeds. During the quarter ended December 31, 2020, the Company monetized 13 properties and four outparcels totaling 1.6 million square feet and generated $145 million of gross proceeds, including the sale of 50% interests

2


in three assets held in unconsolidated entities. Fourth quarter activity included the sale of three sites previously identified as large-scale redevelopment opportunities in Overland (KS), Atlanta (GA), and Newark (CA) where the Company obtained appropriate value today relative to the risk-adjusted returns on the redevelopment projects. Of the fourth quarter transactions:

$62.6 million of the gross proceeds were from income-producing properties sold at a blended cap rate of 7.5%, excluding Guaynabo (PR) the remaining income-producing assets sold at a blended cap rate of 6.8%.

An additional $46.5 million of gross proceeds were from vacant assets sold at $59 PSF (including Newark (CA)).  The sale of these vacant assets eliminates $1.6 million of annual carry costs.

The remaining $35.9 million of gross proceeds included the sale of the 50% interest in three properties held in unconsolidated entities.

Subsequent to December 31, 2020, the Company sold three properties for aggregate gross proceeds of $28.4 million and, as of March 9, 2021, the Company had assets under contract for sale representing anticipated gross proceeds of $84.5 million, subject to buyer diligence and closing conditions.

Since it began its capital recycling program in July 2017, the Company has raised over $1.1 billion of gross cash proceeds from the sale or joint venture of interests in 97 properties, plus outparcels at various properties.  

Balance Sheet and Liquidity

As of December 31, 2020, the Company had cash on hand of $161.2 million, including $6.5 million of restricted cash, and, after taking into account one transaction which closed on December 31, 2020, but funded on January 4, 2021. Subsequent to December 31, 2020, the Company had closed asset sales totaling $28.4 million and as of March 9, 2021 had additional asset sales under contract for anticipated gross proceeds of $84.5 million, subject to buyer diligence and closing conditions. The Company expects to use these sources of liquidity, together with a combination of future sales, partnerships and/or potential credit and capital markets transactions to fund its operations and development activity.

The availability of funding from sales of assets, partnerships and credit or capital markets transactions is subject to various conditions, including the consent of the Company’s lender under its $1.6 billion term loan facility (the “Term Loan Facility”), and there can be no assurance that such transactions will be consummated.

The Term Loan Facility includes a $400.0 million Incremental Funding Facility, 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 the Company has not yet achieved. The timing of the Company’s ability to access the Incremental Funding Facility, if at all, will be adversely impacted by the COVID-19 pandemic.  The Term Loan Facility also permits the deferral of interest payments based on the amount of Available Cash (as defined in the amendment to the Term Loan Facility) for each period.  As of December 31, 2020, the Company has not deferred any interest and had paid all interest due under the Term Loan Facility.

Dividends

On December 17, 2020, the Company’s Board of Trustees declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend was paid on January 15, 2021 to holders of record on December 31, 2020.

On February 23, 2021, the Company’s Board of Trustees declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend will be paid on April 15, 2021 to holders of record on March 31, 2021.

The Company’s Board of Trustees does not expect to declare dividends on its common shares in 2021 unless required to do so to maintain REIT status.

Financial Results

The table below provides a summary of the Company’s financial results for the quarter and year ended December 31, 2020 and December 31, 2019:

3


(in thousands except per share amounts)

 

Quarter Ended December 31,

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss attributable to common shareholders

 

$

(35,606

)

 

$

(25,874

)

 

$

(109,926

)

 

$

(64,297

)

Net loss per share attributable to common shareholders

 

 

(0.92

)

 

 

(0.70

)

 

 

(2.87

)

 

 

(1.77

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total NOI

 

 

8,646

 

 

 

19,083

 

 

 

37,757

 

 

 

72,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO

 

 

(16,156

)

 

 

(20,059

)

 

 

(80,998

)

 

 

(33,793

)

FFO per share

 

 

(0.29

)

 

 

(0.36

)

 

 

(1.45

)

 

 

(0.61

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company FFO

 

 

(17,899

)

 

 

(14,966

)

 

 

(88,583

)

 

 

(33,896

)

Company FFO per share

 

 

(0.32

)

 

 

(0.27

)

 

 

(1.59

)

 

 

(0.61

)

 

Net Loss

The following items contributed to the net loss for the quarter and year ended December 31, 2020:

Reduced rental income as a result of recapture and termination activity under the Master Lease with Transform Holdco LLC, an affiliate of ESL Investments, Inc. (the “Holdco Master Lease”) and the recognition of rental income deemed to be uncollectible;

The impairment of certain assets including $47.7 million recognized on vacant assets and several partially stabilized assets that are leased primarily to theater and fitness tenants which have been negatively impacted by COVID-19 during the quarter ended December 31, 2020;

Gains on asset sales of $28.6 million and $88.6 million during the quarter and year ended December 31, 2020, respectively; and,

Reduced general and administrative expenses, primarily due to reductions in share-based compensation and compensation costs related to the resignation of two executives in 2020.

Total NOI

The decrease in Total NOI was driven primarily by (i) reduced rental income as a result of recapture and termination activity under the Holdco Master Lease and (ii) the recognition of rental income deemed uncollectible for the quarter and year ended December 31, 2020, respectively.

FFO and Company FFO

The decrease in FFO was driven primarily by the same factors driving the decreases in Total NOI, partially offset by reduced general and administrative expenses related to reductions in compensation costs due to the resignation of certain executives.

COVID-19 Pandemic

The COVID-19 pandemic continues to have a significant impact on the real estate industry in the United States, including the Company’s properties.  As of December 31, 2020, the Company had collected 93% of rental income for the quarter ended December 31, 2020, and agreed to defer an additional 4%.  As of March 5, 2021, the Company had also collected 95% of January and February 2021 rental income, and agreed to defer an additional 2%.  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 modifications will not be necessary.  

The Company continues to maintain a cautious approach as it responds to the evolving COVID-19 pandemic with an emphasis on managing its cash resources and preserving the value of its assets and its platform.  The Company expects to continue monetizing appropriate assets and selectively allocating capital to the assets with opportunistic risk-adjusted returns in the Company’s portfolio.  

As a result of the fluidity and uncertainty surrounding the nation’s response to and limitations as a result of the pandemic, the Company expects that these conditions will change, potentially significantly, in future periods and results for the quarter and year ended December 31, 2020 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.

Supplemental Report

A Supplemental Report will be available in the Investors section of the Company’s website, www.seritage.com.


4


Non-GAAP Financial Measures

The Company makes reference to NOI, Total NOI, FFO and Company FFO which are financial measures that include adjustments to accounting principles generally accepted in the United States (“GAAP”).

None of NOI, Total NOI, FFO or 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 the Company deems most comparable have been provided in the tables accompanying this press release.

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.  This form of presentation offers insights into the financial performance and condition of the Company as a whole given the Company’s 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.

Funds from Operations ("FFO") and Company FFO

FFO is calculated in accordance with 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.

5


Forward-Looking Statements

This document contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the company’s control, which may cause actual results to differ significantly from those expressed in any forward-looking statement. Factors that could cause or contribute to such differences include, but are not limited to: declines in retail, real estate and general economic conditions; the impact of the COVID-19 pandemic on the business of the Company’s tenants and business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service the Company’s debt obligations and ability to pay dividends and other distributions to shareholders, the Company’s historical exposure to Sears Holdings and the effects of its previously announced bankruptcy filing; the litigation filed against us and other defendants in the Sears Holdings adversarial proceeding pending in bankruptcy court; Holdco’s termination and other rights under its master lease with us; competition in the real estate and retail industries; risks relating to recapture and redevelopment activities; contingencies to the commencement of rent under leases; the terms of the Company’s indebtedness; restrictions with which the Company is required to comply in order to maintain REIT status and other legal requirements to which the Company is subject; failure to achieve expected occupancy and/or rent levels within the projected time frame or at all; the impact of ongoing negative operating cash flow on the Company’s ability to fund operations and ongoing development; the Company’s ability to access or obtain sufficient sources of financing to fund the Company’s liquidity needs; the Company’s relatively limited history as an operating company; and environmental, health, safety and land use laws and regulations.  For additional discussion of these and other applicable risks, assumptions and uncertainties, see the “Risk Factors” and forward-looking statement disclosure contained in the Company’s filings with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K for the year ended December 31, 2020, and the risk factors relating to Sears Holdings and Holdco therein.  While the Company believes that its forecasts and assumptions are reasonable, the Company cautions that actual results may differ materially.  The Company intends the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.

About Seritage Growth Properties

Seritage Growth Properties is a publicly-traded, self-administered and self-managed REIT with 158 wholly-owned properties and 25 unconsolidated properties totaling approximately 26.5 million square feet of space across 41 states and Puerto Rico.  The Company was formed to unlock the underlying real estate value of a high-quality retail portfolio it acquired from Sears Holdings in July 2015.  The Company’s mission is to create long-term value for shareholders by realizing the value of the Company’s portfolio through re-leasing, redevelopment, formation of strategic partnerships or other bespoke solutions.

Contact

Seritage Growth Properties

646-277-1268

6


IR@Seritage.com

Seritage Growth Properties

CONDENSED Consolidated Balance SheetS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

December 31, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Investment in real estate

 

 

 

 

 

 

 

 

Land

 

$

592,770

 

 

$

667,004

 

Buildings and improvements

 

 

1,107,532

 

 

 

1,112,653

 

Accumulated depreciation

 

 

(142,206

)

 

 

(147,696

)

 

 

 

1,558,096

 

 

 

1,631,961

 

Construction in progress

 

 

352,776

 

 

 

338,672

 

Net investment in real estate

 

 

1,910,872

 

 

 

1,970,633

 

Real estate held for sale

 

 

1,864

 

 

 

5,275

 

Investment in unconsolidated joint ventures

 

 

457,033

 

 

 

445,077

 

Cash and cash equivalents

 

 

143,728

 

 

 

139,260

 

Restricted cash

 

 

6,526

 

 

 

 

Tenant and other receivables, net

 

 

46,570

 

 

 

54,470

 

Lease intangible assets, net

 

 

18,595

 

 

 

68,153

 

Prepaid expenses, deferred expenses and other assets, net

 

 

63,755

 

 

 

67,744

 

Total assets

 

$

2,648,943

 

 

$

2,750,612

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Term loan facility, net

 

$

1,598,909

 

 

$

1,598,487

 

Sales-leaseback financing obligations

 

 

20,425

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

 

146,882

 

 

 

108,755

 

Total liabilities

 

 

1,766,216

 

 

 

1,707,242

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

Class A common shares $0.01 par value; 100,000,000 shares authorized;

   38,896,428 and 36,897,364 shares issued and outstanding

   as of December 31, 2020 and December 31, 2019, respectively

 

 

389

 

 

 

369

 

Class B common shares $0.01 par value; 5,000,000 shares authorized;

  0 and 1,242,536 shares issued and outstanding

   as of December 31, 2020 and December 31, 2019, respectively

 

 

 

 

 

12

 

Series A preferred shares $0.01 par value; 10,000,000 shares authorized;

    2,800,000 shares issued and outstanding as of December 31, 2020 and

    December 31, 2019; liquidation preference of $70,000

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

1,177,260

 

 

 

1,149,721

 

Accumulated deficit

 

 

(528,636

)

 

 

(418,711

)

Total shareholders' equity

 

 

649,041

 

 

 

731,419

 

Non-controlling interests

 

 

233,686

 

 

 

311,951

 

Total equity

 

 

882,727

 

 

 

1,043,370

 

Total liabilities and equity

 

$

2,648,943

 

 

$

2,750,612

 

7


 

Seritage Growth Properties

CONDENSED Consolidated Statements of OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

Quarter Ended December 31,

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

2020

 

 

2019

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

27,478

 

 

$

37,927

 

 

 

$

116,202

 

 

$

167,035

 

Management and other fee income

 

 

174

 

 

 

(1,293

)

 

 

 

293

 

 

 

1,598

 

Total revenue

 

 

27,652

 

 

 

36,634

 

 

 

 

116,495

 

 

 

168,633

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

 

11,012

 

 

 

11,122

 

 

 

 

41,164

 

 

 

42,123

 

Real estate taxes

 

 

8,672

 

 

 

9,080

 

 

 

 

36,768

 

 

 

38,595

 

Depreciation and amortization

 

 

14,551

 

 

 

36,578

 

 

 

 

95,997

 

 

 

104,581

 

General and administrative

 

 

(418

)

 

 

12,970

 

 

 

 

28,849

 

 

 

39,156

 

Total expenses

 

 

33,817

 

 

 

69,750

 

 

 

 

202,778

 

 

 

224,455

 

Gain on sale of real estate

 

 

28,596

 

 

 

25,786

 

 

 

 

88,555

 

 

 

71,104

 

Gain on sale of interests in unconsolidated

   joint ventures

 

 

1,758

 

 

 

 

 

 

 

1,758

 

 

 

 

Impairment of real estate assets

 

 

(47,701

)

 

 

 

 

 

 

(64,108

)

 

 

 

Equity in loss of unconsolidated

   joint ventures

 

 

(2,161

)

 

 

(3,656

)

 

 

 

(4,712

)

 

 

(17,994

)

Interest and other income

 

 

934

 

 

 

635

 

 

 

 

3,394

 

 

 

6,824

 

Interest expense

 

 

(24,916

)

 

 

(26,878

)

 

 

 

(91,316

)

 

 

(94,519

)

Loss before income taxes

 

 

(49,655

)

 

 

(37,229

)

 

 

 

(152,712

)

 

 

(90,407

)

Provision for income taxes

 

 

(37

)

 

 

(113

)

 

 

 

(252

)

 

 

(196

)

Net loss

 

 

(49,692

)

 

 

(37,342

)

 

 

 

(152,964

)

 

 

(90,603

)

Net loss attributable to

   non-controlling interests

 

 

15,311

 

 

 

12,693

 

 

 

 

47,938

 

 

 

31,206

 

Net loss attributable to Seritage

 

$

(34,381

)

 

$

(24,649

)

 

 

$

(105,026

)

 

$

(59,397

)

Preferred dividends

 

 

(1,225

)

 

 

(1,225

)

 

 

 

(4,900

)

 

 

(4,900

)

Net loss attributable to Seritage common

   shareholders

 

$

(35,606

)

 

$

(25,874

)

 

 

$

(109,926

)

 

$

(64,297

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share attributable to Seritage

   Class A and Class C common shareholders - Basic

 

$

(0.92

)

 

$

(0.70

)

 

 

$

(2.87

)

 

$

(1.77

)

Net loss per share attributable to Seritage

   Class A and Class C common shareholders - Diluted

 

$

(0.92

)

 

$

(0.70

)

 

 

$

(2.87

)

 

$

(1.77

)

Weighted average Class A and Class C common

   shares outstanding - Basic

 

 

38,675

 

 

 

36,846

 

 

 

 

38,298

 

 

 

36,413

 

Weighted average Class A and Class C common

   shares outstanding - Diluted

 

 

38,675

 

 

 

36,846

 

 

 

 

38,298

 

 

 

36,413

 

8


 

Reconciliation of Net Loss to NOI and Total NOI (in thousands)

 

 

Quarter Ended December 31,

 

 

Year Ended December 31,

NOI and Total NOI

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Net loss

 

$

(49,692

)

 

$

(37,342

)

 

$

(152,964

)

 

$

(90,603

)

 

Termination fee income

 

 

(1,314

)

 

 

(20

)

 

 

(7,604

)

 

 

(5,545

)

 

Management and other fee income

 

 

(174

)

 

 

1,293

 

 

 

(293

)

 

 

(1,598

)

 

Depreciation and amortization

 

 

14,551

 

 

 

36,578

 

 

 

95,997

 

 

 

104,581

 

 

General and administrative expenses

 

 

(418

)

 

 

12,970

 

 

 

28,849

 

 

 

39,156

 

 

Equity in loss of unconsolidated

   joint ventures

 

 

2,161

 

 

 

3,656

 

 

 

4,712

 

 

 

17,994

 

 

Gain on sale of interests in unconsolidated

   joint ventures

 

 

(1,758

)

 

 

 

 

 

(1,758

)

 

 

 

 

Gain on sale of real estate

 

 

(28,596

)

 

 

(25,786

)

 

 

(88,555

)

 

 

(71,104

)

 

Impairment on real estate assets

 

 

47,701

 

 

 

 

 

 

64,108

 

 

 

 

 

Interest and other income

 

 

(934

)

 

 

(635

)

 

 

(3,394

)

 

 

(6,824

)

 

Interest expense

 

 

24,916

 

 

 

26,878

 

 

 

91,316

 

 

 

94,519

 

 

Provision for income taxes

 

 

37

 

 

 

113

 

 

 

252

 

 

 

196

 

 

Straight-line rent adjustment

 

 

1,362

 

 

 

35

 

 

 

4,983

 

 

 

(15,590

)

 

Above/below market rental income/expense

 

 

(116

)

 

 

(113

)

 

 

(1,793

)

 

 

(495

)

 

NOI

 

$

7,726

 

 

$

17,627

 

 

$

33,856

 

 

$

64,687

 

 

Unconsolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI of unconsolidated joint ventures

 

 

1,825

 

 

 

1,606

 

 

 

6,122

 

 

 

9,851

 

 

Straight-line rent

 

 

(274

)

 

 

(115

)

 

 

(681

)

 

 

(152

)

 

Above/below market rental income/expense

 

 

(97

)

 

 

(35

)

 

 

(713

)

 

 

(1,719

)

 

Termination fee income

 

 

(534

)

 

 

 

 

 

(827

)

 

 

 

 

Total NOI

 

$

8,646

 

 

$

19,083

 

 

$

37,757

 

 

$

72,667

 

 

9


 

Reconciliation of Net Loss to FFO and Company FFO (in thousands)

 

 

Quarter Ended December 31,

 

 

Year Ended December 31,

 

FFO and Company FFO

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(49,692

)

 

$

(37,342

)

 

$

(152,964

)

 

$

(90,603

)

Real estate depreciation and amortization

   (consolidated properties)

 

 

14,017

 

 

 

36,053

 

 

 

93,963

 

 

 

102,439

 

Real estate depreciation and amortization

   (unconsolidated joint ventures)

 

 

3,397

 

 

 

8,241

 

 

 

9,108

 

 

 

30,375

 

Gain on sale of interests in unconsolidated

   joint ventures

 

 

(1,758

)

 

 

 

 

 

(1,758

)

 

 

 

Gain on sale of real estate

 

 

(28,596

)

 

 

(25,786

)

 

 

(88,555

)

 

 

(71,104

)

Impairment on real estate assets

 

 

47,701

 

 

 

 

 

 

64,108

 

 

 

 

Dividends on preferred shares

 

 

(1,225

)

 

 

(1,225

)

 

 

(4,900

)

 

 

(4,900

)

FFO attributable to common shareholders

   and unitholders

 

$

(16,156

)

 

$

(20,059

)

 

$

(80,998

)

 

$

(33,793

)

Termination fee income

 

 

(1,314

)

 

 

(20

)

 

 

(7,604

)

 

 

(5,545

)

Unconsolidated entity termination fee income

 

 

(534

)

 

 

 

 

 

(827

)

 

 

 

Amortization of deferred financing costs

 

 

105

 

 

 

105

 

 

 

421

 

 

 

434

 

Mortgage recording costs

 

 

 

 

 

5,008

 

 

 

 

 

 

5,008

 

Severance costs

 

 

 

 

 

 

 

 

425

 

 

 

 

Company FFO attributable to common

   shareholders and unitholders

 

$

(17,899

)

 

$

(14,966

)

 

$

(88,583

)

 

$

(33,896

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO per diluted common share and unit

 

$

(0.29

)

 

$

(0.36

)

 

$

(1.45

)

 

$

(0.61

)

Company FFO per diluted common share and unit

 

$

(0.32

)

 

$

(0.27

)

 

$

(1.59

)

 

$

(0.61

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares and Units Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

38,675

 

 

 

36,846

 

 

 

38,298

 

 

 

36,413

 

Weighted average OP Units outstanding

 

 

17,255

 

 

 

18,956

 

 

 

17,576

 

 

 

19,387

 

Weighted average common shares and

   units outstanding

 

 

55,930

 

 

 

55,802

 

 

 

55,874

 

 

 

55,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10


 

 

11

EX-99.2 3 srg-ex992_6.htm EX-99.2 srg-ex992_6.htm

Exhibit 99.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION      ||     PERIOD ENDED DECEMBER 31, 2020

 

 

 


INTRODUCTION

 

 

 

 

Overview

Seritage Growth Properties (NYSE: SRG) (“Seritage” or the “Company”) is a fully-integrated, self-administered and self-managed REIT that is principally engaged in the acquisition, ownership, development, redevelopment, management, and leasing of diversified retail and mixed-use real estate throughout the United States.

As of December 31, 2020, the Company’s portfolio consisted of interests in 183 properties totaling approximately 26.5 million square feet of gross leasable area, including 158 wholly owned properties totaling approximately 24.5 million square feet of GLA across 41 states and Puerto Rico (the “Wholly Owned Properties”), and interests in 25 properties totaling approximately 1.9 million square feet of GLA across 13 states that are owned in unconsolidated entities (the “Unconsolidated Properties”).

The Company’s primary objective is to create value for its shareholders through the re-leasing and redevelopment of the majority of its Wholly Owned Properties and Unconsolidated Properties.  In doing so, the Company expects to meaningfully grow net operating income while diversifying its tenant base and adding other uses to its properties to more fully realize the value of its portfolio.  In order to achieve its objective, the Company intends to execute the following strategies:

Maximize the value of vast land holdings through accretive densification;

Convert single-tenant buildings into multi-tenant properties at meaningfully higher rents;

Leverage existing and future joint venture relationships with leading real estate and financial partners; and

Maintain a flexible capital structure to support value creation activities.

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 a master lease agreement (the “Original Master Lease”).  

As of December 31, 2020, the Company did not have any remaining properties leased to Holdco or Sears Holdings after giving effect to the pending termination of the last five Wholly Owned Properties which is scheduled to be completed in March 2021.

General Information

Unless the context indicates otherwise, references in this supplemental information package (the "Supplemental") to "Seritage Growth,” “Seritage,” the “Company,” or “SRG” refer to Seritage Growth Properties and its subsidiaries.  Additionally, where reference is made to "GAAP", this refers to accounting principles generally accepted in the United States.


i


INTRODUCTION

 

 

 

COVID-19 Pandemic

The COVID-19 pandemic continues to have a significant impact on the real estate industry in the United States, including the Company’s properties.  As of December 31, 2020, the Company had collected 93% of rental income for the quarter ended December 31, 2020, and agreed to defer an additional 4%.  As of March 5, 2021, the Company had also collected 95% of January and February 2021 rental income, and agreed to defer an additional 2%.  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.  

The Company continues to maintain a cautious approach as it responds to the evolving COVID-19 pandemic with an emphasis on managing its cash resources and preserving the value of its assets and its platform.  The Company expects to continue monetizing appropriate assets and selectively allocating capital to the assets with opportunistic risk-adjusted returns.  

As a result of the fluidity and uncertainty surrounding the nation’s response to and limitations as a result of the pandemic, the Company expects that conditions will change, potentially significantly, in future periods and, as such, results for the year ended December 31, 2020 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.  

 

 

ii

 


SUPPLEMENTAL FINANCIAL INFORMATION

 

 

 

 

SERITAGE GROWTH PROPERTIES

SUPPLEMENTAL INFORMATION

PERIOD ENDED DECEMBER 31, 2020