Seritage Growth Properties Reports First Quarter 2019 Operating Results

– Signed new leases totaling $11.0 million of base rent at an average of over $30 PSF –

– Increased diversified, non-Sears base rent to $159 million and 83% of total base rent, including signed leases –

– Ended quarter with over $875 million of liquidity, including cash on hand and committed capital –

Seritage Growth Properties SRG (the "Company"), a national owner of 225 retail and mixed-use properties totaling approximately 35.6 million square feet of gross leasable area ("GLA"), today reported financial and operating results for the quarter ended March 31, 2019.

Summary Financial Results

For the quarter ended March 31, 2019:

• Net loss attributable to common shareholders of $8.2 million, or $0.23 per share
• Total Net Operating Income ("Total NOI") of $24.3 million
• Funds from Operations ("FFO") of ($5.2) million, or ($0.09) per share
• Company FFO of ($5.1) million, or ($0.09) per share

Operating Highlights

During the quarter ended March 31, 2019:

• Signed new leases totaling 440,000 square feet (365,000 square feet at share) at an average base rent of $30.37 PSF ($30.06 PSF at share). Since the Company's inception in July 2015, the Company's share of new leasing activity has totaled nearly 8.3 million square feet at an average rent of $17.23 PSF, including new retail leases totaling 7.5 million square feet at an average rent of $18.24 PSF.
• Achieved an average releasing multiple of 4.1x for space currently or formerly occupied by Sears or Kmart, with new retail rents averaging $30.96 PSF compared to $7.51 PSF paid by Sears or Kmart. Since inception, releasing multiples have averaged 4.1x, with new retail rents at $18.35 PSF compared to $4.52 PSF paid by Sears or Kmart.
• Increased the Company's share of annual base rent from diversified, non-Sears tenants to 83.3% of total annual base rent from 54.3% in the prior year period, including all signed leases and net of rent attributable to associated space to be recaptured. Diversified, non-Sears rental income has increased by over 260% since inception to $158.7 million, including all signed leases.
• Announced new redevelopment activity totaling approximately $65.0 million, including two new projects and the expansion of two previously announced projects. Total redevelopment program to date includes 99 projects completed or commenced representing approximately $1.6 billion of estimated capital investment.
• Formed a 50% joint venture partnership with the owner of the adjacent shopping center to redevelop the Company's asset in Cockeysville, Maryland. The transaction valued the property at approximately $18.7 million and generated $9.3 million of gross cash proceeds. The venture plans to complete the retail redevelopment of the full-line store and auto center and may also pursue multi-family development on a portion of the 14-acre site.
• Sold seven properties totaling 639,000 feet for gross cash proceeds of $29.5 million. These properties were generally located in smaller markets and all seven properties were vacant at the time of sale.

"We are pleased with our start to the year with 440,000 square feet of total new leasing at a strong average rate of $30 per square foot and an average multiple of 4.1x for space previously occupied by Sears. Our leasing since inception now stands at 8.3 million square feet and an average re-leasing multiple of 4.1x. We continue to make significant progress on our redevelopment program, with two new projects and two expanded projects this quarter. Our total program currently consists of 99 projects completed or commenced with a total of approximately $1.6 billion of capital investment," said Benjamin Schall, President and Chief Executive Officer. "With a strong balance sheet and over $875 million of liquidity, we will continue to utilize our specialized platform and high-quality portfolio to create first-class retail centers and larger mixed-use projects that generate long-term value for our shareholders."

Financial Results

Below is a summary of the Company's financial results for the quarters ended March 31, 2019 and March 31, 2018:

Total NOI

The decrease in Total NOI was driven primarily by reduced rental income under the Company's original master lease (the "Original Master Lease") with Sears Holdings Corporation ("Sears Holdings") as a result of previous recapture and termination activity at our properties, as well as the rejection of the Original Master Lease during the three months ended March 31, 2019. In addition, the Company has sold 24 wholly-owned properties and 50% interests in three wholly-owned properties over the past 12 months which contributed to the decrease in Total NOI.

Since inception, over 25 million square feet of leased space, representing over $100 million of annual base rent, has been taken offline through recapture and termination activity, or as a result of the rejection of the Original Master Lease. To date, the Company has signed new leases with diversified, non-Sears tenants for an aggregate annual base rent of $142.1 million across 8.3 million square feet of space. A majority of these newly signed leases are categorized as signed not yet opened ("SNO") leases and are expected to begin paying rent throughout the next 24 months.

FFO and Company FFO

The decrease in FFO was driven by the same factors driving the decrease in Total NOI, as well as (i) higher interest expense resulting from the Company's debt refinancing in the third quarter of 2018, and (ii ) higher G&A expenses, including increased personnel costs and certain legal and advisory costs related to Sears Holdings' bankruptcy filing.

Portfolio Summary

Below is a summary of the Company's portfolio as March 31, 2019:

The unleased space as of March 31, 2019 included approximately 2.6 million SF of remaining lease-up at announced redevelopment projects, and approximately 12.4 million SF of additional leasing opportunity at properties throughout the Company's portfolio.

Leasing

New Activity

During the quarter ended March 31, 2019, the Company signed new leases totaling 440,000 square feet (365,000 square feet at share) at an average base rent of $30.37 PSF ($30.06 PSF at share). On a same-space basis, new rents averaged 4.1x prior rents for space formerly occupied by Sears or Kmart, increasing to $30.96 PSF for new tenants compared to $7.51 PSF paid by Sears or Kmart across 341,000 square feet.

Below is a summary of the Company's leasing activity, including its proportional share of unconsolidated joint ventures, for the quarter ended March 31, 2019 and since the Company's inception in July 2015:

On February 28, 2019, the Company entered into a master lease (the "Holdco Master Lease") with affiliates of Transform Holdco LLC ("Holdco"), an affiliate of ESL Investments, Inc. and the successor to Sears Holdings, comprising 51 of the Company's wholly-owned properties. The Holdco Master Lease became effective on March 12, 2019 when the bankruptcy court issued an order approving the rejection of the Original Master Lease with Sears Holdings.

The Holdco Master Lease contains terms that are similar to the Original Master Lease with the addition of certain enhanced landlord recapture and tenant termination rights. Additional information regarding the Holdco Master Lease can be found in the Form 8-K filed with the Securities and Exchange Commission on February 28, 2019.

Rental Income Composition

During the quarter ended March 31, 2019, the Company added $11.0 million of new diversified, non-Sears income and increased annual base rent attributable to diversified, non-Sears tenants to 83.3% of total annual base rent from 54.3% as of March 31, 2018, based on signed leases.

The table below provides a summary of all the Company's signed leases as of March 31, 2019, including unconsolidated joint ventures presented at the Company's proportional share:

Development

Program Summary

During the quarter ended March 31, 2019, the Company commenced projects totaling approximately $65.0 million, including two new redevelopments and the expansion of two previously announced projects.

Below is a summary of the Company's announced development activity from inception through March 31, 2019, presented at 100% share and including certain assets that have been monetized through sale or joint venture:

Announced Development Projects

As of March 31, 2019, the Company had originated 84 redevelopment projects since the Company's inception. These projects represent an estimated total investment of $1.5-1.6 billion ($1.4-1.5 billion at share), of which an estimated $890-965 million ($825-900 million at share) remains to be spent, and are expected to generate an incremental yield on cost of approximately 10.3-11.3%.

The tables below provide brief descriptions of each of the redevelopment projects originated on the Company's platform since its inception, including certain assets that have been monetized through sale or joint venture:

Asset Monetization

During the quarter ended March 31, 2019, the Company contributed its asset in Cockeysville, MD into a 50% joint venture with the owner of the adjacent shopping center at a gross value of $18.7 million and generated $9.3 million of gross cash proceeds. The Company substantially completed the partial redevelopment of the former full-line Sears store with the recent openings of Michael's and HomeGoods, and the venture plans to further redevelop the full-line store and auto center for additional retail and restaurants. The venture may also pursue multi-family development on a portion of the 14-acre site as part of a broader transformation of the mall.

During the quarter ended March 31, 2019, the Company sold seven properties totaling 639,000 feet for gross cash proceeds of $29.5 million, or $46 PSF. These properties were generally located in smaller markets and all seven properties were vacant at the time of sale.

Liquidity

As of March 31, 2019, the Company had over $875 million of identified liquidity, including $442.6 million of cash on the balance sheet, the $400 million incremental funding facility under the Company's senior secured term loan (subject to certain conditions) and assets under contract for sale for anticipated gross cash proceeds of $34.3 million (assets under contract for sale are subject to customary closing conditions and there can be no assurance that such transactions will be consummated).

Dividends

On April 30, 2019, 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 July 15, 2019 to holders of record on June 28, 2019.

On February 25, 2019, the Company's Board of Trustees declared a first quarter common stock dividend of $0.25 per each Class A and Class C common share. The common dividend was paid on April 11, 2019 to shareholders of record on March 29, 2019. Holders of units in Seritage Growth Properties, L.P. (the "Operating Partnership") were entitled to an equal distribution per each Operating Partnership unit held on March 29, 2019. On February 25, 2019, the Company's Board of Trustees also declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend was paid on April 15, 2019 to holders of record on March 29, 2019.

As previously announced, the Company's Board of Trustees does not currently expect to declare additional common dividends for the remainder of 2019, based on its assessment of the Company's investment opportunities and its expectations of taxable income for the year. The Board of Trustees will reevaluate this position at the end of 2019, if necessary, to ensure that the Company meets its distribution requirements as a REIT. The Company's Board of Trustees expects that cash dividends for the Company's preferred shares will continue to be paid each quarter.

Supplemental Report

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

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 we deem most comparable have been provided in the tables accompanying this press release.

Net Operating Income ("NOI"), Total NOI and Annualized Total NOI

NOI is defined as income from property operations less property operating expenses. 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 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.

Annualized Total NOI is an estimate, as of the end of the reporting period, of the annual Total NOI to be generated by the Company's portfolio including all signed leases and modifications to the Original Master Lease and Holdco Master Lease with respect to recaptured space. We calculate Annualized Total NOI by adding or subtracting current period adjustments for leases that commenced or expired during the period to Total NOI (as defined) for the period and annualizing, and then adding estimated annual Total NOI attributable to SNO leases and subtracting estimated annual Total NOI attributable to Sears Holdings and Holdco space to be recaptured.

Annualized Total NOI is a forward-looking non-GAAP measure for which the Company does not believe it can provide reconciling information to a corresponding forward-looking GAAP measure without unreasonable effort.

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 and personnel costs, that it does not believe are representative of ongoing operating results. The Company previously referred to this metric as Normalized FFO; the definition and calculation remain the same.

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: our historical exposure to Sears Holdings and the effects of its previously announced bankruptcy filing; Holdco's termination and other rights under its master lease with us; competition in the real estate and retail industries; risks relating to our recapture and redevelopment activities; contingencies to the commencement of rent under leases; the terms of our indebtedness; restrictions with which we are required to comply in order to maintain REIT status and other legal requirements to which we are subject; and our relatively limited history as an operating company. For additional discussion of these and other applicable risks, assumptions and uncertainties, see the "Risk Factors" and forward-looking statement disclosure contained in our filings with the Securities and Exchange Commission, including the risk factors relating to Sears Holdings and Holdco. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. We intend 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 198 wholly-owned properties and 27 joint venture properties totaling approximately 35.6 million square feet of space across 46 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. Pursuant to a master lease, the Company has the right to recapture certain space from the successor to Sears Holdings for retenanting or redevelopment purposes. The Company's mission is to create and own revitalized shopping, dining, entertainment and mixed-use destinations that provide enriched experiences for consumers and local communities, and create long-term value for our shareholders.

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