Market Overview

Seritage Growth Properties Reports Fourth Quarter and Full Year 2019 Operating Results

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– Signed new leases totaling 2.5 million square feet at an average re-leasing multiple of 3.9x –

– Increased base rent from diversified tenants to 94.5% of total base rent, including all signed leases –

– Announced multifamily projects at three mixed-use redevelopments, first of 6,000-8,000 unit multifamily opportunity –

Seritage Growth Properties (NYSE:SRG) (the "Company"), a national owner of 212 retail and mixed-use properties totaling approximately 33.4 million square feet of gross leasable area ("GLA"), today reported financial and operating results for the quarter and year ended December 31, 2019.

Summary Financial Results

For the quarter ended December 31, 2019:

  • Net loss attributable to common shareholders of $25.9 million, or $0.70 per share
  • Total Net Operating Income ("Total NOI") of $19.1 million
  • Funds from Operations ("FFO") of ($20.1) million, or ($0.36) per share
  • Company FFO of ($15.0) million, or ($0.27) per share

For the year ended December 31, 2019:

  • Net loss attributable to common shareholders of $64.3 million, or $1.77 per share
  • Total NOI of $72.7 million
  • FFO of ($33.7) million, or ($0.61) per share
  • Company FFO of ($33.9) million, or ($0.61) per share

"Our strong fourth quarter was another period of consistent execution across our key strategic priorities. With 814,000 square feet of new leasing at a 3.9x re-leasing multiple, we continue to diversify our tenant roster, which is now 95% comprised of non-Sears income on a signed leased basis. We continue to harvest value and reduce our portfolio holdings through select asset sales, recycling the capital raised accretively into our redevelopment pipeline. Since July 2017, we have raised over $700 million from asset monetization activities, including $155 million in 2019," said Benjamin Schall, President and Chief Executive Officer. "We are increasingly focused on the execution of our premier and mixed-used projects and are excited to have announced our multifamily led projects in Redmond (WA), Dallas and Chicago in the fourth quarter. These projects are part of the 6,800 apartment units for which we have signed agreements with leading multifamily partners to entitle and develop. Taken together, these activities provide us with stability, a growing income base and a set of close relationships with retailers and related users, mixed-use developers and capital providers that we expect will serve us well in 2020."

Operating Highlights

Rental Income

During the year ended December 31, 2019, the Company signed new leases totaling $48.6 million of diversified income and increased annual base rent attributable to diversified tenants to 94.5% of total annual base rent from 70.9% as of December 31, 2018, including all signed leases and after giving effect to 32 Sears and Kmart properties that are subject to pending recapture or termination notices.

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

(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

 

 

282

 

 

 

7,041

 

 

 

52.9

%

 

$

97,109

 

 

 

50.6

%

 

$

13.79

 

SNO diversified leases (1)

 

 

174

 

 

 

4,204

 

 

 

31.5

%

 

 

84,348

 

 

 

43.9

%

 

 

20.06

 

Total diversified leases

 

 

456

 

 

 

11,245

 

 

 

84.4

%

 

$

181,457

 

 

 

94.5

%

 

$

16.14

 

Sears or Kmart (2)(3)

 

 

19

 

 

 

2,075

 

 

 

15.6

%

 

 

10,577

 

 

 

5.5

%

 

 

5.10

 

Total

 

 

475

 

 

 

13,320

 

 

 

100.0

%

 

$

192,034

 

 

 

100.0

%

 

$

14.42

 

(1)

SNO = signed but not yet opened leases.

(2)

Includes 17 properties subject to a master lease (the "Holdco Master Lease") between the Company and affiliates of Transform Holdco LLC ("Holdco"), an affiliate of ESL Investments, Inc., and two leases between the Company's unconsolidated joint ventures and Holdco.

(3)

Excludes 32 properties subject to previously exercised recapture or terminations notices.

Leasing

In 2019, the Company signed new leases totaling 2.5 million square feet, including approximately 814,000 square feet signed in the fourth quarter. Retail leasing in the fourth quarter totaled 721,000 square feet at an average rent of $16.34 PSF.

Below is a summary of the Company's leasing activity, including its proportional share of unconsolidated joint ventures, as of December 31, 2019:

 

 

 

 

 

 

 

 

 

 

Since

 

 

 

Q4 2019

 

 

FY2019

 

 

Inception

 

Leases

 

 

30

 

 

 

115

 

 

 

402

 

Square feet

 

 

814,000

 

 

 

2,541,000

 

 

 

10,426,000

 

Annual base rent ($000s)

 

$

12,381

 

 

$

48,603

 

 

$

179,767

 

Annual base rent PSF (1)

 

$

16.34

 

 

$

20.35

 

 

$

18.29

 

Re-leasing multiple (1)(2)

 

 

3.9

x

 

 

3.9

x

 

 

4.0

x

(1)

Reflects retail leasing activity and excludes certain self storage, auto-related, medical office and ground leases.

(2)

Excludes densification square footage (e.g. new outparcel developments) and backfill of vacant space not previously occupied by Sears or Kmart.

Retail Development

In 2019, the Company commenced retail redevelopment projects totaling over $192 million, including eight new redevelopments and the expansion of six previously announced projects. This activity includes projects representing approximately $67 million of capital investment in the fourth quarter.

As of December 31, 2019, the Company had originated 91 retail redevelopment projects since the Company's inception. Excluding five projects that have been sold, these projects represent an estimated total investment of $1,580-1,660 million ($1,440-1,520 million at share), of which an estimated $660-740 million ($580-660 million at share) remains to be spent, and are expected to generate an incremental yield on cost of approximately 10-11%.

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

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

Number

 

 

Project

 

 

Percentage

 

 

Estimated

 

 

Spent

 

 

Projected Annual Income (2)

 

Incremental

Project Status

 

of Projects

 

 

Square Feet

 

 

Leased

 

 

Project Costs (1)

 

 

to Date

 

 

Total

 

Incremental

 

Yield (3)

Complete

 

 

26

 

 

 

2.7

 

 

 

94

%

 

$ 215 - 225

 

 

$

211

 

 

 

 

 

 

 

Substantially Complete / Delivered to Tenant(s)

 

 

33

 

 

 

3.9

 

 

 

70

%

 

630 - 655

 

 

 

451

 

 

 

 

 

 

 

Underway

 

 

18

 

 

 

2.6

 

 

 

68

%

 

615 - 645

 

 

 

245

 

 

 

 

 

 

 

Announced

 

 

9

 

 

 

1.1

 

 

 

71

%

 

120 - 135

 

 

 

12

 

 

 

 

 

 

 

Current Projects

 

 

86

 

 

 

10.3

 

 

 

76

%

 

$ 1,580 - 1,660

 

 

$

919

 

 

$ 201 - 217

 

$ 161 - 177

 

10.2 - 10.7%

Acquired

 

 

15

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

Sold

 

 

5

 

 

 

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

Total Projects

 

 

106

 

 

 

 

 

 

 

 

 

 

$ 1,680 - 1,760

 

 

 

 

 

 

 

 

 

 

 

(1)

Total estimated project costs include aggregate termination fees of approximately $81.0 million to recapture 100% of certain properties.

(2)

Projected annual income is based on assumptions for stabilized rents to be achieved at space under redevelopment. There can be no assurance that stabilized rent targets will be achieved.

(3)

Projected incremental annual income divided by total estimated project costs.

Mixed-Use Development

In the fourth quarter of 2019, the Company announced its first three multifamily projects, each of which represents the first phase of a larger, mixed-use development and are expected to have an aggregate incremental cost of $325-350 million for the initial phases.

Below is a summary and brief description of the Company's recently announced mixed-use projects:

($ in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

Estimated SRG Equity (3)

 

 

Number

 

 

Multifamily

 

Commercial

 

Estimated

 

Target Yield on Cost (2)

 

$ Value

 

% of Total

Project Status

 

of Projects

 

 

Units

 

SF (000s)

 

Costs (1)

 

Incremental

 

SRG Basis

 

Incl. Land

 

Est. Costs

Announced

 

3

 

 

850 - 925

 

125 - 145

 

$350 - 375

 

6.5% - 7.0%

 

6.3% - 6.8%

 

$95 - 130

 

25.0% - 35.0%

(1)

Total estimated costs equal incremental project costs plus land basis, including step-ups in land basis upon contribution to joint ventures, as applicable.

(2)

Incremental yield on cost equals estimated stabilized NOI divided by incremental project costs. Yield on cost at SRG basis equals estimated stabilized NOI divided by estimated project costs including land at Seritage cost basis. There can be no assurance that target yields will be achieved.

(3)

Estimated SRG equity is after giving effect to 50-60% loan-to-cost construction financing and joint venture partner contributions, as applicable. There can be no assurance that construction financing will be obtained on the terms assumed, or at all.

Mixed-Use Projects

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

Commercial

 

Estimated Project Schedule

Property

 

Project Description

 

 

 

Units

 

Square Feet

 

Start

 

Opening

Heritage Place

(Redmond, WA)

 

Demolish existing buildings and create 14-acre master-planned redevelopment approved for over one million square feet of residential, retail and office development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Project Activity

Class A multifamily development with ground-level retail

 

425 - 450

 

30,000 - 35,000

 

2020

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Entitlements

Up to 490,000 square feet of office space and 75,000 square feet of additional retail and restaurant space, plus public parks and other site amenities

 

-

 

500,000 - 575,000

 

TBD

 

TBD

Park Heritage

(Dallas, TX)

 

Demolish existing buildings and create 23-acre urban-infill redevelopment in Midtown Dallas approved for over two million square feet of residential, retail, office and hotel development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Project Activity

Class A multifamily development with ground-level retail

 

275 - 300

 

20,000 - 25,000

 

2020

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Entitlements

Up to 315 additional multifamily units, 1,400,000 square feet of office space and 395,000 square feet of additional retail and restaurant space, plus public spaces and other site amenities

 

300 - 325

 

1,250,000 - 1,750,000

 

TBD

 

TBD

North & Harlem

(Chicago, IL)

 

Redevelop existing site and create best-in-class mixed-use project that redefines the crossroads of the City of Chicago and the Village of Elmwood Park

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Project Activity

Redevelop the Chicago West parcel into a mixed-use property featuring multifamily units and retail anchored by national grocer and fitness club

 

150 - 175

 

75,000 - 85,000

 

2020

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Entitlements

Redevelop the Elmwood and Chicago East parcels adding up to 300 additional multifamily units and 20,000 square feet of additional retail

 

275 - 300

 

15,000 - 20,000

 

TBD

 

TBD

Transactions

Since it began its capital recycling program in July 2017, the Company has raised over $700 million from the sale or joint venture of interests in 65 properties, including $155 million in 2019, and reinvested the majority of the proceeds into its redevelopment pipeline.

In 2019, the Company sold 21 properties, plus additional outparcels, totaling 2.5 million square feet and generated gross proceeds of $144.3 million and also completed two joint ventures with adjacent property owners in 2019 that generated an additional $10.9 million of gross proceeds.

Approximately $60 million of the Company's asset sales in 2019 were income-producing assets which were sold at a blended cap rate of 6.0%. The remaining $85 million of sales were smaller market assets sold at approximately $40 PSF.

Subsequent to December 31, 2019, the Company sold one asset for $37.5 million and entered into contracts to sell an additional eight assets. As of February 27, 2020, the Company had a total of 12 assets under contract to sell for anticipated proceeds of $132.9 million, subject to certain closing conditions.

Balance Sheet and Liquidity

As of December 31, 2019, the Company had cash on hand of $139.3 million and, as of February 27, 2020, the Company had closed one asset sale in 2020 for $37.5 million and had additional asset sales under contract for anticipated proceeds of $132.9 million. The Company expects to use these sources of liquidity, together with a combination of future sales of wholly-owned assets and joint venture interests and/or potential credit and capital markets transactions to fund its operations and ongoing development activity. In addition, the Company's $2.0 billion term loan facility includes a $400 million incremental funding facility, access to which is subject to rental income from non-Sears Holdings tenants of at least $200 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 availability of funding from sales of assets and credit or capital markets transactions is subject to various conditions, including the consent of the Company's lender under its $2.0 billion term loan facility, and there can be no assurance that such transactions will be consummated.

The Company has not paid dividends on its common shares since its Q1 2019 distribution as it has maintained a policy of retaining capital to invest in its redevelopment pipeline and was not required to make additional common dividend payments in 2019 to maintain its REIT status. The Company's Board of Trustees expects to maintain a similar common dividend policy in 2020 and expects that cash dividends for the Company's preferred shares will continue to be paid each quarter.

Financial Results

Below is a summary of financial results for the quarter and year ended December 31, 2019 and December 31, 2018:

(in thousands except per share amounts)

 

Quarter Ended December 31,

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss attributable to common shareholders

 

$

(25,874

)

 

$

(56,038

)

 

$

(64,297

)

 

$

(78,375

)

Net loss per share attributable to common shareholders

 

 

(0.70

)

 

 

(1.57

)

 

 

(1.77

)

 

 

(2.20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total NOI

 

 

19,083

 

 

 

34,055

 

 

 

72,667

 

 

 

143,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO

 

 

(20,059

)

 

 

7,009

 

 

 

(33,793

)

 

 

24,111

 

FFO per share

 

 

(0.36

)

 

 

0.13

 

 

 

(0.61

)

 

 

0.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company FFO

 

 

(14,966

)

 

 

(4,438

)

 

 

(33,896

)

 

 

15,746

 

Company FFO per share

 

 

(0.27

)

 

 

(0.08

)

 

 

(0.61

)

 

 

0.28

 

Net Loss

Net loss for both periods was driven primarily by the factors driving the decreases in Total NOI and FFO, as described below, as well as significant depreciation and amortization expense related to the accelerated amortization of certain lease intangibles as a result of the recapture of space from, or the termination of space by, Sears Holdings Corporation ("Sears Holdings"), and the demolition of certain buildings for redevelopment. The quarter and year ended December 31, 2018 also included additional accelerated amortization of certain lease intangibles as a result of Sears Holdings' bankruptcy filing.

Total NOI

The decreases in Total NOI for both periods were driven primarily by (i) reduced rental income under the Company's original master lease (the "Original Master Lease") with Sears Holdings as a result of previous recapture and termination activity at the Company's properties and the rejection of the Original Master Lease during the three months ended March 31, 2019 and (ii) the rejection of the master leases between Sears Holdings and certain of the Company's unconsolidated joint venture properties during the three months ended June 30, 2019.

Since inception, 31.3 million square feet of leased space, representing $130.6 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 and the master leases between Sears Holdings and certain unconsolidated joint venture properties. To date, the Company has signed new leases with diversified, non-Sears tenants for aggregate annual base rent of $179.8 million across 10.4 million square feet of space. A majority of these leases are categorized as SNO leases and are expected to begin paying rent throughout the next 18-24 months.

FFO and Company FFO

The decreases in FFO in both periods were driven primarily by the same business factors driving the decreases in Total NOI, as well as, for the periods ended December 31, 2019, (i) lower termination fee income, (ii) certain non-recurring mortgage recording fees, (iii) higher general and administrative expenses and (iv) lower straight-line rent as a result of recapture and termination activity under the Original Master Lease. Higher general and administrative expenses in the periods ended December 31, 2019 included (i) legal and advisory fees related to the Sears Holdings' bankruptcy filing and subsequent litigation and (ii) changes to the accounting of leasing personnel and legal costs related to leasing activity.

The decreases in Company FFO in both periods were driven primarily by the same business factors driving the decreases in Total NOI, as well as, for the periods ended December 31, 2019, (i) higher general and administrative expenses and (ii) lower straight-line rent as a result of recapture and termination activity under the Original Master Lease. Higher general and administrative expenses in the periods ended December 31, 2019 were driven by the same factors as described above.

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 costs, that it does not believe are representative of ongoing operating results.

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; 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 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; 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 our ability to fund operations and ongoing development; our ability to access or obtain sufficient sources of financing to fund our liquidity needs; 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 184 wholly-owned properties and 28 joint venture properties totaling approximately 33.4 million square feet of space across 44 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 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..

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Investment in real estate

 

 

 

 

 

 

 

 

Land

 

$

667,004

 

 

$

696,792

 

Buildings and improvements

 

 

1,112,653

 

 

 

900,173

 

Accumulated depreciation

 

 

(147,696

)

 

 

(137,947

)

 

 

 

1,631,961

 

 

 

1,459,018

 

Construction in progress

 

 

338,672

 

 

 

292,049

 

Net investment in real estate

 

 

1,970,633

 

 

 

1,751,067

 

Real estate held for sale

 

 

5,275

 

 

 

3,094

 

Investment in unconsolidated joint ventures

 

 

445,077

 

 

 

398,577

 

Cash and cash equivalents

 

 

139,260

 

 

 

532,857

 

Tenant and other receivables, net

 

 

54,470

 

 

 

36,926

 

Lease intangible assets, net

 

 

68,153

 

 

 

123,656

 

Prepaid expenses, deferred expenses and other assets, net

 

 

67,744

 

 

 

29,899

 

Total assets

 

$

2,750,612

 

 

$

2,876,076

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Term loan facility, net

 

$

1,598,487

 

 

$

1,598,053

 

Accounts payable, accrued expenses and other liabilities

 

 

108,755

 

 

 

127,565

 

Total liabilities

 

 

1,707,242

 

 

 

1,725,618

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

Class A common shares $0.01 par value; 100,000,000 shares authorized; 36,897,364 and 35,667,521 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively

 

 

369

 

 

 

357

 

Class B common shares $0.01 par value; 5,000,000 shares authorized; 1,242,536 and 1,322,365 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively

 

 

12

 

 

 

13

 

Series A preferred shares $0.01 par value; 10,000,000 shares authorized; 2,800,000 shares issued and outstanding as of December 31, 2019 and December 31, 2018; liquidation preference of $70,000

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

1,149,721

 

 

 

1,124,504

 

Accumulated deficit

 

 

(418,711

)

 

 

(344,132

)

Total shareholders' equity

 

 

731,419

 

 

 

780,770

 

Non-controlling interests

 

 

311,951

 

 

 

369,688

 

Total equity

 

 

1,043,370

 

 

 

1,150,458

 

Total liabilities and equity

 

$

2,750,612

 

 

$

2,876,076

 

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Quarter Ended December 31,

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

37,927

 

 

 

54,947

 

 

$

167,035

 

 

$

213,558

 

Management and other fee income

 

 

(1,293

)

 

 

167

 

 

 

1,598

 

 

 

1,196

 

Total revenue

 

 

36,634

 

 

 

55,114

 

 

 

168,633

 

 

 

214,754

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

 

11,122

 

 

 

8,583

 

 

 

42,123

 

 

 

28,705

 

Real estate taxes

 

 

9,080

 

 

 

9,649

 

 

 

38,595

 

 

 

42,446

 

Depreciation and amortization

 

 

36,578

 

 

 

92,627

 

 

 

104,581

 

 

 

226,675

 

General and administrative

 

 

12,970

 

 

 

9,980

 

 

 

39,156

 

 

 

34,788

 

Provision for doubtful accounts

 

 

 

 

 

 

 

 

 

 

 

257

 

Total expenses

 

 

69,750

 

 

 

120,839

 

 

 

224,455

 

 

 

332,871

 

Gain on sale of real estate

 

 

25,786

 

 

 

2,746

 

 

 

71,104

 

 

 

96,165

 

Equity in loss of unconsolidated joint ventures

 

 

(3,656

)

 

 

(3,442

)

 

 

(17,994

)

 

 

(10,448

)

Interest and other income

 

 

635

 

 

 

5,588

 

 

 

6,824

 

 

 

7,886

 

Interest expense

 

 

(26,878

)

 

 

(25,016

)

 

 

(94,519

)

 

 

(90,020

)

Change in fair value of interest rate cap

 

 

 

 

 

 

 

 

 

 

 

(23

)

Loss before income taxes

 

 

(37,229

)

 

 

(85,849

)

 

 

(90,407

)

 

 

(114,557

)

Provision for income taxes

 

 

(113

)

 

 

116

 

 

 

(196

)

 

 

(321

)

Net loss

 

 

(37,342

)

 

 

(85,733

)

 

 

(90,603

)

 

 

(114,878

)

Net loss attributable to non-controlling interests

 

 

12,693

 

 

 

30,920

 

 

 

31,206

 

 

 

41,406

 

Net loss attributable to Seritage

 

$

(24,649

)

 

$

(54,813

)

 

$

(59,397

)

 

$

(73,472

)

Preferred dividends

 

 

(1,225

)

 

 

(1,225

)

 

 

(4,900

)

 

 

(4,903

)

Net loss attributable to Seritage common shareholders

 

$

(25,874

)

 

$

(56,038

)

 

$

(64,297

)

 

$

(78,375

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share attributable to Seritage Class A and Class C common shareholders - Basic

 

$

(0.70

)

 

$

(1.57

)

 

$

(1.77

)

 

$

(2.20

)

Net loss per share attributable to Seritage Class A and Class C common shareholders - Diluted

 

$

(0.70

)

 

$

(1.57

)

 

$

(1.77

)

 

$

(2.20

)

Weighted average Class A and Class C common shares outstanding - Basic

 

 

36,846

 

 

 

35,589

 

 

 

36,413

 

 

 

35,560

 

Weighted average Class A and Class C common shares outstanding - Diluted

 

 

36,846

 

 

 

35,589

 

 

 

36,413

 

 

 

35,560

 

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

 

 

 

Quarter Ended December 31,

 

 

Year Ended December 31,

 

NOI and Total NOI

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(37,342

)

 

$

(85,733

)

 

$

(90,603

)

 

$

(114,878

)

Termination fee income

 

 

(20

)

 

 

(11,549

)

 

 

(5,545

)

 

 

(18,711

)

Management and other fee income

 

 

1,293

 

 

 

(167

)

 

 

(1,598

)

 

 

(1,196

)

Depreciation and amortization

 

 

36,578

 

 

 

92,627

 

 

 

104,581

 

 

 

226,675

 

General and administrative expenses

 

 

12,970

 

 

 

9,980

 

 

 

39,156

 

 

 

34,788

 

Equity in loss of unconsolidated joint ventures

 

 

3,656

 

 

 

3,442

 

 

 

17,994

 

 

 

10,448

 

Gain on sale of real estate

 

 

(25,786

)

 

 

(2,746

)

 

 

(71,104

)

 

 

(96,165

)

Interest and other income

 

 

(635

)

 

 

(5,588

)

 

 

(6,824

)

 

 

(7,886

)

Interest expense

 

 

26,878

 

 

 

25,016

 

 

 

94,519

 

 

 

90,020

 

Change in fair value of interest rate cap

 

 

 

 

 

 

 

 

 

 

 

23

 

Provision for income taxes

 

 

113

 

 

 

(116

)

 

 

196

 

 

 

321

 

NOI

 

$

17,705

 

 

$

25,166

 

 

$

80,772

 

 

$

123,439

 

NOI of unconsolidated joint ventures

 

 

1,606

 

 

 

5,036

 

 

 

9,851

 

 

 

19,138

 

Straight-line rent adjustment (1)

 

 

(80

)

 

 

4,459

 

 

 

(15,742

)

 

 

2,170

 

Above/below market rental income/expense (1)

 

 

(148

)

 

 

(606

)

 

 

(2,214

)

 

 

(1,640

)

Total NOI

 

$

19,083

 

 

$

34,055

 

 

$

72,667

 

 

$

143,107

 

(1)

Includes adjustments for unconsolidated joint ventures.

Computation of Annualized Total NOI (in thousands)

 

 

 

As of December 31,

 

 

 

 

 

Annualized Total NOI

 

2019

 

 

2018

 

 

 

 

 

Total NOI (per above)

 

$

19,083

 

 

$

34,055

 

 

 

 

 

Period adjustments (1)

 

 

1,428

 

 

 

163

 

 

 

 

 

Adjusted Total NOI

 

 

20,511

 

 

 

34,218

 

 

 

 

 

Annualize

 

 

x 4

 

 

 

x 4

 

 

 

 

 

Adjusted Total NOI annualized

 

 

82,044

 

 

 

136,872

 

 

 

 

 

Plus: estimated annual Total NOI from SNO leases

 

 

81,323

 

 

 

80,223

 

 

 

 

 

Less: estimated annual Total NOI from associated space to be recaptured from Sears

 

 

(2,656

)

 

 

(4,354

)

 

 

 

 

Annualized Total NOI

 

$

160,711

 

 

$

212,741

 

 

 

 

 

(1)

Includes adjustments to account for leases not in place for the full period.

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

 

 

 

Quarter Ended December 31,

 

 

Year Ended December 31,

 

FFO and Company FFO

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(37,342

)

 

$

(85,733

)

 

$

(90,603

)

 

$

(114,878

)

Real estate depreciation and amortization (consolidated properties)

 

 

36,053

 

 

 

91,853

 

 

$

102,439

 

 

 

224,217

 

Real estate depreciation and amortization (unconsolidated joint ventures)

 

 

8,241

 

 

 

4,860

 

 

 

30,375

 

 

 

15,840

 

Gain on sale of real estate

 

 

(25,786

)

 

 

(2,746

)

 

 

(71,104

)

 

 

(96,165

)

Dividends on preferred shares

 

 

(1,225

)

 

 

(1,225

)

 

 

(4,900

)

 

 

(4,903

)

FFO attributable to common shareholders and unitholders

 

$

(20,059

)

 

$

7,009

 

 

$

(33,793

)

 

$

24,111

 

Termination fee income

 

 

(20

)

 

 

(11,549

)

 

 

(5,545

)

 

 

(18,711

)

Change in fair value of interest rate cap

 

 

 

 

 

 

 

 

 

 

 

23

 

Amortization of deferred financing costs

 

 

105

 

 

 

102

 

 

 

434

 

 

 

10,323

 

Mortgage recording costs

 

 

5,008

 

 

 

 

 

 

5,008

 

 

 

 

Company FFO attributable to common shareholders and unitholders

 

$

(14,966

)

 

$

(4,438

)

 

$

(33,896

)

 

$

15,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO per diluted common share and unit

 

$

(0.36

)

 

$

0.13

 

 

$

(0.61

)

 

$

0.43

 

Company FFO per diluted common share and unit

 

$

(0.27

)

 

$

(0.08

)

 

$

(0.61

)

 

$

0.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares and Units Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

36,846

 

 

 

35,589

 

 

 

36,413

 

 

 

35,560

 

Weighted average OP units outstanding

 

 

18,956

 

 

 

20,158

 

 

 

19,387

 

 

 

20,153

 

Weighted average common shares and units outstanding

 

 

55,802

 

 

 

55,747

 

 

 

55,800

 

 

 

55,713

 

 

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