Seritage Growth Properties Reports Third Quarter 2019 Operating Results

Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 217 retail and mixed-use properties totaling approximately 34.4 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the three and nine months ended September 30, 2019.

Summary Financial Results

For the three months ended September 30, 2019:

  • Net loss attributable to common shareholders of $12.1 million, or $0.33 per share
  • Total Net Operating Income (“Total NOI”) of $14.7 million
  • Funds from Operations (“FFO”) of ($2.4) million, or ($0.04) per share
  • Company FFO of ($7.8) million, or ($0.14) per share

For the nine months ended September 30, 2019:

  • Net loss attributable to common shareholders of $38.4 million, or $1.06 per share
  • Total NOI of $53.5 million
  • FFO of ($13.7) million, or ($0.25) per share
  • Company FFO of ($18.9) million, or ($0.34) per share

“We are pleased with our strong third quarter of leasing, development and transaction activity and our consistent execution as we unlock value for shareholders. We signed new leases totaling 878,000 square feet at a 3.8x re-leasing multiple, in line with the 4.1x multiple that we have achieved while leasing almost 10 million square feet since our formation. This robust leasing activity has generated a diverse tenant roster of leading retailers and associated uses that derives 90% of its income, on a signed lease basis, from non-Sears tenants. Our retail development program continues to target low double digit incremental yields on an unlevered basis and now totals 104 completed or commenced projects and approximately $1.7 billion of total investment,” said Benjamin Schall, President and Chief Executive Officer. “We have also demonstrated our ability to harvest value from our portfolio through asset sales and joint ventures. Over the last two years, we have executed transactions with an aggregate value of over $825 million, which have raised over $640 million of gross cash proceeds that we are reinvesting into our growing development pipeline. Finally, we are pleased with the progress we have made on our portfolio of roughly three dozen premier and larger-scale development opportunities. To date, we have selected multifamily development partners for over 3,000 apartment units – out of our prioritized opportunity set of 6,000-8,000 apartments – that we will integrate with retail and other uses to create vibrant, mixed-use environments.”

Operating Highlights

During the quarter ended September 30, 2019:

  • Signed new leases totaling 878,000 square feet (760,000 square feet at share) at an average base rent of $17.23 PSF ($17.43 PSF at share). Since the Company’s inception in July 2015, the Company’s share of new leasing activity has totaled over 9.6 million square feet at an average rent of $17.41 PSF, including new retail leases totaling 8.7 million square feet at an average rent of $18.46 PSF.
  • Achieved an average re-leasing multiple of 3.8x for space currently or formerly occupied by Sears or Kmart, with new retail rents averaging $19.71 PSF compared to $5.12 PSF paid by Sears or Kmart. Since inception, releasing multiples have averaged 4.1x, with new retail rents at $18.65 PSF compared to $4.60 PSF paid by Sears or Kmart.
  • Increased the Company’s share of annual base rent from diversified, non-Sears tenants to 89.8% of total annual base rent from 60.1% in the prior year period, including all signed leases and net of rent attributable to associated space to be recaptured. Since inception, diversified, non-Sears rental income has increased by nearly 300% to $174.9 million, including all signed leases and net of dispositions.
  • Announced new redevelopment activity totaling approximately $35.1 million, including two new projects and the expansion of one previously announced project. Total redevelopment activity year to date includes six new projects and three expansions totaling an aggregate of approximately $126 million, and the redevelopment program since inception totals 104 completed or commenced projects representing approximately $1.7 billion of estimated capital investment.
  • Sold five properties totaling 550,000 square feet for gross cash proceeds of $36.1 million. Since inception, the Company has sold 37 properties totaling 3.8 million square feet for gross cash proceeds of $197.7 million. Substantially all of these properties were located in smaller markets and a majority were vacant at the time of sale.
  • Signed contracts to sell an additional six assets for gross proceeds for $29.1 million. As of September 30, 2019, the Company had 10 assets under contract to sell for gross proceeds of $51.0 million.

Additionally, subsequent to the quarter end, the Company signed an agreement with Four Corners Property Trust for the disposition of 23 outparcel properties, totaling 155,000 square feet, for gross proceeds of $67.9 million. The transaction is expected to close in multiple tranches in 2019 and 2020 and is subject to customary closing conditions, due diligence provisions and regulatory approvals.

Financial Results

Below is a summary of financial results for the three and nine months ended September 30, 2019 and September 30, 2018:

(in thousands except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Net (loss) income attributable to Seritage
common shareholders

$

(12,103

)

$

(23,441

)

$

(38,423

)

$

(22,337

)

Net (loss) income per diluted share attributable to Seritage
common shareholders

(0.33

)

(0.66

)

(1.06

)

(0.63

)

Total NOI

14,661

35,713

53,584

109,052

FFO

(2,389

)

(433

)

(13,734

)

17,102

FFO per diluted share

(0.04

)

(0.01

)

(0.25

)

0.31

Company FFO

(7,808

)

(774

)

(18,930

)

20,184

Company FFO per diluted share

(0.14

)

(0.01

)

(0.34

)

0.36

Total NOI

The decreases in Total NOI were driven primarily by (i) 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 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, 27.1 million square feet of leased space, representing $116.9 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 an aggregate annual base rent of $167.4 million across 9.6 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 18-24 months.

FFO and Company FFO

The decreases in FFO and Company FFO were driven primarily by the same business factors driving the decreases in Total NOI.

Portfolio Summary

Below is a summary of the Company’s portfolio as September 30, 2019:

Wholly Owned

Unconsolidated

Portfolio

Joint Ventures

Total

Properties

189

28

217

Malls

89

25

114

Strip centers and freestanding

100

3

103

GLA (at share) (000s)

29,587

2,407

31,994

% leased

55.6

%

34.2

%

54.0

%

Unleased space as of September 30, 2019 included approximately 2.9 million square feet of remaining lease-up at announced redevelopment projects, and approximately 11.8 million square feet of pipeline opportunity at properties throughout the portfolio.

Leasing

New Activity

During the quarter ended September 30, 2019, the Company signed new leases totaling 878,000 square feet (760,000 square feet at share) at an average base rent of $17.23 PSF ($17.43 PSF at share). On a same-space basis, new rents averaged 3.8x prior rents for space formerly occupied by Sears or Kmart, increasing to $19.71 PSF for new tenants compared to $5.12 PSF paid by Sears or Kmart across 596,000 square feet.

Below is a summary of the Company’s leasing activity, including its proportional share of unconsolidated joint ventures, for the three and nine months ended September 30, 2019 and since the Company’s inception in July 2015:

(in thousands, except PSF amounts)

Since

Q3 2019

2019 YTD

Inception

Leases

28

85

372

Square feet

760,000

1,728,000

9,613,000

Annual base rent ($000s)

$

13,240

$

36,222

$

167,387

Annual base rent PSF (1)

$

19.68

$

22.20

$

18.46

Re-leasing multiple (1)(2)

3.8

x

3.9

x

4.1

x

(1) Excludes certain self storage, medical office, auto-related 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.

Rental Income Composition

During the quarter ended September 30, 2019, the Company added $13.2 million of new diversified, non-Sears income and increased annual base rent attributable to diversified, non-Sears tenants to 89.8% of total annual base rent from 60.1% as of September 30, 2018, based on signed leases.

The table below provides a summary of all the Company’s signed leases as of September 30, 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 Base

% of

Tenant

Leases

GLA

Leased GLA

Rent ("ABR")

Total ABR

ABR PSF

Sears/Kmart (1)

52

6,449

37.3

%

$

19,759

10.2

%

$

3.06

In-place diversified, non-Sears leases

273

6,285

36.4

%

85,459

43.9

%

13.60

SNO diversified, non-Sears leases

178

4,534

26.3

%

89,443

45.9

%

19.73

Sub-total diversified, non-Sears leases

451

10,819

62.7

%

174,902

89.8

%

16.17

Total

503

17,268

100.0

%

$

194,661

100.0

%

$

11.27

(1) Includes 49 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 three leases between the Company’s unconsolidated joint ventures and Holdco.

Development

Program Summary

During the quarter ended September 30, 2019, the Company commenced projects totaling approximately $35.1 million, including two new redevelopments and the expansion of one previously announced project.

Below is a summary of the Company’s announced development activity from inception through September 30, 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

21

2.1

94

%

$185 - 190

$

178

Substantially Complete /
Delivered to Tenant(s)

33

4.0

71

%

495 - 515

358

Underway

21

2.5

62

%

710 - 745

258

Announced

9

1.9

58

%

170 - 185

18

Current Projects

84

10.5

70

%

$1,560 - 1,635

$

812

$208 - 216

$166 - 174

10.2 - 11.2%

Acquired

15

64

Sold

5

37

Total Projects

104

$1,661 - 1,736

(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.

Announced Development Projects

As of September 30, 2019, the Company had originated 89 redevelopment projects since the Company’s inception. Excluding five projects that have been sold, these projects represent an estimated total investment of $1,560-1,635 million ($1,435-1,510 million at share), of which an estimated $750-825 million ($695-775 million at share) remains to be spent, and are expected to generate an incremental yield on cost of approximately 10.2-11.2%.

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:

Total Project Costs under $10 Million

Total

Estimated

Estimated

Project

Construction

Substantial

Property

Description

Square Feet

Start

Completion

King of Prussia, PA

Repurpose former auto center space for Outback Steakhouse, Yard House and Escape Room

29,100

Complete

Merrillville, IN

Termination property; redevelop existing store for At Home and small shop retail

132,000

Complete

Elkhart, IN

Termination property; existing store has been released to Big R Stores

86,500

Complete

Bowie, MD

Recapture and repurpose auto center space for BJ's Brewhouse

8,200

Complete

Troy, MI

Partial recapture; redevelop existing store for At Home

100,000

Complete

Rehoboth Beach, DE

Partial recapture; redevelop existing store for andThat! and PetSmart

56,700

Complete

Henderson, NV

Termination property; redevelop existing store for At Home, Seafood City, Blink Fitness and additional retail

144,400

Complete

Cullman, AL

Termination property; redevelop existing store for Bargain Hunt, Tractor Supply and Planet Fitness

99,000

Complete

Jefferson City, MO

Termination property; redevelop existing store for Orscheln Farm and Home

96,000

Complete

Guaynabo, PR

Partial recapture; redevelop existing store for Planet Fitness, Capri and additional retail and restaurants

56,100

Complete

Westwood, TX

Termination property; site has been leased to Sonic Automotive for an auto dealership

213,600

Complete

Florissant, MO

Site densification; new outparcel for Chick-fil-A

5,000

Complete

Kearney, NE

Termination property; redevelop existing store for Marshall's, PetSmart, Ross Dress for Less and Five Below

92,500

Complete

Albany, NY

Recapture and repurpose auto center space for BJ's Brewhouse, Ethan Allen and additional small shop retail

28,000

Substantially complete

Dayton, OH

Recapture and repurpose auto center space for Outback Steakhouse and additional restaurants

14,100

Substantially complete

New Iberia, LA

Termination property; redevelop existing store for Ross Dress for Less, Rouses Supermarkets, Hobby Lobby and small shop retail

93,100

Substantially complete

Hopkinsville, KY

Termination property; redevelop existing store for Bargain Hunt, Farmer's Furniture, Harbor Freight Tools and small shop retail

87,900

Substantially complete

Mt. Pleasant, PA

Termination property; redevelop existing store for Aldi, Big Lots and additional retail

86,300

Substantially complete

Layton, UT

Termination property; a portion of the space has been leased to Extra Space Storage; existing tenants include Vasa Fitness and small shop retail

172,100

Substantially complete

St. Clair Shores, MI

100% recapture; demolish existing store and develop site for new Kroger grocery store

107,200

Substantially complete

Houston, TX
(Memorial City)

100% recapture; entered into ground lease with adjacent mall owner; potential to participate in future redevelopment

214,400

Substantially complete

North Little Rock, AR

Recapture and repurpose auto center space for LongHorn Steakhouse and small shop retail

17,300

Delivered to tenant(s)

Oklahoma City, OK

Site densification; new fitness center for Vasa Fitness

59,500

Delivered to tenant(s)

Greensboro, NC

Site densification; new outparcel for Mavis Tires

6,900

Q1 2020

Q4 2020

St. Petersburg, FL

(freestanding)

100% recapture; redevelop existing store for At Home, Blink Fitness and additional small shop retail

188,800

Q2 2020

Q4 2020

Middletown, NJ

Termination property; redevelop site for new ShopRite grocery store and additional retail

191,100

Q1 2020

Q2 2021

Gainesville, FL

Termination property; repurpose existing store as office space for Florida Clinical Practice Association / University of Florida College of Medicine

139,100

Sold

Hagerstown, MD

Recapture and repurpose auto center space for BJ's Brewhouse, Verizon and additional retail

15,400

Sold

Hampton, VA

Site densification; new outparcel for Chick-fil-A

2,200

Sold

Total Project Costs $10 - $20 Million

Total

Estimated

Estimated

Project

Construction

Substantial

Property

Description

Square Feet

Start

Completion

Braintree, MA

100% recapture; redevelop existing store for Nordstrom Rack, Saks OFF 5th and additional retail

90,000

Complete

Honolulu, HI

100% recapture; redevelop existing store for Longs Drugs (CVS), PetSmart and Ross Dress for Less

79,000

Complete

Anderson, SC

100% recapture (project expansion); redevelop existing store for Burlington Stores, Gold's Gym, Sportsman's Warehouse, additional retail and restaurants

111,300

Complete

Springfield, IL

Termination property; redevelop existing store for Burlington Stores, Binny's Beverage Depot, Marshall's, Orangetheory Fitness, Outback Steakhouse, Core Life Eatery and additional small shop retail

133,400

Complete

Warwick, RI

Termination property (project expansion); redevelop existing store and detached auto center for At Home, BJ's Brewhouse, Raymour & Flanigan, additional retail and restaurants

190,700

Complete

Hialeah, FL
(freestanding)

100% recapture; redevelop existing store for Bed, Bath & Beyond, Ross Dress for Less and dd's Discounts to join current tenant, Aldi

88,400

Complete

Madison, WI

Partial recapture; redevelop existing store for Dave & Busters, Total Wine & More, additional retail and restaurants

75,300

Substantially complete

Paducah, KY

Termination property; redevelop existing store for Burlington Stores, Ross Dress for Less and additional retail

102,300

Substantially complete

Thornton, CO

Termination property; redevelop existing store for Vasa Fitness and additional junior anchors

191,600

Substantially complete

Cockeysville, MD

Partial recapture; redevelop existing store for HomeGoods, Michael's Stores, additional junior anchors and restaurants (note: contributed to the Cockeysville JV in Q1 2019)

83,500

Substantially complete

Temecula, CA

Partial recapture; redevelop existing store and detached auto center for Round One, small shop retail and restaurants

65,100

Substantially complete

North Hollywood, CA

Partial recapture; redevelop existing store for Burlington Stores and Ross Dress for Less

79,800

Substantially complete

West Jordan, UT

Termination property (project expansion); redevelop existing store and attached auto center for At Home, Burlington Stores, Planet Fitness and small shop retail

190,300

Substantially complete

Austin, TX
(Tech Ridge)

Partial recapture; redevelop existing store for AMC Theatres and restaurants (note: a portion of this property was contributed to the Tech Ridge JV in Q3 2019; this project reflects the retained, wholly-owned redevelopment)

53,900

Delivered to tenant(s)

Salem, NH

Densify site with new theatre for Cinemark and recapture and repurpose auto center for restaurant space to join existing tenant Dick's Sporting Goods

71,200

Delivered to tenant(s)

Fairfax, VA

Partial recapture; redevelop existing store and attached auto center for Dave & Busters, additional junior anchors and restaurants

110,300

Delivered to tenant(s)

North Riverside, IL

Partial recapture; redevelop existing store and detached auto center for Blink Fitness, Round One, additional junior anchors, small shop retail and restaurants

103,900

Delivered to tenant(s)

Olean, NY

Termination property (project expansion); redevelop existing store for Marshall's, Ollie's Bargain Basement and additional retail

125,700

Delivered to tenant(s)

Las Vegas, NV

Partial recapture; redevelop existing store for Round One and additional retail

78,800

Delivered to tenant(s)

Roseville, MI

Termination property (project expansion); redevelop existing store for At Home, Hobby Lobby and additional retail

369,800

Delivered to tenant(s)

Warrenton, VA

Termination property; redevelop existing store for HomeGoods and additional retail

97,300

Delivered to tenant(s)

Yorktown Heights, NY

Partial recapture; redevelop existing store for 24 Hour Fitness and other retail uses

85,200

Underway

Q4 2019

Reno, NV

100% recapture; redevelop existing store and auto center for Round One and additional retail

169,800

Underway

Q4 2019

Charleston, SC

100% recapture (project expansion); redevelop existing store and detached auto center for Burlington Stores and additional retail

126,700

Underway

Q4 2019

Chicago, IL
(Kedzie)

Termination property; redevelop existing store for Ross Dress for Less, dd's Discounts, Five Below, Blink Fitness and additional retail

123,300

Underway

Q4 2019

El Paso, TX

Termination property; redevelop existing store for Ross Dress for Less, dd's Discounts, Five Below and additional retail

114,700

Underway

Q4 2019

Pensacola, FL

Termination property; redevelop existing store for BJ's Wholesale, additional retail and restaurants

134,700

Underway

Q1 2020

Fresno, CA

Partial recapture, redevelop existing store and detached auto center for Ross Dress for Less, dd's Discounts and additional retail

78,300

Underway

Q1 2020

North Miami, FL

100% recapture; redevelop existing store for Burlington Stores, Michael's and Ross Dress for Less

124,300

Underway

Q2 2020

Manchester, NH

Termination property; redevelop existing store for Dick's Sporting Goods, Dave & Busters, additional retail and restaurants

117,700

Underway

Q3 2020

Victor, NY

Termination property, redevelop existing store for Dick's Sporting Goods and additional retail

140,500

Underway

Q3 2020

Merced, CA

Termination property; redevelop existing store for Burlington Stores, dd's Discounts, Five Below, Ulta Beauty and additional retail

92,600

Underway

Q1 2021

Chesapeake, VA

Termination property; redevelop existing store for Rosie's Gaming Emporium, additional entertainment and restaurants

185,900

Q2 2020

Q3 2021

Santa Cruz, CA

Partial recapture; redevelop existing store for TJ Maxx, HomeGoods and additional junior anchors

62,200

Sold

Vancouver, WA

Partial recapture; redevelop existing store for Round One, Hobby Lobby and additional retail and restaurants

72,400

Sold

Saugus, MA

Partial recapture; redevelop existing store and detached auto center (temporarily on hold)

99,000

To be determined

Total Project Costs over $20 Million

Total

Estimated

Estimated

Project

Construction

Substantial

Property

Description

Square Feet

Start

Completion

Memphis, TN

100% recapture; demolish and construct new buildings for LA Fitness, Nordstrom Rack, Ulta Beauty, Hopdoddy Burger Bar and additional retail and restaurants

135,200

Complete

St. Petersburg, FL
(Tyrone Square)

100% recapture; demolish and construct new buildings for Dick's Sporting Goods, Lucky's Market, PetSmart, Five Below, Chili's Grill & Bar, Pollo Tropical, LongHorn Steakhouse, Verizon and additional small shop retail and restaurants

142,400

Complete

Orlando, FL

100% recapture; demolish and construct new buildings for Floor & Decor, LongHorn Steakhouse, Mission BBQ, Olive Garden and additional small shop retail and restaurants

139,200

Substantially complete

West Hartford, CT

100% recapture; redevelop existing store and detached auto center for buybuyBaby, Cost Plus World Market, REI, Saks OFF Fifth, other junior anchors, Shake Shack and additional small shop retail (note: contributed to the West Hartford JV in Q2 2018)

147,600

Substantially complete

Watchung, NJ

100% recapture; demolish full-line store and detached auto center and construct new buildings for Cinemark, HomeSense, Sierra Trading Post, Ulta Beauty, Chick-fil-A, small shop retail and additional restaurants

126,700

Substantially complete

Wayne, NJ

Partial recapture (project expansion); redevelop existing store and detached auto center for Cinemark, Dave & Busters, Yardhouse and additional retail and restaurants (note: contributed to the GGP II JV in Q3 2017)

156,700

Delivered to tenant(s)

Carson, CA

100% recapture (project expansion); redevelop existing store for Burlington Stores, Ross Dress for Less and additional retail

163,800

Delivered to tenant(s)

Greendale, WI

Termination property; redevelop existing store and attached auto center for Dick's Sporting Goods, Round One, TJ Maxx, additional retail and restaurants

223,800

Delivered to tenant(s)

El Cajon, CA

100% recapture; redevelop existing store and auto center for Ashley Furniture, Bob's Discount Furniture, Burlington Stores and additional retail and restaurants; a portion of the basement has been leased to Extra Space Storage

242,700

Delivered to tenant(s)

Anchorage, AK

100% recapture; redevelop existing store for Safeway, Guitar Center, Planet Fitness and additional retail to join current tenant, Nordstrom Rack

142,500

Delivered to tenant(s)

Aventura, FL

100% recapture; demolish existing store and construct new, multi-level open air retail destination featuring a leading collection of experiential shopping, dining and entertainment concepts alongside a treelined esplanade and activated plazas

216,600

Initial deliveries

to tenants Q1 2020

San Diego, CA

100% recapture; redevelop existing store into two highly-visible, multi-level buildings with exterior facing retail space leased to Equinox Fitness and a premier mix of experiential shopping, dining, and entertainment concepts (note: contributed to UTC JV in Q2 2018)

206,000

Initial deliveries

to tenants Q4 2019

Santa Monica, CA

100% recapture; redevelop existing building into premier, mixed-use asset featuring unique, small-shop retail and creative office space (note: contributed to the Mark 302 JV in Q1 2018)

96,500

Completing core building

construction Q4 2019

East Northport, NY

Termination property; redevelop existing store and attached auto center for AMC Theatres, 24 Hour Fitness, additional junior anchors and small shop retail

179,700

Underway

Q4 2019

Tucson, AZ

100% recapture; redevelop existing store and auto center for Round One and additional retail

224,300

Underway

Q4 2019

Fairfield, CA

100% recapture (project expansion); redevelop existing store and auto center for Dave & Busters, AAA Auto Repair Center and additional retail

146,500

Underway

Q1 2020

Plantation, FL

100% recapture (project expansion); redevelop existing store and auto center for GameTime, Powerhouse Gym, additional retail and restaurants

184,400

Underway

Q1 2020

Roseville, CA

Termination property (project expansion): redevelop existing store and auto center for Cinemark, Round One, AAA Auto Repair Center, additional retail and restaurants

147,400

Underway

Q2 2020

San Antonio, TX

Termination property (project expansion); redevelop existing store for Bed Bath & Beyond, buybuyBaby, Tru Fit and additional retail to complement repurposed auto center occupied by Orvis, Jared's Jeweler and Shake Shack

215,900

Underway

Q2 2020

Ft. Wayne, IN

Termination property (project expansion); redevelop existing store for Dave & Buster's, HomeGoods and additional retail to complement new outparcels for BJ's Brewhouse, Chick-fil-A and Portillo's

96,400

Underway

Q4 2020

Hialeah, FL
(Westland Mall)

100% recapture (project expansion); redevelop existing store and auto center for Paragon Theaters, Ulta Beauty, Five Below, Panera Bread and additional retail and restaurants

158,100

Q4 2019

Q2 2021

Asheville, NC

100% recapture; redevelop existing store and auto center for Alamo Drafthouse, restaurants and small shop retail

110,600

Q4 2019

Q2 2021

Orland Park, IL

100% recapture; redevelop existing store for AMC Theatres, 24 Hour Fitness, additional retail and restaurants

181,900

Q1 2020

Q2 2021

Canton, OH

100% recapture (project expansion); redevelop existing store for Dick's Sporting Goods, Dave & Busters and additional retail and restaurants

208,200

Q2 2020

Q1 2021

Premier Project Update

The Company has made significant progress advancing its underway premier projects: The Esplanade at Aventura in Aventura, FL; The Collection at UTC in La Jolla (San Diego), CA; and The Mark 302 in Santa Monica, CA. Significant portions of the construction are complete at The Esplanade at Aventura and The Collection at UTC, and core building work at The Mark 302 will be completed by the end of 2019.

The Company has begun to turn over space to tenants at The Collection at UTC and expects to begin delivering space to tenants at The Esplanade at Aventura in Q1 2020. At The Mark 302, signing a lease for the office space is the next milestone for the project.

Multifamily Development Update

The Company estimates that 6,000-8,000 multifamily units can be developed within its premier and larger-scale portfolio as it transforms these underutilized retail assets into integrated, mixed-use properties that provide a differentiated experience for future residents and tenants.

As of September 30, 2019, the Company had received entitlements for approximately 2,000 units at five sites and had filed for entitlements at an additional seven sites for up to 3,500 units. The Company had also signed agreements or term sheets with experienced and well-capitalized multifamily partners at nine sites representing approximately 3,100 units, including both entitled and unentitled projects, and continues to engage with leading multifamily partners at other sites.

Liquidity

As of September 30, 2019, the Company had approximately $683 million of identified liquidity, including $232 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 $51 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 October 23, 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 January 15, 2020 to holders of record on December 31, 2019.

On July 23, 2019, 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 October 15, 2019 to holders of record on September 30, 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 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; 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 189 wholly-owned properties and 28 joint venture properties totaling approximately 34.4 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. 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.

SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)

September 30, 2019

December 31, 2018

ASSETS

Investment in real estate

Land

$

673,055

$

696,792

Buildings and improvements

1,007,738

900,173

Accumulated depreciation

(136,423

)

(137,947

)

1,544,370

1,459,018

Construction in progress

363,695

292,049

Net investment in real estate

1,908,065

1,751,067

Real estate held for sale

10,213

3,094

Investment in unconsolidated joint ventures

429,143

398,577

Cash and cash equivalents

232,320

532,857

Tenant and other receivables, net

57,186

36,926

Lease intangible assets, net

91,013

123,656

Prepaid expenses, deferred expenses and other assets, net

65,258

29,899

Total assets

$

2,793,198

$

2,876,076

LIABILITIES AND EQUITY

Liabilities

Term Loan Facility, net

$

1,598,382

$

1,598,053

Accounts payable, accrued expenses and other liabilities

115,607

127,565

Total liabilities

1,713,989

1,725,618

Commitments and contingencies

Shareholders' Equity

Class A common shares $0.01 par value; 100,000,000 shares authorized;
36,828,522 and 35,667,521 shares issued and outstanding
as of September 30, 2019 and December 31, 2018, respectively

368

357

Class B common shares $0.01 par value; 5,000,000 shares authorized;
1,247,060 and 1,322,365 shares issued and outstanding
as of September 30, 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 September 30, 2019 and
December 31, 2018; liquidation preference of $70,000

28

28

Additional paid-in capital

1,145,854

1,124,504

Accumulated deficit

(392,837

)

(344,132

)

Total shareholders' equity

753,425

780,770

Non-controlling interests

325,784

369,688

Total equity

1,079,209

1,150,458

Total liabilities and equity

$

2,793,198

$

2,876,076

SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

REVENUE

Rental revenue

$

46,833

$

56,478

$

129,108

$

158,611

Management and other fee income

795

115

2,891

1,029

Total revenue

47,628

56,593

131,999

159,640

EXPENSES

Property operating

11,462

6,348

31,001

20,122

Real estate taxes

9,164

12,199

29,515

32,797

Depreciation and amortization

21,593

49,830

68,003

134,048

General and administrative

8,130

8,338

26,186

24,808

Provision for doubtful accounts

87

257

Total expenses

50,349

76,802

154,705

212,032

Gain on sale of real estate, net

12,445

17,401

45,318

93,419

Equity in loss of unconsolidated joint ventures

(5,616

)

(2,266

)

(14,338

)

(7,006

)

Interest and other income

1,416

1,162

6,189

2,298

Interest expense

(22,046

)

(30,723

)

(67,641

)

(65,004

)

Change in fair value of interest rate cap

(16

)

(23

)

Loss before taxes

(16,522

)

(34,651

)

(53,178

)

(28,708

)

Provision for taxes

40

(93

)

(83

)

(437

)

Net loss

(16,482

)

(34,744

)

(53,261

)

(29,145

)

Net loss attributable to non-controlling interests

5,604

12,528

18,513

10,486

Net loss attributable to Seritage

$

(10,878

)

$

(22,216

)

$

(34,748

)

$

(18,659

)

Preferred dividends

(1,225

)

(1,225

)

(3,675

)

(3,678

)

Net loss attributable to Seritage common shareholders

$

(12,103

)

$

(23,441

)

$

(38,423

)

$

(22,337

)

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

$

(0.33

)

$

(0.66

)

$

(1.06

)

$

(0.63

)

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

$

(0.33

)

$

(0.66

)

$

(1.06

)

$

(0.63

)

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

36,829

35,598

36,268

35,535

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

36,829

35,598

36,268

35,535

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

Three Months Ended September 30,

Nine Months Ended September 30,

NOI and Total NOI

2019

2018

2019

2018

Net loss

$

(16,482

)

$

(34,744

)

$

(53,261

)

$

(29,145

)

Termination fee income

(5,525

)

(6,988

)

(5,525

)

(7,162

)

Management and other fee income

(795

)

(115

)

(2,891

)

(1,029

)

Depreciation and amortization

21,593

49,830

68,003

134,048

General and administrative expenses

8,130

8,338

26,186

24,808

Equity in loss of unconsolidated joint ventures

5,616

2,266

14,338

7,006

Gain on sale of real estate

(12,445

)

(17,401

)

(45,318

)

(93,419

)

Interest and other income

(1,416

)

(1,162

)

(6,189

)

(2,298

)

Interest expense

22,046

30,723

67,641

65,004

Change in fair value of interest rate cap

16

23

Provision for income taxes

(40

)

93

83

437

NOI

$

20,682

$

30,856

$

63,067

$

98,273

NOI of unconsolidated joint ventures

1,086

4,337

8,245

14,102

Straight-line rent adjustment (1)

(6,759

)

885

(15,662

)

(2,289

)

Above/below market rental income/expense (1)

(348

)

(365

)

(2,066

)

(1,034

)

Total NOI

$

14,661

$

35,713

$

53,584

$

109,052

(1) Includes adjustments for unconsolidated joint ventures.

Computation of Annualized Total NOI (in thousands)

As of September 30,

Annualized Total NOI

2019

2018

Total NOI (per above)

$

14,661

$

35,713

Period adjustments (1)

926

911

Adjusted Total NOI

15,587

36,624

Annualize

x 4

x 4

Adjusted Total NOI annualized

62,348

146,496

Plus: estimated annual Total NOI from SNO leases

86,760

63,600

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

(1,598

)

(4,958

)

Annualized Total NOI

$

147,510

$

205,138

(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)

Three Months Ended September 30,

Nine Months Ended September 30,

FFO and Company FFO

2019

2018

2019

2018

Net loss

$

(16,482

)

$

(34,744

)

$

(53,261

)

$

(29,145

)

Real estate depreciation and amortization
(consolidated properties)

21,011

49,266

66,386

132,364

Real estate depreciation and amortization
(unconsolidated joint ventures)

6,752

3,671

22,134

10,980

Gain on sale of real estate

(12,445

)

(17,401

)

(45,318

)

(93,419

)

Dividends on preferred shares

(1,225

)

(1,225

)

(3,675

)

(3,678

)

FFO attributable to common shareholders
and unitholders

$

(2,389

)

$

(433

)

$

(13,734

)

$

17,102

Termination fee income

(5,525

)

(6,988

)

(5,525

)

(7,162

)

Change in fair value of interest rate cap

16

23

Amortization of deferred financing costs

106

6,631

329

10,221

Company FFO attributable to common
shareholders and unitholders

$

(7,808

)

$

(774

)

$

(18,930

)

$

20,184

FFO per diluted common share and unit

$

(0.04

)

$

(0.01

)

$

(0.25

)

$

0.31

Company FFO per diluted common share and unit

$

(0.14

)

$

(0.01

)

$

(0.34

)

$

0.36

Weighted Average Common Shares and Units Outstanding

Weighted average common shares outstanding

36,829

35,598

36,268

35,535

Weighted average OP units outstanding

18,973

20,119

19,532

20,165

Weighted average common shares and
units outstanding

55,802

55,717

55,800

55,700

Contacts:

Seritage Growth Properties
646-277-1268
IR@Seritage.com

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.