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Section 1: 8-K (8-K)

srg-8k_20180227.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  February 27, 2018

 

SERITAGE GROWTH PROPERTIES

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

 

001-37420

 

38-3976287

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

 

 

 

 

500 Fifth Avenue, Suite 1530

New York, New York

 

10110

(Address of principal executive offices)

 

(Zip code)

 

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

 

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

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

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

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

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

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

Emerging growth company 

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

 

 

 

 


Item 2.02

Results of Operations and Financial Condition.

On February 27, 2018, Seritage Growth Properties issued a press release regarding its financial results for the year ended December 31, 2017. A copy of the press release is furnished as Exhibit 99.1 to this report.

In addition, on February 27, 2018, Seritage Growth Properties published certain supplementary financial information relating to the year ended December 31, 2017.  Such information is furnished as Exhibit 99.2 to this report.

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

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press release dated February 27, 2018, furnished pursuant to Item 2.02.

 

 

 

99.2

 

Supplementary Financial Information dated February 27, 2017, furnished pursuant to Item 2.02.

 


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

SERITAGE GROWTH PROPERTIES 

 

By:

 

/s/ Matthew Fernand

 

 

Matthew Fernand

 

 

Executive Vice President, General

Counsel & Secretary

 

Date: February 28, 2017

 

(Back To Top)

Section 2: EX-99..1 (EX-99..1)

srg-ex991_6.htm

Exhibit 99.1

 

Seritage Growth Properties Reports Fourth Quarter and Full Year 2017 Operating Results

– Increased New Leasing Volume by 26% in 2017 Over Prior Year –

– Achieved 4.1x Rent Uplift on 4.5 Million SF of Re-Leased Space Since Inception –

– Completed or Commenced 78 Redevelopment Projects Totaling $1.1 Billion Since Inception –

New York, NY – February 27, 2018 – Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 253 retail properties totaling over 39 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the three months and year ended December 31, 2017.

Financial Results

For the three months ended December 31, 2017:

Net loss attributable to common shareholders of $43.5 million, or $1.27 per diluted share

Total Net Operating Income (“Total NOI”) of $39.6 million

Funds from Operations (“FFO”) of $11.1 million, or $0.20 per diluted share

Company FFO of $11.5 million, or $0.21 per diluted share

For the year ended December 31, 2017:

Net loss attributable to common shareholders of $74.0 million, or $2.19 per diluted share

Total NOI of $174.8 million

FFO of $91.7 million, or $1.65 per diluted share

Company FFO of $81.8 million, or $1.47 per diluted share

Operating Highlights

During the year ended December 31, 2017, including the Company’s proportional share of its unconsolidated joint ventures:

Signed new leases totaling 2.6 million square feet at an average annual base rent of $17.16 PSF, including 872,000 square feet at $17.00 PSF in the fourth quarter.

Achieved releasing multiples of 4.0x for space currently or formerly occupied by Sears Holdings Corporation (“Sears Holdings”), with new rents averaging $17.49 PSF compared to $4.40 PSF paid by Sears Holdings across 2.5 million square feet on a same-space basis.

Increased annual base rent from tenants other than Sears Holdings to 52.2% of total annual base rent from 36.1% in the prior year period, including all signed leases and net of rent attributable to associated space to be recaptured.

During the year ended December 31, 2017:

Announced 30 new wholly-owned redevelopment projects with an estimated total cost of $632.0 million, expanded six previously announced projects with an estimated total cost of $96.5 million and substantially completed 14 projects with an estimated total cost of approximately $114.2 million.  Total redevelopment program to date includes 78 projects completed or commenced representing $1.1 billion of capital investment.

Sold the Company’s 50% interests in 13 existing joint venture properties, and sold 50% joint venture interests in five additional properties, for aggregate gross consideration of $315.6 million.


1


“We ended 2017 on a very strong note with one of our most active quarters to date, including over 870,000 square feet of newly signed leases and the commencement of eight new projects totaling an investment of approximately $385 million.  Since our inception, we have signed over 4.8 million square feet of new leases and achieved an average re-leasing multiple of 4.1x on space formerly occupied by Sears Holdings, with new rents averaging approximately $18.00 per square foot compared to $4.35 per square foot, on a same space basis. We have completed or commenced 78 projects representing a total capital investment of approximately $1.1 billion at returns ranging from 10-12% on an incremental unlevered basis, well in excess of capitalization rates for stabilized shopping centers.  We were also pleased to commence our premier projects in Santa Monica and San Diego (La Jolla), CA and Aventura, FL, the first three in a series of premier and larger scale densification opportunities within our existing portfolio.  Finally, during the quarter, we raised capital through a perpetual preferred equity offering and the extension of our existing unsecured term loan facility, resulting in a total of $530 million of gross proceeds raised during 2017 from financings, asset sales and additional joint ventures.   As we enter 2018, we remain focused on unlocking the substantial value of our portfolio through intensive redevelopment and by strengthening our position as preferred partners for growing retailers, mixed-use developers and investors.”

Financial Results

For the three months ended December 31, 2017:

Net loss attributable to Class A and Class C shareholders was $43.5 million, or $1.27 per diluted share, as compared to a net loss of $15.0 million, or $0.48 per diluted share, for the prior year period.  

Total NOI, which includes the Company’s proportional share of NOI from properties owned through investments in its unconsolidated joint ventures, was $39.5 million as compared to $48.7 million for the prior year period.

FFO, as calculated in accordance with the National Association of Real Estate Investment Trusts (“NAREIT”) definition, was $11.1 million, or $0.20 per diluted share, as compared to $34.5 million, or $0.62 per diluted share, for the prior year period.

Company FFO was $11.5 million, or $0.21 per diluted share, as compared to $30.0 million, or $0.54 per diluted share, for the prior year period.  The Company makes certain adjustments to FFO, which it refers to as Company FFO, to account for certain non-cash and non-comparable items that it does not believe are representative of ongoing operating results.  See “Non-GAAP Financial Measures.”

For the year ended December 31, 2017:

Net loss attributable to Class A and Class C shareholders was $74.0 million, or $2.19 per diluted share, as compared to a net loss of $51.6 million, or $1.64 per diluted share, for the prior year period.

Total NOI was $174.7 million as compared to $190.5 million for the prior year period.

FFO was $91.7 million, or $1.65 per diluted share, as compared to $106.5 million, or $1.92 per diluted share, for the prior year period.

Company FFO was $81.8 million, or $1.47 per diluted share, as compared to $127.3 million, or $2.29 per diluted share, for the prior year period.  

Portfolio Summary

As of December 31, 2017, the Company’s portfolio included interests in 253 retail properties totaling over 39 million square feet of gross leasable area, including 230 wholly-owned properties and 23 properties owned through investments in unconsolidated joint ventures.  The Company’s portfolio includes 120 properties attached to regional malls and 133 shopping center or freestanding properties.

The portfolio was 80.0% leased and included 51 properties leased only to third-party tenants, 85 properties leased to Sears Holdings and one or more third-party tenants, and 85 properties leased only to Sears Holdings; 32 properties in the portfolio were vacant as of December 31, 2017.  Of the properties leased to Sears Holdings, 127 operated under the Sears brand and 43 operated under the Kmart brand. The unleased space as of December 31, 2017 included approximately 2.5 million SF of remaining lease-up at announced redevelopment projects, and approximately 4.9 million SF of additional leasing opportunity at properties in the Company’s redevelopment pipeline.


2


Development Update

Wholly-Owned Properties

During the year ended December 31, 2017, the Company commenced 30 new redevelopment projects representing an estimated total investment of $632.0 million, including eight projects representing an estimated total investment of $384.2 million in the fourth quarter.  The Company also expanded six previously announced representing an estimated total investment of $96.5 million.

The table below summarizes project commencements in the Company’s wholly-owned portfolio since inception:

 

(in thousands)

 

 

 

 

 

 

 

 

 

Estimated

 

 

Estimated

 

 

 

Number

 

 

Project

 

 

Development

 

 

Project

 

Quarter

 

of Projects

 

 

Square Feet

 

 

Costs (1)

 

 

Costs (1)

 

Acquired (2)

 

 

15

 

 

 

 

 

 

$

63,600

 

 

$

63,600

 

2015

 

 

5

 

 

 

352

 

 

 

51,500

 

 

 

64,200

 

2016 (3)

 

 

28

 

 

 

2,677

 

 

 

353,600

 

 

 

370,700

 

2017

 

 

30

 

 

 

3,168

 

 

 

589,100

 

 

 

632,000

 

Total

 

 

78

 

 

 

6,197

 

 

$

1,057,800

 

 

$

1,130,500

 

 

(1)

Total estimated development costs exclude, and total estimated project costs include, termination fees to recapture 100% of certain properties.

(2)

Projects were in various stages of development when acquired by the Company in July 2015.

(3)

Includes subsequent expansions to previously announced projects.

As of December 31, 2017, the Company had originated 63 wholly-owned projects since the Company’s inception.  These projects represent an estimated total investment of $1,066.9 million, of which an estimated $801.7 million remains to be spent, and are expected to generate an incremental yield on cost of approximately 11.0%.

The table below provides additional information regarding the Company’s wholly-owned development activity from inception through December 31, 2017:

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

Estimated

 

Number

 

 

Project

 

 

Development

 

 

Project

 

 

Projected Annual Income (2)

 

 

Incremental

Project Costs (1)

 

of Projects

 

 

Square Feet

 

 

Costs (1)

 

 

Costs (1)

 

 

Total

 

 

Existing

 

 

Incremental

 

 

Yield (3)

< $10,000

 

 

24

 

 

 

1,427

 

 

$

104,900

 

 

$

104,900

 

 

$

19,600

 

 

$

5,200

 

 

$

14,400

 

 

 

$10,001 - $20,000 (4)

 

 

25

 

 

 

2,525

 

 

 

331,300

 

 

 

351,200

 

 

 

52,500

 

 

 

15,300

 

 

 

37,100

 

 

 

> $20,000

 

 

14

 

 

 

2,245

 

 

 

558,000

 

 

 

610,800

 

 

 

84,500

 

 

 

17,900

 

 

 

66,600

 

 

 

Announced projects

 

 

63

 

 

 

6,197

 

 

$

994,200

 

 

$

1,066,900

 

 

$

156,600

 

 

$

38,400

 

 

$

118,100

 

 

10.5 - 11.5%

Acquired projects

 

 

15

 

 

 

 

 

 

 

63,600

 

 

 

63,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total projects

 

 

78

 

 

 

 

 

 

$

1,057,800

 

 

$

1,130,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Total estimated development costs exclude, and total estimated project costs include, termination fees to recapture 100% of certain properties.

(2)

Projected annual income includes assumptions on stabilized rents to be achieved for 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.

(4)

Includes Saugus, MA project which has been temporarily postponed while the Company identifies a new lead tenant.  The original lead tenant was unable to obtain a use permit at the site.


3


The tables below provide brief descriptions of each of the redevelopment projects originated on the Company’s platform since its inception:

 

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 small shop retail

 

 

29,100

 

 

Substantially complete

Merrillville, IN

 

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

 

 

132,000

 

 

Substantially complete

Elkhart, IN

 

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

 

 

86,500

 

 

Substantially complete

San Antonio, TX

 

Recapture and repurpose auto center space for Orvis, Jared's Jeweler, Shake Shack and small shop retail

 

 

18,900

 

 

Substantially complete

Bowie, MD

 

Recapture and repurpose auto center space for BJ's Brewhouse

 

 

8,200

 

 

Substantially complete

Troy, MI

 

Partial recapture; redevelop existing store for At Home

 

 

100,000

 

 

Substantially complete

Roseville, MI

 

Partial recapture; redevelop existing store for At Home

 

 

100,400

 

 

Substantially complete

Henderson, NV

 

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

 

 

144,400

 

 

Substantially complete

Rehoboth Beach, DE

 

Partial recapture; redevelop existing store for Christmas Tree Shops andThat! and PetSmart

 

 

56,700

 

 

Substantially complete

Cullman, AL

 

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

 

 

99,000

 

 

Substantially complete

Jefferson City, MO

 

Termination property; redevelop existing store for Orscheln Farm and Home

 

 

96,000

 

 

Delivered to tenant

Albany, NY

 

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

 

 

28,000

 

 

Delivered to tenant

Hagerstown, MD

 

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

 

 

15,400

 

 

Delivered to tenant

Ft. Wayne, IN

 

Site densification; new outparcels for BJ's Brewhouse (substantially complete) and Chick-Fil-A (project expansion)

 

 

12,000

 

 

Underway

 

Q1 2018

Kearney, NE

 

Termination property; redevelop existing store for Marshall's, PetSmart and additional junior anchors

 

 

92,500

 

 

Underway

 

Q2 2018

Olean, NY

 

Partial recapture; redevelop existing store for Marshall's and additional retail

 

 

45,000

 

 

Underway

 

Q2 2018

Roseville, CA

 

Recapture and repurpose auto center space for AAA Auto Repair Center

 

 

10,400

 

 

Underway

 

Q2 2018

Guaynabo, PR

 

Partial recapture; redevelop existing store for Planet Fitness and Capri

 

 

56,100

 

 

Underway

 

Q3 2018

Florissant, MO

 

Site densification; new outparcel for Chick-Fil-A

 

 

5,000

 

 

Underway

 

Q3 2018

Dayton, OH

 

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

 

 

14,100

 

 

Underway

 

Q4 2018

New Iberia, LA

 

Termination property; redevelop existing store for Rouses Supermarkets, additional junior anchors and small shop retail

 

 

93,100

 

 

Underway

 

Q1 2019

North Little Rock, AR

 

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

 

 

17,300

 

 

Q2 2018

 

Q2 2019

St. Clair Shores, MI

 

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

 

 

107,200

 

 

Q2 2018

 

Q2 2019

Oklahoma City, OK

 

Site densification; new fitness center for Vasa Fitness

 

 

59,500

 

 

Q3 2018

 

Q3 2019

 

 

4


Total Project Costs $10 - $20 Million (1)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Substantially complete

Honolulu, HI

 

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

 

 

79,000

 

 

Substantially complete

West Jordan, UT

 

Partial recapture; redevelop existing store and attached auto center for Burlington Stores and additional retail

 

 

81,400

 

 

Substantially complete

Anderson, SC

 

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

 

 

111,300

 

 

Substantially complete

Madison, WI

 

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

 

 

75,300

 

 

Delivered to tenant

Thornton, CO

 

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

 

 

191,600

 

 

Underway

 

Q1 2018

Fairfax, VA

 

Partial recapture; redevelop existing store and attached auto center for Dave & Busters, Seasons 52, additional junior anchors and restaurants

 

 

110,300

 

 

Underway

 

Q1 2018

Orlando, FL

 

100% recapture; demolish and construct new buildings for Floor & Décor, Orchard Supply Hardware, LongHorn Steakhouse, Olive Garden, additional small shop retail and restaurants

 

 

139,200

 

 

Underway

 

Q2 2018

Springfield, IL

 

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

 

 

133,400

 

 

Underway

 

Q2 2018

North Miami, FL

 

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

 

 

124,300

 

 

Underway

 

Q2 2018

Hialeah, FL

 

100% recapture; redevelop existing store for Bed, Bath & Beyond, Ross Dress for Less and additional junior anchors to join current tenant, Aldi

 

 

88,400

 

 

Underway

 

Q2 2018

Cockeysville, MD

 

Partial recapture; redevelop existing store for HomeGoods, Michael's Stores, additional junior anchors and restaurants

 

 

83,500

 

 

Underway

 

Q2 2018

North Hollywood, CA

 

Partial recapture; redevelop existing store for Burlington Stores and additional junior anchors

 

 

79,800

 

 

Underway

 

Q3 2018

Salem, NH

 

Site densification; new theatre for Cinemark

Recapture and repurpose auto center for restaurant space

 

 

71,200

 

 

Underway

 

Q3 2018

Charleston, SC

 

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

 

 

126,700

 

 

Underway

 

Q3 2018

Paducah, KY

 

Termination property; redevelop existing store for Burlington Stores and additional retail

 

 

102,300

 

 

Underway

 

Q3 2018

Warwick, RI

 

Termination property; repurpose auto center space for BJ's Brewhouse and

additional retail Redevelop existing store for At Home and Raymour & Flanigan (project expansion)

 

 

190,700

 

 

Underway

 

Q4 2018

Temecula, CA

 

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

 

 

65,100

 

 

Underway

 

Q4 2018

Canton, OH

 

Partial recapture; redevelop existing store for Dave & Busters and restaurants

 

 

83,900

 

 

Underway

 

Q2 2019

North Riverside, IL

 

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

 

 

103,900

 

 

Underway

 

Q2 2019

Santa Cruz, CA

 

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

 

 

62,200

 

 

Q1 2018

 

Q4 2018

Las Vegas, NV

 

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

 

 

78,800

 

 

Q3 2018

 

Q3 2019

Yorktown Heights, NY

 

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

 

 

85,200

 

 

Q3 2018

 

Q4 2019

Fairfield, CA

 

Partial recapture; redevelop existing store for Dave & Busters and additional junior anchors

 

 

68,400

 

 

Q3 2018

 

Q4 2019

 

(1)

Excludes Saugus, MA project which has been temporarily postponed while the Company identifies a new lead tenant.  The original lead tenant was unable to obtain a use permit at the site.

5


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, additional junior anchors, restaurants and small shop retail

 

 

135,200

 

 

Substantially complete

West Hartford, CT

 

100% recapture; redevelop existing store and detached auto center for Buy Buy Baby, Cost Plus World Market, REI, Saks OFF Fifth, other junior anchors, Shake Shack and additional small shop retail

 

 

147,600

 

 

Underway

 

Q1 2018

St. Petersburg, FL

 

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 and additional small shop retail and restaurants

 

 

142,400

 

 

Underway

 

Q2 2018

Wayne, NJ

 

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

Recapture and repurpose detached auto center for Cinemark (project expansion)

NOTE: contributed to GGP II JV in July 2017

 

 

156,700

 

 

Underway

 

Q3 2018

Carson, CA

 

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

 

 

163,800

 

 

Underway

 

Q1 2019

Watchung, NJ

 

100% recapture; demolish full-line store and construct new buildings for HomeSense, Sierra Trading Post, Ulta Beauty and additional small shop retail and restaurants

Demolish detached auto center and construct a freestanding Cinemark theater

 

 

126,700

 

 

Underway

 

Q2 2019

Santa Monica, CA

 

100% recapture; redevelop existing building into premier, mixed-use asset featuring unique, small-shop retail and creative office space

 

 

96,500

 

 

Underway

 

Q4 2019

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

 

 

Underway

 

Q4 2019

San Diego, CA

 

100% recapture; redevelop existing store into two highly-visible, multi-level buildings with exterior facing retail representing a premier mix of experiential shopping, dining, and entertainment concepts

 

 

206,000

 

 

Underway

 

Q4 2019

Austin, TX

 

100% recapture (project expansion); redevelop existing store for AMC Theatres, additional junior anchors and restaurants

 

 

177,400

 

 

Q2 2018

 

Q3 2019

Greendale, WI

 

Termination property; redevelop existing store and attached auto center for Dick's Sporting Goods, Round One Entertainment, additional junior anchors and restaurants

 

 

223,800

 

 

Q2 2018

 

Q4 2019

Anchorage, AK

 

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

 

 

142,500

 

 

Q2 2018

 

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

 

 

Q2 2018

 

Q4 2019

Plantation, FL

 

Partial recapture; redevelop existing store for GameTime, additional retail and restaurants

 

 

130,500

 

 

Q3 2018

 

Q4 2019

 

Joint Venture Properties

During the fourth quarter, the Company sold to Simon Property Group (“Simon”) the Company’s 50% interest in five of the ten assets in the existing joint venture between the two companies for gross consideration of $68.0 million.

Also in 2017, the Company completed two transactions with GGP Inc. (“GGP”) for gross consideration of $247.6 million whereby the Company (i) sold to GGP the Company’s 50% interest in eight of the twelve assets in the existing joint venture between the two companies for $190.1 million; and (ii) sold to GGP a 50% joint venture interest in five additional assets for $57.5 million.

The Company continues to own 50% interests in nine assets in an unconsolidated joint venture with The Macerich Company.


6


Leasing Update

During the year ended December 31, 2017, the Company signed new leases totaling 2.6 million square feet at an average annual base rent of $17.16 PSF, including 872,000 square feet at $17.00 in the fourth quarter.  On a same-space basis, new rents averaged 4.0x prior rents for space currently or formerly occupied by Sears Holdings, increasing to $17.49 PSF for new tenants compared to $4.40 PSF paid by Sears Holdings across 2.5 million square feet.

The table below provides a summary of the Company’s leasing activity since inception, including unconsolidated joint ventures presented at the Company’s proportional share:

 

(in thousands except number of leases and PSF data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Release of Sears Holdings Space

 

 

 

 

 

 

 

Leased

 

 

Annual

 

 

Annual

 

 

 

 

 

 

Leased

 

 

Annual

 

 

Annual

 

 

Releasing

 

Period

 

Leases

 

 

GLA

 

 

Rent

 

 

Rent PSF

 

 

Leases

 

 

GLA

 

 

Rent

 

 

Rent PSF

 

 

Multiple

 

2015

 

 

9

 

 

 

154

 

 

$

4,650

 

 

$

30.28

 

 

 

6

 

 

 

130

 

 

$

3,820

 

 

$

29.41

 

 

 

4.4

x

2016

 

 

65

 

 

 

2,070

 

 

 

36,600

 

 

 

17.68

 

 

 

59

 

 

 

1,882

 

 

 

33,610

 

 

 

17.86

 

 

 

4.5

x

2017

 

 

94

 

 

 

2,606

 

 

 

44,717

 

 

 

17.16

 

 

 

86

 

 

 

2,476

 

 

 

43,299

 

 

 

17.49

 

 

 

4.0

x

Total

 

 

168

 

 

 

4,830

 

 

$

85,967

 

 

$

17.80

 

 

 

151

 

 

 

4,488

 

 

$

80,729

 

 

$

17.99

 

 

 

4.1

x

During the year ended December 31, 2017, the Company added $44.7 million of new third-party income and increased annual base rent attributable to third-party tenants to 52.2% of total annual base rent from 36.1% as of December 31, 2016, including all signed leases and net of rent attributable to the associated space to be recaptured.

The table below provides a summary of all the Company’s signed leases as of December 31, 2017, 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

 

Sears Holdings (1)

 

 

170

 

 

 

22,471

 

 

 

75.4

%

 

$

102,645

 

 

 

47.8

%

 

$

4.57

 

In-Place Third-Party Leases

 

 

225

 

 

 

3,819

 

 

 

12.8

%

 

 

48,624

 

 

 

22.6

%

 

 

12.73

 

SNO Third-Party Leases

 

 

114

 

 

 

3,534

 

 

 

11.8

%

 

 

63,407

 

 

 

29.6

%

 

 

17.94

 

Sub-Total Third-Party Leases

 

 

339

 

 

 

7,353

 

 

 

24.6

%

 

 

112,031

 

 

 

52.2

%

 

 

15.24

 

Total

 

 

509

 

 

 

29,824

 

 

 

100.0

%

 

$

214,676

 

 

 

100.0

%

 

$

7.20

 

 

(1)

Leases reflects number of properties subject to the Master Lease and JV Master Leases.


7


Balance Sheet and Liquidity

As of December 31, 2017, the Company’s total market capitalization was approximately $3.6 billion.  Total market capitalization is calculated as the sum of total debt and the market value of the Company's outstanding shares of common stock, assuming conversion of operating partnership units.

Total debt to total market capitalization was 37.5% and net debt to Adjusted EBITDA was 6.5x.  The Company deducts both unrestricted and restricted cash from total debt when calculating net debt.  Reconciliations of net loss attributable to common shareholders to EBITDA and Adjusted EBITDA, are provided in the tables accompanying this press release.

As of December 31, 2017, the Company had $241.6 million of unrestricted cash and restricted cash of $175.7 million, the substantial majority of which was held in reserve accounts for redevelopment, re-leasing and operating expenses at the Company’s properties.  The Company also had $55.0 million of permitted, but uncommitted, borrowing capacity under its $200.0 million unsecured term loan facility due December 31, 2018.

Series A Preferred Shares

During the fourth quarter, the Company issued 2,800,000 7.00% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”) in a public offering at $25.00 per share.  The Company received net proceeds from the offering of approximately $66.7 million after deducting payment of the underwriting discount and offering expenses.

Unsecured Term Loan

During the fourth quarter, The Company refinanced its existing $200 million unsecured term loan facility with a new $200 million unsecured term loan facility (the “Unsecured Term Loan”).  The previous facility was a delayed draw facility with a maturity of December 31, 2017, against which the Company had drawn $85 million against the total capacity of $200 million.

The lenders under the previous facility, which are entities controlled by ESL Investments, Inc., have maintained their funding of $85 million in the Unsecured Term Loan, and new, non-affiliated lender committed and funded an additional $60 million for a total of $145 million committed and funded at closing.  Maximum total commitments under the Unsecured Term Loan are $200 million and the Company has the right to syndicate the remaining $55 million with existing or new lenders.  Existing lenders are not obligated to make all or any portion of the incremental loans.

Dividends

On February 20, 2018, 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 dividend will be paid on April 12, 2018 to shareholders of record on March 30, 2018.  Holders of units in Seritage Growth Properties, L.P. (the “Operating Partnership”) are entitled to an equal distribution per each Operating Partnership unit held as of March 30, 2018.

On February 20, 2018, the Company’s Board of Trustees also declared a preferred stock dividend of $0.593056 per each Series A Preferred Share.  The dividend covers the period from, and including, December 14, 2017 to, but excluding, April 15, 2018.  The dividend will be paid on April 16, 2018 to holders of record on March 30, 2018.

Supplemental Report

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


8


Non-GAAP Financial Measures

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

None of Total NOI, EBITDA, Adjusted EBITDA, 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 Company’s master lease with Sears Holdings 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’ 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.

Earnings Before Interest Expense, Income Tax, Depreciation, and Amortization ("EBITDA") and Adjusted EBITDA

EBITDA is defined as net income less depreciation, amortization, interest expense and provision for income and other taxes.  EBITDA is a commonly used measure of performance in many industries, but may not be comparable to measures calculated by other companies.  The Company believes EBITDA provides useful information to investors regarding its results of operations because it removes the impact of the Company’s capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization).  Management also believes the use of EBITDA facilitates comparisons between the Company and other equity REITs, retail property owners who are not REITs, and other capital-intensive companies.

The Company makes certain adjustments to EBITDA, which it refers to as Adjusted EBITDA, 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, certain up-front-hiring and personnel costs and gains (or losses) from property sales, that it does not believe are representative of ongoing operating results.

Funds From Operations ("FFO") and Company FFO

FFO is calculated in accordance with the National Association of Real Estate Investment Trusts ("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.

9


Forward-Looking Statements

This document contains forward-looking statements, which are based on the current beliefs and expectations of management and are subject to significant risks, assumptions and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to:  competition in the real estate and retail industries; our substantial dependence on Sears Holdings; Sears Holdings’ termination and other rights under its master lease with us; 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 limited operating history.  For additional discussion of these and other applicable risks, assumptions and uncertainties, see the “Risk Factors” and forward-looking statement disclosure contained in filings with the Securities and Exchange Commission.  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 230 wholly-owned properties and 23 joint venture properties totaling over 39 million square feet of space across 49 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 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.

Contact

Seritage Growth Properties

646-277-1268

IR@Seritage.com

10


Seritage Growth Properties

Consolidated Balance SheetS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

December 31, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Investment in real estate

 

 

 

 

 

 

 

 

Land

 

$

799,971

 

 

$

840,021

 

Buildings and improvements

 

 

829,168

 

 

 

839,663

 

Accumulated depreciation

 

 

(139,483

)

 

 

(89,940

)

 

 

 

1,489,656

 

 

 

1,589,744

 

Construction in progress

 

 

224,904

 

 

 

55,208

 

Net investment in real estate

 

 

1,714,560

 

 

 

1,644,952

 

Investment in unconsolidated joint ventures

 

 

282,990

 

 

 

425,020

 

Cash and cash equivalents

 

 

241,569

 

 

 

52,026

 

Restricted cash

 

 

175,665

 

 

 

87,616

 

Tenant and other receivables, net

 

 

30,787

 

 

 

23,172

 

Lease intangible assets, net

 

 

310,098

 

 

 

464,399

 

Prepaid expenses, deferred expenses and other assets, net

 

 

20,148

 

 

 

15,052

 

Total assets

 

$

2,775,817

 

 

$

2,712,237

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Mortgage loans payable, net

 

$

1,202,314

 

 

$

1,166,871

 

Unsecured term loan, net

 

 

143,210

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

 

109,433

 

 

 

121,055

 

Total liabilities

 

 

1,454,957

 

 

 

1,287,926

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

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

   32,415,734 and 25,843,251 shares issued and outstanding as of

   December 31, 2017 and December 31, 2016, respectively

 

 

324

 

 

 

258

 

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

   1,328,866 and 1,589,020 shares issued and outstanding as of

   December 31, 2017 and December 31, 2016, respectively

 

 

13

 

 

 

16

 

Class C common shares $0.01 par value; 50,000,000 shares authorized;

   3,151,131 and 5,754,685 shares issued and outstanding as of

   December 31, 2017 and December 31, 2016, respectively

 

 

31

 

 

 

58

 

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

   2,800,000 shares issued and outstanding as of December 31, 2017;

   liquidation preference of $70,000

 

 

28

 

 

 

 

Additional paid-in capital

 

 

1,116,060

 

 

 

925,563

 

Accumulated deficit

 

 

(229,760

)

 

 

(121,338

)

Total shareholders' equity

 

 

886,696

 

 

 

804,557

 

Non-controlling interests

 

 

434,164

 

 

 

619,754

 

Total equity

 

 

1,320,860

 

 

 

1,424,311

 

Total liabilities and equity

 

$

2,775,817

 

 

$

2,712,237

 

 

11


Seritage Growth Properties

Consolidated Statements of OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

38,966

 

 

$

49,684

 

 

$

178,492

 

 

$

186,421

 

Tenant reimbursements

 

 

14,712

 

 

 

16,512

 

 

 

62,525

 

 

 

62,253

 

Total revenue

 

 

53,678

 

 

 

66,196

 

 

 

241,017

 

 

 

248,674

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

 

5,715

 

 

 

4,334

 

 

 

19,700

 

 

 

21,510

 

Real estate taxes

 

 

9,946

 

 

 

12,580

 

 

 

45,653

 

 

 

43,681

 

Depreciation and amortization

 

 

91,878

 

 

 

55,754

 

 

 

262,171

 

 

 

177,119

 

General and administrative

 

 

11,263

 

 

 

4,365

 

 

 

27,902

 

 

 

17,469

 

Litigation charge

 

 

 

 

 

 

 

 

 

 

 

19,000

 

Provision for doubtful accounts

 

 

39

 

 

 

 

 

 

158

 

 

 

269

 

Acquisition-related expenses

 

 

 

 

 

 

 

 

 

 

 

73

 

Total expenses

 

 

118,841

 

 

 

77,033

 

 

 

355,584

 

 

 

279,121

 

Operating loss

 

 

(65,163

)

 

 

(10,837

)

 

 

(114,567

)

 

 

(30,447

)

Equity in (loss) income of unconsolidated joint

   ventures

 

 

(3,562

)