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Section 1: 8-K (8-K)

srg-8k_20180331.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):  May 3, 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 May 3, 2018, Seritage Growth Properties issued a press release regarding its financial results for the quarter ended March 31, 2018. A copy of the press release is furnished as Exhibit 99.1 to this report.

In addition, on May 3, 2018, Seritage Growth Properties published certain supplementary financial information relating to the quarter ended March 31, 2018.  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 May 3, 2018, furnished pursuant to Item 2.02.

 

 

 

99.2

 

Supplementary Financial Information dated May 3, 2018, 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: May 4, 2018

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

srg-ex991_6.htm

Exhibit 99.1

 

Seritage Growth Properties Reports First Quarter 2018 Operating Results

New York, NY – May 3, 2018 – Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 249 retail properties totaling approximately 39 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the quarter ended March 31, 2018.

Financial Results

For the quarter ended March 31, 2018:

Net income attributable to common shareholders of $9.1 million, or $0.26 per diluted share

Total Net Operating Income (“Total NOI”) of $36.9 million

Funds from Operations (“FFO”) of $11.0 million, or $0.20 per diluted share

Company FFO of $12.4 million, or $0.22 per diluted share

Operating Highlights

During the quarter ended March 31, 2018, including the Company’s proportional share of its unconsolidated joint ventures:

Signed new leases totaling 391,000 square feet at an average rent of $20.24 PSF.  Since the Company’s inception in July 2015, new leasing activity has totaled over 5.2 million square feet at an average rent of $17.98 PSF.

Achieved releasing multiples of 4.1x for space currently or formerly occupied by Sears Holdings Corporation (“Sears Holdings”), with new rents averaging $20.29 PSF compared to $4.95 PSF paid by Sears Holdings.  Since inception, releasing multiples have averaged 4.1x, with new rents at $18.17 PSF compared to $4.39 PSF paid by Sears Holdings.

Increased annual base rent from tenants other than Sears Holdings to 54.3% of total annual base rent from 39.7% in the prior year period, including all signed leases and net of rent attributable to associated space to be recaptured.  Non-Sears rental income has increased by over 165% since inception to $117.5 million, including all signed leases.

During the quarter ended March 31, 2018:

Announced five new redevelopment projects and expanded three previously announced projects representing an aggregate incremental investment of $156.1 million.  Total redevelopment program to date includes 83 projects completed or commenced representing $1.3 billion of estimated capital investment.

Formed a joint venture partnership to own The Mark 302, the 96,500 SF mixed-use redevelopment of the former Sears building in downtown Santa Monica, CA.  The transaction valued the property at approximately $145.0 million, including costs remaining to complete the project.

In addition, subsequent to the quarter end:

Announced an agreement with a residential developer to pursue a multi-family development on 2.5 acres of the 15-acre former Sears site owned by Seritage at Overlake Plaza in Redmond, WA.  The agreement values the 2.5-acre parcel at approximately $16.0 million.

Announced an agreement with the adjacent mall owner to pursue a multi-family development on 4.5 acres of the 10-acre Sears site owned by Seritage at NewPark Mall in Newark, CA.  The agreement values the 4.5-acre parcel at approximately $20.0 million.

Announced an agreement to sell the Sears store and parcel at Tanforan Mall in San Bruno, CA to the adjacent mall owner for gross consideration of $42.0 million.


1


“We are pleased with our strong start to 2018 with an additional $156 million of projects announced, bringing our cumulative total to $1.2 billion of redevelopment projects at 11% unlevered returns.  Our new leasing during the quarter totaled almost 400,000 square feet at an average rent of over $20 per square foot, maintaining an average re-leasing multiple of over 4.0 times prior rents,” said Benjamin Schall, President and Chief Executive Officer.  “We also announced a number of new joint ventures and asset sales this quarter, including our equity joint venture in Santa Monica and two new joint ventures to activate portions of our land holdings with multi-family development. Our platform and portfolio are in high demand from quality joint venture partners who wish to participate in our transformative retail and mixed-use projects, and we intend to continue to utilize these partnerships to enhance our platform and balance sheet while unlocking substantial value for our shareholders.”

Financial Results

For the quarter ended March 31, 2018:

Net income attributable to Class A and Class C shareholders was $9.1 million, or $0.26 per diluted share, as compared to a net loss of $19.8 million, or $0.59 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 $36.9 million as compared to $46.9 million for the prior year period.  The decrease in Total NOI was driven primarily by reduced rent under the master lease with Sears Holdings as a result of recapture and termination activity at our wholly-owned properties, as well as the disposition of the Company’s interests in 13 unconsolidated joint ventures in the second half of 2017.

FFO, as calculated in accordance with the National Association of Real Estate Investment Trusts (“NAREIT”) definition, was $11.0 million, or $0.20 per diluted share, as compared to $31.0 million, or $0.56 per diluted share, for the prior year period.  The decrease in FFO was driven by the same factors driving the decrease in Total NOI, as well as reduced termination income, lower GAAP net income from unconsolidated joint ventures and higher G&A expenses in the current period.

Company FFO was $12.4 million, or $0.22 per diluted share, as compared to $27.0 million, or $0.48 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.”  The decrease in FFO was driven by the same factors driving the decrease in Total NOI, as well as lower GAAP net income from unconsolidated joint ventures and higher G&A expenses in the current period.

Portfolio Summary

As of March 31, 2018, the Company’s portfolio included interests in 249 retail properties totaling approximately 39 million square feet of gross leasable area, including 225 wholly-owned properties and 24 properties owned through investments in unconsolidated joint ventures.  The Company’s portfolio includes 120 properties attached to regional malls and 129 shopping center or freestanding properties.

The portfolio was 80.3% leased, including unconsolidated joint ventures at the Company’s proportional share, and included 55 properties leased only to third-party tenants, 77 properties leased to Sears Holdings and one or more third-party tenants, and 90 properties leased only to Sears Holdings; 27 properties in the portfolio were vacant as of March 31, 2018.  Of the properties leased to Sears Holdings, 125 operated under the Sears brand and 42 operated under the Kmart brand.

The unleased space as of March 31, 2018 included approximately 2.9 million SF of remaining lease-up at announced redevelopment projects, and approximately 4.3 million SF of additional leasing opportunity at properties in the Company’s redevelopment pipeline.

During the quarter ended March 31, 2018, the Company formed a new joint venture partnership to own The Mark 302, a mixed-use redevelopment in downtown Santa Monica, CA, and disposed of four former Kmart properties in Harlingen, TX, Houma, LA, Sierra Vista, AZ and Yakima, WA.


2


Development Update

Wholly-Owned Properties

During the quarter ended March 31, 2018, the Company commenced five new redevelopment projects representing an estimated total investment of $99.3 million and expanded three previously announced projects representing estimated incremental and total investments of $56.8 million and $102.3 million, respectively.

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 (3)

 

 

30

 

 

 

3,437

 

 

 

645,200

 

 

 

688,800

 

Q1 2018

 

 

5

 

 

 

822

 

 

 

96,900

 

 

 

99,300

 

Total

 

 

83

 

 

 

7,288

 

 

$

1,210,800

 

 

$

1,286,600

 

 

(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 March 31, 2018, the Company had originated 68 wholly-owned projects since the Company’s inception.  These projects represent an estimated total investment of $1,223 million ($1,183 million at share), of which an estimated $895 million ($882 million at share) 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 March 31, 2018:

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

Number

 

 

Project

 

 

Development

 

 

Project

 

 

Projected Annual Income (2)

 

 

Incremental

Estimated Project Costs (1)

 

of Projects

 

 

Square Feet

 

 

Costs (1)

 

 

Costs (1)

 

 

Total

 

 

Existing

 

 

Incremental

 

 

Yield (3)

< $10,000

 

 

24

 

 

 

1,504

 

 

$

111,200

 

 

$

111,200

 

 

$

19,900

 

 

$

5,100

 

 

$

14,800

 

 

 

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

 

 

25

 

 

 

2,554

 

 

 

329,500

 

 

 

349,400

 

 

 

51,700

 

 

 

14,700

 

 

 

36,800

 

 

 

> $20,001

 

 

19

 

 

 

3,230

 

 

 

706,500

 

 

 

762,400

 

 

 

104,300

 

 

 

21,800

 

 

 

82,500

 

 

 

Announced projects

 

 

68

 

 

 

7,288

 

 

$

1,147,200

 

 

$

1,223,000

 

 

$

175,900

 

 

$

41,600

 

 

$

134,100

 

 

10.5-11.5%

Acquired projects

 

 

15

 

 

 

 

 

 

 

63,600

 

 

 

63,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total projects

 

 

83

 

 

 

 

 

 

$

1,210,800

 

 

$

1,286,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

 

Complete

Merrillville, IN

 

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

 

 

132,000

 

 

Complete

Elkhart, IN

 

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

 

 

86,500

 

 

Complete

San Antonio, TX

 

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

 

 

18,900

 

 

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

Roseville, MI

 

Partial recapture; redevelop existing store for At Home

 

 

100,400

 

 

Complete

Rehoboth Beach, DE

 

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

 

 

56,700

 

 

Complete

Henderson, NV

 

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

 

 

144,400

 

 

Complete

Cullman, AL

 

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

 

 

99,000

 

 

Complete

Albany, NY

 

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

 

 

28,000

 

 

Substantially complete

Hagerstown, MD

 

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

 

 

15,400

 

 

Substantially complete

Jefferson City, MO

 

Termination property; redevelop existing store for Orscheln Farm and Home

 

 

96,000

 

 

Delivered to tenant

Kearney, NE

 

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

 

 

92,500

 

 

Delivered to tenants

Ft. Wayne, IN

 

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

 

 

12,000

 

 

Delivered to tenant

Olean, NY

 

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

 

 

45,000

 

 

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, Hobby Lobby 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

Hopkinsville, KY

 

Termination property; redevelop existing store for Bargain Hunt, additional junior anchors and small shop retail

 

 

87,900

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

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

West Jordan, UT

 

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

 

 

81,400

 

 

Substantially complete

Madison, WI

 

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

 

 

75,300

 

 

Substantially complete

Thornton, CO

 

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

 

 

191,600

 

 

Delivered to tenant

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

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

Cockeysville, MD

 

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

 

 

83,500

 

 

Underway

 

Q2 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

North Hollywood, CA

 

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

Paducah, KY

 

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

 

 

102,300

 

 

Underway

 

Q3 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

 

Q4 2018

North Miami, FL

 

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

 

 

124,300

 

 

Underway

 

Q4 2018

Hialeah, FL

 

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

 

 

88,400

 

 

Underway

 

Q4 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

Las Vegas, NV

 

Partial recapture; redevelop existing store for Round One 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

Santa Cruz, CA

 

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

 

 

62,200

 

 

Q4 2018

 

Q4 2019

Warrenton, VA

 

Termination property; redevelop existing store for Homegoods and additional retail

 

 

97,300

 

 

Q1 2019

 

Q3 2019

Saugus, MA

 

Partial recapture; redevelop existing store and detached auto center

NOTE: use permit for initial tenant, Round One, was denied; process to identify new anchor tenant is underway

 

 

99,000

 

 

To be determined

 

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

 

 

Delivered to tenants

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

 

 

Delivered to tenants

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

NOTE: contributed to The Mark 302 JV in March 2018

 

 

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

Roseville, CA

 

Termination property; repurpose auto center space for AAA Auto Repair Center

Redevelop existing store for Cinemark, Round One and restaurants (project expansion)

 

 

147,400

 

 

Underway

 

Q2 2020

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, additional junior anchors and restaurants

 

 

223,800

 

 

Q2 2018

 

Q4 2019

Anchorage, AK

 

100% recapture; redevelop existing store for Guitar Center, Safeway, Planet Fitness and additional retail 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, Floor & Decor and small shop retail

 

 

179,700

 

 

Q2 2018

 

Q4 2019

El Cajon, CA

 

100% recapture; redevelop existing store and auto center for Bob's Discount Furniture, Burlington Stores, additional retail and restaurants

 

 

242,700

 

 

Q3 2018

 

Q3 2019

Tucson, AZ

 

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

 

 

224,300

 

 

Q3 2018

 

Q4 2019

Reno, NV

 

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

 

 

169,800

 

 

Q3 2018

 

Q4 2019

Fairfield, CA

 

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

 

 

146,500

 

 

Q3 2018

 

Q1 2020

Plantation, FL

 

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

 

 

184,400

 

 

Q4 2018

 

Q1 2020

6


Leasing Update

During the quarter ended March 31, 2018, the Company signed new leases totaling 391,000 square feet at an average annual base rent of $20.24 PSF.  On a same-space basis, new rents averaged 4.1x prior rents for space currently or formerly occupied by Sears Holdings, increasing to $20.29 PSF for new tenants compared to $4.95 PSF paid by Sears Holdings across 389,000 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

Q1 2018

 

 

20

 

 

 

391

 

 

 

7,915

 

 

 

20.24

 

 

 

19

 

 

 

389

 

 

 

7,891

 

 

 

20.29

 

 

 

4.1

x

Total

 

 

188

 

 

 

5,221

 

 

$

93,882

 

 

$

17.98

 

 

 

170

 

 

 

4,877

 

 

$

88,620

 

 

$

18.17

 

 

 

4.1

x

During the quarter ended March 31, 2018, the Company added $7.9 million of new third-party income and increased annual base rent attributable to third-party tenants to 54.3% of total annual base rent from 39.7% as of March 31, 2017, 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 March 31, 2018, 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)

 

 

167

 

 

 

21,913

 

 

 

74.3

%

 

$

99,065

 

 

 

45.7

%

 

$

4.52

 

In-Place Third-Party Leases

 

 

219

 

 

 

4,093

 

 

 

13.9

%

 

 

52,634

 

 

 

24.3

%

 

 

12.86

 

SNO Third-Party Leases

 

 

121

 

 

 

3,465

 

 

 

11.8

%

 

 

64,914

 

 

 

30.0

%

 

 

18.73

 

Sub-Total Third-Party Leases

 

 

340

 

 

 

7,558

 

 

 

25.7

%

 

 

117,548

 

 

 

54.3

%

 

 

15.55

 

Total

 

 

507

 

 

 

29,471

 

 

 

100.0

%

 

$

216,613

 

 

 

100.0

%

 

$

7.35

 

 

(1)

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

Balance Sheet and Liquidity

As of March 31, 2018, the Company’s total market capitalization was approximately $3.3 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 39.3% and net debt to Adjusted EBITDA was 7.4x.  The Company deducts both unrestricted and restricted cash from total debt when calculating net debt.  Reconciliations of net income attributable to common shareholders to EBITDA and Adjusted EBITDA, are provided in the tables accompanying this press release.

As of March 31, 2018, the Company had $135.1 million of unrestricted cash and restricted cash of $177.4 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.

During the quarter ended March 31, 2018, the Company reduced amounts outstanding under its mortgage loan by $73.0 million and added $3.6 million to its redevelopment reserve as a result of the new joint venture in Santa Monica and the disposition of four former Kmart properties in Harlingen, TX, Houma, LA, Sierra Vista, AZ and Yakima, WA.


7


Dividends

On April 24, 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 July 12, 2018 to shareholders of record on June 29, 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 June 29, 2018.

On April 24, 2018, the Company’s Board of Trustees also declared a preferred stock dividend of $0.4375 per each Series A Preferred Share.  The dividend will be paid on July 16, 2018 to holders of record on June 29, 2018.

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 was paid on April 12, 2018 to shareholders of record on March 30, 2018.  Holders of units in the Operating Partnership were 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 covered the period from, and including, December 14, 2017 to, but excluding, April 15, 2018.  The dividend was 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 for Real Estate ("EBITDAre") and Company EBITDA

EBITDAre is calculated in accordance with the definition set forth by the National Association of Real Estate Investment Trusts ("NAREIT"), which may not be comparable to measures calculated by other companies who do not use the NAREIT definition of EBITDA.  EBITDAre is calculated as net income computed in accordance with GAAP, excluding interest expense, income tax expense, depreciation and amortization, gains (or losses) from property sales and impairment charges on depreciable real estate assets.  The Company believes EBITDAre provides useful information to investors regarding our 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 EBITDAre facilitates comparisons between us and other equity REITs and real property owners that are not REITs.

The Company makes certain adjustments to EBITDAre, which it refers to as Company 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 and certain up-front-hiring and personnel costs that it does not believe are representative of ongoing operating results.

Funds from Operations ("FFO") and Company FFO

FFO is calculated in accordance with NAREIT which defines FFO as net income computed in accordance with GAAP, excluding gains (or losses) from property sales, real estate related depreciation and amortization, and impairment charges on depreciable real estate assets.  The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry.  

The Company makes certain adjustments to FFO, which it refers to as Company FFO, to account for certain non-cash and non-comparable items, such as termination fee income, unrealized loss on interest rate cap, litigation charges, acquisition-related expenses, amortization of deferred financing costs and certain up-front-hiring and personnel costs, that it does not believe are representative of ongoing operating results.  The Company previously referred to this metric as Normalized FFO; the definition and calculation remain the same.

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 significant exposure to 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 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 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 225 wholly-owned properties and 24 joint venture properties totaling approximately 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

[email protected]

10


Seritage Growth Properties

Consolidated Balance SheetS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Investment in real estate

 

 

 

 

 

 

 

 

Land

 

$

750,870

 

 

$

799,971

 

Buildings and improvements

 

 

851,416

 

 

 

829,168

 

Accumulated depreciation

 

 

(148,926

)

 

 

(139,483

)

 

 

 

1,453,360

 

 

 

1,489,656

 

Construction in progress

 

 

252,350

 

 

 

224,904

 

Net investment in real estate

 

 

1,705,710

 

 

 

1,714,560

 

Investment in unconsolidated joint ventures

 

 

330,322

 

 

 

282,990

 

Cash and cash equivalents

 

 

135,091

 

 

 

241,569

 

Restricted cash

 

 

177,419

 

 

 

175,665

 

Tenant and other receivables, net

 

 

32,021

 

 

 

30,787

 

Lease intangible assets, net

 

 

291,613

 

 

 

310,098

 

Prepaid expenses, deferred expenses and other assets, net

 

 

23,839

 

 

 

20,148

 

Total assets

 

$

2,696,015

 

 

$

2,775,817

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Mortgage loans payable, net

 

$

1,130,793

 

 

$

1,202,314

 

Unsecured term loan, net

 

 

143,590

 

 

 

143,210

 

Accounts payable, accrued expenses and other liabilities

 

 

99,063

 

 

 

109,433

 

Total liabilities

 

 

1,373,446

 

 

 

1,454,957

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

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

   35,208,666 and 32,514,734 shares issued and outstanding as of

   March 31, 2018 and December 31, 2017, respectively

 

 

352

 

 

 

324

 

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

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

   March 31, 2018 and December 31, 2017, respectively

 

 

13

 

 

 

13

 

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

   372,010 and 3,151,131 shares issued and outstanding as of

   March 31, 2018 and December 31, 2017, respectively

 

 

4

 

 

 

31

 

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

   2,800,000 shares issued and outstanding as of March 31, 2018

   and December 31, 2017; liquidation preference of $70,000

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

1,116,841

 

 

 

1,116,060

 

Accumulated deficit

 

 

(229,652

)

 

 

(229,760

)

Total shareholders' equity

 

 

887,586

 

 

 

886,696

 

Non-controlling interests

 

 

434,983

 

 

 

434,164

 

Total equity

 

 

1,322,569

 

 

 

1,320,860

 

Total liabilities and equity

 

$

2,696,015

 

 

$

2,775,817

 

 

11


Seritage Growth Properties

Consolidated Statements of OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

REVENUE

 

 

 

 

 

 

 

 

Rental income

 

$

37,079

 

 

$

49,174

 

Tenant reimbursements

 

 

16,698

 

 

 

16,224

 

Total revenue

 

 

53,777

 

 

 

65,398

 

EXPENSES

 

 

 

 

 

 

 

 

Property operating

 

 

7,241

 

 

 

4,742

 

Real estate taxes

 

 

11,381

 

 

 

12,422

 

Depreciation and amortization

 

 

34,667

 

 

 

58,663

 

General and administrative

 

 

7,797

 

 

 

6,274

 

Provision for doubtful accounts

 

 

61

 

 

 

39

 

Total expenses

 

 

61,147

 

 

 

82,140

 

Operating loss

 

 

(7,370

)

 

 

(16,742

)

Equity in (loss) income of unconsolidated joint

   ventures

 

 

(2,582

)

 

 

1,002

 

Gain on sale of real estate

 

 

41,831

 

 

 

 

Interest and other income

 

 

680

 

 

 

78

 

Interest expense

 

 

(16,419

)

 

 

(16,592

)

Unrealized gain (loss) on interest rate cap

 

 

165

 

 

 

(471

)

Income (loss) before income taxes

 

 

16,305

 

 

 

(32,725

)

Provision for income taxes

 

 

(104

)

 

 

(119

)

Net income (loss)

 

 

16,201

 

 

 

(32,844

)

Net (income) loss attributable to

   non-controlling interests

 

 

(5,873

)

 

 

13,006

 

Net income (loss) attributable to Seritage

 

$

10,328

 

 

$

(19,838

)

Preferred dividends

 

 

(1,228

)

 

 

 

Net income (loss) attributable to Seritage common

   shareholders

 

$

9,100