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Section 1: 8-K (8-K)

srg-8k_20180802.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):  August 2, 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 August 2, 2018, Seritage Growth Properties issued a press release regarding its financial results for the quarter ended June 30, 2018. A copy of the press release is furnished as Exhibit 99.1 to this report.

In addition, on August 2, 2018, Seritage Growth Properties published certain supplementary financial information relating to the quarter ended June 30, 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 August 2, 2018, furnished pursuant to Item 2.02.

 

 

 

99.2

 

Supplementary Financial Information dated August 2, 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: August 2, 2018

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

srg-ex991_7.htm

Exhibit 99.1

 

Seritage Growth Properties Reports Second Quarter 2018 Operating Results

New York, NY – August 2, 2018 – Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 248 retail properties totaling approximately 39 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the three and six months ended June 30, 2018.

Summary of Financial Results

For the three months ended June 30, 2018:

Net loss attributable to common shareholders of $8.0 million, or $0.23 per diluted share

Total Net Operating Income (“Total NOI”) of $36.5 million

Funds from Operations (“FFO”) of $6.5 million, or $0.12 per diluted share

Company FFO of $8.5 million, or $0.15 per diluted share

For the six months ended June 30, 2018:

Net income attributable to common shareholders of $1.1 million, or $0.03 per diluted share

Total Net Operating Income (“Total NOI”) of $73.3 million

Funds from Operations (“FFO”) of $17.5 million, or $0.31 per diluted share

Company FFO of $21.0 million, or $0.38 per diluted share

“We are pleased with our strong second quarter highlighted by 853,000 square feet of newly signed leases and the commencement of five new redevelopment projects and one expansion project for a total investment of $58.2 million.  Our annual base rent from diversified, non-Sears tenants is now approximately $127.3 million, or 57% of total rent, including all signed leases, and a 190% increase since our inception three years ago,” said Benjamin Schall, President and Chief Executive Officer.  “Additionally, as we continue to position Seritage as a preferred partner for institutional capital providers, we were pleased to form two new joint ventures with equity partners this quarter to own and redevelop our properties in La Jolla, California and West Hartford, Connecticut.  And, subsequent to the quarter end, we announced a new $2.0 billion term loan with Berkshire Hathaway, a transformational step for the company and one that provides our platform with enhanced liquidity and flexibility to further capitalize on our pipeline of opportunities.”

Operating Highlights

During the quarter ended June 30, 2018, including the Company’s proportional share of its unconsolidated joint ventures:

Signed new leases totaling 853,000 square feet at an average rent of $14.19 PSF.  Since the Company’s inception in July 2015, new leasing activity has totaled nearly 6.1 million square feet at an average rent of $17.45 PSF.

Achieved releasing multiples of 3.6x for space currently or formerly occupied by Sears Holdings Corporation (“Sears Holdings” or “Sears”), with new rents averaging $14.19 PSF compared to $3.96 PSF paid by Sears Holdings.  Since inception, releasing multiples have averaged 4.1x, with new rents at $17.58 PSF compared to $4.32 PSF paid by Sears Holdings.

Increased annual base rent from diversified, non-Sears tenants to 56.9% of total annual base rent from 44.0% in the prior year period, including all signed leases and net of rent attributable to associated space to be recaptured.  Diversified, non-Sears rental income has increased by over 190% since inception to $127.3 million, including all signed leases.

Annualized Total NOI was an estimated $209.1 million, including all signed leases and net of rent attributable to associated space to be recaptured.

1


During the quarter ended June 30, 2018:

Announced five new redevelopment projects and expanded one previously announced project representing an aggregate incremental investment of $58.2 million.  Total redevelopment program to date includes 88 projects completed or commenced representing over $1.3 billion of estimated capital investment.

Formed a joint venture partnership to own The Collection at UTC, the 226,200 SF redevelopment of the former Sears store and auto center at Westfield UTC in La Jolla, California. The transaction valued the property at approximately $165.0 million, including costs remaining to complete the project.

Formed a joint venture partnership to own The Corbin Collection, the 163,700 SF redevelopment of the former Sears store and auto center in West Hartford, CT.  The transaction valued the property at approximately $52.0 million, including costs remaining to complete the project.

In addition, subsequent to the quarter end, the Company entered into a new $2.0 billion term loan facility with Berkshire Hathaway Life Insurance Company.  The term loan facility, which matures on July 31, 2023, provided for an initial funding of $1.6 billion at closing and includes a committed $400 million incremental funding facility.

Financial Results

Net Income / Net Loss

For the three months ended June 30, 2018, net loss attributable to Class A and Class C shareholders was $8.0 million, or $0.23 per diluted share, as compared to a net loss of $21.2 million, or $0.63 per diluted share, for the prior year period.  For the six months ended June 30, 2018, net income attributable to Class A and Class C shareholders was $1.1 million, or $0.03 per diluted share, as compared to a net loss of $41.1 million, or $1.22 per diluted share, for the prior year period.

Total NOI

For the three months ended June 30, 2018, Total NOI, which includes the Company’s proportional share of NOI from properties owned through investments in its unconsolidated joint ventures, was $36.5 million as compared to $44.7 million for the prior year period.  For the six months ended June 30, 2018, Total NOI was $73.3 million as compared to $91.6 million for the prior year period.

The decrease in Total NOI in both periods was driven primarily by reduced rental income under the master lease with Sears Holdings as a result of recapture and termination activity at our wholly-owned properties.  Since inception, approximately 13.3 million square feet of leased space, representing approximately $52.2 million of annual base rent, has been taken offline through recapture and termination activity.  The Company has signed new leases totaling approximately 6.1 million square feet to diversified, non-Sears tenants for an aggregate annual base rent of approximately $106.0 million.  The majority of our remaining signed but not opened (“SNO”) leases, which totaled $70.6 million as of June 30, 2018, are expected to begin paying rent over the next 6-18 months and, subject to additional recapture and termination activity, the Company expects Total NOI to increase as SNO leases convert to rent paying and as the Company signs new leases with diversified, non-Sears tenants to occupy currently unleased space.

In addition, the Company sold its interests in 13 unconsolidated joint venture properties and 50% interests in five wholly-owned properties in the second half of 2017 and sold 50% interests in three wholly-owned properties in the first half of 2018, which contributed to the decrease in Total NOI.

FFO and Company FFO

For the three months ended June 30, 2018, FFO, as calculated in accordance with NAREIT, was $6.5 million, or $0.12 per diluted share, as compared to $23.8 million, or $0.43 per diluted share, for the prior year period.  For the six months ended June 30, 2018, FFO was $17.5 million, or $0.31 per diluted share, as compared to $54.8 million, or $0.99 per diluted share, for the prior year period.

For the three months ended, June 30, 2018, Company FFO was $8.5 million, or $0.15 per diluted share, as compared to $25.7 million, or $0.46 per diluted share, for the prior year period.  For the six months ended June 30, 2018, Company FFO was $21.0 million, or $0.38 per diluted share, as compared to $52.7 million, or $0.95 per diluted share, for the prior year period.

The decreases in FFO and Company FFO in both periods were driven by the same factors driving the decrease in Total NOI, as well as lower termination fee income, lower straight-line rent as a result of recapture and termination activity at our properties, higher G&A expenses driven by our growing platform and the outperformance of targets related to performance-based restricted stock, and dividends related to preferred equity issued in the fourth quarter of 2017.

2


Portfolio Summary

As of June 30, 2018, the Company’s portfolio included interests in 248 retail properties totaling approximately 39 million square feet of gross leasable area, including 222 wholly-owned properties and 26 properties owned through investments in unconsolidated joint ventures.  The Company’s portfolio includes 119 properties attached to regional malls and 129 shopping center or freestanding properties.

The portfolio was 81.3% leased, including unconsolidated joint ventures at the Company’s proportional share, and included 58 properties leased only to diversified, non-Sears tenants, 85 properties leased to Sears Holdings and one or more diversified, non-Sears tenants, and 81 properties leased only to Sears Holdings; 24 properties in the portfolio were vacant as of June 30, 2018.  Of the properties leased to Sears Holdings, 124 operated under the Sears brand and 42 operated under the Kmart brand.

The unleased space as of June 30, 2018 included approximately 2.1 million SF of remaining lease-up at announced redevelopment projects, and approximately 4.7 million SF of additional leasing opportunity at properties in the Company’s redevelopment pipeline.

During the quarter ended June 30, 2018, the Company formed two new joint venture partnerships to own The Collection at UTC and the Corbin Collection, redevelopments of former Sears stores in La Jolla, CA and West Hartford, CT, respectively, and sold a former Sears store and redeveloped auto center in Hagerstown, MD.

Leasing Update

During the quarter ended June 30, 2018, the Company signed new leases totaling 853,000 square feet at an average annual base rent of $14.19 PSF.  On a same-space basis, new rents averaged 3.6x prior rents for space currently or formerly occupied by Sears Holdings, increasing to $14.19 PSF for new tenants compared to $3.96 PSF paid by Sears Holdings across 853,000 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

Q2 2018

 

 

43

 

 

 

853

 

 

 

12,100

 

 

 

14.19

 

 

 

43

 

 

 

853

 

 

 

12,100

 

 

 

14.19

 

 

 

3.6

x

Total

 

 

231

 

 

 

6,074

 

 

$

105,982

 

 

$

17.45

 

 

 

213

 

 

 

5,730

 

 

$

100,720

 

 

$

17.58

 

 

 

4.1

x

During the quarter ended June 30, 2018, the Company added $12.1 million of new diversified, non-Sears income and increased annual base rent attributable to diversified, non-Sears tenants to 56.9% of total annual base rent from 44.0% as of June 30, 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 June 30, 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)

 

 

166

 

 

 

21,253

 

 

 

71.9

%

 

$

96,567

 

 

 

43.1

%

 

$

4.54

 

In-place diversified, non-Sears leases

 

 

234

 

 

 

4,355

 

 

 

14.7

%

 

 

56,778

 

 

 

25.4

%

 

 

13.04

 

SNO diversified, non-Sears leases

 

 

144

 

 

 

3,963

 

 

 

13.4

%

 

 

70,560

 

 

 

31.5

%

 

 

17.80

 

Sub-total diversified, non-Sears leases

 

 

378

 

 

 

8,318

 

 

 

28.1

%

 

 

127,338

 

 

 

56.9

%

 

 

15.31

 

Total

 

 

544

 

 

 

29,571

 

 

 

100.0

%

 

$

223,905

 

 

 

100.0

%

 

$

7.57

 

 

(1)

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

3


Development Update

Wholly-Owned Properties

During the quarter ended June 30, 2018, the Company commenced five new redevelopment projects representing an estimated total investment of $53.4 million and expanded one previously announced project representing an estimated incremental and total investment of $4.8 million and $11.3 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

 

 

 

3,517

 

 

 

650,000

 

 

 

693,600

 

Q1 2018

 

 

5

 

 

 

822

 

 

 

96,900

 

 

 

99,300

 

Q2 2018

 

 

5

 

 

 

547

 

 

 

53,400

 

 

 

53,400

 

Total

 

 

88

 

 

 

7,915

 

 

$

1,269,000

 

 

$

1,344,800

 

 

(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 June 30, 2018, the Company had originated 73 wholly-owned projects since the Company’s inception.  These projects represent an estimated total investment of $1,281 million ($1,179 million at share), of which an estimated $881 million ($818 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 June 30, 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

 

 

25

 

 

 

1,684

 

 

$

118,200

 

 

$

118,200

 

 

$

20,500

 

 

$

4,700

 

 

$

15,800

 

 

 

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

 

 

29

 

 

 

3,001

 

 

 

380,700

 

 

 

400,600

 

 

 

57,200

 

 

 

15,200

 

 

 

41,800

 

 

 

> $20,001

 

 

19

 

 

 

3,230

 

 

 

706,500

 

 

 

762,400

 

 

 

104,300

 

 

 

21,800

 

 

 

82,500

 

 

 

Announced projects

 

 

73

 

 

 

7,915

 

 

$

1,205,400

 

 

$

1,281,200

 

 

$

182,000

 

 

$

41,700

 

 

$

140,100

 

 

10.5-11.5%

Acquired projects

 

 

15

 

 

 

 

 

 

 

63,600

 

 

 

63,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total projects

 

 

88

 

 

 

 

 

 

$

1,269,000

 

 

$

1,344,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.


4


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 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 andThat! and PetSmart

 

 

56,700

 

 

Complete

Henderson, NV

 

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

 

 

144,400

 

 

Complete

Cullman, AL

 

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

 

 

99,000

 

 

Complete

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 retail

Note: property sold in Q2 2018

 

 

15,400

 

 

Substantially complete

Jefferson City, MO

 

Termination property; redevelop existing store for Orscheln Farm and Home

 

 

96,000

 

 

Substantially complete

Kearney, NE

 

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

 

 

92,500

 

 

Substantially complete

Ft. Wayne, IN

 

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

 

 

12,000

 

 

Substantially complete

Guaynabo, PR

 

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

 

 

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

 

 

Underway

 

Q2 2019

St. Clair Shores, MI

 

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

 

 

107,200

 

 

Underway

 

Q2 2019

Hopkinsville, KY

 

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

 

 

87,900

 

 

Q3 2018

 

Q2 2019

Mt. Pleasant, PA

 

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

 

 

86,300

 

 

Q3 2018

 

Q3 2019

Oklahoma City, OK

 

Site densification; new fitness center for Vasa Fitness

 

 

59,500

 

 

Q3 2018

 

Q3 2019

Gainesville, FL

 

Termination property; redevelop existing store for Florida Clinical Practice Association / University of Florida College of Medicine

 

 

139,100

 

 

Q4 2018

 

Q4 2019

5


 

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

 

 

Substantially complete

Springfield, IL

 

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

 

 

133,400

 

 

Substantially complete

Orlando, FL

 

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

 

 

139,200

 

 

Substantially complete

Cockeysville, MD

 

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

 

 

83,500

 

 

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

North Hollywood, CA

 

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

 

 

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, Ross Dress for Less 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 Blink Fitness, Burlington Stores, Michael's 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 (project expansion); redevelop existing store and detached auto center for At Home, BJ's Brewhouse, Raymour & Flanigan and additional retail

 

 

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 Blink Fitness, Round One and additional junior anchors, small shop retail and restaurants

 

 

103,900

 

 

Underway

 

Q2 2019

Olean, NY

 

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

 

 

125,700

 

 

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

El Paso, TX

 

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

 

 

114,700

 

 

Q4 2018

 

Q4 2019

Warrenton, VA

 

Termination property; redevelop existing store for Homegoods and additional retail

 

 

97,300

 

 

Q1 2019

 

Q3 2019

Pensacola, FL

 

Termination property; redevelop existing store for Lucky's Market, large format retail and restaurants

 

 

134,700

 

 

Q1 2019

 

Q1 2020

Vancouver, WA

 

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

 

 

72,400

 

 

Q1 2019

 

Q2 2020

6


Total Project Costs over $20 Million

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Estimated

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

Construction

 

Substantial

Property

 

Description

 

Square Feet

 

 

Start

 

Completion

Memphis, TN

 

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

Note: contributed to West Hartford JV in Q2 2018

 

 

147,600

 

 

Substantially complete

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, Verizon and additional small shop retail and restaurants

 

 

142,400

 

 

Substantially complete

Wayne, NJ

 

Partial recapture (project expansion); redevelop existing store and detached auto center for Cinemark, Dave & Busters and additional junior anchors and restaurants

Note: contributed to GGP II JV in Q3 2017

 

 

156,700

 

 

Underway

 

Q3 2018

Carson, CA

 

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

 

 

163,800

 

 

Underway

 

Q1 2019

Watchung, NJ

 

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

 

 

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 Mark 302 JV in Q1 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 space leased to Equinox Fitness and a premier mix of experiential shopping, dining, and entertainment concepts

Note: contributed to UTC JV in Q2 2018

 

 

206,000

 

 

Underway

 

Q4 2019

Roseville, CA

 

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

 

 

147,400

 

 

Underway

 

Q2 2020

Austin, TX

 

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

 

 

177,400

 

 

Underway

 

Q3 2019

Greendale, WI

 

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

 

 

223,800

 

 

Underway

 

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

 

 

Underway

 

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

 

 

Q3 2018

 

Q4 2019

El Cajon, CA

 

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

 

 

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, AAA Auto Repair Center and additional retail

 

 

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

 


7


Balance Sheet and Liquidity

As of June 30, 2018, 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 34.1% and net debt to Adjusted EBITDA was 8.2x.  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 June 30, 2018, the Company had $100.4 million of unrestricted cash and restricted cash of $166.5 million, the substantial majority of which was held in reserve accounts for redevelopment, re-leasing and operating expenses at the Company’s properties.  

During the quarter ended June 30, 2018, the Company reduced amounts outstanding under its mortgage loan by $58.4 million and added $7.1 million to its redevelopment reserve as a result of the new joint ventures in La Jolla, CA and West Hartford, CT and the disposition of its property in Hagerstown, MD.

New Term Loan Facility

Subsequent to June 30, 2018, the Company entered into a $2.0 billion term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska.  

The Term Loan Facility, which matures on July 31, 2023, provided for an initial funding of $1.6 billion at closing (the “Initial Funding”) and includes a committed $400 million incremental funding facility (the “Incremental Funding Facility”).  Funded amounts under the Term Loan Facility bear interest at a fixed annual rate of 7.00%, while amounts available under Incremental Funding Facility will be subject to a 1.00% annual fee until drawn.  

The Company used a portion of the proceeds from the Initial Funding to fully repay its outstanding mortgage loan and unsecured term loan.  Net proceeds from the Initial Funding, combined with existing balance sheet cash and the release of cash reserves held by the previous lender as of June 30, 2018, provide the Company with over $600 million of cash liquidity, in addition to access to the $400 million Incremental Funding Facility.

Dividends

The Company expects annual common dividends to adhere to REIT requirements with respect to taxable income which includes both ordinary income and capital gains from the sale of real estate.

On July 24, 2018, the Company’s Board of Trustees declared a third quarter common stock dividend of $0.25 per each Class A and Class C common share.  The common dividend will be paid on October 11, 2018 to shareholders of record on September 28, 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 September 28, 2018.  On July 24, 2018, the Company’s Board of Trustees also declared a preferred stock dividend of $0.4375 per each Series A Preferred Share.  The preferred dividend will be paid on October 15, 2018 to holders of record on September 28, 2018.

On April 24, 2018, the Company’s Board of Trustees declared a second quarter common stock dividend of $0.25 per each Class A and Class C common share.  The common dividend was paid on July 12, 2018 to shareholders of record on June 29, 2018.  Holders of units in the Operating Partnership were 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 preferred dividend was paid on July 16, 2018 to holders of record on June 29, 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 222 wholly-owned properties and 26 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)

 

 

 

June 30, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Investment in real estate

 

 

 

 

 

 

 

 

Land

 

$

711,261

 

 

$

799,971

 

Buildings and improvements

 

 

860,739

 

 

 

829,168

 

Accumulated depreciation

 

 

(157,991

)

 

 

(139,483

)

 

 

 

1,414,009

 

 

 

1,489,656

 

Construction in progress

 

 

209,237

 

 

 

224,904

 

Net investment in real estate

 

 

1,623,246

 

 

 

1,714,560

 

Real estate held for sale

 

 

15,139

 

 

 

 

Investment in unconsolidated joint ventures

 

 

392,743

 

 

 

282,990

 

Cash and cash equivalents

 

 

100,448

 

 

 

241,569

 

Restricted cash

 

 

166,458

 

 

 

175,665

 

Tenant and other receivables, net

 

 

43,911

 

 

 

30,787

 

Lease intangible assets, net

 

 

251,303

 

 

 

310,098

 

Prepaid expenses, deferred expenses and other assets, net

 

 

21,360

 

 

 

20,148

 

Total assets

 

$

2,614,608

 

 

$

2,775,817

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Mortgage loans payable, net

 

$

1,073,762

 

 

$

1,202,314

 

Unsecured term loan, net

 

 

144,111

 

 

 

143,210

 

Accounts payable, accrued expenses and other liabilities

 

 

97,541

 

 

 

109,433

 

Total liabilities

 

 

1,315,414

 

 

 

1,454,957

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

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

   authorized; 35,678,749 and 32,415,734 shares issued and

   outstanding as of June 30, 2018 and December 31, 2017,

   respectively

 

 

356

 

 

 

324

 

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

   authorized; 1,322,365 and 1,328,866 shares issued and

   outstanding as of June 30, 2018 and December 31, 2017,

   respectively

 

 

13

 

 

 

13

 

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

   authorized; 850 and 3,151,131 shares issued and

   outstanding as of June 30, 2018 and December 31, 2017,

   respectively

 

 

 

 

 

31

 

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

   authorized; 2,800,000 shares issued and outstanding as of

   June 30, 2018 and December 31, 2017; liquidation

   preference of $70,000

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

1,122,251

 

 

 

1,116,060

 

Accumulated deficit

 

 

(246,650

)

 

 

(229,760

)

Total shareholders' equity

 

 

875,998

 

 

 

886,696

 

Non-controlling interests

 

 

423,196

 

 

 

434,164

 

Total equity

 

 

1,299,194

 

 

 

1,320,860

 

Total liabilities and equity

 

$

2,614,608

 

 

$

2,775,817

 

 

11


Seritage Growth Properties

Consolidated Statements of OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

35,839

 

 

$

42,185

 

 

$

72,918

 

 

$

91,359

 

Tenant reimbursements

 

 

12,517

 

 

 

15,708

 

 

 

29,215

 

 

 

31,932

 

Management and other fee income

 

 

914

 

 

 

 

 

 

914

 

 

 

 

Total revenue

 

 

49,270

 

 

 

57,893

 

 

 

103,047