Toggle SGML Header (+)


Section 1: 8-K (8-K)

srg-8k_20190801.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 1, 2019

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbols

Name of each exchange on which registered

Class A common shares of beneficial interest, par value $0.01 per share

SRG

New York Stock Exchange

7.00% Series A cumulative redeemable preferred shares of beneficial interest, par value $0.01 per share

SRG-PA

New York Stock Exchange

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 1, 2019, Seritage Growth Properties issued a press release regarding its financial results for the quarter ended June 30, 2019. A copy of the press release is furnished as Exhibit 99.1 to this report.

In addition, on August 1, 2019, Seritage Growth Properties published certain supplementary financial information relating to the quarter ended June 30, 2019.  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 1, 2019, furnished pursuant to Item 2.02.

 

 

 

99.2

 

Supplementary Financial Information dated August 1, 2019, 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 1, 2019

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

srg-ex991_6.htm

Exhibit 99.1

 

Seritage Growth Properties Reports Second Quarter 2019 Operating Results

– Signed new leases totaling $12.0 million of base rent at an average of $20 PSF –

– Increased diversified, non-Sears base rent to 89% of total base rent, including signed leases –

– Ended the quarter with nearly $790 million of liquidity, including cash on hand and committed capital –

New York, NY – August 1, 2019 – Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 221 retail and mixed-use properties totaling approximately 35.1 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the three and six months ended June 30, 2019.

Summary Financial Results

For the three months ended June 30, 2019:

Net loss attributable to common shareholders of $18.1 million, or $0.50 per share

Total Net Operating Income (“Total NOI”) of $14.6 million

Funds from Operations (“FFO”) of ($6.2) million, or ($0.11) per share

Company FFO of ($6.1) million, or ($0.11) per share

For the six months ended June 30, 2019:

Net loss attributable to common shareholders of $26.3 million, or $0.73 per share

Total Net Operating Income (“Total NOI”) of $38.9 million

Funds from Operations (“FFO”) of ($11.3) million, or ($0.20) per share

Company FFO of ($11.1) million, or ($0.20) per share

“We continued our strong momentum through the first half of 2019, including second quarter new leasing activity of 687,000 square feet at an average rent of approximately $20.00 per square foot. This brings our total new leasing activity since inception to nearly 8.9 million square feet at an average re-leasing multiple of 4.0x the rent previously paid by Sears.  We are pleased to report that diversified non-Sears tenants now comprise almost 90% of total annual base rent, including signed leases. This leasing activity has driven a robust redevelopment program that now includes 102 projects completed or commenced for a total capital investment of approximately $1.7 billion at targeted incremental yields of approximately 11.0% on an unlevered basis,” said Benjamin Schall, President and Chief Executive Officer.  “Our balance sheet continues to support the execution of our strategy, with approximately $790 million of identified liquidity, and our team continues to expand our relationships with growing retailers, mixed-use developers and institutional capital allocators. We remain focused on utilizing our platform and portfolio of high-quality assets to create first-class retail centers and mixed-use projects that generate long-term value for our shareholders.”

Operating Highlights

During the quarter ended June 30, 2019:

Signed new leases totaling 687,000 square feet (603,000 square feet at share) at an average base rent of $20.24 PSF ($19.92 PSF at share).  Since the Company’s inception in July 2015, the Company’s share of new leasing activity has totaled nearly 8.9 million square feet at an average rent of $17.41 PSF, including new retail leases totaling 8.1 million square feet at an average rent of $18.36 PSF.

Achieved an average releasing multiple of 3.6x for space currently or formerly occupied by Sears or Kmart, with new retail rents averaging $21.65 PSF compared to $6.01 PSF paid by Sears or Kmart.  Since inception, releasing multiples have averaged 4.1x, with new retail rents at $18.57 PSF compared to $4.56 PSF paid by Sears or Kmart.

1


Increased the Company’s share of annual base rent from diversified, non-Sears tenants to 89.1% of total annual base rent from 56.9% in the prior year period, including all signed leases and net of rent attributable to associated space to be recaptured.  Since inception, diversified, non-Sears rental income has increased by over 275% to $165.5 million, including all signed leases and net of dispositions.

Announced new redevelopment activity totaling approximately $40.5 million, including three new projects and the expansion of one previously announced project.  Total redevelopment program to date includes 102 projects completed or commenced representing nearly $1.7 billion of estimated capital investment.

Sold four properties totaling 540,000 square feet for gross cash proceeds of $18.7 million.  Since inception, the Company has sold 32 properties totaling 3.3 million square feet for gross cash proceeds of $161.5 million.  Substantially all of these properties were located in smaller markets and a majority were vacant at the time of sale.

Signed contracts to sell an additional seven assets for gross proceeds for $48.4 million.  As of June 30, 2019, the Company had ten assets under contract to sell for gross proceeds of $63.3 million.

Financial Results

Below is a summary of the Company’s financial results for the three and six months ended June 30, 2019 and June 30, 2018:

 

(in thousands except per share amounts)

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net (loss) income attributable to Seritage common shareholders

 

$

(18,128

)

 

$

(7,996

)

 

$

(26,320

)

 

$

1,104

 

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

 

 

(0.50

)

 

 

(0.23

)

 

 

(0.73

)

 

 

0.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total NOI

 

 

14,645

 

 

 

36,460

 

 

 

38,923

 

 

 

73,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO

 

 

(6,167

)

 

 

6,487

 

 

 

(11,345

)

 

 

17,535

 

FFO per diluted share

 

 

(0.11

)

 

 

0.12

 

 

 

(0.20

)

 

 

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company FFO

 

 

(6,062

)

 

 

8,529

 

 

 

(11,122

)

 

 

20,958

 

Company FFO per diluted share

 

 

(0.11

)

 

 

0.15

 

 

 

(0.20

)

 

 

0.38

 

Total NOI

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

Since inception, over 26 million square feet of leased space, representing over $110 million of annual base rent, has been taken offline through recapture and termination activity, or as a result of the rejection of the Original Master Lease and the master leases between Sears Holdings and certain unconsolidated joint venture properties. To date, the Company has signed new leases with diversified, non-Sears tenants for an aggregate annual base rent of $154.1 million across 8.9 million square feet of space. A majority of these newly signed leases are categorized as signed not yet opened (“SNO”) leases and are expected to begin paying rent throughout the next 24 months.

In addition, the Company has sold 32 wholly-owned properties and 50% interests in four wholly-owned properties since the beginning of 2018 which has contributed to the decrease in Total NOI.

FFO and Company FFO

The decrease in FFO was driven primarily by the same factors driving the decrease in Total NOI, as well as higher interest expense resulting from the Company’s debt refinancing in the third quarter of 2018.


2


Portfolio Summary

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

 

 

 

Wholly Owned

 

 

Unconsolidated

 

 

 

 

 

 

 

Portfolio

 

 

Joint Ventures

 

 

Total

 

Properties

 

 

194

 

 

 

27

 

 

 

221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Malls

 

 

91

 

 

 

24

 

 

 

115

 

Strip centers and freestanding

 

 

103

 

 

 

3

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLA (at share) (000s)

 

 

30,274

 

 

 

2,417

 

 

 

32,691

 

% leased

 

 

54.1

%

 

 

31.8

%

 

 

52.4

%

Unleased space as of June 30, 2019 included approximately 2.9 million square feet of remaining lease-up at announced redevelopment projects, and approximately 12.7 million square feet of additional leasing opportunity at properties throughout the portfolio.

Leasing

New Activity

During the quarter ended June 30, 2019, the Company signed new leases totaling 687,000 square feet (603,000 square feet at share) at an average base rent of $20.24 PSF ($19.92 PSF at share).  On a same-space basis, new rents averaged 3.6x prior rents for space formerly occupied by Sears or Kmart, increasing to $21.65 PSF for new tenants compared to $6.01 PSF paid by Sears or Kmart across 497,000 square feet.

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

 

(in thousands, except PSF amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Since

 

 

 

Q2 2019

 

 

2019 YTD

 

 

Inception

 

Leases

 

 

28

 

 

 

57

 

 

 

344

 

Square feet

 

 

603,000

 

 

 

968,000

 

 

 

8,853,000

 

Annual base rent ($000s)

 

$

12,010

 

 

$

22,982

 

 

$

154,146

 

Annual base rent PSF (1)

 

$

19.92

 

 

$

23.75

 

 

$

18.36

 

Re-leasing multiple (1)(2)

 

 

3.6

x

 

 

3.9

x

 

 

4.1

x

 

 

(1)

Excludes certain self storage, auto dealership, medical office and ground leases.

 

 

(2)

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

 

Rental Income Composition

During the quarter ended June 30, 2019, the Company added $12.0 million of new diversified, non-Sears income and increased annual base rent attributable to diversified, non-Sears tenants to 89.1% of total annual base rent from 56.9% as of June 30, 2018, based on signed leases.

The table below provides a summary of all the Company’s signed leases as of June 30, 2019, including unconsolidated joint ventures presented at the Company’s proportional share:

 

(in thousands except number of leases and PSF data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

Leased

 

 

% of Total

 

 

Annual Base

 

 

% of

 

 

 

 

 

Tenant

 

Leases

 

 

GLA

 

 

Leased GLA

 

 

Rent ("ABR")

 

 

Total ABR

 

 

ABR PSF

 

Sears/Kmart (1)

 

 

54

 

 

 

6,742

 

 

 

39.3

%

 

$

20,320

 

 

 

10.9

%

 

$

3.01

 

In-place diversified, non-Sears leases

 

 

260

 

 

 

5,946

 

 

 

34.7

%

 

 

79,756

 

 

 

42.9

%

 

 

13.41

 

SNO diversified, non-Sears leases

 

 

179

 

 

 

4,452

 

 

 

26.0

%

 

 

85,740

 

 

 

46.2

%

 

 

19.26

 

Sub-total diversified, non-Sears leases

 

 

439

 

 

 

10,398

 

 

 

60.7

%

 

 

165,496

 

 

 

89.1

%

 

 

15.92

 

Total

 

 

493

 

 

 

17,140

 

 

 

100.0

%

 

$

185,816

 

 

 

100.0

%

 

$

10.84

 

 

(1)

Includes 50 properties subject to a master lease (the “Holdco Master Lease”) between the Company and affiliates of Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., and four leases between the Company’s unconsolidated joint ventures and Holdco.

3


Development

Program Summary

During the quarter ended June 30, 2019, the Company commenced projects totaling approximately $40.5 million, including three new redevelopments and the expansion of one previously announced project.

Below is a summary of the Company’s announced development activity from inception through June 30, 2019, presented at 100% share and including certain assets that have been monetized through sale or joint venture:

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

Number

 

 

Project

 

 

Percentage

 

 

Estimated

 

 

Spent

 

 

Projected Annual Income (2)

 

Incremental

Project Status

 

of Projects

 

 

Square Feet

 

 

Leased

 

 

Project Costs (1)

 

 

To Date

 

 

Total

 

Incremental

 

Yield (3)

Complete

 

 

18

 

 

 

1.7

 

 

 

94

%

 

$150 - 155

 

 

$

143

 

 

 

 

 

 

 

Substantially Complete /

   Delivered to Tenant(s)

 

 

32

 

 

 

3.6

 

 

 

78

%

 

435 - 460

 

 

 

304

 

 

 

 

 

 

 

Underway

 

 

26

 

 

 

4.0

 

 

 

55

%

 

810 - 840

 

 

 

262

 

 

 

 

 

 

 

Announced

 

 

7

 

 

 

0.9

 

 

 

56

%

 

130 - 145

 

 

 

10

 

 

 

 

 

 

 

Current Projects

 

 

83

 

 

 

10.2

 

 

 

70

%

 

$1,525 - 1,600

 

 

$

719

 

 

$207 - 214

 

$165 - 172

 

10.3 - 11.3%

Acquired

 

 

15

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

Sold

 

 

4

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

Total Projects

 

 

102

 

 

 

 

 

 

 

 

 

 

$1,619 - 1,694

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

(2)

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

(3)

Projected incremental annual income divided by total estimated project costs.

Announced Development Projects

As of June 30, 2019, the Company had originated 87 redevelopment projects since the Company’s inception.  Excluding four projects that have been sold, these projects represent an estimated total investment of $1,525-1,600 million ($1,405-1,480 million at share), of which an estimated $805-880 million ($745-820 million at share) remains to be spent, and are expected to generate an incremental yield on cost of approximately 10.3-11.3%.

The tables below provide brief descriptions of each of the redevelopment projects originated on the Company’s platform since its inception, including certain assets that have been monetized through sale or joint venture:

 

Total Project Costs under $10 Million

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Estimated

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

Construction

 

Substantial

Property

 

Description

 

Square Feet

 

 

Start

 

Completion

King of Prussia, PA

 

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

 

 

29,100

 

 

Complete

Merrillville, IN

 

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

 

 

132,000

 

 

Complete

Elkhart, IN

 

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

 

 

86,500

 

 

Complete

Bowie, MD

 

Recapture and repurpose auto center space for BJ's Brewhouse

 

 

8,200

 

 

Complete

Troy, MI

 

Partial recapture; redevelop existing store for At Home

 

 

100,000

 

 

Complete

Rehoboth Beach, DE

 

Partial recapture; redevelop existing store for andThat! and PetSmart

 

 

56,700

 

 

Complete

Henderson, NV

 

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

 

 

144,400

 

 

Complete

Cullman, AL

 

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

 

 

99,000

 

 

Complete

Jefferson City, MO

 

Termination property; redevelop existing store for Orscheln Farm and Home

 

 

96,000

 

 

Complete

Guaynabo, PR

 

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

 

 

56,100

 

 

Complete

Westwood, TX

 

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

 

 

213,600

 

 

Complete

Florissant, MO

 

Site densification; new outparcel for Chick-fil-A

 

 

5,000

 

 

Complete

Albany, NY

 

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

 

 

28,000

 

 

Substantially complete

Kearney, NE

 

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

 

 

92,500

 

 

Substantially complete

Dayton, OH

 

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

 

 

14,100

 

 

Substantially complete

4


Total Project Costs under $10 Million

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Estimated

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

Construction

 

Substantial

Property

 

Description

 

Square Feet

 

 

Start

 

Completion

New Iberia, LA

 

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

 

 

93,100

 

 

Substantially complete

Hopkinsville, KY

 

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

 

 

87,900

 

 

Substantially complete

Mt. Pleasant, PA

 

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

 

 

86,300

 

 

Substantially complete

Layton, UT

 

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

 

 

172,100

 

 

Substantially complete

St. Clair Shores, MI

 

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

 

 

107,200

 

 

Delivered to tenant(s)

Gainesville, FL

 

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

 

 

139,100

 

 

Delivered to tenant(s)

North Little Rock, AR

 

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

 

 

17,300

 

 

Delivered to tenant(s)

Houston, TX

 

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

 

 

214,400

 

 

Delivered to tenant(s)

Oklahoma City, OK

 

Site densification; new fitness center for Vasa Fitness

 

 

59,500

 

 

Delivered to tenant(s)

Greensboro, NC

 

Site densification; new outparcel for Mavis Tires

 

 

6,900

 

 

Q1 2020

 

Q4 2020

Middletown, NJ

 

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

 

 

191,100

 

 

Q1 2020

 

Q2 2021

Hagerstown, MD

 

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

 

 

15,400

 

 

Sold

Hampton, VA

 

Site densification; new outparcel for Chick-fil-A

 

 

2,200

 

 

Sold

 

Total Project Costs $10 - $20 Million

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Estimated

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

Construction

 

Substantial

Property

 

Description

 

Square Feet

 

 

Start

 

Completion

Braintree, MA

 

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

 

 

90,000

 

 

Complete

Honolulu, HI

 

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

 

 

79,000

 

 

Complete

Anderson, SC

 

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

 

 

111,300

 

 

Complete

Springfield, IL

 

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

 

 

133,400

 

 

Complete

Madison, WI

 

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

 

 

75,300

 

 

Substantially complete

Paducah, KY

 

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

 

 

102,300

 

 

Substantially complete

Thornton, CO

 

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

 

 

191,600

 

 

Substantially complete

Cockeysville, MD

 

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

 

 

83,500

 

 

Substantially complete

Warwick, RI

 

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

 

 

190,700

 

 

Substantially complete

Temecula, CA

 

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

 

 

65,100

 

 

Substantially complete

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

 

 

Substantially complete

North Hollywood, CA

 

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

 

 

79,800

 

 

Substantially complete

West Jordan, UT

 

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

 

 

190,300

 

 

Substantially complete

Salem, NH

 

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

 

 

71,200

 

 

Delivered to tenant(s)

Fairfax, VA

 

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

 

 

110,300

 

 

Delivered to tenant(s)

Canton, OH

 

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

 

 

83,900

 

 

Delivered to tenant(s)

North Riverside, IL

 

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

 

 

103,900

 

 

Delivered to tenant(s)

5


Total Project Costs $10 - $20 Million

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Estimated

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

Construction

 

Substantial

Property

 

Description

 

Square Feet

 

 

Start

 

Completion

Olean, NY

 

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

 

 

125,700

 

 

Delivered to tenant(s)

Las Vegas, NV

 

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

 

 

78,800

 

 

Underway

 

Q3 2019

Roseville, MI

 

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

 

 

369,800

 

 

Underway

 

Q3 2019

Warrenton, VA

 

Termination property; redevelop existing store for HomeGoods and additional retail

 

 

97,300

 

 

Underway

 

Q3 2019

North Miami, FL

 

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

 

 

124,300

 

 

Underway

 

Q4 2019

Yorktown Heights, NY

 

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

 

 

85,200

 

 

Underway

 

Q4 2019

Charleston, SC

 

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

 

 

126,700

 

 

Underway

 

Q4 2019

Chicago, IL (Kedzie)

 

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

 

 

123,300

 

 

Underway

 

Q4 2019

El Paso, TX

 

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

 

 

114,700

 

 

Underway

 

Q4 2019

Reno, NV

 

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

 

 

169,800

 

 

Underway

 

Q4 2019

Pensacola, FL

 

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

 

 

134,700

 

 

Underway

 

Q1 2020

Fresno, CA

 

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

 

 

78,300

 

 

Underway

 

Q1 2020

Manchester, NH

 

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

 

 

117,700

 

 

Underway

 

Q3 2020

Victor, NY

 

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

 

 

140,500

 

 

Underway

 

Q3 2020

Merced, CA

 

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

 

 

92,600

 

 

Q3 2019

 

Q1 2021

Santa Cruz, CA

 

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

 

 

62,200

 

 

Sold

Vancouver, WA

 

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

 

 

72,400

 

 

Sold

Saugus, MA

 

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

 

 

99,000

 

 

To be determined

 

Total Project Costs over $20 Million

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Estimated

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

Construction

 

Substantial

Property

 

Description

 

Square Feet

 

 

Start

 

Completion

Memphis, TN

 

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

 

 

135,200

 

 

Complete

St. Petersburg, FL

 

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

 

 

142,400

 

 

Complete

Orlando, FL

 

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

 

 

139,200

 

 

Substantially complete

West Hartford, CT

 

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

 

 

147,600

 

 

Substantially complete

Wayne, NJ

 

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

 

 

156,700

 

 

Delivered to tenant(s)

Carson, CA

 

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

 

 

163,800

 

 

Delivered to tenant(s)

Greendale, WI

 

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

 

 

223,800

 

 

Delivered to tenant(s)

Watchung, NJ

 

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

 

 

126,700

 

 

Delivered to tenant(s)

Austin, TX

 

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

 

 

177,400

 

 

Underway

 

Q3 2019

6


Total Project Costs over $20 Million

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Estimated

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

Project

 

 

Construction

 

Substantial

Property

 

Description

 

Square Feet

 

 

Start

 

Completion

El Cajon, CA

 

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

 

 

242,700

 

 

Underway

 

Q3 2019

Anchorage, AK

 

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

 

 

142,500

 

 

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

East Northport, NY

 

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

 

 

179,700

 

 

Underway

 

Q4 2019

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

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

Tucson, AZ

 

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

 

 

224,300

 

 

Underway

 

Q4 2019

Fairfield, CA

 

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

 

 

146,500

 

 

Underway

 

Q1 2020

Plantation, FL

 

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

 

 

184,400

 

 

Underway

 

Q1 2020

Roseville, CA

 

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

 

 

147,400

 

 

Underway

 

Q2 2020

San Antonio, TX

 

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

 

 

215,900

 

 

Underway

 

Q2 2020

Ft. Wayne, IN

 

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

 

 

96,400

 

 

Underway

 

Q4 2020

Orland Park, IL

 

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

 

 

181,900

 

 

Q3 2019

 

Q4 2020

Hialeah, FL

 

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

 

 

158,100

 

 

Q3 2019

 

Q2 2021

Asheville, NC

 

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

 

 

110,600

 

 

Q4 2019

 

Q2 2021

 


7


Liquidity

As of June 30, 2019, the Company had approximately $790 million of identified liquidity, including $325.5 million of cash on the balance sheet, the $400 million incremental funding facility under the Company’s senior secured term loan (subject to certain conditions) and assets under contract for sale for anticipated gross cash proceeds of $63.3 million (assets under contract for sale are subject to customary closing conditions and there can be no assurance that such transactions will be consummated).

Dividends

On July 23, 2019, the Company’s Board of Trustees declared a preferred stock dividend of $0.4375 per each Series A Preferred Share.  The preferred dividend will be paid on October 15, 2019 to holders of record on September 30, 2019.

On April 30, 2019, the Company’s Board of Trustees declared a preferred stock dividend of $0.4375 per each Series A Preferred Share.  The preferred dividend was paid on July 15, 2019 to holders of record on June 28, 2019.

As previously announced, the Company’s Board of Trustees does not currently expect to declare additional common dividends for the remainder of 2019, based on its assessment of the Company’s investment opportunities and its expectations of taxable income for the year.  The Board of Trustees will reevaluate this position at the end of 2019, if necessary, to ensure that the Company meets its distribution requirements as a REIT.  The Company’s Board of Trustees expects that cash dividends for the Company’s preferred shares will continue to be paid each quarter.

Supplemental Report

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

8


Non-GAAP Financial Measures

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

None of NOI, Total NOI, FFO or Company FFO, are measures that (i) represent cash flow from operations as defined by GAAP; (ii) are indicative of cash available to fund all cash flow needs, including the ability to make distributions; (iii) are alternatives to cash flow as a measure of liquidity; or (iv) should be considered alternatives to net income (which is determined in accordance with GAAP) for purposes of evaluating the Company’s operating performance.  Reconciliations of these measures to the respective GAAP measures we deem most comparable have been provided in the tables accompanying this press release.

Net Operating Income ("NOI”), Total NOI and Annualized Total NOI

NOI is defined as income from property operations less property operating expenses.  The Company believes NOI provides useful information regarding Seritage, its financial condition, and results of operations because it reflects only those income and expense items that are incurred at the property level.

The Company also uses Total NOI, which includes its proportional share of unconsolidated properties.  This form of presentation offers insights into the financial performance and condition of the Company as a whole given the Company’s ownership of unconsolidated properties that are accounted for under GAAP using the equity method.  The Company also considers Total NOI to be a helpful supplemental measure of its operating performance because it excludes from NOI variable items such as termination fee income, as well as non-cash items such as straight-line rent and amortization of lease intangibles.

Annualized Total NOI is an estimate, as of the end of the reporting period, of the annual Total NOI to be generated by the Company’s portfolio including all signed leases and modifications to the Original Master Lease and Holdco Master Lease with respect to recaptured space.   We calculate Annualized Total NOI by adding or subtracting current period adjustments for leases that commenced or expired during the period to Total NOI (as defined) for the period and annualizing, and then adding estimated annual Total NOI attributable to SNO leases and subtracting estimated annual Total NOI attributable to Sears Holdings and Holdco space to be recaptured.

Annualized Total NOI is a forward-looking non-GAAP measure for which the Company does not believe it can provide reconciling information to a corresponding forward-looking GAAP measure without unreasonable effort.

Funds from Operations ("FFO") and Company FFO

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

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

9


Forward-Looking Statements

This document contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the company’s control, which may cause actual results to differ significantly from those expressed in any forward-looking statement. Factors that could cause or contribute to such differences include, but are not limited to: our historical exposure to Sears Holdings and the effects of its previously announced bankruptcy filing; Holdco’s termination and other rights under its master lease with us; competition in the real estate and retail industries; risks relating to our recapture and redevelopment activities; contingencies to the commencement of rent under leases; the terms of our indebtedness; restrictions with which we are required to comply in order to maintain REIT status and other legal requirements to which we are subject; and our relatively limited history as an operating company.  For additional discussion of these and other applicable risks, assumptions and uncertainties, see the “Risk Factors” and forward-looking statement disclosure contained in our filings with the Securities and Exchange Commission, including the risk factors relating to Sears Holdings and Holdco.  While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially.  We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.

About Seritage Growth Properties

Seritage Growth Properties is a publicly-traded, self-administered and self-managed REIT with 194 wholly-owned properties and 27 joint venture properties totaling approximately 35.1 million square feet of space across 45 states and Puerto Rico.  The Company was formed to unlock the underlying real estate value of a high-quality retail portfolio it acquired from Sears Holdings in July 2015.  Pursuant to a master lease, the Company has the right to recapture certain space from the successor to Sears Holdings for retenanting or redevelopment purposes.  The Company’s mission is to create and own revitalized shopping, dining, entertainment and mixed-use destinations that provide enriched experiences for consumers and local communities, and create long-term value for our shareholders.

Contact

Seritage Growth Properties

646-277-1268

[email protected]

10


Seritage Growth Properties

CONDENSED Consolidated Balance SheetS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Investment in real estate

 

 

 

 

 

 

 

 

Land

 

$

686,160

 

 

$

696,792

 

Buildings and improvements

 

 

932,624

 

 

 

900,173

 

Accumulated depreciation

 

 

(158,446

)

 

 

(137,947

)

 

 

 

1,460,338

 

 

 

1,459,018

 

Construction in progress

 

 

393,655

 

 

 

292,049

 

Net investment in real estate

 

 

1,853,993

 

 

 

1,751,067

 

Real estate held for sale

 

 

5,277

 

 

 

3,094

 

Investment in unconsolidated joint ventures

 

 

418,967

 

 

 

398,577

 

Cash and cash equivalents

 

 

325,505

 

 

 

532,857

 

Tenant and other receivables, net

 

 

50,388

 

 

 

36,926

 

Lease intangible assets, net

 

 

96,332

 

 

 

123,656

 

Prepaid expenses, deferred expenses and other assets, net

 

 

48,286

 

 

 

29,899

 

Total assets

 

$

2,798,748

 

 

$

2,876,076

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Term Loan Facility, net

 

$

1,598,276

 

 

$

1,598,053

 

Accounts payable, accrued expenses and other liabilities

 

 

104,952

 

 

 

127,565

 

Total liabilities

 

 

1,703,228

 

 

 

1,725,618

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

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

   36,828,991 and 35,667,521 shares issued and outstanding

   as of June 30, 2019 and December 31, 2018, respectively

 

 

368

 

 

 

357

 

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

   1,247,060 shares issued and outstanding

   as of June 30, 2019 and December 31, 2018

 

 

12

 

 

 

13

 

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

    2,800,000 shares issued and outstanding as of June 30, 2019 and

    December 31, 2018; liquidation preference of $70,000

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

1,144,458

 

 

 

1,124,504

 

Accumulated deficit

 

 

(380,734

)

 

 

(344,132

)

Total shareholders' equity

 

 

764,132

 

 

 

780,770

 

Non-controlling interests

 

 

331,388

 

 

 

369,688

 

Total equity

 

 

1,095,520

 

 

 

1,150,458

 

Total liabilities and equity

 

$

2,798,748

 

 

$

2,876,076

 

 

11


Seritage Growth Properties

CONDENSED Consolidated Statements of OPERATIONS

(In thousands, except per share amounts)

(Unaudited)