Press Release

Seritage Growth Properties Provides Update on Leasing, Development and Transaction Activity as of Year End 2017

Company Release - 1/18/2018 4:22 PM ET

NEW YORK--(BUSINESS WIRE)-- Seritage Growth Properties (NYSE:SRG) (the “Company”), a national owner of 253 retail properties totaling approximately 40 million square feet of gross leasable area (“GLA”), today provided an update on the Company’s leasing, development and transaction activity as of December 31, 2017.

Operating Highlights:

  • Signed new leases totaling 2.6 million square feet in 2017, representing a 26% increase over 2016 leasing activity, including over 870,000 square feet in the fourth quarter of 2017.
  • Since the Company’s formation, based on new leases totaling over 4.8 million square feet:
    • Achieved releasing multiples of 4.1x for space currently or formerly occupied by Sears Holdings Corporation (“Sears Holdings”), with new rents averaging approximately $18.00 PSF compared to approximately $4.35 PSF paid by Sears Holdings.
    • Increased third party rental income by 155% to over $112 million, including all signed leases and after the impact of the asset sale transactions described below.
    • Increased third party rental income to 52% of total rental income including all signed leases, and reduced rental income from Sears Holdings to 48%. At the Company’s inception, 22% of rental income was from third parties and 78% was from Sears Holdings. Including recently submitted recapture notices, Sears Holdings is no longer the primary tenant at 111 of the Company’s properties, up from 11 properties at formation.
  • Completed or commenced 78 wholly-owned redevelopment projects with projected cost of $1.1 billion since the Company’s formation, including eight new projects commenced in the fourth quarter of 2017 with a total investment of approximately $385 million.
    • Projected incremental returns of approximately 11% on 63 new projects initiated solely on the Seritage platform with projected costs of over $1.0 billion.
  • Commenced the redevelopment of projects in Aventura, FL and La Jolla, CA, two of the Company’s premier redevelopments along with the previously commenced redevelopment in Santa Monica, CA.
  • Generated $530 million of gross proceeds in 2017 through select asset monetization, strategic joint ventures and opportunistically accessing the capital markets.

“As a result of our strong momentum this year, and with a cumulative total of 4.8 million square feet of new leases signed at an average multiple of 4.1 times prior rents, we achieved our stated goal of increasing third party rental income, based on signed leases, to over 50% of total rental income by end of the year 2017.” said Benjamin Schall, President and Chief Executive Officer. “We also surpassed our year end 2017 goal of completing or commencing new redevelopment projects in excess of $1.0 billion, with 78 projects totaling $1.1 billion of projected investment at incremental returns of 10-12% on an unlevered basis. Notably, our redevelopment activity this year included the commencement of three of our premier redevelopment projects in Aventura, FL, Santa Monica, CA and La Jolla, CA. Finally, we executed on capital transactions generating gross proceeds of over $530 million in 2017, including a preferred equity offering, the refinancing of our unsecured term loan, select joint venture transactions, and the monetization of certain assets. As we look ahead to 2018, we are energized by our growing pipeline of redevelopments and our opportunity to generate long term shareholder value.”

Leasing Update

During the three months ended December 31, 2017, the Company signed new leases totaling over 870,000 square feet at an average base rent of $17.00 PSF. Since inception, the Company has signed new leases totaling over 4.8 million square feet at an average base rent of $17.80 PSF. The releasing spread for space currently or formerly occupied by Sears Holdings was 4.1x (from $4.35 PSF to $17.99 PSF) across 4.5 million square feet on a same-space basis.

Below is a summary of the Company’s leasing activity, including its proportional share of unconsolidated joint ventures:

(in thousands except number of leases and PSF data)                        
           
Total Release of Sears Holdings Space
Leased Annual Annual Leased Annual Annual Releasing
Leases GLA Rent Rent PSF Leases GLA Rent Rent PSF Multiple
2H 2015 9 154 $ 4,650 $ 30.28 6 130 $ 3,820 $ 29.41 4.4x
2016 65 2,070 36,600 17.68 59 1,882 33,610 17.86 4.5x
2017 94 2,606   44,717   17.16 86 2,476   43,299   17.49 4.0x

Total

168 4,830 $ 85,967 $ 17.80 151 4,488 $ 80,729 $ 17.99 4.1x
 

Development Update

During the three months ended December 31, 2017, the Company commenced eight new projects representing an estimated total investment of approximately $385 million. Since inception, including projects commenced prior to the Company’s formation, the Company has completed or commenced 78 projects representing an estimated total investment of approximately $1.1 billion.

Below is a summary of the Company’s development activity within its wholly-owned portfolio:

(in thousands except number of properties and yields)
                               
Estimated Estimated Estimated
Number Project Development Project Projected Annual Income (2) Incremental
Quarter of Projects Square Feet Costs (1) Costs (1) Total Existing Incremental Yield (3)
Acquired (4) 15 $ 63,600 $ 63,600
2H 2015 5 352 51,500 64,200 $ 10,400 $ 2,500 $ 7,900
2016 (5) 28 2,677 353,600 370,700 63,400 18,900 44,300
2017 (5) 30 3,168   589,100   632,000   82,900   17,000   65,800  
Total 78 6,197 $ 1,057,800 $ 1,130,500 $ 156,700 $ 38,400 $ 118,000 10.5 - 11.5%

(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)

Projects were in various stages of development when acquired by the Company in July 2015. Capital to complete projects was reserved at the closing of the acquisition.

(5)

Includes expansions to previously announced projects.

 

The Company will provide additional details on its leasing and development activity when it releases fourth quarter and full year 2017 operating and financial results.

Transaction and Capital Activity

During 2017, the Company sold its 50% interest in 13 existing joint venture properties, and sold 50% joint venture interests in five additional properties, generating approximately $315 million of gross proceeds. As a result of these transactions, the Company received approximately $240 million of unrestricted cash before closing costs and reduced amounts outstanding under its mortgage loan by approximately $50 million.

The Company also raised an additional $215 million through a preferred equity offering and the refinancing of its unsecured term loan in the fourth quarter.

As of December 31, 2017, the Company had over $415 million of cash on the balance sheet, including approximately $240 million of unrestricted cash and approximately $175 million of redevelopment and other reserves. The Company will provide additional details on its balance sheet and capital when it releases fourth quarter and full year 2017 operating and financial results.

Forward-Looking Statements

This document contains forward-looking statements, which are based on the current beliefs and expectations of management and are subject to significant risks, assumptions and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: competition in the real estate and retail industries; our substantial dependence on Sears Holdings; Sears Holdings’ termination and other rights under its master lease with us; risks relating to our recapture and redevelopment activities; contingencies to the commencement of rent under leases; the terms of our indebtedness; restrictions with which we are required to comply in order to maintain REIT status and other legal requirements to which we are subject; and our limited operating history. For additional discussion of these and other applicable risks, assumptions and uncertainties, see the “Risk Factors” and forward-looking statement disclosure contained in filings with the Securities and Exchange Commission. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.

About Seritage Growth Properties

Seritage Growth Properties is a publicly-traded, self-administered and self-managed REIT with 230 wholly-owned properties and 23 joint venture properties totaling approximately 40 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.

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

Source: Seritage Growth Properties

NEWS:

Seritage Growth Properties Announces Second Quarter 2018 Dividend for Common and Preferred Shares

NEW YORK--(BUSINESS WIRE)-- Seritage Growth Properties (NYSE: SRG) announced today that its Board of Trustees declared a cash dividend of $0.25 per Class A and Class C common share f... Read more

Seritage Growth Properties Announces First Quarter 2018 Earnings Release Date

NEW YORK--(BUSINESS WIRE)-- Seritage Growth Properties (NYSE:SRG) announced today that it will release its first quarter 2018 financial and operating results in a press release on Th... Read more

IR CONTACTS
Seritage Growth Properties
500 Fifth Avenue
Suite 1530
New York, NY 10110
Investor Relations Contact
Transfer Agent
Computershare Trust Company, N.A
(201) 324-0014