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    Seritage Growth Properties
    500 Fifth Avenue
    Suite 1530
    New York, NY 10110
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    Computershare Trust Company, N.A
    (201) 324-0014

    News Details

    Seritage Growth Properties Reports Second Quarter 2023 Operating Results

    Company Release - 8/14/2023 04:59 PM ET

    Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner and developer of retail, residential and mixed-use properties today reported financial and operating results for the three and six months ended June 30, 2023.

    “We continue to make to progress on our strategy to maximize value for our shareholders. Since initiating our plan of sale in March of 2022, we have sold 127 properties for approximately $1.4 billion in gross proceeds and paid down $960 million on our term loan. Our rapid deleveraging has eliminated $67.2 million in debt service, $21.9 million in negative carry on wholly owned vacant or non-income producing properties and significant annual carry and development costs on disposed Joint Venture assets. Year to date we have sold 54 wholly owned, consolidated or joint venture properties for total gross proceeds of $654.6 million. Additionally, we have over $200 million of assets either under contract or with accepted offers. We plan to continue to use excess sales proceeds to reduce the Company’s term loan balance. In conjunction with our sales activity, we continue to build asset value through leasing, development and entitlement activity for the properties slated for sale later in our process,” said Andrea L. Olshan, Chief Executive Officer and President.

    Sale Highlights:

    • Generated $295.4 million of gross proceeds during the quarter ended June 30, 2023 from the sale of 19 wholly owned or consolidated assets and five joint venture assets.
    • Subsequent to quarter end, generated $68.4 million of gross proceeds from the sale of one outparcel and two joint venture assets.
    • The Company has nine assets under contract for sale with no due diligence contingencies or with an exercised put option for total anticipated proceeds of $133.3 million and four assets under contract for sale subject to customary due diligence for total anticipated proceeds of $26.9 million. All assets for sale are subject to customary closing conditions.
    • The Company has accepted offers on and is currently negotiating definitive purchase and sale agreements on six wholly owned assets and one joint venture asset for total gross proceeds of approximately $62.2 million.

    Financial Highlights:

    For the three months ended June 30, 2023:

    • As of June 30, 2023, the Company had cash on hand of $137.8 million, including $12.9 million of restricted cash. As of August 11, 2023, the Company had cash on hand of $190.9 million, including $12.9 million of restricted cash, prior to making an additional principal prepayment of $70 million on August 14, 2023.
    • Net loss attributable to common shareholders of ($96.9) million, or ($1.73) per share.
    • Total Net Operating Income (“Total NOI”) of $3.0 million.
    • During the quarter, the Company made $250 million in principal repayments on the Company’s term loan facility having a maturity date of July 31, 2025 (the “Term Loan Facility”), reducing the balance of the Term Loan Facility to $550 million. Subsequent to quarter end, the Company made an additional $70 million in principal repayments reducing the balance of our Term Loan Facility to $480 million.
    • During the quarter, the Company recorded a total of $104.5 million of impairment on four assets.

    Other Highlights

    • Signed one lease and one lease expansion covering 11 thousand square feet in the second quarter at an average projected annual net rent of $30.91 PSF.
      • One ground lease covering approximately 5 thousand square feet at a Multi-Tenant Retail asset at a projected annual net rent of $38.50 PSF; and
      • One ground floor lease expansion covering approximately 6 thousand square feet at a Multi-Tenant Retail asset at a projected annual net rent of $24.30 PSF.
    • Opened seven tenants in the second quarter totaling approximately 26 thousand square feet (18 thousand square feet at share) at an average net rent of $57.90 PSF.

    Sales Activity

    The two tables below provide additional information regarding the Company’s disposition activity. The first table provides disposition information as of August 11, 2023. The second table provides updated information, as of August 11, 2023, on portfolio status by market, property type and transaction size consistent.

    Sales Progress as of August 11, 2023 (1) (2)

     

     

     

     

     

     

     

     

     

    Stabilized

    Number

    Cap

     

    2023 Sales

    2024 & Beyond Sales

    Gross Proceeds

     

    Closed since March 31, 2023

    2

    7.2%

     

    2

    -

    $

    36,650

     

    Under Contract - No DD

    2

    7.5%

     

    2

    -

    $

    48,200

     

    Under Contract - In DD

    1

    6.6%

     

    1

    -

    $

    5,200

     

    PSA Neg. / Accepted Offer

    1

    7.4%

     

    1

    -

    $

    34,000

     

    Total

    6

    7.3%

     

    6

    -

    $

    124,050

     

    Remaining Stabilized Sales Parcels

    3

     

     

    -

    3

     

     

     

     

     

     

     

     

     

     

    Partially Stabilized

    Number

    Cap

     

    2023 Sales

    2024 & Beyond Sales

    Gross Proceeds

     

    Closed since March 31, 2023

    5

    7.3%

     

    5

    -

    $

    102,450

     

    Under Contract - No DD

    2

    5.8%

     

    1

    1

    $

    43,500

     

    Under Contract - In DD

    -

    N/A

     

    -

    -

    $

    -

     

    PSA Neg. / Accepted Offer

    -

    N/A

     

    -

    -

    $

    -

     

    Total

    7

    6.8%

     

    6

    1

    $

    145,950

     

    Remaining Partially Stabilized Sales Parcels

    5

     

     

    2

    3

     

     

     

     

     

     

     

     

     

     

    Pads

    Number

    Cap

     

    2023 Sales

    2024 & Beyond Sales

    Gross Proceeds

     

    Closed since March 31, 2023

    2

    5.7%

     

    2

    -

    $

    7,015

     

    Under Contract - No DD

    1

    9.8%

     

    1

    -

    $

    2,450

     

    Under Contract - In DD

    1

    5.5%

     

    1

    -

    $

    2,727

     

    PSA Neg. / Accepted Offer

    1

    6.1%

     

    1

    -

    $

    4,000

     

    Total

    5

    6.4%

     

    5

    -

    $

    16,192

     

    Remaining Pad Sales Parcels

    -

     

     

    -

    -

     

     

     

     

     

     

     

     

     

     

    Joint Ventures

    Number

    PSF

     

    2023 Sales

    2024 & Beyond Sales

    Gross Proceeds

     

    Closed since March 31, 2023

    7

    $

    101.47

     

    7

    -

    $

    114,675

     

    Under Contract - No DD

    1

    $

    97.82

     

    1

    -

    $

    25,964

     

    Under Contract - In DD

    -

    N/A

     

    -

    -

    $

    -

     

    PSA Neg. / Accepted Offer

    1

    $

    43.53

     

    1

    -

    $

    8,139

     

    Total

    9

    $

    94.01

     

    9

    -

    $

    148,778

     

    Remaining Joint Venture Sales Parcels

    7

     

     

    1

    6

     

     

    Non-Income Producing

    Number

    PSF

     

    Per Acre

     

    Carry Cost

     

    2023 Sales

    2024 & Beyond Sales

    Gross Proceeds

     

    Closed since March 31, 2023

    11

    $

    76.19

     

    $

    754

     

    $

    (5,809

    )

    11

    -

    $

    102,997

     

    Under Contract - No DD (3)

    3

    $

    19.60

     

    $

    417

     

    $

    (822

    )

    3

    -

    $

    13,137

     

    Under Contract - In DD

    2

    $

    69.73

     

    $

    890

     

    $

    (602

    )

    2

    -

    $

    18,952

     

    PSA Neg. / Accepted Offer

    4

    $

    24.28

     

    $

    259

     

    $

    (1,241

    )

    3

    1

    $

    16,100

     

    Total

    20

    $

    51.13

     

    $

    601

     

    $

    (8,474

    )

    19

    1

    $

    151,186

     

    Remaining Non-Income Producing Sales Parcels

    18

     

     

     

     

     

     

    5

    13

     

     

     

     

    As of
    January 1, 2023

    2023 Sales Projections as of August 11, 2023

    2024 & Beyond Sales Projections as of August 11, 2023

    Category

    Sales Portfolio

    Sold

    Under Contract - No DD

    Under Contract - in DD

    PSA Neg. / Accepted Offer

    Pipeline

    Under Contract - No DD

    PSA Neg. / Accepted Offer

    Pipeline

    Gateway markets

    11

    1

    -

    -

    -

    -

    -

    -

    10

    Primary markets

    44

    20

    5

    2

    1

    4

    1

    -

    11

    Secondary markets

    35

    24

    1

    2

    2

    2

    -

    1

    3

    Tertiary markets

    17

    9

    2

    -

    3

    2

    -

    -

    1

    Market Composition Total

    107

    54

    8

    4

    6

    8

    1

    1

    25

     

     

     

     

     

     

     

     

     

     

    Multi-Tenant Retail

    32

    23

    2

    -

    1

    1

    1

    -

    4

    Premier

    10

    1

    -

    -

    -

    -

    -

    -

    9

    Residential

    5

    3

    -

    -

    -

    -

    -

    -

    2

    Other Unconsolidated Entities

    13

    6

    1

    -

    1

    1

    -

    -

    4

    Non-Core Properties

    47

    21

    5

    4

    4

    6

    -

    1

    6

    Property Type Total

    107

    54

    8

    4

    6

    8

    1

    1

    25

     

     

     

     

     

     

     

     

     

     

    Under $10M

    60

    31

    5

    3

    5

    7

    -

    1

    8

    $10M - $30M

    28

    19

    2

    1

    -

    1

    -

    -

    5

    $30M - $50M

    11

    2

    1

    -

    1

    -

    1

    -

    6

    Over $50M

    8

    2

    -

    -

    -

    -

    -

    -

    6

    Transaction Size Total

    107

    54

    8

    4

    6

    8

    1

    1

    25

    (1) 2023 and 2024 sales projections are based on the Company’s latest forecasts and assumptions, but the Company cautions that actual results may differ materially.
    (2) Includes both partial and full asset transactions currently being forecasted by Seritage. At January 1, 2023, the Company had an interest in 97 properties. It is currently projected that nine of these properties will be parceled and sold in two or more separate transactions each, which is subject to change, resulting in a total portfolio count of 107 transactions at this time.

    Portfolio

    The table below represents a summary of the Company’s properties by planned usage as of June 30, 2023:

    (in thousands except number of leases and acreage data)

    Planned Usage

     

    Total

     

    Built SF / Acreage (1)

     

    Leased SF (1)(2)

     

     

    Avg. Acreage / Site

     

    Consolidated

     

     

     

     

     

     

     

     

     

     

    Multi-Tenant Retail

     

    8

     

    1,299 sf / 130 acres

     

     

    948

     

     

     

    16.3

     

    Residential (3)

     

    2

     

    33 sf / 19 acres

     

     

    33

     

     

     

    9.5

     

    Premier

     

    4

     

    228 sf / 69 acres

     

     

    156

     

     

     

    17.2

     

    Non-Core (4)

     

    24

     

    3,624 sf / 303 acres

     

     

    182

     

     

     

    12.6

     

    Unconsolidated

     

     

     

     

     

     

     

     

     

     

    Other Entities

     

    8

     

    626 sf / 130 acres

     

     

    152

     

     

     

    16.2

     

    Residential (3)

     

    1

     

    49 sf / 12 acres

     

     

    32

     

     

     

    11.7

     

    Premier

     

    3

     

    158 sf / 57 acres

     

     

    106

     

     

     

    19.0

     

    (1) Square footage is presented at the Company’s proportional share.
    (2) Based on signed leases at June 30, 2023.
    (3) Square footage represents built ancillary retail space whereas acreage represents both retail and residential acreage.
    (4) Represents assets the Company previously designated for sale.

    Multi-Tenant Retail

    During the three months ended June 30, 2023, the Company invested $1.2 million in its multi-tenant retail properties. The remaining capital expenditures in the multi-tenant retail portfolio are primarily comprised of tenant improvements.

    The table below provides a summary of all Multi-Tenant Retail signed leases as of June 30, 2023, including unconsolidated entities at the Company’s proportional share:

    (in thousands except number of leases and PSF data)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Number of

     

     

    Leased

     

     

    % of Total

     

     

    Gross Annual Base

     

     

    % of

     

     

    Gross Annual

     

    Tenant

     

    Leases

     

     

    GLA

     

     

    Leasable GLA

     

     

    Rent ("ABR")

     

     

    Total ABR

     

     

    Rent PSF
    ("ABR PSF")

     

    In-place retail leases

     

     

    38

     

     

     

    784

     

     

     

    60.3

    %

     

    $

    19,126

     

     

     

    85.9

    %

     

    $

    24.40

     

    SNO retail leases (1)(2)

     

     

    8

     

     

     

    164

     

     

     

    12.7

    %

     

     

    3,146

     

     

     

    14.1

    %

     

     

    19.18

     

    Total retail leases

     

     

    46

     

     

     

    948

     

     

     

    73.0

    %

     

    $

    22,272

     

     

     

    100.0

    %

     

    $

    23.49

     

    (1) SNO = signed not yet opened leases.

     

    (2) SNO GLA and rent include one tenant expansion signed in Q2 2023 not counted as a lease.

     

    During the three months ended June 30, 2023, the Company signed one new lease and one lease expansion at its retail properties totaling approximately 11 thousand square feet at an average base rent of $30.91 PSF stabilized net. Additionally, the Company generated a leasing pipeline of over 100 thousand square feet. The Company has 784 thousand leased square feet and approximately 164 thousand square feet signed but not opened. Seritage has total occupancy of 73.0% for its multi-tenant retail properties. As of June 30, 2023, there is an additional approximately 351 thousand square feet available for lease.

    (in thousands except number of leases and PSF data)

     

    Number of

     

     

     

     

     

     

     

     

    Annual

     

     

     

     

    SNO Leases

     

     

    GLA

     

     

    ABR

     

     

    Rent PSF

     

     

    As of March 31, 2023

     

     

    9

     

     

     

    159

     

     

    $

    3,085

     

     

    $

    19.40

     

     

    Opened

     

     

    (1

    )

     

     

    (4

    )

     

     

    (129

    )

     

     

    32.25

     

     

    Sold / terminated

     

     

    (1

    )

     

     

    (2

    )

     

     

    (150

    )

     

     

    75.00

     

     

    Signed

     

     

    1

     

     

     

    11

     

     

     

    340

     

     

     

    30.91

     

     

    As of June 30, 2023

     

     

    8

     

     

     

    164

     

     

    $

    3,146

     

     

    $

    19.18

     

     

    Premier Mixed-Use

    The Company has three premier mixed-use projects in the active leasing/tenant opening stage: Aventura, FL, Santa Monica, CA and San Diego, CA. As of June 30, 2023, the Company has 205 thousand in-place leased square feet (109 thousand square feet at share), 163 thousand square feet signed but not opened (153 thousand square feet at share), and 175 thousand square feet available for lease (124 thousand square feet at share).

    The table below provides a summary of all signed leases at Premier assets as of June 30, 2023, including unconsolidated entities at the Company’s proportional share:

     

    Number of

     

     

    Leased

     

     

    % of Total

     

     

    Net Annual

     

     

    % of Total

     

     

    Net Annual

     

    Tenant

    Leases

     

     

    GLA

     

     

    Leasable GLA

     

     

    Base Rent

     

     

    Annual Rent

     

     

    Rent PSF

     

    In-place retail leases

     

    24

     

     

     

    47

     

     

     

    12.1

    %

     

    $

    3,070

     

     

     

    17.3

    %

     

    $

    65.32

     

    In-place office leases

     

    1

     

     

     

    62

     

     

     

    16.0

    %

     

     

    4,220

     

     

     

    23.8

    %

     

     

    68.06

     

    SNO retail leasesas of March 31, 2022(1)

     

    22

     

     

     

    111

     

     

     

     

     

     

    8,679

     

     

     

     

     

     

    78.19

     

    Opened

     

    (4

    )

     

     

    (4

    )

     

     

     

     

     

    (381

    )

     

     

     

     

     

    95.25

     

    SNO retail leases as of June 30, 2023(1)

     

    18

     

     

     

    107

     

     

     

    27.8

    %

     

     

    8,298

     

     

     

    46.9

    %

     

     

    77.55

     

    SNO office leases as of March 31, 2022(1)

     

    3

     

     

     

    46

     

     

     

     

     

     

    2,109

     

     

     

     

     

     

    45.85

     

    Opened

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    SNO retail leases as of June 30, 2023(1)

     

    3

     

     

     

    46

     

     

     

    11.9

    %

     

     

    2,109

     

     

     

    11.9

    %

     

     

    45.85

     

    Total diversified leases as of June 30, 2023

     

    46

     

     

     

    262

     

     

     

    67.8

    %

     

    $

    17,697

     

     

     

    100.0

    %

     

    $

    67.55

     

    (1) SNO = Signed not yet opened leases

     

     

     

     

     

     

     

     

     

     

    (2) In thousands except number of leases and PSF data

     

     

     

     

     

     

     

     

     

     

    During the three months ended June 30, 2023, the Company invested $15.4 million in its consolidated premier development and operating properties and an additional $3.0 million into its unconsolidated premier entities.

    Aventura

    During the second quarter of 2023, the Company continued to advance 216 thousand square feet of office and retail leasing at the project in Aventura, FL. The Company is finalizing construction on the asset and opened its first tenants to the public in July and August 2023 representing approximately 26 thousand square feet and will continue with rolling openings going forward.

    With occupancy at 66.6%, the Company has 72 thousand square feet available for lease, of which 32 thousand square feet is in lease negotiation and has leasing activity on over an additional 31 thousand square feet. See the “Impairment” section below for a discussion of the impairment the Company recognized for the three months ended June 30, 2023 on its development property in Aventura, FL.

    Financial Summary

    The table below provides a summary of the Company’s financial results for the three and six months ended June 30, 2023:

    (in thousands except per share amounts)

     

    Three Months Ended

     

     

    Six Months Ended

     

     

     

    June 30, 2023

     

     

    June 30, 2022

     

     

    June 30, 2023

     

     

    June 30, 2022

     

    Net loss attributable to Seritage
    common shareholders

     

    $

    (96,932

    )

     

    $

    (111,980

    )

     

    $

    (160,143

    )

     

    $

    (165,410

    )

    Net loss per share attributable to Seritage
    common shareholders

     

     

    (1.73

    )

     

     

    (2.56

    )

     

     

    (2.85

    )

     

     

    (3.79

    )

    Total NOI

     

     

    2,996

     

     

     

    10,602

     

     

     

    6,099

     

     

     

    21,095

     

    For the quarter ended June 30, 2023:

    • Total NOI for the second quarter of 2023 reflects the impact of $(0.1) million Total NOI relating to sold properties.

    Total NOI is comprised of:

    (in thousands)

     

    Three Months Ended June 30,

     

    Consolidated Properties

     

    2023

     

     

    2022

     

    Multi-tenant retail

     

    $

    3,920

     

     

    $

    3,936

     

    Premier

     

     

    (402

    )

     

     

    (163

    )

    Residential

     

     

    (57

    )

     

     

     

    Non-Core

     

     

    (1,331

    )

     

     

    (1,044

    )

    Sold

     

     

    (138

    )

     

     

    5,828

     

    Total

     

     

    1,992

     

     

     

    8,557

     

    Unconsolidated Properties

     

     

     

     

    Residential

     

     

    194

     

     

     

    84

     

    Premier

     

     

    306

     

     

     

    (96

    )

    Other joint ventures

     

     

    504

     

     

     

    2,057

     

    Total

     

     

    1,004

     

     

     

    2,045

     

    Total NOI

     

    $

    2,996

     

     

    $

    10,602

     

    As of June 30, 2023, the Company had cash on hand of $137.8 million, including $12.9 million of restricted cash. The Company expects to use these sources of liquidity, together with a combination of future sales and/or potential debt and capital markets transactions, to pay its financing obligations and fund its operations and development activity. The availability of funding from sales of assets, partnerships and credit or capital markets transactions is subject to various conditions, and there can be no assurance that such transactions will be consummated. For more information on our liquidity position, including our going concern analysis, please see the notes to the consolidated financial statements included in Part I, Item 1 and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each in our Quarterly Report on Form 10-Q.

    Impairment

    During the quarter ended June 30, 2023, due to increasing development and construction costs and deteriorating market conditions, the Company recognized a $101.5 million impairment on its development property in Aventura, FL. In accordance with GAAP, the impairment was recognized as a result of the carrying value of the asset exceeding the undiscounted cash flows over the estimated holding period. The amount of the impairment is determined by applying a discount to the projected cash flows and writing down the carrying value to the discounted current fair value.

    The Company will continue to evaluate its portfolio, including its development plans and holding periods, which may result in additional impairments in future periods.

    Dividends

    On February 15, 2023, 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 April 17, 2023 to holders of record on March 31, 2023.

    On April 27, 2023, 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 14, 2023 to holders of record on June 30, 2023.

    On July 23, 2023, 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 13, 2023 to holders of record on September 30, 2023.

    The Company’s Board of Trustees does not expect to declare dividends on its common shares until such time as the Term Loan Facility has been repaid in full.

    Strategic Review

    At the 2022 Annual Meeting of Shareholders on October 24, 2022, Seritage shareholders approved the Company’s Plan of Sale. The strategic review process remains ongoing as the Company executes the Plan of Sale, and the Company remains open minded to pursuing value maximizing alternatives, including a potential sale of the Company. There can be no assurance regarding the success of the process.

    Market Update

    As the Company has previously disclosed, the Company, along with the commercial real estate market as a whole, has experienced and continues to experience progressively more challenging market conditions as a result of a variety of factors. These conditions have applied and continue to apply downward pricing pressure on all of our assets. In making decisions regarding whether and when to transact on each of the Company’s remaining assets, the Company will consider various factors including, but not limited to, the breadth of the buyer universe, macroeconomic conditions, the availability and cost of financing, as well as corporate, operating and other capital expenses required to carry the asset. If these challenging market conditions persist, then we expect that they will impact the Plan of Sale proceeds from our assets and the amounts and timing of distributions to shareholders.

    D&O Insurance Litigation

    On March 2, 2021, the Company brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O insurance providers of the Company (the “D&O Insurers”). The Company’s lawsuit sought, among other things, declaratory relief and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the Sears Bankruptcy Litigation. During the fourth quarter of 2022, the Company reached settlement agreements with two of the D&O Insurers and received gross proceeds of $12.7 million. During the three months ended March 31, 2023, the Company reached settlement agreements with the other two D&O Insurers for gross proceeds of $11.6 million. The Company received $3.8 million during the three months ended March 31, 2023 and received $7.8 million during the three months ended June 30, 2023, which is recorded in interest and other income in the consolidated statements of operations.

    Supplemental Report

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

    Non-GAAP Financial Measures

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

    Neither of NOI or Total NOI 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 the Company deems most comparable have been provided in the tables accompanying this press release.

    Net Operating Income ("NOI”) and Total NOI

    NOI is defined as income from property operations less property operating expenses. Other real estate companies may use different methodologies for calculating NOI, and accordingly the Company’s depiction of NOI may not be comparable to other real estate companies. 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 NOI and 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.

    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,” “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: declines in retail, real estate and general economic conditions; the impact of the COVID-19 pandemic on the business of the Company’s tenants and business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service the Company’s debt obligations and ability to pay dividends and other distributions to shareholders; risks relating to redevelopment activities; contingencies to the commencement of rent under leases; the terms of the Company’s indebtedness and other legal requirements to which the Company is subject; failure to achieve expected occupancy and/or rent levels within the projected time frame or at all; the impact of ongoing negative operating cash flow on the Company’s ability to fund operations and ongoing development; the Company’s ability to access or obtain sufficient sources of financing to fund the Company’s liquidity needs; the Company’s relatively limited history as an operating company; and environmental, health, safety and land use laws and regulations. For additional discussion of these and other applicable risks, assumptions and uncertainties, see the “Risk Factors” and forward-looking statement disclosure contained in the Company’s filings with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K for the year ended December 31, 2022 and any subsequent Form 10-Qs. While the Company believes that its forecasts and assumptions are reasonable, the Company cautions that actual results may differ materially. The Company intends 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 is principally engaged in the ownership, development, redevelopment, management and leasing of retail and mixed-use properties throughout the United States. As of June 30, 2023, the Company’s portfolio consisted of interests in 50 properties comprised of approximately 6.8 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately 157 acres held for or under development and approximately 3.6 million square feet or approximately 303 acres to be disposed of. The portfolio consists of approximately 5.2 million square feet of GLA held by 38 wholly owned properties (such properties, the “Consolidated Properties”) and 1.7 million square feet of GLA held by 12 unconsolidated entities (such properties, the “Unconsolidated Properties”).

     

    SERITAGE GROWTH PROPERTIES
    CONSOLIDATED BALANCE SHEETS
    (In thousands, except share and per share amounts)
    (Unaudited)

     
     

     

     

    June 30, 2023

     

     

    December 31, 2022

     

    ASSETS

     

     

     

     

     

     

    Investment in real estate

     

     

     

     

     

     

    Land

     

    $

    134,291

     

     

    $

    172,813

     

    Buildings and improvements

     

     

    356,952

     

     

     

    463,616

     

    Accumulated depreciation

     

     

    (43,369

    )

     

     

    (57,330

    )

     

     

     

    447,874

     

     

     

    579,099

     

    Construction in progress

     

     

    128,931

     

     

     

    185,324

     

    Net investment in real estate

     

     

    576,805

     

     

     

    764,423

     

    Real estate held for sale

     

     

    98,084

     

     

     

    455,617

     

    Investment in unconsolidated entities

     

     

    301,493

     

     

     

    382,597

     

    Cash and cash equivalents

     

     

    124,850

     

     

     

    133,480

     

    Restricted cash

     

     

    12,904

     

     

     

    11,459

     

    Tenant and other receivables, net

     

     

    22,188

     

     

     

    41,495

     

    Lease intangible assets, net

     

     

    1,524

     

     

     

    1,791

     

    Prepaid expenses, deferred expenses and other assets, net

     

     

    30,119

     

     

     

    50,859

     

    Total assets (1)

     

    $

    1,167,967

     

     

    $

    1,841,721

     

     

     

     

     

     

     

     

    LIABILITIES AND SHAREHOLDERS' EQUITY

     

     

     

     

     

     

    Liabilities

     

     

     

     

     

     

    Term loan facility, net

     

    $

    549,965

     

     

    $

    1,029,754

     

    Accounts payable, accrued expenses and other liabilities

     

     

    56,320

     

     

     

    89,368

     

    Total liabilities (1)

     

     

    606,285

     

     

     

    1,119,122

     

     

     

     

     

     

     

     

    Commitments and contingencies (Note 9)

     

     

     

     

     

     

     

     

     

     

     

     

     

    Shareholders' Equity

     

     

     

     

     

     

    Class A common shares $0.01 par value; 100,000,000 shares authorized;
    56,182,522 and 56,052,546 shares issued and outstanding
    as of June 30, 2023 and December 31, 2022, respectively

     

     

    562

     

     

     

    561

     

    Series A preferred shares $0.01 par value; 10,000,000 shares authorized;
    2,800,000 shares issued and outstanding as of June 30, 2023 and
    December 31, 2022; liquidation preference of $70,000

     

     

    28

     

     

     

    28

     

    Additional paid-in capital

     

     

    1,360,718

     

     

     

    1,360,411

     

    Accumulated deficit

     

     

    (800,674

    )

     

     

    (640,531

    )

    Total shareholders' equity

     

     

    560,634

     

     

     

    720,469

     

    Non-controlling interests

     

     

    1,048

     

     

     

    2,130

     

    Total equity

     

     

    561,682

     

     

     

    722,599

     

    Total liabilities and equity

     

    $

    1,167,967

     

     

    $

    1,841,721

     

    (1) The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets, as of June 30, 2023, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $3.3 million of land, $2.8 million of building and improvements, $(0.8) million of accumulated depreciation and $2.3 million of other assets included in other line items. The Company's consolidated balance sheets as of December 31, 2022, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(1.0) million of accumulated depreciation and $4.0 million of other assets included in other line items.

     

     
     

    SERITAGE GROWTH PROPERTIES
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (In thousands, except per share amounts)
    (Unaudited)

     
     

     

     

    Three Months Ended
    June 30,

     

     

    Six Months Ended
    June 30,

     

     

     

    2023

     

     

    2022

     

     

    2023

     

     

    2022

     

    REVENUE

     

     

     

     

     

     

     

     

     

     

     

     

    Rental income

     

    $

    5,517

     

     

    $

    29,418

     

     

    $

    5,935

     

     

    $

    58,502

     

    Management and other fee income

     

     

    367

     

     

     

    286

     

     

     

    629

     

     

     

    2,107

     

    Total revenue

     

     

    5,884

     

     

     

    29,704

     

     

     

    6,564

     

     

     

    60,609

     

    EXPENSES

     

     

     

     

     

     

     

     

     

     

     

     

    Property operating

     

     

    5,196

     

     

     

    10,801

     

     

     

    13,381

     

     

     

    21,833

     

    Real estate taxes

     

     

    2,170

     

     

     

    6,425

     

     

     

    3,707

     

     

     

    14,575

     

    Depreciation and amortization

     

     

    4,151

     

     

     

    10,669

     

     

     

    8,715

     

     

     

    22,603

     

    General and administrative

     

     

    10,099

     

     

     

    11,093

     

     

     

    22,319

     

     

     

    20,185

     

    Litigation settlement

     

     

     

     

     

    35,000

     

     

     

     

     

     

    35,000

     

    Total expenses

     

     

    21,616

     

     

     

    73,988

     

     

     

    48,122

     

     

     

    114,196

     

    Gain on sale of real estate, net

     

     

    33,488

     

     

     

    68,031

     

     

     

    45,880

     

     

     

    67,016

     

    Gain on sale of interest in unconsolidated entities

     

     

    7,323

     

     

     

     

     

     

    7,323

     

     

     

     

    Impairment of real estate assets

     

     

    (104,467

    )

     

     

    (109,343

    )

     

     

    (107,043

    )

     

     

    (110,334

    )

    Equity in loss of unconsolidated entities

     

     

    (13,698

    )

     

     

    (33,720

    )

     

     

    (50,070

    )

     

     

    (66,796

    )

    Interest and other income

     

     

    9,869

     

     

     

    99

     

     

     

    15,454

     

     

     

    110

     

    Interest expense

     

     

    (12,528

    )

     

     

    (22,663

    )

     

     

    (27,730

    )

     

     

    (45,251

    )

    Loss before income taxes

     

     

    (95,745

    )

     

     

    (141,880

    )

     

     

    (157,744

    )

     

     

    (208,842

    )

    Benefit (provision) for income taxes

     

     

    38

     

     

     

    (203

    )

     

     

    51

     

     

     

    (228

    )

    Net loss

     

     

    (95,707

    )

     

     

    (142,083

    )

     

     

    (157,693

    )

     

     

    (209,070

    )

    Net loss attributable to non-controlling interests

     

     

     

     

     

    31,328

     

     

     

     

     

     

    46,110

     

    Net loss attributable to Seritage

     

    $

    (95,707

    )

     

    $

    (110,755

    )

     

    $

    (157,693

    )

     

    $

    (162,960

    )

    Preferred dividends

     

     

    (1,225

    )

     

     

    (1,225

    )

     

     

    (2,450

    )

     

     

    (2,450

    )

    Net loss attributable to Seritage common shareholders

     

    $

    (96,932

    )

     

    $

    (111,980

    )

     

    $

    (160,143

    )

     

    $

    (165,410

    )

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net loss per share attributable to Seritage Class A
    common shareholders - Basic

     

    $

    (1.73

    )

     

    $

    (2.56

    )

     

    $

    (2.85

    )

     

    $

    (3.79

    )

    Net loss per share attributable to Seritage Class A
    common shareholders - Diluted

     

    $

    (1.73

    )

     

    $

    (2.56

    )

     

    $

    (2.85

    )

     

    $

    (3.79

    )

    Weighted average Class A common shares
    outstanding - Basic

     

     

    56,173

     

     

     

    43,677

     

     

     

    56,116

     

     

     

    43,656

     

    Weighted average Class A common shares
    outstanding - Diluted

     

     

    56,173

     

     

     

    43,677

     

     

     

    56,116

     

     

     

    43,656

     

     

    Reconciliation of Net Loss to NOI and Total NOI (in thousands)

     

     

    Three Months Ended June 30,

     

     

    Six Months Ended June 30,

     

    NOI and Total NOI

     

    2023

     

     

    2022

     

     

    2023

     

     

    2022

     

    Net loss

     

    $

    (95,707

    )

     

    $

    (142,083

    )

     

    $

    (157,693

    )

     

    $

    (209,070

    )

    Termination fee income

     

     

     

     

     

    (92

    )

     

     

     

     

     

    (369

    )

    Management and other fee income

     

     

    (367

    )

     

     

    (286

    )

     

     

    (629

    )

     

     

    (2,107

    )

    Depreciation and amortization

     

     

    4,151

     

     

     

    10,669

     

     

     

    8,715

     

     

     

    22,603

     

    General and administrative expenses

     

     

    10,099

     

     

     

    11,093

     

     

     

    22,319

     

     

     

    20,185

     

    Litigation settlement

     

     

     

     

     

    35,000

     

     

     

     

     

     

    35,000

     

    Equity in loss of unconsolidated entities

     

     

    13,698

     

     

     

    33,720

     

     

     

    50,070

     

     

     

    66,796

     

    Gain on sale of interest in unconsolidated entities

     

     

    (7,323

    )

     

     

     

     

     

    (7,323

    )

     

     

     

    Gain on sale of real estate, net

     

     

    (33,488

    )

     

     

    (68,031

    )

     

     

    (45,880

    )

     

     

    (67,016

    )

    Impairment of real estate assets

     

     

    104,467

     

     

     

    109,343

     

     

     

    107,043

     

     

     

    110,334

     

    Interest and other income

     

     

    (9,869

    )

     

     

    (99

    )

     

     

    (15,454

    )

     

     

    (110

    )

    Interest expense

     

     

    12,528

     

     

     

    22,663

     

     

     

    27,730

     

     

     

    45,251

     

    (Benefit) provision for income taxes

     

     

    (38

    )

     

     

    203

     

     

     

    (51

    )

     

     

    228

     

    Straight-line rent

     

     

    3,796

     

     

     

    (3,599

    )

     

     

    14,638

     

     

     

    (4,320

    )

    Above/below market rental expense

     

     

    45

     

     

     

    56

     

     

     

    93

     

     

     

    121

     

    NOI

     

    $

    1,992

     

     

    $

    8,557

     

     

    $

    3,578

     

     

    $

    17,526

     

    Unconsolidated entities

     

     

     

     

     

     

     

     

     

     

     

     

    Net operating income of unconsolidated entities

     

     

    1,301

     

     

     

    2,267

     

     

     

    2,959

     

     

     

    4,113

     

    Straight-line rent

     

     

    (294

    )

     

     

    (228

    )

     

     

    (440

    )

     

     

    (556

    )

    Above/below market rental expense

     

     

    (3

    )

     

     

    6

     

     

     

    2

     

     

     

    12

     

    Total NOI

     

    $

    2,996

     

     

    $

    10,602

     

     

    $

    6,099

     

     

    $

    21,095

     

     

    Seritage Growth Properties
    (212) 355-7800
    IR@Seritage.com

    Source: Seritage Growth Properties
    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