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.
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Seritage Growth Properties646-277-1268IR@Seritage.com
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