– 7.0 million SF of new leasing at 4x prior
rents, including 933,000 SF in the third quarter –
– Diversified, non-Sears tenants represent
approximately 70% of signed lease income –
– $2.0 billion term loan facility provides
nearly $1.0 billion of cash on hand and committed capital –
Seritage Growth Properties (NYSE: SRG) (the “Company”), a
national owner of 237 retail properties totaling approximately 37.5
million square feet of gross leasable area (“GLA”), today reported
financial and operating results for the three and nine months ended
September 30, 2018.
Summary of Financial
Results
For the three months ended September 30, 2018:
- Net loss attributable to common
shareholders of $23.4 million, or $0.66 per diluted share
- Total Net Operating Income (“Total
NOI”) of $35.7 million
- Funds from Operations (“FFO”) of ($0.4)
million, or ($0.01) per diluted share
- Company FFO of ($0.8) million, or
($0.01) per diluted share
For the nine months ended September 30, 2018:
- Net loss attributable to common
shareholders of $22.3 million, or $0.63 per diluted share
- Total NOI of $109.1 million
- FFO of $17.1 million, or $0.31 per
diluted share
- Company FFO of $20.2 million, or $0.36
per diluted share
“Our strong execution this quarter demonstrates the power of our
platform to substantially increase rents upon re-leasing and deploy
significant capital at industry leading returns. Since inception,
we have now leased 7 million square feet at 4 times the prior rents
paid by Sears Holdings, and have completed or commenced 79
projects, with total capital of $1.4 billion at targeted unlevered
returns of approximately 11 percent on an incremental basis,” said
Benjamin Schall, President and Chief Executive Officer. “We have a
diversified roster of growing tenants, now with 70 percent of our
income, on a signed lease basis, coming from non-Sears tenants
after our highest quarterly leasing volume to date, with over
930,000 square feet leased in the third quarter. We closed a $2
billion term loan this quarter and now stand with access to $1
billion of cash on hand and committed capital. We feel well
positioned to drive substantial future growth from our next
pipeline of projects, which include many of our larger scale and
mixed-use development opportunities, where we expect to
meaningfully densify sites by integrating retail with multi-family,
office and hotels. Our go-forward strategy remains consistent – to
unlock substantial value through the investment of capital and the
intensive leasing and redevelopment of our national portfolio of
well-located buildings and land.”
Operating Highlights
During the quarter ended September 30, 2018, including the
Company’s proportional share of its unconsolidated joint
ventures:
- Signed new leases totaling 933,000
square feet, including new retail leases totaling 546,000 square
feet at an average rent of $13.71 PSF. Since the Company’s
inception in July 2015, new retail leasing activity has totaled
nearly 6.5 million square feet at an average rent of $17.29
PSF.
- Achieved releasing multiples of 3.8x
for space currently or formerly occupied by Sears Holdings
Corporation (“Sears Holdings” or “Sears”), with new retail rents
averaging $13.26 PSF compared to $3.46 PSF paid by Sears Holdings.
Since inception, releasing multiples have averaged 4.1x, with new
retail rents at $17.38 PSF compared to $4.27 PSF paid by Sears
Holdings.
- Increased annual base rent from
diversified, non-Sears tenants to 60.1% of total annual base rent
from 45.4% in the prior year period, including all signed leases
and net of rent attributable to associated space to be recaptured.
Diversified, non-Sears rental income has increased by over 210%
since inception to $136.6 million, including all signed leases.
- Including the effect of all previously
exercised recapture and termination activity and properties under
contract for sale, annual base rent from diversified, non-Sears
tenants accounted for approximately 69% of total annual base rent
as of September 30, 2018, including all signed leases.
During the quarter ended September 30, 2018:
- Announced six new redevelopment
projects and expanded three previously announced projects
representing an aggregate incremental investment of $101.6 million.
Total redevelopment program to date includes 94 projects completed
or commenced representing over $1.4 billion of estimated capital
investment.
- Received governmental approvals in
Redmond, WA for one million square feet of residential, office,
retail and hotel development.
- Received governmental approvals in
Dallas, TX for two million square feet of residential, office,
retail and hotel development.
- Identified 40 existing properties that
are located in qualified opportunity zones (QOZs) as defined in the
2017 Tax Act.
- Sold eleven properties in three
transactions that generated gross proceeds of $42.2 million. The
properties were generally located in smaller markets and five of
the properties were vacant at the time of sale.
- Entered into a new $2.0 billion term
loan facility with Berkshire Hathaway Life Insurance Company. The
term loan facility, which matures on July 31, 2023, provided for an
initial funding of $1.6 billion at closing and includes a committed
$400 million incremental funding facility.
Sears Holdings Bankruptcy
Filing
On October 15, 2018, Sears Holdings and certain of its
affiliates filed voluntary petitions for relief under chapter 11 of
title 11 of the United States Code with the United States
Bankruptcy Court for the Southern District of New York (the
“Bankruptcy Court”). Bankruptcy proceedings are subject to
uncertainty and there can be no assurance how the Bankruptcy
Court’s or other parties’ actions or decisions may affect Sears
Holdings. There can be no assurance as to whether or when Sears
Holdings will successfully reorganize and emerge from bankruptcy
proceedings or how the Master Lease will be impacted by the
bankruptcy proceedings. Any of various outcomes may occur, any of
which could have a material and adverse impact on our business,
results of operations and financial condition. Seritage is
monitoring, and will continue to monitor, Sears Holdings’
bankruptcy proceedings and the impact on its business. For more
information regarding the same, refer to the risk factors relating
to Sears Holdings in the Company’s periodic filings with the
Securities and Exchange Commission (the “SEC”).
For additional information from the Company regarding the Sears
Holding bankruptcy filing, please see the press release and letter
from our CEO filed on Form 8-K with the SEC on October 15, 2018 and
available in the Investors section of the Company’s website,
www.seritage.com.
Financial Results
Net Income / Net Loss
For the three months ended September 30, 2018, net loss
attributable to Class A and Class C shareholders was $23.4 million,
or $0.66 per diluted share, as compared to net income of $10.5
million, or $0.31 per diluted share, for the prior year period. For
the nine months ended September 30, 2018, net loss attributable to
Class A and Class C shareholders was $22.3 million, or $0.63 per
diluted share, as compared to a net loss of $30.5 million, or $0.91
per diluted share, for the prior year period.
Total NOI
For the three months ended September 30, 2018, Total NOI, which
includes the Company’s proportional share of NOI from properties
owned through investments in its unconsolidated joint ventures, was
$35.7 million as compared to $43.6 million for the prior year
period. For the nine months ended September 30, 2018, Total NOI was
$109.1 million as compared to $135.2 million for the prior year
period.
The decrease in Total NOI in both periods was driven primarily
by reduced rental income under the master lease with Sears Holdings
as a result of recapture and termination activity at our
wholly-owned properties. In addition, the Company sold its
interests in five unconsolidated joint venture properties during
the fourth quarter of 2017 and, to date in 2018, has sold 16
wholly-owned properties and 50% interests in three wholly-owned
properties, which contributed to the decrease in Total NOI.
Since inception, nearly 20.0 million square feet of leased
space, representing approximately $80.0 million of annual base
rent, has been, or will be, taken offline through recapture and
termination activity. To date, the Company has signed new leases
with diversified, non-Sears tenants for an aggregate annual base
rent of $115.3 million across 7.0 million square feet of space. The
majority of our newly signed leases are categorized as “signed but
not opened” (“SNO”) leases and are expected to begin paying rent
throughout the next 24 months.
FFO and Company FFO
For the three months ended September 30, 2018, FFO, as
calculated in accordance with NAREIT, was ($0.4) million, or
($0.01) per diluted share, as compared to $25.8 million, or $0.46
per diluted share, for the prior year period. For the nine months
ended September 30, 2018, FFO was $17.1 million, or $0.31 per
diluted share, as compared to $80.6 million, or $1.45 per diluted
share, for the prior year period.
The decrease in FFO in both periods was driven by the same
factors driving the decrease in Total NOI, as well higher interest
expense (including the write-off of deferred financing costs
associated with debt repaid in the third quarter of 2018), higher
G&A expenses driven by the outperformance of targets related to
performance-based restricted stock, lower termination fee income
and dividends related to the $70 million preferred equity raise
that was completed in the fourth quarter of 2017.
For the three months ended, September 30, 2018, Company FFO was
($0.8) million, or ($0.01) per diluted share, as compared to $17.6
million, or $0.32 per diluted share, for the prior year period. For
the nine months ended September 30, 2018, Company FFO was $20.2
million, or $0.36 per diluted share, as compared to $70.3 million,
or $1.26 per diluted share, for the prior year period.
The decreases in Company FFO in both periods were driven by the
same factors driving the decrease in Total NOI, as well higher
interest expense, higher G&A expenses driven by the
outperformance of targets related to performance-based restricted
stock and dividends related to the $70 million preferred equity
raise that was completed in the fourth quarter of 2017.
Portfolio Summary
As of September 30, 2018, the Company’s portfolio included
interests in 237 retail properties totaling approximately 37.5
million square feet of gross leasable area, including 211
wholly-owned properties and 26 properties owned through investments
in unconsolidated joint ventures. The Company’s portfolio includes
119 properties attached to regional malls and 118 shopping center
or freestanding properties.
The portfolio was 81.0% leased, including unconsolidated joint
ventures at the Company’s proportional share, and included 65
properties leased only to diversified, non-Sears tenants, 77
properties leased to Sears Holdings and one or more diversified,
non-Sears tenants, and 74 properties leased only to Sears Holdings;
21 properties in the portfolio were vacant as of September 30,
2018. Of the properties leased to Sears Holdings, 115 operated
under the Sears brand and 36 operated under the Kmart brand.
The unleased space as of September 30, 2018 included
approximately 1.9 million SF of remaining lease-up at announced
redevelopment projects, and approximately 4.8 million SF of
additional leasing opportunity at properties throughout the
Company’s portfolio.
As of September 30, 2018, there were 46 properties subject to
previously exercised recapture or termination notices, and four
properties under contract for sale, for which Sears was still
making rental payments. Taking into account this recapture,
termination and transaction activity, we leased space at 82
wholly-owned properties and 19 JV properties to Sears Holdings as
of September 30, 2018.
Leasing Update
During the quarter ended September 30, 2018, the Company signed
new leases totaling 933,000 square feet, including new retail
leases totaling 546,000 square feet at an average rent of $13.71
PSF. On a same-space basis, new retail rents averaged 3.8x prior
rents for space currently or formerly occupied by Sears Holdings,
increasing to $13.26 PSF for new tenants compared to $3.46 PSF paid
by Sears Holdings across 529,000 square feet.
The table below provides a summary of the Company’s leasing
activity since inception, including unconsolidated joint ventures
presented at the Company’s proportional share:
(in thousands except number of leases and PSF data)
Total Release of Sears Holdings Space
Leased Annual Annual Leased
Annual Annual Releasing Period
Leases GLA Rent Rent PSF Leases
GLA Rent Rent PSF Multiple 2015 9 154 $
4,650 $ 30.28 6 130 $ 3,820 $ 29.41 4.4 x 2016 65 2,070 36,600
17.68 59 1,882 33,610 17.86 4.5 x 2017 94 2,606 44,717 17.16 86
2,476 43,299 17.49 4.0 x Q1 2018 20 391 7,915 20.24 19 389 7,891
20.29 4.1 x Q2 2018 42 714 10,709 15.00 42 714 10,709 15.00 3.7 x
Q3 2018 22 546 7,487 13.71 18
529 7,012 13.26 3.8 x
Total
Retail 252 6,481 $
112,078 $ 17.29 230
6,120 $ 106,341 $ 17.38
4.1 x Other (1) 4 526 3,256
Total 256 7,007 $
115,334
________________(1) Includes self storage,
auto dealership and medical office leases.
During the quarter ended September 30, 2018, the Company added
$9.4 million of new diversified, non-Sears income and increased
annual base rent attributable to diversified, non-Sears tenants to
60.1% of total annual base rent from 45.4% as of September 30,
2017, including all signed leases and net of rent attributable to
the associated space to be recaptured.
The table below provides a summary of all the Company’s signed
leases as of September 30, 2018, including unconsolidated joint
ventures presented at the Company’s proportional share:
(in thousands except number of leases and PSF data)
Number of Leased % of Total
Annual % of Total Annual Tenant
Leases GLA Leased GLA Rent Annual
Rent Rent PSF Sears Holdings (1) 151 19,217 67.6 % $
90,805 39.9 % $ 4.73 In-place diversified, non-Sears leases 240
4,663 16.4 % 61,557 27.1 % 13.20 SNO diversified, non-Sears leases
156 4,549 16.0 % 75,010 33.0 %
16.49 Sub-total diversified, non-Sears leases 396
9,212 32.4 % 136,567 60.1 %
14.82
Total 547 28,429
100.0 % $ 227,372 100.0
% $ 8.00
________________(1) Leases reflects number
of properties subject to the Master Lease and JV Master Leases.
As of September 30, 2018, there were 46 properties subject to
previously exercised recapture or termination notices, and four
properties under contract for sale, for which Sears was still
making rental payments. Taking into account this recapture,
termination and transaction activity, annual base rent from
diversified, non-Sears tenants accounted for approximately 69% of
total annual base rent as of September 30, 2018, including all
signed leases.
Development Update
Wholly-Owned Properties
During the quarter ended September 30, 2018, the Company
commenced six new redevelopment projects representing an estimated
total investment of $55.9 million and expanded three previously
announced project representing an estimated incremental and total
investment of $45.7 million and $65.2 million, respectively.
The table below summarizes project commencements in the
Company’s wholly-owned portfolio since inception:
(in thousands)
Estimated Estimated Number
Project Development Project Quarter
of Projects Square Feet Costs (1) Costs
(1) Acquired (2) 15 $ 63,600 $ 63,600 2015 (3) 5 549 78,100
90,800 2016 (3) 28 3,055 372,700 389,900 2017 (3) 30 3,517 650,000
693,600 Q1 2018 5 822 96,900 99,300 Q2 2018 5 547 53,400 53,400 Q3
2018 6 636 55,900 56,700
Total
94 9,126 $ 1,370,600
$ 1,447,300
________________
(1)
Total estimated development costs exclude,
and total estimated project costs include, termination fees to
recapture 100% of certain properties.
(2) Projects were in various stages of development when acquired by
the Company in July 2015. (3) Includes subsequent expansions to
previously announced projects.
As of September 30, 2018, the Company had originated 79
wholly-owned projects since the Company’s inception. These projects
represent an estimated total investment of $1,384 million ($1,281
million at share), of which an estimated $940 million ($880 million
at share) remains to be spent, and are expected to generate an
incremental yield on cost of approximately 11.0%.
The table below provides additional information regarding the
Company’s wholly-owned development activity from inception through
September 30, 2018:
(in thousands)
Estimated Estimated Estimated
Number Project Development Project
Projected Annual Income (2) Incremental Estimated
Project Costs (1) of Projects Square Feet
Costs (1) Costs (1) Total Existing
Incremental Yield (3) < $10,000 27 1,967 $ 124,700
$ 124,700 $ 21,500 $ 4,700 $ 16,800 $10,001 - $20,000 (4) 31 3,603
419,000 438,900 61,000 15,300 45,700 > $20,001 21
3,556 763,300 820,100 110,500 22,700
87,800
Announced projects 79
9,126 $ 1,307,000 $ 1,383,700
$ 193,000 $ 42,700 $
150,300 10.5-11.5% Acquired projects 15
63,600 63,600
Total projects 94
$ 1,370,600 $ 1,447,300
________________
(1) Total estimated development costs exclude, and total
estimated project costs include, termination fees to recapture 100%
of certain properties. (2) Projected annual income includes
assumptions on stabilized rents to be achieved for space under
redevelopment. There can be no assurance that stabilized rent
targets will be achieved. (3) Projected incremental annual income
divided by total estimated project costs. (4) Includes Saugus, MA
project which has been temporarily postponed while the Company
identifies a new lead tenant.
The tables below provide brief descriptions of each of the
redevelopment projects originated on the Company’s platform since
its inception:
Total Project Costs under $10 Million
Total
Estimated Estimated
Project Construction Substantial
Property Description Square Feet
Start Completion King of Prussia, PA Repurpose former
auto center space for Outback Steakhouse, Yard House and small shop
retail 29,100 Complete Merrillville, IN Termination
property; redevelop existing store for At Home and small shop
retail 132,000 Complete Elkhart, IN Termination property; existing
store has been released to Big R Stores 86,500 Complete 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
Hagerstown, MD Recapture and repurpose auto center space for BJ's
Brewhouse, Verizon and additional retail (note: property sold in Q2
2018) 15,400 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 Ft. Wayne, IN
Site densification (project expansion);
new outparcels for BJ's Brewhouse and Chick-fil-A
12,000 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
Florissant, MO
Site densification; new outparcel for
Chick-fil-A
5,000 Delivered to tenant Dayton, OH Recapture and repurpose auto
center space for Outback Steakhouse and additional restaurants
14,100 Underway Q4 2018 Westwood, TX Termination property; site has
been leased to Sonic Automotive and will be repurposed as an auto
dealership 213,600 Underway Q4 2018 New Iberia, LA Termination
property; redevelop existing store for Rouses Supermarkets, Hobby
Lobby and small shop retail 93,100 Underway Q1 2019 North Little
Rock, AR Recapture and repurpose auto center space for LongHorn
Steakhouse and additional small shop retail 17,300 Underway Q2 2019
St. Clair Shores, MI 100% recapture; demolish existing store and
develop site for new Kroger grocery store 107,200 Underway Q2 2019
Hopkinsville, KY Termination property; redevelop existing store for
Bargain Hunt, Farmer's Furniture, Harbor Freight Tools and small
shop retail 87,900 Underway Q2 2019 Mt. Pleasant, PA Termination
property; redevelop existing store for Aldi, Big Lots and
additional retail 86,300 Underway Q3 2019 Oklahoma City, OK Site
densification; new fitness center for Vasa Fitness 59,500 Underway
Q3 2019 Gainesville, FL Termination property; repurpose existing
store as office space for Florida Clinical Practice Association /
University of Florida College of Medicine 139,100 Q4 2018 Q4 2019
Layton, UT Termination property; a portion of the space has been
leased to Extra Space Storage and will be repurposed as self
storage; existing tenants include Vasa Fitness and small shop
retail 172,100 Q1 2019 Q2 2019 Hampton, VA Site densification; new
outparcel for Chick-fil-A 2,200 Q1 2019 Q3 2019 Hialeah, FL
Recapture and repurpose auto center space for restaurants and small
shop retail 14,000 Q2 2019 Q1 2020
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 Madison, WI Partial recapture; redevelop existing store
for Dave & Busters, Total Wine & More, additional retail
and restaurants 75,300 Substantially complete Orlando, FL 100%
recapture; demolish and construct new buildings for Floor &
Décor, Orchard Supply Hardware, LongHorn Steakhouse, Mission BBQ,
Olive Garden and additional small shop retail and restaurants
139,200 Substantially complete Paducah, KY Termination property;
redevelop existing store for Burlington Stores, Ross Dress for Less
and additional retail 102,300 Substantially complete Springfield,
IL Termination property; redevelop existing store for Burlington
Stores, Binny's Beverage Depot, Marshall's, Orangetheory Fitness,
Outback Steakhouse, CoreLife Eatery and additional small shop
retail 133,400 Substantially complete Thornton, CO Termination
property; redevelop existing store for Vasa Fitness and additional
junior anchors 191,600 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 tenants Cockeysville, MD Partial
recapture; redevelop existing store for HomeGoods, Michael's
Stores, additional junior anchors and restaurants 83,500 Delivered
to tenants Fairfax, VA Partial recapture; redevelop existing store
and attached auto center for Dave & Busters, additional junior
anchors and restaurants 110,300 Underway Q4 2018 North Hollywood,
CA Partial recapture; redevelop existing store for Burlington
Stores and Ross Dress for Less 79,800 Underway Q1 2019 North Miami,
FL 100% recapture; redevelop existing store for Blink Fitness,
Burlington Stores, Michael's and Ross Dress for Less 124,300
Underway Q4 2018 Temecula, CA Partial recapture; redevelop existing
store and detached auto center for Round One, small shop retail and
restaurants 65,100 Underway Q4 2018 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 Underway Q4 2018 Hialeah,
FL 100% recapture; redevelop existing store for Bed, Bath &
Beyond, Ross Dress for Less and dd's Discounts to join current
tenant, Aldi 88,400 Underway Q4 2018 Canton, OH Partial recapture;
redevelop existing store for Dave & Busters and restaurants
83,900 Underway Q2 2019 North Riverside, IL Partial recapture;
redevelop existing store and detached auto center for Blink
Fitness, Round One, additional junior anchors, small shop retail
and restaurants 103,900 Underway Q2 2019 Olean, NY Termination
property (project expansion); redevelop existing store for
Marshall's, Ollie's Bargain Basement and additional retail 125,700
Underway Q2 2019 West Jordan, UT Termination property (project
expansion); redevelop existing store and attached auto center for
At Home, Burlington Stores and additional retail 190,300 Underway
Q2 2019 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 Yorktown Heights, NY Partial
recapture; redevelop existing store for 24 Hour Fitness and
additional retail 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,
Blink Fitness and additional retail 123,300 Q4 2018 Q4 2019 El
Paso, TX Termination property; redevelop existing store for Ross
Dress for Less, dd's Discounts and additional retail 114,700 Q4
2018 Q4 2019 Santa Cruz, CA Partial recapture; redevelop existing
store for TJ Maxx, HomeGoods and additional junior anchors 62,200
Q4 2018 Q4 2019 Warrenton, VA
Termination property; redevelop existing
store for HomeGoods and additional retail
97,300 Q1 2019 Q3 2019 Pensacola, FL Termination property;
redevelop existing store for BJ's Wholesale, Lucky's Market and
restaurants 134,700 Q1 2019 Q1 2020 Vancouver, WA Partial
recapture; redevelop existing store for Round One and additional
retail and restaurants 72,400 Q1 2019 Q2 2020 Saugus, MA Partial
recapture; redevelop existing store and detached auto center (note:
temporarily postponed while the Company identifies a new lead
tenant) 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
junior anchors, restaurants and small shop retail 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 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 and
additional junior anchors and restaurants (note: contributed to GGP
II JV in Q3 2017) 156,700 Delivered to tenant Carson, CA 100%
recapture (project expansion); redevelop existing store for
Burlington Stores, Ross Dress for Less, Gold's Gym and additional
retail 163,800 Underway Q1 2019 Watchung, NJ 100% recapture;
demolish full-line store and detached auto center and construct new
buildings for Cinemark, HomeSense, Sierra Trading Post, Ulta
Beauty, Chick-fil-A, small shop retail and additional restaurants
126,700 Underway Q2 2019 Austin, TX 100% recapture (project
expansion); redevelop existing store for AMC Theatres, additional
junior anchors and restaurants 177,400 Underway Q3 2019 El Cajon,
CA 100% recapture; redevelop existing store and auto center for
Ashley Furniture, Bob's Discount Furniture, Burlington Stores and
additional retail and restaurants; a portion of the space has been
leased to Extra Space Storage and will be repurposed as self
storage 242,700 Underway Q3 2019 Anchorage, AK 100% recapture;
redevelop existing store for Guitar Center, Safeway, Planet Fitness
and additional retail to join current tenant, Nordstrom Rack
142,500 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, Floor &
Decor and small shop retail 179,700 Underway Q4 2019 Greendale, WI
Termination property; redevelop existing store and attached auto
center for Dick's Sporting Goods, Golf Galaxy, Round One, TJ Maxx,
additional retail and restaurants 223,800 Underway Q4 2019 Reno, NV
100% recapture; redevelop existing store and auto center for Round
One and additional retail 169,800 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 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
Plantation, FL 100% recapture (project expansion); redevelop
existing store and auto center for GameTime, Powerhouse Gym,
additional retail and restaurants 184,400 Q4 2018 Q1 2020 San
Antonio, TX Termination property (project expansion); redevelop
existing store for Bed Bath & Beyond, buybuyBaby, additional
retail and fitness to complement repurposed auto center occupied by
Orvis, Jared's Jeweler and Shake Shack 215,900 Q4 2018 Q2 2020
Asheville, NC 100% recapture; redevelop existing store and auto
center for Alamo Drafthouse, restaurants and small shop retail
110,600 Q1 2019 Q3 2020
Balance Sheet and
Liquidity
As of September 30, 2018, the Company’s total market
capitalization was approximately $4.2 billion. Total market
capitalization is calculated as the sum of total debt and the
market value of the Company's outstanding shares of common stock,
assuming conversion of operating partnership units. Total debt to
total market capitalization was 37.6% and net debt to Company
EBITDA was 9.5x.
As of September 30, 2018, the Company had nearly $1.0
billion of liquidity, including $581.6 million of cash on the
balance sheet and the $400 million incremental funding facility
described below.
New Term Loan Facility
On July 31, 2018, the Company entered into a $2.0 billion term
loan facility (the “Term Loan Facility”) with Berkshire Hathaway
Life Insurance Company of Nebraska.
The Term Loan Facility, which matures on July 31, 2023, provided
for an initial funding of $1.6 billion at closing (the “Initial
Funding”) and includes a committed $400 million incremental funding
facility (the “Incremental Funding Facility”). Funded amounts under
the Term Loan Facility bear interest at a fixed annual rate of
7.00%, while amounts available under the Incremental Funding
Facility will be subject to a 1.00% annual fee until drawn.
The Company used a portion of the proceeds from the Initial
Funding to fully repay its outstanding mortgage loan and unsecured
term loan. The Company expects the remaining proceeds from the
Initial Funding, as well as borrowings under the Incremental
Funding Facility, will be used to fund the Company’s redevelopment
pipeline and to pay operating expenses of the Company and its
subsidiaries.
Dividends
The Company expects annual common dividends to adhere to REIT
requirements with respect to taxable income which includes both
ordinary income and capital gains from the sale of real estate. To
the extent estimated taxable income falls meaningfully below
current distribution levels, the Board of Trustees may consider
adjustments to common stock dividend amounts. Any reduction of the
common dividend would be made to allow the Company to reinvest the
capital retained into future redevelopment projects at accretive
returns.
On October 23, 2018, the Company’s Board of Trustees declared a
third quarter common stock dividend of $0.25 per each Class A and
Class C common share. The common dividend will be paid on January
10, 2019 to shareholders of record on December 31, 2018. Holders of
units in Seritage Growth Properties, L.P. (the “Operating
Partnership”) are entitled to an equal distribution per each
Operating Partnership unit held as of December 31, 2018. On October
23, 2018, the Company’s Board of Trustees also declared a preferred
stock dividend of $0.4375 per each Series A Preferred Share. The
preferred dividend will be paid on January 14, 2019 to holders of
record on December 31, 2018.
On July 24, 2018, the Company’s Board of Trustees declared a
second quarter common stock dividend of $0.25 per each Class A and
Class C common share. The common dividend was paid on October 11,
2018 to shareholders of record on September 28, 2018. Holders of
units in the Operating Partnership were entitled to an equal
distribution per each Operating Partnership unit held as of
September 28, 2018. On July 24, 2018, the Company’s Board of
Trustees also declared a preferred stock dividend of $0.4375 per
each Series A Preferred Share. The preferred dividend was paid on
October 15, 2018 to holders of record on September 28, 2018.
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 reference to NOI, Total NOI, EBITDAre, Company
EBITDA, 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, EBITDAre, Company EBITDA, FFO or Company
FFO, are measures that (i) represent cash flow from operations as
defined by GAAP; (ii) are indicative of cash available to fund all
cash flow needs, including the ability to make distributions; (iii)
are alternatives to cash flow as a measure of liquidity; or (iv)
should be considered alternatives to net income (which is
determined in accordance with GAAP) for purposes of evaluating the
Company’s operating performance. Reconciliations of these measures
to the respective GAAP measures we deem most comparable have been
provided in the tables accompanying this press release.
Net Operating Income ("NOI”), Total NOI
and Annualized Total NOI
NOI is defined as income from property operations less property
operating expenses. The Company believes NOI provides useful
information regarding Seritage, its financial condition, and
results of operations because it reflects only those income and
expense items that are incurred at the property level.
The Company also uses Total NOI, which includes its proportional
share of unconsolidated properties. This form of presentation
offers insights into the financial performance and condition of the
Company as a whole given the Company’s ownership of unconsolidated
properties that are accounted for under GAAP using the equity
method. The Company also considers Total NOI to be a helpful
supplemental measure of its operating performance because it
excludes from NOI variable items such as termination fee income, as
well as non-cash items such as straight-line rent and amortization
of lease intangibles.
Annualized Total NOI is an estimate, as of the end of the
reporting period, of the annual Total NOI to be generated by the
Company’s portfolio including all signed leases and modifications
to the Company’s master lease with Sears Holdings with respect to
recaptured space. We calculate Annualized Total NOI by adding or
subtracting current period adjustments for leases that commenced or
expired during the period to Total NOI (as defined) for the period
and annualizing, and then adding estimated annual Total NOI
attributable to SNO leases and subtracting estimated annual Total
NOI attributable to Sears Holdings’ space to be recaptured.
Annualized Total NOI is a forward-looking non-GAAP measure for
which the Company does not believe it can provide reconciling
information to a corresponding forward-looking GAAP measure without
unreasonable effort.
Earnings before Interest Expense, Income
Tax, Depreciation, and Amortization for Real Estate ("EBITDAre")
and Company EBITDA
EBITDAre is calculated in accordance with the definition set
forth by the National Association of Real Estate Investment Trusts
("NAREIT"), which may not be comparable to measures calculated by
other companies who do not use the NAREIT definition of EBITDA.
EBITDAre is calculated as net income computed in accordance with
GAAP, excluding interest expense, income tax expense, depreciation
and amortization, gains (or losses) from property sales and
impairment charges on depreciable real estate assets. The Company
believes EBITDAre provides useful information to investors
regarding our results of operations because it removes the impact
of the Company’s capital structure (primarily interest expense) and
its asset base (primarily depreciation and amortization).
Management also believes the use of EBITDAre facilitates
comparisons between us and other equity REITs and real property
owners that are not REITs.
The Company makes certain adjustments to EBITDAre, which it
refers to as Company EBITDA, to account for certain non-cash and
non-comparable items, such as termination fee income, unrealized
loss on interest rate cap, litigation charges, acquisition-related
expenses and certain up-front-hiring and personnel costs that it
does not believe are representative of ongoing operating
results.
Funds from Operations ("FFO") and Company
FFO
FFO is calculated in accordance with NAREIT which defines FFO as
net income computed in accordance with GAAP, excluding gains (or
losses) from property sales, real estate related depreciation and
amortization, and impairment charges on depreciable real estate
assets. The Company considers FFO a helpful supplemental measure of
the operating performance for equity REITs and a complement to GAAP
measures because it is a recognized measure of performance by the
real estate industry.
The Company makes certain adjustments to FFO, which it refers to
as Company FFO, to account for certain non-cash and non-comparable
items, such as termination fee income, unrealized loss on interest
rate cap, litigation charges, acquisition-related expenses,
amortization of deferred financing costs and certain
up-front-hiring and personnel costs, that it does not believe are
representative of ongoing operating results. The Company previously
referred to this metric as Normalized FFO; the definition and
calculation remain the same.
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 significant exposure to Sears Holdings and the
effects of its recently announced bankruptcy filing; Sears
Holdings’ 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. 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 211 wholly-owned
properties and 26 joint venture properties totaling approximately
37.5 million square feet of space across 48 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
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per
share amounts)
(Unaudited)
September 30, 2018 December 31, 2017
ASSETS Investment in real estate Land $ 700,725 $ 799,971 Buildings
and improvements 883,042 829,168 Accumulated depreciation
(165,011 ) (139,483 ) 1,418,756 1,489,656 Construction in
progress 263,696 224,904 Net investment in real
estate 1,682,452 1,714,560 Real estate held for sale 15,144 —
Investment in unconsolidated joint ventures 399,878 282,990 Cash
and cash equivalents 581,621 241,569 Restricted cash — 175,665
Tenant and other receivables, net 45,214 30,787 Lease intangible
assets, net 207,947 310,098 Prepaid expenses, deferred expenses and
other assets, net 32,780 20,148 Total assets $
2,965,036 $ 2,775,817 LIABILITIES AND EQUITY Liabilities
Term Loan Facility, net $ 1,598,123 $ — Mortgage loans payable, net
— 1,202,314 Unsecured term loan, net — 143,210 Accounts payable,
accrued expenses and other liabilities 115,508
109,433 Total liabilities 1,713,631 1,454,957
Commitments and contingencies Shareholders' Equity
Class A common shares $0.01 par value;
100,000,000 shares authorized; 35,667,521 and 32,415,734
shares issued and outstanding as of September 30, 2018
and December 31, 2017, respectively
357 324
Class B common shares $0.01 par value;
5,000,000 shares authorized; 1,322,365 and 1,328,866
shares issued and outstanding as of September 30, 2018
and December 31, 2017, respectively
13 13
Class C common shares $0.01 par value;
50,000,000 shares authorized; nil and 3,151,131 shares
issued and outstanding as of September 30, 2018 and
December 31, 2017, respectively
— 31
Series A preferred shares $0.01 par value;
10,000,000 shares authorized; 2,800,000 shares issued
and outstanding as of September 30, 2018 and December
31, 2017; liquidation preference of $70,000
28 28 Additional paid-in capital 1,124,461 1,116,060 Accumulated
deficit (279,092 ) (229,760 ) Total shareholders'
equity 845,767 886,696 Non-controlling interests 405,638
434,164 Total equity 1,251,405 1,320,860 Total
liabilities and equity $ 2,965,036 $ 2,775,817
SERITAGE GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except per share
amounts)
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30, 2018
2017 2018 2017 REVENUE Rental income $
41,152 $ 48,167 $ 114,070 $ 139,526 Tenant reimbursements 15,326
15,881 44,541 47,813 Management and other fee income 115
— 1,029 — Total revenue 56,593
64,048 159,640 187,339 EXPENSES Property operating
6,348 4,311 20,122 13,985 Real estate taxes 12,199 11,335 32,797
35,707 Depreciation and amortization 49,830 61,059 134,048 170,293
General and administrative 8,338 5,272 24,808 16,639 Provision for
doubtful accounts 87 68 257 119 Total
expenses 76,802 82,045 212,032 236,743
Operating loss (20,209 ) (17,997 ) (52,392 ) (49,404 )
Equity in loss of unconsolidated joint
ventures
(2,266 ) (3,686 ) (7,006 ) (4,226 ) Interest and other income 1,162
352 2,298 472 Interest expense (30,723 ) (18,049 ) (65,004 )
(53,072 ) Change in fair value of interest rate cap (16 )
(91 ) (23 ) (686 ) Loss before income taxes
(52,052 ) (39,471 ) (122,127 ) (106,916 ) Provision for income
taxes (93 ) — (437 ) (266 ) Loss before
gain on sale of real estate (52,145 ) (39,471 ) (122,564 ) (107,182
) Gain on sale of real estate 17,401 13,018 93,419 13,018
Gain on sale of interests in
unconsolidated joint ventures
— 43,729 — 43,729 Net (loss) income
(34,744 ) 17,276 (29,145 ) (50,435 )
Net loss (income) attributable to
non-controlling interests
12,528 (6,762 ) 10,486 19,892 Net
(loss) income attributable to Seritage $ (22,216 ) $ 10,514 $
(18,659 ) $ (30,543 ) Preferred dividends (1,225 ) —
(3,678 ) — Net (loss) income attributable to Seritage
common
shareholders
$ (23,441 ) $ 10,514 $ (22,337 ) $ (30,543 )
Net (loss) income per share attributable
to Seritage Class A and Class C common shareholders -
Basic
$ (0.66 ) $ 0.31 $ (0.63 ) $ (0.91 )
Net (loss) income per share attributable
to Seritage Class A and Class C common shareholders -
Diluted
$ (0.66 ) $ 0.31 $ (0.63 ) $ (0.91 )
Weighted average Class A and Class C
common shares outstanding - Basic
35,598 33,774 35,535 33,685
Weighted average Class A and Class C
common shares outstanding - Diluted
35,598 33,841 35,535 33,685
Reconciliation of Net Loss to NOI and
Total NOI (in thousands)
Three Months Ended September 30, Nine
Months Ended September 30, NOI and Total NOI 2018
2017 2018 2017 Net (loss) income
$ (34,744 ) $ 17,276 $ (29,145 ) $ (50,435 ) Termination fee income
(6,988 ) (10,596 ) (7,162 ) (17,360 ) Management and other fee
income (115 ) — (1,029 ) — Depreciation and amortization 49,830
61,059 134,048 170,293 General and administrative expenses 8,338
5,272 24,808 16,639
Equity in loss of unconsolidated joint
ventures
2,266 3,686 7,006 4,226
Gain on sale of interests in
unconsolidated joint ventures
— (43,729 ) — (43,729 ) Gain on sale of real estate (17,401 )
(13,018 ) (93,419 ) (13,018 ) Interest and other income (1,162 )
(352 ) (2,298 ) (472 ) Interest expense 30,723 18,049 65,004 53,072
Change in fair value of interest rate cap 16 91 23 686 Provision
for income taxes 93 — 437 266 NOI $
30,856 $ 37,738 $ 98,273 $ 120,168 NOI of unconsolidated joint
ventures 4,337 4,830 14,102 18,328 Straight-line rent adjustment
(1) 885 1,230 (2,289 ) (2,396 ) Above/below market rental
income/expense (1) (365 ) (212 ) (1,034 )
(902 ) Total NOI $ 35,713 $ 43,586 $ 109,052 $ 135,198
________________(1) Includes adjustments
for unconsolidated joint ventures.
Computation of Annualized Total NOI (in
thousands)
As of September 30, Annualized Total NOI
2018 2017 Total NOI (per above) $ 35,713 $
43,586 Period adjustments (1) (10 ) (1,292 ) Adjusted
Total NOI 35,703 42,294 Annualize x 4 x 4 Adjusted
Total NOI annualized 142,812 169,176
Plus: estimated annual Total NOI from SNO
leases
73,129 52,868
Less: estimated annual Total NOI from
associated space to be recaptured from Sears
(6,228 ) (4,402 ) Annualized Total NOI $ 209,713 $
217,642
________________(1) Includes adjustments
to account for leases not in place for the full period.
Reconciliation of Net Loss to EBITDAre
and Company EBITDA (in thousands)
Three Months Ended September 30, Nine
Months Ended September 30, EBITDAre and Company EBITDA
2018 2017 2018 2017 Net
(loss) income $ (34,744 ) $ 17,276 $ (29,145 ) $ (50,435 ) Interest
expense 30,723 18,049 65,004 53,072 Provision for income and other
taxes 93 — 437 266 Depreciation and amortization 49,830 61,059
134,048 170,293
Depreciation and amortization
(unconsolidated joint ventures)
3,671 4,755 10,980 18,583
Gain on sale of interests in
unconsolidated joint ventures
— (43,729 ) — (43,729 ) Gain on sale of real estate (17,401
) (13,018 ) (93,419 ) (13,018 ) EBITDAre $
32,172 $ 44,392 $ 87,905 $ 135,032 Termination fee income (6,988 )
(10,596 ) (7,162 ) (17,360 ) Change in fair value of interest rate
cap 16 91 23 686 Company EBITDA $
25,200 $ 33,887 $ 80,766 $ 118,358
Reconciliation of Net Loss to FFO and
Company FFO (in thousands)
Three Months Ended September 30,
Nine Months Ended September 30, FFO and Company FFO
2018 2017 2018 2017 Net
(loss) income $ (34,744 ) $ 17,276 $ (29,145 ) $ (50,435 )
Real estate depreciation and amortization
(consolidated properties)
49,266 60,483 132,364 169,158
Real estate depreciation and amortization
(unconsolidated joint ventures)
3,671 4,755 10,980 18,583
Gain on sale of interests in
unconsolidated joint ventures
— (43,729 ) — (43,729 ) Gain on sale of real estate (17,401 )
(13,018 ) (93,419 ) (13,018 ) Dividends on preferred shares
(1,225 ) — (3,678 ) —
FFO attributable to common shareholders
and unitholders
$ (433 ) $ 25,767 $ 17,102 $ 80,559 Termination fee income (6,988 )
(10,596 ) (7,162 ) (17,360 ) Change in fair value of interest rate
cap 16 91 23 686 Amortization of deferred financing costs
6,631 2,329 10,221 6,390
Company FFO attributable to common
shareholders and unitholders
$ (774 ) $ 17,591 $ 20,184 $ 70,275
FFO per diluted common share and unit $
(0.01 ) $ 0.46 $ 0.31 $ 1.45 Company FFO per diluted common share
and unit $ (0.01 ) $ 0.32 $ 0.36 $ 1.26
Weighted Average
Common Shares and Units Outstanding Weighted average
common shares outstanding 35,598 33,841 35,535 33,685 Weighted
average OP units outstanding 20,119 21,832
20,165 21,916
Weighted average common shares and units
outstanding
55,717 55,673 55,700 55,601
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181101006085/en/
Seritage Growth Properties646-277-1268IR@Seritage.com
Seritage Growth Properties (NYSE:SRG)
Historical Stock Chart
From Aug 2024 to Sep 2024
Seritage Growth Properties (NYSE:SRG)
Historical Stock Chart
From Sep 2023 to Sep 2024