– Signed new leases totaling 3.1 million
square feet, up 17% over 2017, at an average re-leasing multiple of
3.9x –
– Maintains $1.0 billion of liquidity,
including $537 million of cash and $400 million incremental funding
facility –
Seritage Growth Properties (NYSE: SRG) (the “Company”), a
national owner of 232 retail and mixed-use properties totaling
approximately 36.3 million square feet, today provided an update on
the Company’s leasing, development, transaction and capital
activities as of December 31, 2018.
“We are pleased with our strong finish to 2018, including
878,000 square feet of new leasing at an average rent of
approximately $21.00 PSF on retail leases during the fourth
quarter. Since inception, we have leased nearly 8.0 million square
feet at an average rent of approximately $17.65 PSF on retail
leases and a 4.1x multiple of prior rents. We have completed or
commenced 97 redevelopment projects totaling $1.5 billion of
projected capital investment at targeted incremental returns of
approximately 11.0% on an unlevered basis. The diversified,
non-Sears tenants we have under signed leases, plus the remaining
lease-up of these announced projects, is expected to generate over
$225 million of rental income before any further activation of our
portfolio. We also ended the year with access to nearly $1.0
billion of liquidity, including $537 million of cash on hand, which
provides sufficient capital to complete our current projects and
mitigate potential reductions in income from Sears Holdings,” said
Benjamin Schall, President and Chief Executive Officer. “As we
start 2019, we remain well positioned to continue executing on our
strategies to unlock substantial value through intensive
redevelopment. We are excited by our pipeline of opportunities,
including our next wave of suburban retail redevelopments and three
dozen premier and larger scale redevelopments. We look forward to
utilizing our platform and expanding our preferred partnerships
with growing retailers, best-in-class mixed-use developers and
leading capital allocators to generate substantial value for
shareholders.”
Diversified Income
- Leasing Activity: since
inception, the Company has signed approximately 7.9 million square
feet of new leases at an average rent of $16.63 PSF. Retail
re-leasing multiples have averaged 4.1x for space occupied by Sears
Holdings Corporation (“Sears Holdings” or “Sears”), with new retail
rents averaging $17.72 PSF compared to $4.36 PSF paid by Sears
Holdings.The 7.9 million square feet of new leases includes 287
leases with 139 unique tenants and demonstrates the breadth of the
Company’s tenant relationships and leasing activity.In 2018, the
Company signed new leases totaling 3.1 million square feet,
representing a 17% increase over 2017 leasing activity, including
approximately 878,000 square feet signed in the fourth quarter at
an average rent of $18.03 PSF (retail leases represented 664,000
square feet at an average rent of $20.98 PSF).Below is a summary of
the Company’s leasing activity, including its proportional share of
unconsolidated joint ventures, as of December 31, 2018:
($ in thousands, except PSF amounts)
Q4 2018 FY2018
Since Inception
Leases 31 119 287 Square Feet 878,000 3,055,000 7,885,000 Annual
Base Rent $ 15,830 $ 45,197 $ 131,164 Annual Base Rent PSF (1) $
20.98 $ 17.30 $ 17.64 Re-leasing Multiple (1)(2) 4.0 x 3.9 x 4.1 x
(1) Reflects retail leases only; excludes certain
self storage, auto dealership, medical office and ground leases.
(2) Excludes densification square footage (e.g. new outparcel
developments) and backfill of vacant space not previously occupied
by Sears Holdings.
- Rental Income: since inception,
the Company has increased annual base rent from diversified,
non-Sears tenants by over 235% to $147 million, including all
signed leases and the impact of all asset monetization activity.
Including the remaining lease up of announced projects, the Company
expects diversified, non-Sears income of over $225 million before
any further activation of the portfolio.As of December 31, 2018,
annual base rent from diversified, non-Sears tenants accounted for
approximately 72% of total annual base rent, including all signed
leases and the effect of all previously exercised recapture and
termination notices, as well as properties under contract for sale.
Sears Holdings comprised 28% of total annual base rent, surpassing
the Company’s previously stated goal of reducing exposure to Sears
Holdings below 35% by the end of 2018.Below is a summary of the
Company’s leased square footage and rental income, including its
proportional share of unconsolidated joint ventures, as of December
31, 2018:
(in thousands, except number of leases and PSF data)
Number ofLeases
LeasedGLA
% of TotalLeased GLA
AnnualRent
% of TotalAnnual Rent
AnnualRent PSF
Tenant Sears Holdings (1) 96 11,545 54 % $ 56,467 28
% $ 4.89 In-place diversified, non-Sears leases 234 5,009 24 %
65,777 32 % 13.13 SNO diversified, non-Sears leases (2) 167
4,703 22 % 81,282 40 % 17.30
Total diversified, non-Sears leases 401 9,712
46 % 147,059 72 % 15.15
Total
497 21,257 100 % $
203,526 100 % $ 9.58 (1)
Number of leases reflects number of properties subject to
the Master Lease and JV Master Leases. Metrics include the effect
of four properties subject to previously exercised recapture or
termination notices, and five properties under contract for sale,
for which Sears was still making rental payments as of December 31,
2018. (2) SNO = signed but not yet open leases.
Stability and Growth
- Announced Projects: since
inception, the Company has substantially completed 47 new
redevelopments and has an additional 50 projects currently under
development. These 97 projects, which upon completion will provide
stable cash flow from a diverse set of retailers under long-term
leases, represent $1.5 billion of projected capital investment at
targeted incremental returns of approximately 11.0% on an unlevered
basis.In 2018, the Company commenced projects totaling $382
million, including 19 new redevelopments and the expansion of seven
previously announced projects. This activity included three new
projects representing $65.0 million of capital investment in the
fourth quarter.Below is a summary of the Company’s announced
development activity as of December 31, 2018, presented at 100%
share and including certain assets that have been monetized through
sale or joint venture:
(in thousands, except number of projects and
percentages)
Numberof Projects
ProjectSquare Feet
Estimated
DevelopmentCosts (1)
Estimated ProjectCosts
(1)
Projected Annual Income (2)
Estimated
IncrementalYield (3)
Estimated Project Costs (1) Total Existing
Incremental < $10,000 28 2,182 $ 125,600 $ 127,900 $
23,400 $ 5,700 $ 17,700 $10,001 - $20,000 (4) 32 3,721 439,000
458,900 63,200 15,300 47,900 > $20,001 22 3,738
803,100 861,900 115,000 23,100
91,900
Announced projects 82
9,641 $ 1,367,700 $ 1,448,700
$ 201,600 $ 44,100 $
157,500 10.5-11.5 % Acquired projects
15 63,600 63,600
Total projects
97 $ 1,431,300 $ 1,512,300
(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.
- Development Pipeline: the
Company believes it is well-positioned to continue its value
creation activities with a robust pipeline of redevelopment
projects, including significant mixed-use and densification
opportunities.
- Premier and
Larger Scale: the Company has identified 36 assets totaling
7.4 million square feet of existing space that it believes can be
expanded and densified by integrating retail, residential, office
and other uses. As of December 31, 2018, the Company had announced
select phases of projects at nine of these 36 properties.In 2018,
the Company solidified a portion of its mixed-used and
densification pipeline by receiving entitlements for 1,750
residential units, 1.4 million square feet of office space and 500
hotel keys across four projects, including the previously announced
approvals at the Company’s projects in Redmond (WA) and Dallas
(TX).
- Suburban
Retail: the Company has identified 162 assets totaling 25.4
million square feet of existing space that it expects to redevelop
into first-class, multi-tenant retail centers. As of December 31,
2018, the Company had completed or commenced projects at 83 of
these 162 properties, and expects to continue activating these
assets as the Company builds on its preferred relationships with
growing retailers and other users around the country.
Value Realization and Capital
Recycling
- Capital Activities: the Company
has raised approximately $550 million of gross proceeds from the
sale or joint venture of interests in 42 properties over the last
18 months. Proceeds have primarily been reinvested into
redevelopment projects, as well as used to repay debt under the
Company’s original mortgage facility which was repaid in full in
July 2018.
- Strategic Equity Joint Ventures:
in 2018, the Company contributed its assets in Santa Monica (CA),
La Jolla (CA) and West Hartford (CT) into three joint ventures with
institutional capital partners representing a total transaction
value of $362 million, or $744 PSF, and generated $117.0 million of
gross proceeds.
- Development Joint Ventures: in
2018, the Company announced two agreements to form joint ventures
with institutional-quality residential developers to lead the
multifamily components of mixed-use projects in Redmond (WA) and
Newark (CA), at values of $16.0 million for 2.5 acres and $20.0
million for 4.5 acres, respectively.
- Opportunistic and Smaller Market
Dispositions: in 2018, the Company sold 21 properties totaling
2.1 million square feet that generated gross proceeds of $114.3
million, or $54 PSF. The Company monetized these assets, which were
generally located in smaller markets, in order to focus its human
and capital resources on larger value creation opportunities. These
transactions included five dispositions in the fourth quarter that
generated gross proceeds of $47.3 million, or $78 PSF.
Strong Liquidity
Position
- New Term Loan Facility: in July
2018, the Company entered into a new $2.0 billion term loan
facility with Berkshire Hathaway Life Insurance Company (the “Term
Loan Facility”). 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,
subject to certain conditions.There is no direct impact of Sears
Holdings’ bankruptcy filing, or a potential rejection of the Master
Lease, on the Company’s Term Loan Facility. The Term Loan Facility
includes certain financial metrics, including fixed charge coverage
ratios, leverage ratios and a minimum net worth, that could be
negatively impacted by a loss of revenue from Sears Holdings. A
failure to satisfy any of these financial metrics will require the
Company to seek lender approval to monetize assets via sale or
joint venture and also provide the lender the right to request
mortgages on its real estate collateral, but will not result in an
event of default, mandatory amortization, cash flow sweep or any
similar provision.
- Liquidity Position: as of
December 31, 2018, the Company was positioned with nearly $1.0
billion of liquidity, including:
- $537 million of cash on hand to fund
on-going development activities, as well as to mitigate possible
adverse impacts to operating cash flow that may result from
potential reductions of rental income under the Master Lease with
Sears Holdings.
- Committed $400 million incremental
funding facility under the Term Loan Facility that is also
available, subject to certain conditions, to fund announced and
future redevelopment activities.
- 13 smaller market assets under contract
for sale for anticipated gross proceeds of $59.8 million. Assets
under contract for sale are subject to customary closing conditions
and there can be no assurance that such transactions will be
consummated.
Sears Holdings Bankruptcy
Filing
As of December 31, 2018, including all signed leases and the
effect of previously exercised recapture and termination notices
and properties under contract for sale, Sears Holdings was a tenant
in 77 properties under the Master Lease and 19 properties under the
JV Master Leases representing an aggregate of 11.5 million square
feet and $56 million of annual base rent, or 28% of all base rent
under signed leases.
The 3.5x to 4.5x rental uplift that the Company has historically
achieved upon re-leasing space formerly occupied by Sears Holdings
allows it to recover all the rental income generated from Sears
Holdings by re-leasing only 25-35% of the formerly occupied space
and deploying the capital required to bring the rental income
online.
The Company is monitoring, and will continue to monitor, Sears
Holdings’ bankruptcy proceedings, including the culmination of
Sears Holdings’ auction process, and the impact on the Company’s
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.
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; failure to achieve expected
occupancy and/or rent levels within the projected time frame or at
all; 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 206 wholly-owned
properties and 26 joint venture properties totaling approximately
36.3 million square feet of space across 48 states and Puerto Rico.
The Company was formed and listed on the New York Stock Exchange
(NYSE: SRG) in July 2015 in conjunction with the acquisition of a
portfolio of real estate from Sears Holdings. Our mission is to
create and own revitalized shopping, dining, entertainment and
mixed‐use destinations that provide enriched experiences for
consumers and local communities, and that generate long‐term value
for our shareholders. The Company is headquartered in New York,
NY.
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Seritage Growth Properties646-277-1268IR@Seritage.com
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