Seritage Growth Properties (NYSE: SRG) (the “Company”), a
national owner of 179 retail and mixed-use properties totaling
approximately 26.0 million square feet of gross leasable area
(“GLA”), today reported financial and operating results for the
three months ended March 31, 2021.
“This quarter marks the beginning of a new chapter at Seritage.
After our asset-by-asset review, we’ve taken an important step
towards this goal by restructuring our team to better align our
human capital and processes. Now we have turned our attention to
executing on our asset plans in a thoughtful manner that will
preserve our flexible capital structure and maximize our value
creation opportunities. We expect to share further detail on these
plans once finalized,” said Andrea Olshan, Chief Executive Officer
and President.
Financial Highlights:
For the three months ended March 31, 2021:
- Net loss attributable to common shareholders of $8.9 million,
or $0.23 per share
- Total Net Operating Income (“Total NOI”) of $9.4 million
- Funds from Operations (“FFO”) of ($18.7) million, or ($0.34)
per share
- As of March 31, 2021, the Company had cash on hand of $144.5
million, including $6.5 million of restricted cash
- As of March 31, 2021, collected 97% of its billed rent and
other recoverable expenses for the first quarter and agreed to
defer an additional 2%
Business Highlights
- Generated $63.2 million of gross proceeds through monetization
activity year to date, including $46.9 million during the three
months ended March 31, 2021 and $16.3 million subsequent to the end
of the first quarter;
- Had asset sales under contract for anticipated gross proceeds
of $90.2 million, subject to buyer diligence and closing
conditions;
- Invested $26.8 million in our consolidated development and
operating properties and an additional $9.9 million into our
unconsolidated joint ventures; and
- Signed 5 leases during the three months ended March 31, 2021
for 44,000 square feet at an average projected annual rent per
square foot of $33.59.
Corporate
In February, the Company announced that it had appointed Andrea
Olshan as Chief Executive Officer and President of the Company and
to the Company’s Board of Trustees, which became effective on March
16, 2021. In April, following an initial asset-by-asset analysis
led by Ms. Olshan, the Company announced that it would reorganize
its operations. As part of this reorganization, the Company
appointed Mary Rottler as Chief Operating Officer; Andrew Galvin as
Chief Investment Officer; Eric Dinenberg as Executive Vice
President of Development; and Edouard Cuilhé as Chief Accounting
Officer. The Company also took additional steps to restructure and
realign its personnel throughout the organization.
The Company plans to continue its portfolio analysis and
finalize plans to optimize the value of its individual property
assets through additional leasing to retail tenants, densification
of sites, modifications and repurposing for other uses, large-scale
redevelopments, partnerships and dispositions. Further details of
these portfolio plans will be shared once finalized.
Financial Summary
The table below provides a summary of the Company’s financial
results for the three months ended March 31, 2021:
(in thousands except per share
amounts)
Three Months Ended
March 31, 2021
December 31, 2020
Net loss attributable to
Seritage
common shareholders
$
(8,945
)
$
(35,606
)
Net loss per diluted share
attributable to Seritage
common shareholders
(0.23
)
(0.92
)
Total NOI
9,433
8,646
FFO
(18,745
)
(16,156
)
FFO per diluted share
(0.34
)
(0.29
)
Company FFO
(21,992
)
(17,899
)
Company FFO per diluted share
(0.39
)
(0.32
)
For the quarter ended March 31, 2021:
- Net loss attributable to common shareholders included $24.2
million, or $0.61 per share, of gains on sale of real estate, $5.8
million, or $0.15 per share, of other income related to insurance
proceeds from one property, and $3.4 million, or $0.08 per share,
of lease termination income, including our share of joint venture
lease termination income.
- The increase in total NOI reflects lower charges for bad debt
reserve in the first quarter of 2021 as compared to the fourth
quarter of 2020 for both our consolidated properties and our joint
venture investments.
- The Company FFO included $5.8 million, or $0.15 per share, of
other income related to insurance proceeds from one property.
- The Company collected 97% of its billed rent and other
recoverable expenses for the first quarter and agreed to defer an
additional 2%.
As of March 31, 2021, the Company had cash on hand of $144.5
million, including $6.5 million of restricted cash. The Company
expects to use these sources of liquidity, together with a
combination of future sales of wholly-owned assets and interests in
unconsolidated entities and/or potential debt and capital markets
transactions, to fund its operations and select development
activity. The availability of funding from sales of assets,
partnerships and credit or capital markets transactions is subject
to various conditions, including the consent of the Company’s
lender under its $1.6 billion term loan facility (the “Term Loan
Facility”), and there can be no assurance that such transactions
will be consummated.
Transactions
During the three months ended March 31, 2021, the Company
monetized four properties in secondary and tertiary markets,
generating $46.9 million of gross proceeds which were sold at a
blended in-place cap rate of 7.8%. Subsequent to March 31, 2021,
the Company sold two properties for aggregate gross proceeds of
$16.3 million.
As of April 29, 2021, the Company had assets under contract for
sale representing anticipated gross proceeds of $90.2 million,
subject to buyer diligence and closing conditions.
Development Activity
During the three months ended March 31, 2021, the Company
continued work on redevelopment projects and ongoing capital
improvements, including those it had restarted during 2020.
During the three months ended March 31, 2021 the Company
invested $26.8 million in our consolidated development and
operating properties and an additional $9.9 million into our
unconsolidated joint ventures. During the first quarter of 2021, we
opened stores representing 173,000 square feet and $2.8 million of
annual base rent.
Leasing Results
During the three months ended March 31, 2021, the Company signed
new leases totaling 44,000 square feet at an average base rent of
$33.59 PSF. The Company’s leasing volume during the three months
ended March 31, 2020 reflects taking a more selective approach
during our asset-by-asset portfolio review.
The table below provides a summary of all signed leases as of
March 31, 2021, including unconsolidated entities at the Company’s
proportional share:
(in thousands except number of
leases and PSF data)
Number of
Leased
% of Total
Annual Base
% of
Tenant
Leases
GLA
Leased GLA
Rent ("ABR")
Total ABR
ABR PSF
In-place diversified leases
243
5,796
78.8
%
$
93,363
72.0
%
$
16.11
SNO diversified leases (1)
91
1,562
21.2
%
36,277
28.0
%
23.22
Total diversified
leases
334
7,358
100.0
%
$
129,640
100.0
%
$
17.62
(1) SNO = signed not yet opened leases.
The table below provides a reconciliation of SNO leases from
December 31, 2020 to March 31, 2021, including unconsolidated
entities at the Company’s proportional share:
Number of
Annual
SNO Leases
GLA
ABR
Rent PSF
As of December 31, 2020
125
2,369
$
54,539
$
23.02
Opened
(5
)
(173
)
(2,841
)
16.43
Sold / contributed to JVs /
terminated
(34
)
(678
)
(16,895
)
24.92
Signed
5
44
1,474
33.59
As of March 31, 2021
91
1,562
$
36,277
$
23.22
During the three months ended March 31, 2021, the majority of
the $16.9 million of SNO leases that were sold, contributed to
unconsolidated entities or terminated were comprised of leases
opportunistically terminated, or expected to be terminated, at the
Company’s option to either mitigate tenant exposure risk or retain
the space to execute on our revised development plan.
COVID-19 Pandemic
Beginning in late 2019, a novel strain of Coronavirus
(“COVID-19”) began to spread throughout the world, including the
United States, ultimately being declared a pandemic by the World
Health Organization. The pandemic has caused and continues cause
significant impacts on the real estate industry in the United
States, including the Company’s properties. While the Company
intends to enforce its contractual rights under its leases, there
can be no assurance that tenants will meet their future obligations
or that additional rental modification agreements will not be
necessary. As a result of the development, fluidity and uncertainty
surrounding this situation, the Company expects that these
conditions will change, potentially significantly, in future
periods and results for the three months ended March 31, 2021 may
not be indicative of the impact of the COVID-19 pandemic on the
Company’s business for future periods. As such, the Company cannot
reasonably estimate the impact of COVID-19 on its financial
condition, results of operations or cash flows over the foreseeable
future.
Dividends
On February 23, 2021, 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 15, 2021 to holders
of record on March 31, 2021.
On April 27, 2021, 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 payable on July 15, 2021 to
holders of record on June 30, 2021.
The Company’s Board of Trustees does not expect to declare
dividends on its common shares in 2021 unless required to do so to
maintain REIT status.
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, 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, 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 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 REITs may use different methodologies for
calculating NOI, and accordingly the Company’s depiction of NOI may
not be comparable to other REITs. 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.
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 noncomparable
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 costs, that it does not believe are representative
of ongoing operating results.
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, the Company’s historical exposure to
Sears Holdings and the effects of its previously announced
bankruptcy filing; the litigation filed against us and other
defendants in the Sears Holdings adversarial proceeding pending in
bankruptcy court; risks relating to redevelopment activities;
contingencies to the commencement of rent under leases; the terms
of the Company’s indebtedness; restrictions with which the Company
is required to comply in order to maintain REIT status 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, 2020. 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 Growth Properties is a publicly-traded,
self-administered and self-managed REIT with 154 wholly-owned
properties and 25 unconsolidated properties totaling approximately
26.0 million square feet of space across 41 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.
SERITAGE GROWTH
PROPERTIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except share
and per share amounts)
(Unaudited)
March 31, 2021
December 31, 2020
ASSETS
Investment in real estate
Land
$
571,334
$
592,770
Buildings and improvements
1,100,525
1,107,532
Accumulated depreciation
(146,884
)
(142,206
)
1,524,975
1,558,096
Construction in progress
345,648
352,776
Net investment in real estate
1,870,623
1,910,872
Real estate held for sale
24,441
1,864
Investment in unconsolidated
entities
459,576
457,033
Cash and cash equivalents
137,940
143,728
Restricted cash
6,526
6,526
Tenant and other receivables,
net
33,964
46,570
Lease intangible assets, net
17,702
18,595
Prepaid expenses, deferred
expenses and other assets, net
61,604
63,755
Total assets
$
2,612,376
$
2,648,943
LIABILITIES AND EQUITY
Liabilities
Term Loan Facility, net
$
1,599,015
$
1,598,909
Sales-leaseback financing
obligations
20,582
20,425
Accounts payable, accrued
expenses and other liabilities
121,379
146,882
Total liabilities
1,740,976
1,766,216
Commitments and contingencies
(Note 9)
Shareholders' Equity
Class A common shares $0.01 par
value; 100,000,000 shares authorized;
40,587,226 and 38,896,428 shares
issued and outstanding
as of March 31, 2021 and December
31, 2020, respectively
406
389
Series A preferred shares $0.01
par value; 10,000,000 shares authorized;
2,800,000 shares issued and
outstanding as of March 31, 2021 and
December 31, 2020; liquidation
preference of $70,000
28
28
Additional paid-in capital
1,200,874
1,177,260
Accumulated deficit
(537,582
)
(528,637
)
Total shareholders' equity
663,726
649,040
Non-controlling interests
207,674
233,687
Total equity
871,400
882,727
Total liabilities and equity
$
2,612,376
$
2,648,943
SERITAGE GROWTH
PROPERTIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per
share amounts)
(Unaudited)
Three Months Ended March
31,
2021
2020
REVENUE
Rental income
$
31,146
$
33,110
Management and other fee
income
135
207
Total revenue
31,281
33,317
EXPENSES
Property operating
10,643
10,301
Real estate taxes
10,155
9,225
Depreciation and amortization
13,142
34,097
General and administrative
11,232
9,420
Total expenses
45,172
63,043
Gain on sale of real estate,
net
24,208
20,788
Impairment of real estate
assets
(1,700
)
—
Equity in loss of unconsolidated
entities
(1,162
)
(894
)
Interest and other income
7,624
333
Interest expense
(26,150
)
(21,513
)
Loss before taxes
(11,071
)
(31,012
)
Benefit for taxes
138
37
Net loss
(10,933
)
(30,975
)
Net loss attributable to
non-controlling interests
3,213
10,311
Net loss attributable to
Seritage
$
(7,720
)
$
(20,664
)
Preferred dividends
(1,225
)
(1,225
)
Net loss attributable to Seritage
common shareholders
$
(8,945
)
$
(21,889
)
Net loss per share attributable
to Seritage Class A
and Class C common shareholders -
Basic
$
(0.23
)
$
(0.59
)
Net loss per share attributable
to Seritage Class A
and Class C common shareholders -
Diluted
$
(0.23
)
$
(0.59
)
Weighted average Class A and
Class C common shares
outstanding - Basic
39,477
37,232
Weighted average Class A and
Class C common shares
outstanding - Diluted
39,477
37,232
Reconciliation of Net Loss to NOI and
Total NOI (in thousands)
Three Months Ended
March 31,
December 31,
March 31,
NOI and Total NOI
2021
2020
2020
Net loss
$
(10,933
)
$
(49,692
)
$
(30,975
)
Termination fee income
(2,611
)
(1,314
)
(990
)
Management and other fee
income
(135
)
(174
)
(207
)
Depreciation and amortization
13,142
14,551
34,097
General and administrative
expenses
11,232
(418
)
9,420
Equity in loss of unconsolidated
entities
1,162
2,161
894
Gain on sale of interests in
unconsolidated entities
—
(1,758
)
—
Gain on sale of real estate
(24,208
)
(28,596
)
(20,788
)
Impairment of real estate
assets
1,700
47,701
—
Interest and other income
(7,624
)
(934
)
(333
)
Interest expense
26,150
24,916
21,513
Benefit for income taxes
(138
)
37
(37
)
Straight-line rent
210
1,362
2,701
Above/below market rental
income/expense
(39
)
(116
)
(97
)
NOI
$
7,908
$
7,726
$
15,198
Unconsolidated entities
NOI of unconsolidated
entities
2,437
1,825
1,302
Straight-line rent
(137
)
(274
)
(171
)
Above/below market rental
income/expense
(33
)
(97
)
(482
)
Termination fee income
(742
)
(534
)
—
Total NOI
$
9,433
$
8,646
$
15,847
Reconciliation of Net Loss to FFO and
Company FFO (in thousands)
Three Months Ended
March 31,
December 31,
March 31,
FFO and Company FFO
2021
2020
2020
Net loss
$
(10,933
)
$
(49,692
)
$
(30,975
)
Real estate depreciation and
amortization
(consolidated properties)
12,756
14,017
33,587
Real estate depreciation and
amortization
(unconsolidated entities)
3,165
3,397
1,844
Gain on sale of unconsolidated
entities
—
(1,758
)
—
Gain on sale of real estate
(24,208
)
(28,596
)
(20,788
)
Impairment of real estate
assets
1,700
47,701
—
Dividends on preferred shares
(1,225
)
(1,225
)
(1,225
)
FFO attributable to common
shareholders
and unitholders
$
(18,745
)
$
(16,156
)
$
(17,557
)
Termination fee income
(2,611
)
(1,314
)
(990
)
Termination fee income
(unconsolidated entities)
(742
)
(534
)
—
Amortization of deferred
financing costs
106
105
106
Company FFO attributable to
common
shareholders and unitholders
$
(21,992
)
$
(17,899
)
$
(18,441
)
FFO per diluted common share and
unit
$
(0.34
)
$
(0.29
)
$
(0.31
)
Company FFO per diluted common
share and unit
$
(0.39
)
$
(0.32
)
$
(0.33
)
Weighted Average Common Shares
and Units Outstanding
Weighted average common shares
outstanding
39,477
38,675
37,232
Weighted average OP units
outstanding
16,432
17,255
18,578
Weighted average common shares
and
units outstanding
55,909
55,930
55,810
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version on businesswire.com: https://www.businesswire.com/news/home/20210429006171/en/
Seritage Growth Properties 646-277-1268 IR@Seritage.com
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