Seritage Growth Properties Provides Business Update with Respect to Recent Events Regarding Sears Holdings
October 15 2018 - 9:15AM
Business Wire
– Seritage is well-positioned with a
diversified tenant base and strong liquidity position –
– Non-Sears tenants represent approximately
70% of signed lease income, up from 20% at inception –
– Nearly $1.0 billion of cash on hand and
committed capital to fund development activity and operations
–
Seritage Growth Properties (NYSE: SRG) (the “Company”) today
provided a business update related to the recent announcement by
Sears Holdings Corporation (“Sears Holdings”) that Sears Holdings
has filed for Chapter 11 bankruptcy protection.
“All of our capital investment, leasing and development activity
over the last three years is unlocking substantial value, and has
significantly diversified our income stream with approximately 70%
of our signed leased income now coming from diversified, non-Sears
tenants,” said Benjamin Schall, President and Chief Executive
Officer. “We have $1 billion of cash and committed capital under
our Term Loan facility, which provides us the funds to complete all
of our on-going redevelopment projects and cover reductions in cash
flow that may result from the potential disruption in Sears income.
The completion of our redevelopment projects brings our signed
leased income on-line and will replace any potential lost income
from Sears Holdings.”
“Our go-forward strategy remains as it has been – to unlock
substantial value through investment of capital and the intensive
redevelopment of our well-located buildings and land,” continued
Mr. Schall. “All of our active projects will continue
uninterrupted, and we are excited to further build our pipeline of
redevelopment activity by partnering with growing retailers and
users, mixed-use developers and institutional capital
allocators.”
Additional comments from Mr. Schall can be found in our “Letter
from our Chief Executive Officer” dated October 15, 2018 and filed
on Form 8-K with the Securities and Exchange Commission.
Development Activities
- Announced Projects: as of
September 30, 2018, the Company had completed or commenced 94
redevelopment projects, representing over $1.4 billion of total
investment, and will proceed uninterrupted with all active and
underway projects. The Company’s share of remaining spending at
these projects is approximately $880 million which is expected to
be funded with cash on hand and committed borrowing facilities.
This capital is being invested at targeted incremental returns of
approximately 11% and is creating significant value for our
shareholders.
- Development Pipeline: the
Company will continue to build its pipeline of redevelopment
opportunities through the activation of the remainder of its
portfolio for higher and better uses much in the same way it has
since its inception in July 2015. The scale and quality of the
Company’s portfolio, combined with its unique redevelopment
platform and control over its real estate, provide Seritage with
competitive advantages that will allow it to continue as an
industry leader in transforming retail real estate around the
country.
Leasing Activities
- Signed Not Opened Leases: the
Company has sufficient liquidity to complete all underway projects
and, as such, the Company is positioned to fulfill all of its
commitments to tenants under signed but not opened (“SNO”) leases.
As of September 30, 2018, the Company had 156 SNO leases
representing $75.0 million of annual base rent, including the
Company’s proportional share of its unconsolidated joint ventures,
the majority of which is expected to steadily come on line
throughout the next 24 months.
- Lease Up at Underway Projects:
completing all underway projects includes the lease-up of remaining
unleased space at these projects. The Company projects an
additional $80 million of rental income, including the Company’s
proportional share of its unconsolidated joint ventures, can be
generated as these projects are stabilized without allocating
additional capital beyond the $880 million referenced above1.
Seritage Liquidity
- Cash on Hand: as of September
30, 2018, the Company had approximately $580 million of cash on
hand. This capital is available to fund on-going development
activities, as well as adverse impacts to operating cash flow that
may result from potential reductions of rental income under the
Master Lease with Sears Holdings.
- Incremental Funding Facility:
the Company’s $2.0 billion term loan facility (the “Term Loan
Facility”) includes a committed $400 million incremental funding
facility. This capital would also be available, subject to certain
conditions, to fund announced and future redevelopment
activities.
- Asset Monetization: the Company
will continue to opportunistically pursue select asset monetization
and new joint ventures that support the Company’s value creation
activities.
- Common Stock Dividends: the
Company expects to maintain its current common stock dividend
policy of making distributions that approximate taxable income so
as to retain as much free cash flow as possible for reinvestment
back into the portfolio. To the extent estimated taxable income
falls meaningfully below current distribution levels (approximately
$55 million annually), as a result of reduced income under the
Master Lease or reduced capital gains from asset monetization
activities, 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.
- Preferred Stock Dividends: the
Company expects to continue paying dividends ($4.9 million
annually) on its preferred shares.
Master Leases with Sears
Holdings
- Remaining Exposure: as of
September 30, 2018, including the effect of all previously
exercised recapture and termination activity, Sears Holdings was a
tenant in 82 properties under the Master Lease and 20 properties
under the JV Master Leases representing an aggregate of 12.4
million square feet and $61.2 million of annual base rent, or 31.4%
of all base rent under signed leases.
- Impact of Re-Leasing Spreads:
the 3.5x to 4.5x rental uplift that 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.
Term Loan Facility with Berkshire
Hathaway
- Loan Status: 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.
Specifically, such occurrences will not result in an event of
default, mandatory amortization, cash flow sweep or any similar
provision.
- Financial Metrics: 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.
The Company is monitoring, and will continue to monitor, Sears
Holdings’ bankruptcy proceedings and the impact on its business. By
their nature, bankruptcy proceedings and their outcomes are subject
to uncertainty. For more information regarding the same, refer to
the risk factors relating to Sears Holdings in our 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; 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 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.
1 Projected income includes assumptions for stabilized rents at
projects under redevelopment. There can be no assurance that
stabilized rent targets will be achieved.
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Seritage Growth Properties646-277-1268IR@Seritage.com
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