srg-ex991

Seritage Growth Properties Reports Fourth Quarter and Full Year 2018 Operating Results

– Signed new leases totaling 3.1 million square feet at an average re-leasing multiple of 3.9x –

– Ended year with nearly $1.0 billion of cash on hand and committed capital –

– Subsequent to year end, signed a master lease with successor to Sears Holdings for 51 locations –

New York, NY – February 28, 2019 – Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 232 retail and mixed-use properties totaling approximately 36.3 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the quarter and year ended December 31, 2018.

“We are very pleased with our fourth quarter performance, which included 878,000 square feet of new leasing at an average re-leasing multiple of 4.0x for space previously occupied by Sears. Since inception, we have leased nearly 8.0 million square feet at an average re-leasing multiple of 4.1x, and completed or commenced 97 redevelopment projects totaling approximately $1.5 billion of total capital investment with targeted incremental yields of approximately 11% on an unlevered basis,” said Benjamin Schall, President and Chief Executive Officer. “To fund this transformative redevelopment program, we have maintained access to multiple sources of liquidity and currently have $533 million of cash on hand and a committed $400 million incremental funding facility. Further, having generated over $230 million in 2018 through the formation of joint ventures and divestiture of smaller market assets, we continue to recycle capital into the highest value creation opportunities in our portfolio.”

Mr. Schall continued, “We have rapidly diversified our tenant base, with over 70% of our annual base rent under lease now derived from diversified, non-Sears tenants (up from 20% at inception). In February, we signed a new master lease with the successor to Sears Holdings that maintains 51 locations leased to Sears or Kmart, which will become effective following the rejection of the existing Master Lease with Sears Holdings. The new lease provides Seritage with expanded rights to execute on our redevelopment initiatives. As we look forward, we expect to continue to utilize our platform and expand our relationships with growing retailers, mixed-use developers and institutional capital allocators to further unlock embedded value through our retail redevelopments and larger mixed-use pipeline.”

During the year ended December 31, 2018, the Company added $45.2 million of new diversified, non-Sears income and increased annual base rent attributable to diversified, non-Sears tenants to 70.9% of total annual base rent from 52.2% as of December 31, 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 December 31, 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)(2)		105		12,619		56.0	%	$	61,341		29.1	%	$	4.86
In-place diversified, non-Sears leases (2)		236		5,043		22.4	%		66,200		31.4	%		13.13
SNO diversified, non-Sears leases (2)(3)		170		4,852		21.6	%		83,297		39.5	%		17.17
Sub-total diversified, non-Sears leases		406		9,895		44.0	%		149,497		70.9	%		15.11
Total		511		22,514		100.0	%	$	210,838		100.0	%	$	9.36

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 base rent of $18.03 PSF (retail leases represented 664,000 square feet at an average base 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 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 from inception through December 31, 2018, presented at 100% share and including certain assets that have been monetized through sale or joint venture:

(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		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		63,100		15,300		47,900
> $20,001		22		3,738		803,100		861,900		115,100		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

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.

In 2018, the Company also sold 21 properties, primarily those in smaller markets, totaling 2.1 million square feet that generated gross proceeds of $114.3 million, or $54 PSF. These transactions included five dispositions in the fourth quarter that generated gross proceeds of $47.3 million, or $78 PSF.

On July 31, 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).

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.

As of December 31, 2018, the Company had nearly $1.0 billion of identified liquidity, including $532.9 million of cash on the balance sheet, the $400 million incremental funding facility (subject to certain conditions) and 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).

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, including if the 2015 Sears Holdings Master Lease is rejected and the Holdco Master Lease becomes effective. 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. The failure to satisfy any of these financial metrics will not result in an event of default, mandatory amortization, cash flow sweep or any similar provision.

On October 23, 2018, the Company’s Board of Trustees declared a fourth quarter common stock dividend of $0.25 per each Class A and Class C common share. The common dividend was 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”) were entitled to an equal distribution per each Operating Partnership unit held on 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 was paid on January 14, 2019 to holders of record on December 31, 2018.

On February 20, 2019, the Company’s Board of Trustees declared a first quarter common stock dividend of $0.25 per each Class A and Class C common share. The common dividend will be paid on April 11, 2019 to shareholders of record on March 29, 2019. Holders of units in the Operating Partnership are entitled to an equal distribution per each Operating Partnership unit held on March 29, 2019. On February 20, 2019, 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 April 15, 2019 to holders of record on March 29, 2019.

The Company has announced that the Board of Trustees does not currently expect to declare additional common dividends for the remainder of 2019, based on its assessment of the Company’s investment opportunities and its expectations of taxable income for the year. The Board of Trustees will reevaluate this position at the end of 2019, if necessary, to ensure that the Company meets its distribution requirements as a REIT. The Company has also announced that the Board of Trustees expects that cash dividends for the Company’s preferred shares will continue to be paid each quarter.

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 (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On February 11, 2019, Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., completed the acquisition of an approximately 425-store retail footprint and other assets and component businesses of Sears Holdings on a going-concern basis.

On February 28, 2019, the Company entered into a master lease with affiliates of Holdco (the “Holdco Master Lease”) comprising 51 of the Company’s wholly-owned properties that remained subject to the master lease with Sears Holdings (the “2015 Sears Holdings Master Lease”) at the time Sears Holdings filed for bankruptcy protection.

A condition to the performance and obligations provided for in the Holdco Master Lease is the rejection of the 2015 Sears Holdings Master Lease. The 2015 Sears Holdings Master Lease will be rejected if either (i) the Bankruptcy Court issues an order approving the rejection of the 2015 Sears Holdings Master Lease or (ii) the 2015 Sears Holdings Master Lease is deemed to be rejected pursuant to the operation of the Bankruptcy Code. As a result of this condition, there can be no assurance as to the commencement of our and Holdco’s performance and obligations provided for in the Holdco Master Lease and/or the timing thereof.

The Holdco Master Lease, as executed, contains terms that are similar to the 2015 Sears Holdings Master Lease with the addition of certain enhanced landlord recapture and tenant termination rights. Additional information regarding the Holdco Master Lease can be found in the Form 8-K filed with the Securities and Exchange Commission on February 28, 2019.

Below is a summary of the Company’s financial results for the quarter and year ended December 31, 2018 and December 31, 2017:

(in thousands except per share amounts)	Quarter Ended December 31,						Year Ended December 31,
	2018			2017			2018			2017
Net loss attributable to common shareholders	$	(56,038	)	$	(43,456	)	$	(78,375	)	$	(73,999	)
Net loss per share attributable to common shareholders		(1.57	)		(1.27	)		(2.20	)		(2.19	)

Total NOI		34,055			39,560			143,107			174,758

FFO		7,009			11,131			24,111			91,690
FFO per share		0.13			0.20			0.43			1.65

Company FFO		(4,438	)		11,522			15,746			81,797
Company FFO per share		(0.08	)		0.21			0.28			1.47

Net loss for both the quarter and year ended December 31, 2018 include significant depreciation and amortization expense related to the accelerated amortization of certain lease intangibles as a result of the recapture of space from, or the termination of space by, Sears Holdings, and the demolition of certain buildings for redevelopment. The quarter and year ended December 31, 2018 also included additional accelerated amortization of certain lease intangibles as a result of Sears Holdings’ bankruptcy filing.

The decrease in Total NOI for both the quarter and year ended December 31, 2018 was driven primarily by reduced rental income under the 2015 Sears Holdings Master Lease as a result of recapture and termination activity at our properties. In addition, the Company sold 21 wholly-owned properties and 50% interests in three wholly-owned properties in 2018, 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 $131.2 million across 7.9 million square feet of space. A majority of these newly signed leases are categorized as SNO leases and are expected to begin paying rent throughout the next 24 months.

The decrease in FFO and Company FFO for both the quarter and year ended December 31, 2018 were driven by the same factors driving the decrease in Total NOI, as well (i) lower straight-line rent as a result of recapture and termination activity at our properties, (ii) the write-off of certain straight-line rent receivables as a result of Sears Holdings’ bankruptcy filing, (iii) higher interest expense resulting from our debt refinancing in the third quarter of 2018, and (iv) dividends related to the $70 million preferred equity raise that was completed late in the fourth quarter of 2017. In addition, FFO for the quarter ended December 31, 2018 included higher termination fee income which partially offset the other factors driving the decrease in FFO, and both FFO and Company FFO for the year ended December 31, 2018 were impacted by higher G&A expenses, including personnel costs related to our growing platform and certain legal and advisory costs related to Sears Holdings’ bankruptcy filing.

	Wholly Owned			Unconsolidated
	Portfolio			Joint Ventures			Total
Properties		206			26			232

Malls		94			24			118
Strip centers and freestanding		112			2			114

GLA (at share) (000s)		31,602			2,348			33,950
% leased		65.6	%		76.4	%		66.3	%

The unleased space as of December 31, 2018 included approximately 2.5 million SF of remaining lease-up at announced redevelopment projects, and approximately 8.9 million SF of additional leasing opportunity at properties throughout the Company’s portfolio.

As of December 31, 2018, the Company had originated 82 redevelopment projects since the Company’s inception. These projects represent an estimated total investment of $1.45 billion ($1.37 billion at share), of which an estimated $907 million ($849 million at share) remains to be spent, and are expected to generate an incremental yield on cost of approximately 11.0%.

The tables below provide brief descriptions of each of the redevelopment projects originated on the Company’s platform since its inception, including certain assets that have been monetized through sale or joint venture:

Total Project Costs under $10 Million

Total

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

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

Westwood, TX

Termination property; site has been leased to Sonic Automotive and will be repurposed as an auto dealership

213,600

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

Dayton, OH

Recapture and repurpose auto center space for Outback Steakhouse and additional restaurants

14,100

Substantially complete

Florissant, MO

Site densification; new outparcel for Chick-Fil-A

5,000

Delivered to tenant

St. Clair Shores, MI

100% recapture; demolish existing store and develop site for new Kroger grocery store

107,200

Delivered to tenant

Hagerstown, MD

Recapture and repurpose auto center space for BJ's Brewhouse, Verizon and additional retail

15,400

Sold

New Iberia, LA

Termination property; redevelop existing store for Ross Dress for Less, 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

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

Underway

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

Sold

Houston, TX

100% recapture; entered into ground lease with adjacent mall with potential to participate in future redevelopment

214,400

Q1 2019

Q2 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

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 & Decor, 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

Cockeysville, MD

Partial recapture; redevelop existing store for HomeGoods, Michael's Stores, additional junior anchors and restaurants

83,500

Substantially complete

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

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

Fairfax, VA

Partial recapture; redevelop existing store and attached auto center for Dave & Busters, additional junior anchors and restaurants

110,300

Delivered to tenants

Temecula, CA

Partial recapture; redevelop existing store and detached auto center for Round One, small shop retail and restaurants

65,100

Delivered to tenant

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

Delivered to tenants

Santa Cruz, CA

Partial recapture; redevelop existing store for TJ Maxx, HomeGoods and additional junior anchors

62,200

Sold

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

Q2 2019

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 retail uses

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

Underway

Q4 2019

El Paso, TX

Termination property; redevelop existing store for Ross Dress for Less, dd's Discounts and additional retail

114,700

Underway

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, additional retail and restaurants

134,700

Q1 2019

Q1 2020

Vancouver, WA

Partial recapture; redevelop existing store for Round One, Hobby Lobby and additional retail and restaurants

72,400

Q1 2019

Q2 2020

Manchester, NH

Termination property; redevelop existing store for Dick's Sporting Goods, Dave & Busters, additional retail and restaurants

117,700

Q3 2019

Q3 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

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, 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

Underway

Q1 2020

San Antonio, TX

Termination property (project expansion); redevelop existing store for Bed Bath & Beyond, buybuyBaby, Tru Fit and additional retail to complement repurposed auto center occupied by Orvis, Jared's Jeweler and Shake Shack

215,900

Q1 2019

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

Orland Park, IL

100% recapture; redevelop existing store for AMC Theatres, 24 Hour Fitness, additional retail and restaurants

181,900

Q3 2019

Q4 2020

A Supplemental Report will be available in the Investors section of the Company’s website, www.seritage.com.

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 we deem most comparable have been provided in the tables accompanying this press release.

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.

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.

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 material exposure to Sears Holdings and the effects of its previously 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.

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 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.

	December 31, 2018			December 31, 2017
ASSETS
Investment in real estate
Land	$	696,792		$	799,971
Buildings and improvements		900,173			829,168
Accumulated depreciation		(137,947	)		(139,483	)
		1,459,018			1,489,656
Construction in progress		292,049			224,904
Net investment in real estate		1,751,067			1,714,560
Real estate held for sale		3,094			—
Investment in unconsolidated joint ventures		398,577			282,990
Cash and cash equivalents		532,857			241,569
Restricted cash		—			175,665
Tenant and other receivables, net		36,926			30,787
Lease intangible assets, net		123,656			310,098
Prepaid expenses, deferred expenses and other assets, net		29,899			20,148
Total assets	$	2,876,076		$	2,775,817

LIABILITIES AND EQUITY
Liabilities
Term loan facility, net	$	1,598,053		$	—
Mortgage loans payable, net		—			1,202,314
Unsecured term loan, net		—			143,210
Accounts payable, accrued expenses and other liabilities		127,565			109,433
Total liabilities		1,725,618			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 December 31, 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 December 31, 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 December 31, 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 December 31, 2018 and December 31, 2017; liquidation preference of $70,000		28			28
Additional paid-in capital		1,124,504			1,116,060
Accumulated deficit		(344,132	)		(229,760	)
Total shareholders' equity		780,770			886,696
Non-controlling interests		369,688			434,164
Total equity		1,150,458			1,320,860
Total liabilities and equity	$	2,876,076		$	2,775,817

	Quarter Ended December 31,						Year Ended December 31,
	2018			2017			2018			2017
REVENUE
Rental income	$	41,985		$	38,966		$	156,055		$	178,492
Tenant reimbursements		12,962			14,712			57,503			62,525
Management and other fee income		167			-			1,196			—
Total revenue		55,114			53,678			214,754			241,017
EXPENSES
Property operating		8,583			5,715			28,705			19,700
Real estate taxes		9,649			9,946			42,446			45,653
Depreciation and amortization		92,627			91,878			226,675			262,171
General and administrative		9,980			11,263			34,788			27,902
Provision for doubtful accounts		—			39			257			158
Total expenses		120,839			118,841			332,871			355,584
Gain on sale of real estate		2,746			(1,571	)		96,165			11,447
Gain on sale of interests in unconsolidated joint ventures		—			16,573			—			60,302
Equity in loss of unconsolidated joint ventures		(3,442	)		(3,562	)		(10,448	)		(7,788	)
Interest and other income		5,588			405			7,886			877
Interest expense		(25,016	)		(17,040	)		(90,020	)		(70,112	)
Change in fair value of interest rate cap		-			(15	)		(23	)		(701	)
Loss before income taxes		(85,849	)		(70,373	)		(114,557	)		(120,542	)
Provision for income taxes		116			(5	)		(321	)		(271	)
Net loss		(85,733	)		(70,378	)		(114,878	)		(120,813	)
Net loss attributable to non-controlling interests		30,920			27,167			41,406			47,059
Net loss attributable to Seritage	$	(54,813	)	$	(43,211	)	$	(73,472	)	$	(73,754	)
Preferred dividends		(1,225	)		(245	)		(4,903	)		(245	)
Net loss attributable to Seritage common shareholders	$	(56,038	)	$	(43,456	)	$	(78,375	)	$	(73,999	)

Net loss per share attributable to Seritage Class A and Class C common shareholders - Basic	$	(1.57	)	$	(1.27	)	$	(2.20	)	$	(2.19	)
Net loss per share attributable to Seritage Class A and Class C common shareholders - Diluted	$	(1.57	)	$	(1.27	)	$	(2.20	)	$	(2.19	)
Weighted average Class A and Class C common shares outstanding - Basic		35,589			34,094			35,560			33,804
Weighted average Class A and Class C common shares outstanding - Diluted		35,589			34,094			35,560			33,804

	Quarter Ended December 31,						Year Ended December 31,
NOI and Total NOI	2018			2017			2018			2017
Net loss	$	(85,733	)	$	(70,378	)	$	(114,878	)	$	(120,813	)
Termination fee income		(11,549	)		(1,954	)		(18,711	)		(19,314	)
Management and other fee income		(167	)		—			(1,196	)		—
Depreciation and amortization		92,627			91,878			226,675			262,171
General and administrative expenses		9,980			11,263			34,788			27,902
Equity in loss of unconsolidated joint ventures		3,442			3,562			10,448			7,788
Gain on sale of interests in unconsolidated joint ventures		—			(16,573	)		—			(60,302	)
Gain on sale of real estate		(2,746	)		1,571			(96,165	)		(11,447	)
Interest and other income		(5,588	)		(405	)		(7,886	)		(877	)
Interest expense		25,016			17,040			90,020			70,112
Change in fair value of interest rate cap		-			15			23			701
Provision for income taxes		(116	)		5			321			271
NOI	$	25,166		$	36,024		$	123,439		$	156,192
NOI of unconsolidated joint ventures		5,036			5,219			19,138			23,547
Straight-line rent adjustment (1)		4,459			(1,522	)		2,170			(3,918	)
Above/below market rental income/expense (1)		(606	)		(161	)		(1,640	)		(1,063	)
Total NOI	$	34,055		$	39,560		$	143,107		$	174,758

	As of December 31,
Annualized Total NOI	2018			2017
Total NOI (per above)	$	34,055		$	39,560
Period adjustments (1)		163			(698	)
Adjusted Total NOI		34,218			38,862
Annualize		x 4			x 4
Adjusted Total NOI annualized		136,872			155,448
Plus: estimated annual Total NOI from SNO leases		80,223			62,376
Less: estimated annual Total NOI from associated space to be recaptured from Sears		(4,354	)		(4,994	)
Annualized Total NOI	$	212,741		$	212,830

	Quarter Ended December 31,						Year Ended December 31,
FFO and Company FFO	2018			2017			2018			2017
Net loss	$	(85,733	)	$	(70,378	)	$	(114,878	)	$	(120,813	)
Real estate depreciation and amortization (consolidated properties)		91,853			91,385			224,217			260,543
Real estate depreciation and amortization (unconsolidated joint ventures)		4,860			5,371			15,840			23,954
Gain on sale of interests in unconsolidated joint ventures		—			(16,573	)		—			(60,302	)
Gain on sale of real estate		(2,746	)		1,571			(96,165	)		(11,447	)
Dividends on preferred shares		(1,225	)		(245	)		(4,903	)		(245	)
FFO attributable to common shareholders and unitholders	$	7,009		$	11,131		$	24,111		$	91,690
Termination fee income		(11,549	)		(1,954	)		(18,711	)		(19,314	)
Change in fair value of interest rate cap		-			15			23			701
Amortization of deferred financing costs		102			2,330			10,323			8,720
Company FFO attributable to common shareholders and unitholders	$	(4,438	)	$	11,522		$	15,746		$	81,797

FFO per diluted common share and unit	$	0.13		$	0.20		$	0.43		$	1.65
Company FFO per diluted common share and unit	$	(0.08	)	$	0.21		$	0.28		$	1.47

Weighted Average Common Shares and Units Outstanding
Weighted average common shares outstanding		35,589			34,094			35,560			33,804
Weighted average OP units outstanding		20,158			21,820			20,153			21,820
Weighted average common shares and units outstanding		55,747			55,914			55,713			55,624

(in thousands, except PSF amounts)
							Since
	Q4 2018			FY2018			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