UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED |
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______to _______
Commission File Number
(Exact name of registrant as specified in its charter)
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(State of Incorporation) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbols |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 30, 2019, the registrant had the following common shares outstanding:
Class |
Shares Outstanding |
Class A common shares of beneficial interest, par value $0.01 per share |
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Class B common shares of beneficial interest, par value $0.01 per share |
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Class C common shares of beneficial interest, par value $0.01 per share |
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SERITAGE GROWTH PROPERTIES
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2019
TABLE OF CONTENTS
PART I. |
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Page |
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 |
3 |
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4 |
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5 |
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7 |
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9 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
35 |
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Item 3. |
46 |
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Item 4. |
46 |
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PART II. |
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Item 1. |
47 |
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Item 1A. |
47 |
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Item 2. |
48 |
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Item 3. |
48 |
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Item 4. |
48 |
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Item 5. |
48 |
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Item 6. |
49 |
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50 |
PART I. |
FINANCIAL INFORMATION |
Item 1. |
Unaudited Condensed Consolidated Financial Statements |
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except share and per share amounts)
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September 30, 2019 |
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December 31, 2018 |
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ASSETS |
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Investment in real estate |
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Land |
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$ |
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$ |
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Buildings and improvements |
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Accumulated depreciation |
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Construction in progress |
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Net investment in real estate |
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Real estate held for sale |
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Investment in unconsolidated joint ventures |
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Cash and cash equivalents |
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Tenant and other receivables, net |
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Lease intangible assets, net |
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Prepaid expenses, deferred expenses and other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Liabilities |
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Term Loan Facility, net |
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$ |
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$ |
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Accounts payable, accrued expenses and other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 9) |
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Shareholders' Equity |
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Class A common shares $ as of September 30, 2019 and December 31, 2018, respectively |
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Class B common shares $ as of September 30, 2019 and December 31, 2018, respectively |
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Series A preferred shares $ December 31, 2018; liquidation preference of $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total shareholders' equity |
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Non-controlling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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REVENUE |
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Rental revenue |
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$ |
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$ |
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$ |
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$ |
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Management and other fee income |
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Total revenue |
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EXPENSES |
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Property operating |
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Real estate taxes |
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Depreciation and amortization |
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General and administrative |
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Provision for doubtful accounts |
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— |
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Total expenses |
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Gain on sale of real estate, net |
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Equity in loss of unconsolidated joint ventures |
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( |
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( |
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( |
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( |
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Interest and other income |
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Interest expense |
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( |
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( |
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( |
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( |
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Change in fair value of interest rate cap |
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— |
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( |
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— |
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( |
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Loss before taxes |
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( |
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( |
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( |
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( |
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Provision for taxes |
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( |
) |
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( |
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( |
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Net loss |
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( |
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( |
) |
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( |
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( |
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Net loss attributable to non-controlling interests |
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Net loss attributable to Seritage |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Preferred dividends |
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( |
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( |
) |
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( |
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( |
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Net loss attributable to Seritage common shareholders |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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Net loss per share attributable to Seritage Class A and Class C common shareholders - Basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share attributable to Seritage Class A and Class C common shareholders - Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average Class A and Class C common shares outstanding - Basic |
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Weighted average Class A and Class C common shares outstanding - Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, amounts in thousands)
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Class A Common |
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Class B Common |
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Class C Common |
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Series A Preferred |
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Additional Paid-In |
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Accumulated |
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Non- Controlling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Interests |
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Equity |
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Balance at January 1, 2018 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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( |
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Common dividends and distributions declared ($ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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( |
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Preferred dividends declared ($ share) |
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( |
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— |
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( |
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Vesting of restricted share units |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Preferred stock offering costs |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Share class exchanges, net ( |
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— |
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— |
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( |
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( |
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— |
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— |
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— |
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— |
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— |
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Share class surrenders ( |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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OP Unit exchanges ( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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Balance at September 30, 2018 |
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$ |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Balance at January 1, 2019 |
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$ |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
Cumulative effect of accounting change (see Note 2) |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Common dividends and distributions declared ($ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
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Preferred dividends declared ($ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Vesting of restricted share units |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Share class surrenders |
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— |
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— |
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( |
) |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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OP Unit exchanges ( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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Balance at September 30, 2019 |
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|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, amounts in thousands)
|
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|
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|
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Class A Common |
|
|
Class B Common |
|
|
Class C Common |
|
|
Series A Preferred |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Non- Controlling |
|
|
Total |
|
||||||||||||||||||||||||
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Shares |
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|
Amount |
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|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interests |
|
|
Equity |
|
||||||||||||
Balance at July 1, 2018 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Common dividends and distributions declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Preferred dividends declared ($ share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Vesting of restricted share units |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Preferred stock offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share class exchanges, net ( |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Share class surrenders ( |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at September 30, 2018 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Preferred dividends declared ($ share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Vesting of restricted share units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Balance at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures |
|
|
|
|
|
|
|
|
Distributions from unconsolidated joint ventures |
|
|
|
|
|
|
|
|
Gain on sale of real estate, net |
|
|
( |
) |
|
|
( |
) |
Unrealized loss on interest rate cap |
|
|
- |
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Amortization of deferred financing costs |
|
|
|
|
|
|
|
|
Amortization of above and below market leases, net |
|
|
( |
) |
|
|
( |
) |
Straight-line rent adjustment |
|
|
( |
) |
|
|
( |
) |
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
Tenants and other receivables |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses, deferred expenses and other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Investment in unconsolidated joint ventures |
|
|
( |
) |
|
|
( |
) |
Distributions from unconsolidated joint ventures |
|
|
|
|
|
|
|
|
Net proceeds from sale of real estate |
|
|
|
|
|
|
|
|
Development of real estate |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOW FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Repayment of mortgage loans payable |
|
|
- |
|
|
|
( |
) |
Repayment of Unsecured Term Loan |
|
|
- |
|
|
|
( |
) |
Proceeds from Term Loan Facility |
|
|
- |
|
|
|
|
|
Payment of deferred financing costs |
|
|
- |
|
|
|
( |
) |
Payment of preferred offering costs |
|
|
- |
|
|
|
( |
) |
Purchase of shares related to stock grant recipients' tax withholdings |
|
|
( |
) |
|
|
- |
|
Preferred dividends paid |
|
|
( |
) |
|
|
( |
) |
Common dividends paid |
|
|
( |
) |
|
|
( |
) |
Non-controlling interests distributions paid |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Net (decrease) increase in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
|
$ |
|
|
- 7 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited, amounts in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash payments for interest |
|
$ |
|
|
|
$ |
|
|
Capitalized interest |
|
|
|
|
|
|
|
|
Income taxes paid |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Development of real estate financed with accounts payable |
|
$ |
|
|
|
$ |
|
|
Common dividends and OP unit distributions declared and unpaid |
|
|
- |
|
|
|
|
|
Preferred dividends declared and unpaid |
|
|
|
|
|
|
|
|
Decrease in real estate, net resulting from deconsolidated properties |
|
|
|
|
|
|
(156,568 |
) |
Real estate, net |
|
|
( |
) |
|
|
- |
|
Lease intangibles, asset |
|
|
( |
) |
|
|
- |
|
Tenants and other receivables, net |
|
|
( |
) |
|
|
- |
|
Prepaid expenses, deferred expenses and other assets, net |
|
|
( |
) |
|
|
- |
|
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
- |
|
Transfer to real estate assets held for sale |
|
|
|
|
|
|
|
|
Transfer of below market asset to right of use asset |
|
|
( |
) |
|
|
- |
|
Recording of right of use assets |
|
|
|
|
|
|
- |
|
Recording of lease liabilities |
|
|
( |
) |
|
|
- |
|
Property delivered in exchange |
|
|
( |
) |
|
|
- |
|
Property received in exchange |
|
|
|
|
|
|
- |
|
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
- |
|
|
|
- |
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 8 -
SERITAGE GROWTH PROPERTIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization
Seritage Growth Properties (“Seritage” or the “Company”) was organized in Maryland on June 3, 2015. The Company is a fully-integrated, self-administered, self-managed real estate investment trust (“REIT”) primarily engaged in the real property business through its investment in Seritage Growth Properties, L.P. (the “Operating Partnership”), a Delaware limited partnership that was formed on April 22, 2015. Unless the context otherwise requires, “Seritage” and the “Company” refer to Seritage, the Operating Partnership, and its subsidiaries.
On June 11, 2015, Sears Holdings Corporation (“Sears Holdings”) effected a rights offering to Sears Holdings stockholders to purchase common shares of Seritage in order to fund, in part, the $
The rights offering ended on July 2, 2015, and the Company’s Class A common shares were listed on the New York Stock Exchange (“NYSE”) on July 6, 2015. On
On October 15, 2018, Sears Holdings and certain of its affiliates filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On February 11, 2019, Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc. (“ESL”), completed the acquisition of an approximately
As of September 30, 2019, the Company’s portfolio consisted of interests in
As of September 30, 2019, the Company leased space at
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, (the “Annual Report”), for the year ended December 31, 2018. Certain footnote disclosures which would substantially duplicate those contained in our Annual Report have been condensed or omitted from this quarterly report. In the opinion of management, all adjustments necessary for a fair presentation (which include only normal recurring adjustments) have been included in this quarterly report. Operating results of three months and nine months ended September 30, 2019 may not be indicative of the results that may be expected for any other interim period or for the year ending December 31, 2019. Capitalized terms used, but not defined in this quarterly report, have the same meanings as set forth in our Annual Report.
- 9 -
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, each of their wholly-owned subsidiaries, and all other entities in which they have a controlling financial interest or entities that meet the definition of a variable interest entity (“VIE”) in which the Company has, as a result of ownership, contractual interests or other financial interests, both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. All intercompany accounts and transactions have been eliminated.
If the Company has an interest in a VIE but it is not determined to be the primary beneficiary, the Company accounts for its interest under the equity method of accounting. Similarly, for those entities which are not VIEs and over which the Company has the ability to exercise significant influence, but does not have a controlling financial interest, the Company accounts for its interests under the equity method of accounting. The Company continually reconsiders its determination of whether an entity is a VIE and whether the Company qualifies as its primary beneficiary. As of September 30, 2019 and December 31, 2018, the Company has several unconsolidated VIEs in the form of joint ventures (see Note 4). The Company does not consolidate these entities because the Company is not the primary beneficiary and the nature of its involvement in the activities of these entities does not give the Company power over decisions that significantly affect these entities’ economic performance.
As of September 30, 2019, the Company holds a
To the extent such variable interests are in entities that are not evaluated under the VIE model, the Company evaluates its interests using the voting interest entity model.
Reclassification
Upon adoption of the new lease standard, rental recoveries for 2018 have been reclassified to rental revenues in the condensed consolidated statements of operations to conform to the 2019 financial statement presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant assumptions and estimates relate to the useful lives of tangible and intangible assets, real estate impairment assessments, and assessing the recoverability of accounts receivable. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from these estimates.
Segment Reporting
The Company currently operates in a single reportable segment which includes the acquisition, ownership, development, redevelopment, management, and leasing of real estate properties. The Company’s chief operating decision maker, its Chief Executive Officer, assesses and measures the operating and financial results for each property on an individual basis and does not distinguish or group properties based on geography, size, or type. The Company, therefore, aggregates all properties into
Real Estate Investments
Real estate assets are recorded at cost, less accumulated depreciation and amortization.
Expenditures for ordinary repairs and maintenance will be expensed as incurred. Significant renovations which improve the property or extend the useful life of the assets are capitalized. As real estate is undergoing redevelopment activities, all amounts directly associated with and attributable to the project, including planning, development and construction costs, interest costs, personnel costs of employees directly involved, and other miscellaneous costs incurred during the period of redevelopment, are capitalized. The capitalization period begins when redevelopment activities are underway and ends when the project is substantially complete.
- 10 -
Depreciation of real estate assets, excluding land, is recognized on a straight-line basis over their estimated useful lives as follows:
Building: |
25 – 40 years |
Site improvements: |
5 – 15 years |
Tenant improvements: |
shorter of the estimated useful life or non-cancelable term of lease |
The Company amortizes identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired, generally the remaining non-cancelable term of a related lease.
On a periodic basis, management assesses whether there are indicators that the value of the Company’s real estate assets (including any related intangible assets or liabilities) may be impaired. If an indicator is identified, a real estate asset is considered impaired only if management’s estimate of current and projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated and probability weighted holding period, are less than a real estate asset’s carrying value. Various factors are considered in the estimation process, including expected future operating income, trends and prospects and the effects of demand, competition, and other economic factors. If management determines that the carrying value of a real estate asset is impaired, a loss will be recorded for the excess of its carrying amount over its estimated fair value.
During the three months ended September 30, 2019, the Company sold
Real Estate Held for Sale
When a real estate asset is identified by management as held for sale, the Company ceases depreciation of the asset and estimates its fair value, net of estimated costs to sell. If the estimated fair value, net of estimated costs to sell, of an asset is less than its net carrying value, an adjustment is recorded to reflect the estimated fair value. Properties classified as real estate held for sale generally represent properties that are under contract for sale and are expected to close within a year.
In evaluating whether a property meets the held for sale criteria, the Company makes a determination as to the point in time that it is probable that a sale will be consummated. Given the nature of all real estate sales contracts, it is not unusual for such contracts to allow potential buyers a period of time to evaluate the property prior to formal acceptance of the contract. In addition, certain other matters critical to the final sale, such as financing arrangements, often remain pending even upon contract acceptance. As a result, properties under contract may not close within the expected time period or at all.
As of September 30, 2019, three properties were classified as held for sale with assets of $
Investments in Unconsolidated Joint Ventures
The Company accounts for its investments in unconsolidated joint ventures using the equity method of accounting as the Company exercises significant influence, but does not control these entities. These investments are initially recorded at cost and are subsequently adjusted for cash contributions, cash distributions, and earnings which are recognized in accordance with the terms of the applicable agreement.
On a periodic basis, management assesses whether there are indicators, including the operating performance of the underlying real estate and general market conditions, that the value of the Company’s investments in unconsolidated joint ventures may be impaired. An investment’s value is impaired only if management’s estimate of the fair value of the Company’s investment is less than its carrying value and such difference is deemed to be other-than-temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over its estimated fair value.
Cash and Cash Equivalents
The Company considers instruments with an original maturity of three months or less to be cash and cash equivalents. Cash and cash equivalent balances may, at a limited number of banks and financial institutions, exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions and primarily in funds that are insured by the United States federal government.
- 11 -
Restricted Cash
Restricted cash represents cash deposited in escrow accounts which generally can only be used for the payment of real estate taxes, debt service, insurance, and future capital expenditures as required by certain loan and lease agreements, as well as legally restricted tenant security deposits.
As of September 30, 2019 and December 31, 2018, the Company did
Tenant and Other Receivables
Accounts receivable includes unpaid amounts billed to tenants, accrued revenues for future billings to tenants for property expenses, and amounts arising from the straight-lining of rent. The Company periodically reviews its receivables for collectability, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area where the property is located. For accrued rental revenues related to the straight-line method of reporting rental revenue, the Company performs a periodic review of receivable balances to assess the risk of uncollectible amounts and establish appropriate provisions. Any receivables that are deemed to be uncollectible are recognized as a reduction to rental revenue in the Company’s condensed consolidated statements of operations. Prior period provision for doubtful accounts is presented on the Company's condensed consolidated statements of operations in accordance with the Company's previous presentation and has not been reclassified to rental revenue.
Tenant and other receivables also includes management fees receivable for services performed for the benefit of certain unconsolidated joint ventures. In the event that the collectability of a management fee receivable is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made.
Revenue Recognition
Rental income is comprised of base rent and reimbursements of property operating expenses. Base rent is recognized on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable base rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded as deferred rent receivable and included as a component of tenant and other receivables on the condensed consolidated balance sheets.
In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company will determine whether the allowance represents funding for the construction of leasehold improvements and evaluate the ownership of such improvements. If the Company is considered the owner of the improvements for accounting purposes, the Company will capitalize the amount of the tenant allowance and depreciate it over the shorter of the useful life of the improvements or the related lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as reduction of rental revenue on a straight-line basis.
The Company commences recognizing revenue based on an evaluation of several factors. Revenue recognition under a lease begins when the lessee takes control of the physical use of the leased asset. Generally, this occurs on the rent commencement date. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.
Reimbursement of property operating expenses arises from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective property. This revenue is accrued in the same periods as the expenses are incurred.
Management and Other Fee Income
Management and other fee income represents management, leasing, and development fees for services performed for the benefit of certain unconsolidated joint ventures and is reported at
- 12 -
Conversely, leasing services are considered to be a single performance obligation, satisfied as of a point in time. The Company’s leasing fee is typically paid upon the occurrence of certain contractual event(s) that may be contingent and the pattern of revenue recognition may differ from the timing of payment. For these services, the obligation is typically the execution of the lease and, as such, revenues are recognized at the point in time when that obligation has been satisfied.
Accounting for Recapture and Termination Activity Pursuant to the Original Master Lease and Holdco Master Lease (see Note 5)
Seritage
− |
Accrued rental revenues related to the straight-line method of reporting rental revenue that are deemed uncollectable as result of the lease modification are amortized over the remaining shortened life of the lease from the date of notice to the date of vacancy. |
− |
Intangible lease assets and liabilities that are deemed to be impacted by the lease modification are amortized over the shorter of the shortened lease term from the date of notice to the date of vacancy or the remaining useful life of the asset or liability. |
A 100% recapture will generally occur in conjunction with obtaining a new tenant or a real estate development project. As such, termination fees, if any, associated with the 100% recapture notice are generally capitalized as either an initial direct cost of obtaining a new lease or a necessary cost of the real estate project and depreciated over the life of the new lease obtained or the real estate asset being constructed or improved.
Seritage Partial Recapture Rights. The Company generally treats the delivery of a partial recapture notice as a modification of the lease as of the date of notice. Such a notice and lease modification result in the following accounting adjustments for the recaptured property:
− |
The portion of accrued rental revenues related to the straight-line method of reporting rental revenue that are subject to the lease modification are amortized over the remaining shortened life of the lease from the date of notice to the date of vacancy. The portion of accrued rental revenues related to the straight-line method of reporting rental revenue that is attributable to the retained space is amortized over the remaining life of the lease. |
− |
The portion of intangible lease assets and liabilities that is deemed to be impacted by the lease modification is amortized over the shorter of the shortened lease term from the date of notice to the date of vacancy or the remaining useful life of the asset or liability. The portion of intangible lease assets and liabilities that is attributable to the retained space is amortized over the remaining useful life of the asset or liability. |
Termination Rights. The Original Master Lease provided, and the Holdco Master Lease provides the tenant with certain rights to terminate their lease. Such terminations would generally result in the following accounting adjustments for the terminated property:
− |
Accrued rental revenues related to the straight-line method of reporting rental revenue that are subject to the termination are amortized over the remaining shortened life of the lease from the date of notice to the date of vacancy. |
− |
Intangible lease assets and liabilities that are deemed to be impacted by the termination are amortized over the shorter of the shortened lease term from the date of notice to the date of vacancy or the remaining useful life of the asset or liability. |
− |
Termination fees required to be paid are recognized as follows: |
|
• |
For the portion of the termination fee attributable to the annual base rent of the subject property, termination income is recognized on a straight-line basis over the shortened life of the lease from the date the termination fee becomes legally binding to the date of vacancy. |
|
• |
For the portion of the termination fee attributable to estimated real estate taxes and property operating expenses for the subject property, prepaid rental income is recorded in the period such fee is received and recognized as tenant reimbursement revenue in the same periods as the expenses are incurred. |
Derivatives
The Company’s use of derivative instruments is limited to the management of interest rate exposure and not for speculative purposes. In connection with the issuance of the Company’s Mortgage Loans and Future Funding Facility on July 7, 2015, the Company purchased for $
- 13 -
During the year ended December 31, 2018, the Company terminated its interest rate cap concurrent with the repayment of the Mortgage Loans and the Future Funding Facility and as such there was
Share-Based Compensation
The Company generally recognizes equity awards to employees as compensation expense and includes such expense within general and administrative expenses in the condensed consolidated statements of operations. Compensation expense for equity awards is based on the grant date fair value of the awards and is recognized (i) ratably over the vesting period for awards with time-based vesting and awards with market-based vesting conditions (e.g. total shareholder return) and (ii) for awards with performance-based vesting determined by Company operating criteria, at the date the achievement of performance criteria is deemed probable, an amount equal to that which would have been recognized ratably from the date of the grant through the date the achievement of performance criteria is deemed probable, and then ratably from the date the achievement of performance criteria is deemed probable through the remainder of the vesting period. The Company utilizes a third-party valuation firm to measure the grant date fair value of restricted stock unit awards with market-based criteria using the Monte Carlo model. Forfeitures are recorded on an actual basis.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of operators, tenants, or obligors related to the Company's investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. As of September 30, 2019,
Other than the Company's tenant concentration, management believes the Company's portfolio was reasonably diversified by geographical location and did not contain any other significant concentrations of credit risk. As of September 30, 2019, the Company's portfolio of
Earnings per Share
The Company has three classes of common stock. The rights, including the liquidation and dividend rights, of the holders of the Company’s Class A common shares and Class C non-voting common shares are identical, except with respect to voting. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. The net earnings (loss) per share amounts are the same for Class A and Class C common shares because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. As of August 29, 2018, all outstanding Class C common shares had been exchanged for Class A common shares and there are currently
Class B non-economic common shares are excluded from earnings per share computations as they do not have economic rights.
All outstanding non-vested shares that contain non-forfeitable rights to dividends are considered participating securities and are included in computing earnings per share pursuant to the two-class method which specifies that all outstanding non-vested share-based payment awards that contain non-forfeitable rights to distributions are considered participating securities and should be included in the computation of earnings per share.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-02 (“ASU 2016-02”) establishing Accounting Standards Codification, Topic 842, Leases ("ASC 842"), as amended by subsequent ASUs on the topic, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Additional guidance and targeted improvements to the February 2016 ASU were made through the issuance of supplementary ASUs in July 2018, December 2018 and March 2019. The accounting applied by the lessor is largely unchanged from that applied under the existing lease standard. However, ASU 2016-02 requires lessees to apply a two-method approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less should be accounted for consistent with earlier guidance under ASC 840 for operating leases. Lessees should recognize an expense based on the effective interest method for finance leases or on a straight-line basis for operating leases.
- 14 -
Effective January 1, 2019, the Company adopted ASU 2016-02 electing the package of practical expedients without hindsight which permits the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the adoption date.
The Company has a ground lease and several corporate office leases, which are classified as operating leases, for which the Company is required to record a right-of-use asset and a lease liability equal to the present value of the remaining minimum lease payments and will continue to recognize expense on a straight-line basis for these leases. On January 1, 2019, the Company recorded an aggregate of approximately $
Additionally, the Company is no longer able to capitalize certain internal and external leasing costs. Because of this change, $
The Company also combined $
In March 2018, the FASB finalized changes with respect to optional transition relief and approved a practical expedient for lessors that would permit lessors to make an accounting policy election to not separate non-lease components from the associated lease components, by class of underlying asset, if the following two criteria are met: (1) the timing and pattern of transfer of the lease and non-lease components are the same and (2) the lease component would be classified as an operating lease if accounted for separately. For leases where the Company is the lessor, the Company has elected the optional transition relief and has determined that it is not required to bifurcate and separately report non-lease components, such as common area maintenance revenue, for operating leases on the condensed consolidated statements of operations. As a result, leases where the Company is the lessor have been accounted for in a similar method to earlier guidance under ASC 840. The Company’s adoption of ASC 842 did not have a material impact on our condensed consolidated financial statements.
Note 3 – Lease Intangible Assets and Liabilities
Lease intangible assets (acquired in-place leases, above-market leases and below-market ground leases) and liabilities (acquired below-market leases), net of accumulated amortization, were $
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|
||
Lease Intangible Assets |
|
Asset |
|
|
Amortization |
|
|
Balance |
|
|||
In-place leases, net |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Above-market leases, net |
|
|
|
|
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|
||
Lease Intangible Liabilities |
|
Liability |
|
|
Amortization |
|
|
Balance |
|
|||
Below-market leases, net |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|
||
Lease Intangible Assets |
|
Asset |
|
|
Amortization |
|
|
Balance |
|
|||
In-place leases, net |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Below-market ground leases, net |
|
|
|
|
|
|
( |
) |
|
|
|
|
Above-market leases, net |
|
|
|
|
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
- 15 -
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|
||
Lease Intangible Liabilities |
|
Liability |
|
|
Amortization |
|
|
Balance |
|
|||
Below-market leases, net |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of $
Remainder of 2019 |
|
$ |
|
|
2020 |
|
|
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
Amortization of an acquired below-market ground lease resulted in additional property expense of $
Remainder of 2019 |
|
$ |
|
|
2020 |
|
|
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
Amortization of acquired in-place leases resulted in additional depreciation and amortization expense of $
Remainder of 2019 |
|
$ |
|
|
2020 |
|
|
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
Note 4 – Investments in Unconsolidated Joint Ventures
The Company conducts a portion of its property rental activities through investments in unconsolidated joint ventures. The Company’s partners in these joint ventures are unrelated real estate entities or commercial enterprises. The Company and its joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures. The obligations to make capital contributions are governed by each unconsolidated joint venture’s respective operating agreement and related governing documents.
- 16 -
As of September 30, 2019, the Company had investments in nine unconsolidated joint ventures as follows:
|
|
|
|
|
|
Seritage % |
|
|
# of |
|
|
Total |
|
|||
Unconsolidated Joint Venture |
|
Joint Venture Partner |
|
Ownership |
|
|
Properties |
|
|
GLA |
|
|||||
GS Portfolio Holdings II LLC ("GGP I JV") |
|
Brookfield Properties Retail (formerly GGP Inc.) |
|
|
|
% |
|
|
|
|
|
|
|
|
||
GS Portfolio Holdings (2017) LLC ("GGP II JV") |
|
Brookfield Properties Retail (formerly GGP Inc.) |
|
|
|
% |
|
|
|
|
|
|
|
|
||
MS Portfolio LLC ("Macerich JV") |
|
The Macerich Company |
|
|
|
% |
|
|
|
|
|
|
|
|
||
SPS Portfolio Holdings II LLC ("Simon JV") |
|
Simon Property Group, Inc. |
|
|
|
% |
|
|
|
|
|
|
|
|
||
Mark 302 JV LLC ("Mark 302 JV") |
|
An investment fund managed by Invesco Real Estate |
|
|
|
% |
|
|
|
|
|
|
|
|
||
SI UTC LLC ("UTC JV") |
|
A separate account advised by Invesco Real Estate |
|
|
|
% |
|
|
|
|
|
|
|
|
||
SF WH Joint Venture LLC ("West Hartford JV") |
|
An affiliate of First Washington Realty |
|
|
|
% |
|
|
|
|
|
|
|
|
||
GGCAL SRG HV LLC ("Cockeysville JV") |
|
An affiliate of Greenberg Gibbons |
|
|
|
% |
|
|
|
|
|
|
|
|
||
Tech Ridge JV Holding LLC ("Tech Ridge JV") |
|
An affiliate of RD Management |
|
|
|
% |
|
|
|
|
|
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark 302 JV
On March 20, 2018, the Company contributed its property located in Santa Monica, CA to the Mark 302 JV and sold a
The Mark 302 JV is subject to a revaluation upon the earlier of the first anniversary of project stabilization (as defined in the operating agreement of the Mark 302 JV) or
The Company recorded the Initial Mark 302 Gain based on the Initial Mark 302 Contribution Value because it determined it to be the expected amount in the range of possible amounts. The Company made this determination based on its analysis of the primary inputs that determine both the Initial Mark 302 Contribution Value and Final Mark 302 Contribution Value, which consist of property operating income and total project costs. The gain on sale of real estate based on the Final Mark 302 Contribution Value (the “Final Mark 302 Gain”) will not be more than $
Each reporting period, the Company re-analyzes the primary inputs that determine the Final Mark 302 Contribution Value and Final Mark 302 Gain. For the three and nine months ended September 30, 2019, there were no adjustments to the Initial Mark 302 Contribution Value or the Initial Mark 302 Gain resulting from such analysis.
West Hartford JV
On May 18, 2018, the Company contributed its property located in West Hartford, CT to the West Hartford JV and sold a
- 17 -
The West Hartford JV is subject to (i) a revaluation upon the earlier of the first anniversary of project stabilization (as defined in the operating agreement of the West Hartford JV) or
The Company recorded the Initial West Hartford JV Gain based on the Initial West Hartford JV Contribution Value because it determined it to be the expected amount in the range of possible amounts. The Company made this determination based on its analysis of the primary inputs that determine both the Initial West Hartford JV Contribution Value and Initial West Hartford JV Contribution Value, which consist of property operating income, including the difference between actual real estate taxes and tenant recoveries for such real estate taxes, and total project costs. The gain or loss on sale of real estate based on the Final West Hartford JV Contribution Value (the “Final West Hartford JV Gain”) will not be more than a $
Each reporting period, the Company re-analyzes the primary inputs that determine the Initial West Hartford JV Contribution Value and Initial West Hartford JV Gain. For the three and nine months ended September 30, 2019, there were no adjustments to the Initial West Hartford JV Contribution Value or the Initial West Hartford JV Gain resulting from such analysis.
Cockeysville JV
On March 29, 2019, the Company contributed its property located in Cockeysville, MD to the Cockeysville JV and sold a
As part of the transaction, the affiliate of Greenberg Gibbons will contribute another adjacent parcel of land (the “Additional Land Parcel”) to the Cockeysville JV if certain milestones are met with respect to entitling the Additional Land Parcel for residential use. If the Additional Land Parcel is contributed to the Cockeysville JV, the Company will record an increased investment in the Cockeysville JV in an amount equal to 50% of the fair value of the Additional Land Parcel at the time of contribution (the “Additional Land Parcel Value” and, together with the Initial Cockeysville JV Contribution Value, the “Final Cockeysville JV Contribution Value”).
The Company recorded the Initial Cockeysville JV Gain based on the Initial Cockeysville JV Contribution Value because it determined it to be the expected amount in the range of possible amounts. The Company made this determination based upon its assessment of the probability of the Additional Land Parcel being entitled for residential use. The gain on sale of real estate based upon the Final Cockeysville JV Contribution Value (the “Final Cockeysville JV Gain”) will not be less than $
Each reporting period, the Company re-analyzes the probability of the Additional Land Parcel being contributed to the Cockeysville JV. For the three and nine months ended September 30, 2019, there were no adjustments to the Initial Cockeysville JV Contribution Value or the Initial Cockeysville JV Gain resulting from such analysis.
Tech Ridge JV
On September 27, 2019, the Company effectively contributed a portion of its property located in Austin, TX to the Tech Ridge JV and sold a
- 18 -
The Tech Ridge JV is subject to a revaluation based upon, among other factors, the number of residential units constructed by the Tech Ridge JV. Upon revaluation, the Initial Tech Ridge JV Contribution Value will be updated for actual results and a value (the “Final Tech Ridge JV Contribution Value”), which cannot be less than $
The Company recorded the Initial Tech Ridge JV Gain based on the Initial Tech Ridge JV Contribution Value because it determined it to be the expected amount in the range of possible amounts. The Company made this determination based on the initial development plans at the time of formation. The gain on sale of real estate (the “Final Tech Ridge JV Gain”) will be based on the Final Tech Ridge JV Contribution Value as described above.
Each reporting period, the Company will re-analyze the primary inputs that determine the Final Tech Ridge JV Contribution value and Final Tech Ridge JV Gain.
Joint Venture Management and Related Fees
The Company acts as the operating partner and day-to-day manager for the Mark 302 JV, the West Hartford JV, the UTC JV, and Tech Ridge JV. The Company is entitled to receive certain fees for providing management, leasing, and construction supervision services to certain of its joint ventures. The Company earned $
The following tables present combined condensed financial data for the Company’s unconsolidated joint ventures (in thousands):
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Investment in real estate |
|
|
|
|
|
|
|
|
Land |
|
$ |
|
|
|
$ |
|
|
Buildings and improvements |
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Tenant and other receivables, net |
|
|
|
|
|
|
|
|
Other assets, net |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS' INTERESTS |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Mortgage loans payable, net |
|
$ |
|
|
|
$ |
|
|
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital |
|
|
|
|
|
|
|
|
Retained earnings |
|
|
( |
) |
|
|
( |
) |
Total members interest |
|
|
|
|
|
|
|
|
Total liabilities and members interest |
|
$ |
|
|
|
$ |
|
|
- 19 -
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Property operating expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Operating income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Other expenses |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Equity in loss of unconsolidated joint ventures |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Each unconsolidated joint venture is obligated to maintain financial statements in accordance with GAAP. The Company shares in the profits and losses of these unconsolidated joint ventures generally in accordance with the Company’s respective equity interests. In some instances, the Company may recognize profits and losses related to investment in an unconsolidated joint venture that differ from the Company’s equity interest in the unconsolidated joint venture. This may arise from impairments that the Company recognizes related to its investment that differ from the impairments the unconsolidated joint venture recognizes with respect to its assets, differences between the Company’s basis in assets it has transferred to the unconsolidated joint venture and the unconsolidated joint venture’s basis in those assets or other items. There were
Note 5 – Leases
On February 28, 2019, the Company and certain affiliates of Holdco executed the Holdco Master Lease which became effective on March 12, 2019 when the Bankruptcy Court issued an order approving the rejection of the Original Master Lease. The Company analyzed this transaction under applicable accounting guidance and determined that the termination of the Original Master Lease and entering into the Holdco Master Lease should be accounted for as a modification in accordance with ASC 842.
Lease Structure
The structure of the Holdco Master Lease is consistent with the structure of the Original Master Lease in all material respects, including (i) it is a unitary, non-divisible lease as to all properties, pursuant to which the tenant’s obligations as to each property are cross-defaulted with all obligations of the tenant with respect to all other properties; (ii) it is a triple net lease with respect to all space which is leased thereunder to the tenant, subject to proportional sharing by the tenant for repair and maintenance charges, real property taxes, insurance and other costs and expenses which are common to both the space leased by the tenant and other space occupied by other tenants in the same or other buildings, space which is recaptured pursuant to the Company’s recapture rights described below and all other space which is constructed on the properties; (iii) the tenant is required to make all expenditures reasonably necessary to maintain the premises in good appearance, repair and condition for as long as they are in occupancy; and (iv) the tenant is generally prohibited from subleasing any space demised under the lease.
Term and Renewals
Consistent with the terms of the Original Master Lease, the Holdco Master Lease will expire in July 2025, and contains
Rental Revenue
The Holdco Master Lease provides for an initial base rent at the same rates which were in place at the time of the modification for accounting purposes. In each of the initial term and the first
- 20 -
Revenues from the Holdco Master Lease and the Original Master Lease for the three and nine months ended September 30, 2019 and September 30, 2018 are as follows (in thousands and excluding straight-line rental income of $
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Fixed lease revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Variable lease revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Seritage Recapture Rights
The Holdco Master Lease, consistent with the Original Master Lease, provides the Company with the right to recapture up to approximately
Additionally, in contrast to the Original Master Lease, which permitted the Company to recapture
Upon the exercise of any of its recapture rights, the Company can reconfigure and rent the recaptured space to new, diversified tenants on potentially superior terms as determined by the Company and for its own account.
- 21 -
As shown in the table below, the Company exercised certain recapture rights with respect to
Property |
|
Recapture Type |
|
|
Notice Date(s) |
St. Petersburg, FL (freestanding) |
|
|
|
|
|
Canton, OH |
|
|
|
|
September 2019 / June 2017 |
North Riverside, IL |
|
|
|
|
April 2019 / June 2017 |
Hialeah, FL (Westland) |
|
|
|
|
April 2019 / September 2018 |
Saugus, MA |
|
|
|
|
December 2018 / December 2016 |
Cape Girardeau, MO |
|
100% (1) |
|
|
|
Doral, FL |
|
100% (1) |
|
|
|
Fairfax, VA |
|
100% (1) |
|
|
September 2018 / May 2016 |
Gillette, WY |
|
100% (1) |
|
|
|
Happy Valley, OR |
|
100% (1) |
|
|
|
Houston, TX (Memorial City) |
|
100% (1) |
|
|
|
Santa Cruz, CA |
|
100% (1) |
|
|
September 2018 / December 2016 |
Vancouver, WA |
|
100% (1) |
|
|
|
Fresno, CA |
|
|
|
|
|
Asheville, NC |
|
100% (1) |
|
|
|
Chicago, IL (Six Corners) |
|
100% (1) |
|
|
|
Clearwater, FL |
|
100% (1) |
|
|
|
El Cajon, CA |
|
100% (1) |
|
|
|
Fairfield, CA |
|
100% (1) |
|
|
March 2018 / December 2017 |
Oklahoma City, OK |
|
|
|
|
|
Plantation, FL |
|
100% (1) |
|
|
March 2018 / December 2017 |
Redmond, WA |
|
100% (1) |
|
|
March 2018 / September 2017 |
Reno, NV |
|
100% (1) |
|
|
|
Tucson, AZ |
|
100% (1) |
|
|
|
Anchorage, AK |
|
100% |
|
|
|
Boca Raton, FL |
|
100% |
|
|
|
Westminster, CA |
|
100% |
|
|
|
Hicksville, NY |
|
100% |
|
|
|
Orland Park, IL |
|
100% (1) |
|
|
|
Florissant, MO |
|
|
|
|
|
Salem, NH |
|
|
|
|
|
Las Vegas, NV |
|
|
|
|
|
Yorktown Heights, NY |
|
|
|
|
|
Austin, TX (Tech Ridge) (2) |
|
100% (1) |
|
|
December 2017 / September 2017 |
Ft. Wayne, IN |
|
|
|
|
September 2017 / July 2016 |
North Little Rock, AR |
|
|
|
|
|
St. Clair Shores, MI |
|
100% |
|
|
|
Dayton, OH |
|
|
|
|
|
Roseville, CA |
|
|
|
|
|
Temecula, CA |
|
|
|
|
|
Watchung, NJ |
|
100% |
|
|
|
Anderson, SC |
|
100% (1) |
|
|
April 2017 / July 2016 |
Aventura, FL |
|
100% |
|
|
|
Carson, CA |
|
100% (1) |
|
|
April 2017 / December 2016 |
Charleston, SC |
|
100% (1) |
|
|
April 2017 / October 2016 |
Hialeah, FL (freestanding) |
|
100% (1) |
|
|
|
San Diego, CA (3) |
|
100% (1) |
|
|
|
Valley View, TX |
|
100% |
|
|
|
Cockeysville, MD (4) |
|
|
|
|
|
North Miami, FL |
|
100% |
|
|
|
Olean, NY |
|
|
|
|
|
Guaynabo, PR |
|
|
|
|
|
Santa Monica, CA (5) |
|
100% |
|
|
|
Roseville, MI |
|
|
|
|
|
Troy, MI |
|
|
|
|
|
Rehoboth Beach, DE |
|
|
|
|
|
St. Petersburg, FL (Tyrone Square) |
|
100% |
|
|
|
Warwick, RI |
|
|
|
|
|
West Hartford, CT (6) |
|
100% |
|
|
|
Madison, WI |
|
|
|
|
|
North Hollywood, CA |
|
|
|
|
|
Orlando, FL |
|
100% |
|
|
|
West Jordan, UT |
|
|
|
|
|
Albany, NY |
|
|
|
|
|
Bowie, MD |
|
|
|
|
|
Hagerstown, MD |
|
|
|
|
|
Wayne, NJ (7) |
|
|
|
|
|
San Antonio, TX |
|
|
|
|
|
Braintree, MA |
|
100% |
|
|
|
Honolulu, HI |
|
100% |
|
|
|
Memphis, TN |
|
100% |
|
|
|
(1) |
The Company converted partial recapture rights at this property to |
(2) |
In September 2019, the Company effectively contributed a portion of this property to the Tech Ridge JV and retained a |
- 22 -
(3) |
In May 2018, the Company contributed this property to the UTC JV and retained a |
(4) |
In March 2019, the Company contributed this property to the Cockeysville JV and retained a |
(5) |
In March 2018, the Company contributed this asset to the Mark 302 JV and retained a |
(6) |
In May 2018, the Company contributed this property to the West Hartford JV and retained a |
(7) |
In July 2017, the Company contributed this asset to the GGP II JV and retained a |
Tenant Termination Rights
- 23 -
The table below includes the
|
|
|
|
|
|
|
|
|
|
Announced |
Property |
|
Square Feet |
|
|
Notice |
|
Termination |
|
Redevelopment |
|
Antioch, CA |
|
|
|
|
|
|
|
|
|
|
Columbus, MS |
|
|
|
|
|
|
|
|
|
|
Dayton, OH |
|
|
|
|
|
|
|
|
|
|
Flagstaff, AZ |
|
|
|
|
|
|
|
|
|
|
Ft. Wayne, IN |
|
|
|
|
|
|
|
|
|
|
Jackson, MI |
|
|
|
|
|
|
|
|
|
|
Manchester, NH |
|
|
|
|
|
|
|
|
|
|
Salem, NH |
|
|
|
|
|
|
|
|
|
|
Savannah, GA |
|
|
|
|
|
|
|
|
|
|
Scott Depot, WV |
|
|
|
|
|
|
|
|
|
|
Steger, IL |
|
|
|
|
|
|
|
|
|
|
Victor, NY |
|
|
|
|
|
|
|
|
|
|
West Jordan, UT |
|
|
|
|
|
|
|
|
|
|
Chesapeake, VA |
|
|
|
|
|
|
|
|
|
|
Clay, NY |
|
|
|
|
|
|
|
|
|
|
Havre, MT |
|
|
|
|
|
|
|
|
|
|
Newark, CA |
|
|
|
|
|
|
|
|
|
|
Oklahoma City, OK |
|
|
|
|
|
|
|
|
|
|
Troy, MI |
|
|
|
|
|
|
|
|
|
|
Virginia Beach, VA |
|
|
|
|
|
|
|
|
|
|
Madison, WI |
|
|
|
|
|
|
|
|
|
|
Thousand Oaks, CA |
|
|
|
|
|
|
|
|
|
|
Cedar Rapids, IA |
|
|
|
|
|
|
|
|
|
|
Citrus Heights, CA |
|
|
|
|
|
|
|
|
|
|
Gainesville, FL |
|
|
|
|
|
|
|
|
|
|
Maplewood, MN |
|
|
|
|
|
|
|
|
|
|
Pensacola, FL |
|
|
|
|
|
|
|
|
|
|
Rochester, NY |
|
|
|
|
|
|
|
|
|
|
Roseville, CA |
|
|
|
|
|
|
|
|
|
|
San Antonio, TX |
|
|
|
|
|
|
|
|
|
|
Warrenton, VA |
|
|
|
|
|
|
|
|
|
|
Westwood, TX |
|
|
|
|
|
|
|
|
|
|
Friendswood, TX |
|
|
|
|
|
|
|
|
|
|
Albany, NY |
|
|
|
|
|
|
|
|
|
|
Burnsville, MN |
|
|
|
|
|
|
|
|
|
|
Chicago, IL (N Harlem) |
|
|
|
|
|
|
|
|
|
|
Cockeysville, MD |
|
|
|
|
|
|
|
|
|
|
East Northport, NY |
|
|
|
|
|
|
|
|
|
|
Greendale, WI |
|
|
|
|
|
|
|
|
|
|
Hagerstown, MD |
|
|
|
|
|
|
|
|
|
|
Johnson City, NY |
|
|
|
|
|
|
|
|
|
|
Lafayette, LA |
|
|
|
|
|
|
|
|
|
|
Mentor, OH |
|
|
|
|
|
|
|
|
|
|
Middleburg Heights, OH |
|
|
|
|
|
|
|
|
|
|
Olean, NY |
|
|
|
|
|
|
|
|
|
|
Overland Park, KS |
|
|
|
|
|
|
|
|
|
|
Roseville, MI |
|
|
|
|
|
|
|
|
|
|
Sarasota, FL |
|
|
|
|
|
|
|
|
|
|
Toledo, OH |
|
|
|
|
|
|
|
|
|
|
Warwick, RI |
|
|
|
|
|
|
|
|
|
|
York, PA |
|
|
|
|
|
|
|
|
|
|
Chapel Hill, OH |
|
|
|
|
|
|
|
|
|
|
Concord, NC |
|
|
|
|
|
|
|
|
|
|
Detroit Lakes, MN |
|
|
|
|
|
|
|
|
|
|
El Paso, TX |
|
|
|
|
|
|
|
|
|
|
Elkins, WV |
|
|
|
|
|
|
|
|
|
|
Henderson, NV |
|
|
|
|
|
|
|
|
|
|
Hopkinsville, KY |
|
|
|
|
|
|
|
|
|
|
Jefferson City, MO |
|
|
|
|
|
|
|
|
|
|
Kenton, OH |
|
|
|
|
|
|
|
|
|
|
- 24 -
Kissimmee, FL |
|
|
|
|
|
|
|
|
|
|
Layton, UT |
|
|
|
|
|
|
|
|
|
|
Leavenworth, KS |
|
|
|
|
|
|
|
|
|
|
Mt. Pleasant, PA |
|
|
|
|
|
|
|
|
|
|
Muskogee, OK |
|
|
|
|
|
|
|
|
|
|
Owensboro, KY |
|
|
|
|
|
|
|
|
|
|
Paducah, KY |
|
|
|
|
|
|
|
|
|
|
Platteville, WI |
|
|
|
|
|
|
|
|
|
|
Riverside, CA (Iowa Ave.) |
|
|
|
|
|
|
|
|
|
|
Sioux Falls, SD |
|
|
|
|
|
|
|
|
|
|
Alpena, MI |
|
|
|
|
|
|
|
|
|
|
Chicago, IL (S Kedzie) |
|
|
|
|
|
|
|
|
|
|
Cullman, AL |
|
|
|
|
|
|
|
|
|
|
Deming, NM |
|
|
|
|
|
|
|
|
|
|
Elkhart, IN |
|
|
|
|
|
|
|
|
|
|
Harlingen, TX |
|
|
|
|
|
|
|
|
|
|
Houma, LA |
|
|
|
|
|
|
|
|
|
|
Kearney, NE |
|
|
|
|
|
|
|
|
|
|
Manistee, MI |
|
|
|
|
|
|
|
|
|
|
Merrillville, IN |
|
|
|
|
|
|
|
|
|
|
New Iberia, LA |
|
|
|
|
|
|
|
|
|
|
Riverton, WY |
|
|
|
|
|
|
|
|
|
|
Sault Sainte Marie, MI |
|
|
|
|
|
|
|
|
|
|
Sierra Vista, AZ |
|
|
|
|
|
|
|
|
|
|
Springfield, IL |
|
|
|
|
|
|
|
|
|
|
Thornton, CO |
|
|
|
|
|
|
|
|
|
|
Yakima, WA |
|
|
|
|
|
|
|
|
|
|
Total square feet |
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019, the Company had commenced or completed redevelopment projects at
Lessor Disclosures
Future minimum rental receipts, excluding variable payments and tenant reimbursements of expenses, under non-cancelable operating leases executed as of September 30, 2019 and December 31, 2018 are approximately as follows:
(in thousands) |
|
September 30, 2019 |
|
|
Remainder of 2019 |
|
|
|
|
2020 |
|
|
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
Thereafter |
|
|
|
|
Total Lease Payments |
|
$ |
|
|
(in thousands) |
|
December 31, 2018 |
|
|
2019 |
|
$ |
|
|
2020 |
|
|
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
Thereafter |
|
|
|
|
Total Lease Payments |
|
$ |
|
|
- 25 -
The components of lease revenues for the three months and nine months ended September 30, 2019 were as follows:
(in thousands) |
|
Three months ended September 30, 2019 |
|
|
Nine months ended September 30, 2019 |
|
||
Fixed lease revenues |
|
$ |
|
|
|
$ |
|
|
Variable lease revenues |
|
|
|
|
|
|
|
|
Lease revenues |
|
$ |
|
|
|
$ |
|
|
Lessee Disclosures
The Company has
The Company recorded rent expense related to leased corporate office space of $
In addition, the Company recorded ground rent expense of approximately $
The following table sets forth information related to the measurement of our lease liabilities as of September 30, 2019:
(in thousands) |
|
As of September 30, 2019 |
|
|
Weighted average remaining lease term (in years) |
|
|
11.28 |
|
Weighted average discount rate |
|
|
|
% |
Cash paid for operating leases |
|
$ |
|
|
Note 6 – Debt
Term Loan Facility
On
The Company used a portion of the proceeds from the Initial Funding to (i) repay the Mortgage Loans and Future Funding Facility due July 2019; (ii) repay the Unsecured Term Loan due December 2018; and (iii) pay transaction and related costs. 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.
Funded amounts under the Term Loan Facility bear interest at an annual rate of
As of September 30, 2019, the aggregate principal amount outstanding under the Term Loan Facility was $
The Company’s ability to access the Incremental Funding Facility is subject to (i) the Company achieving rental income from non-Sears Holdings tenants, on an annualized basis (after giving effect to certain signed but not open leases) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $
- 26 -
The Term Loan Facility is guaranteed by the Company and, subject to certain exceptions, is required to be guaranteed by all existing and future subsidiaries of the Borrower. The Term Loan Facility is secured on a first lien basis by a pledge of the capital stock of the direct subsidiaries of the Borrower and the guarantors, including its joint venture interests, except as prohibited by the organizational documents of such entities or any joint venture agreements applicable to such entities, and contains a springing requirement to provide mortgages and other customary collateral upon the breach of certain financial metrics described below, the occurrence and continuation of an event of default and certain other conditions set forth in the Term Loan Agreement.
The Term Loan Facility includes certain financial metrics to govern springing collateral and certain covenant exceptions set forth in the Term Loan Agreement, including: (i) a total fixed charge coverage ratio of not less than
The Term Loan Facility contains customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, material inaccuracy of representations or warranties, and bankruptcy or insolvency proceedings. If there is an event of default, the lenders may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights they might have under any of the Term Loan Facility documents, and require the Company to pay a default interest rate on overdue amounts equal to
As of September 30, 2019, the Company was not in compliance with certain of the financial metrics described above. As a result, the Company must receive the consent of Berkshire Hathaway to dispose of assets via sale or joint venture and, as of September 30, 2019, Berkshire Hathaway had provided such consent for all such transactions submitted for approval to date. Additionally, Berkshire Hathaway has the right to request mortgages against the Company’s assets pursuant to the springing mortgage and collateral requirement and, during the three months ended September 30, 2019, Berkshire Hathaway requested mortgages on a majority of the Company’s portfolio. There are no changes to the terms and conditions of the Term Loan Facility, or the Company’s ability to operate thereunder, as a result of providing mortgages against any of the Company’s assets pursuant to the springing mortgage and collateral requirement.
The Company believes it is in compliance with all other terms and conditions of the Term Loan Agreement.
The Company incurred $
Note 7 – Income Taxes
The Company has elected to be taxed as a REIT as defined under Section 856(c) of the Code for federal income tax purposes and expects to continue to operate to qualify as a REIT. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to currently distribute at least
As a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed to its shareholders. If the Company fails to qualify as a REIT or does not distribute 100% of its taxable income in any taxable year, it will be subject to federal taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years.
Even if the Company qualifies for taxation as a REIT, the Company is subject to certain state, local and Puerto Rico taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.
On December 22, 2017, H.R. 1, known as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law and included wide-scale changes to individual, pass-through and corporation tax laws, including those that impact the real estate industry, the ownership of real estate and real estate investments, and REITs. The Company has reviewed the provisions of the law that pertain to the Company and has determined that they have no material income tax effect for financial statement purposes.
- 27 -
Note 8 – Fair Value Measurements
ASC 820, Fair Value Measurement, defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:
Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities
Level 2 - observable prices based on inputs not quoted in active markets, but corroborated by market data
Level 3 - unobservable inputs used when little or no market data is available
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value.
Financial Assets and Liabilities Measured at Fair Value on a Recurring or Non-Recurring Basis
All derivative instruments were carried at fair value and were valued using Level 2 inputs. The Company had
The Company had elected not to utilize hedge accounting, and therefore, the change in fair value was included in previous periods within change in fair value of interest rate cap on the condensed consolidated statements of operations. For the three months and nine months ended September 30, 2019, the Company did
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on the condensed consolidated balance sheets include cash equivalents and debt obligations. The fair value of cash equivalents is classified as Level 1 and the fair value of debt obligations is classified as Level 2.
Cash equivalents are carried at cost, which approximates fair value. The fair value of debt obligations is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings. As of September 30, 2019 and December 31, 2018, the estimated fair values of the Company’s debt obligations were $
Note 9 – Commitments and Contingencies
In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued or discloses the fact that such a range of loss cannot be estimated. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, and the Company, the Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD). The Litigation alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the master lease with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $
- 28 -
2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, in the alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.
On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Unsecured Creditors’ Committee (the “UCC”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.
The Litigation is at its early stages, and the defendants thereto have not yet filed a response to the complaint described above. The Company believes that the claims against the Seritage Defendants in the Litigation are without merit and intends to defend against them vigorously.
In addition to the litigation described above, the Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material effect on the condensed consolidated financial position, results of operations, cash flows or liquidity of the Company. As of September 30, 2019, and December 31, 2018, the Company did not record any amounts for litigation or other matters.
Note 10 – Related Party Disclosure
Edward S. Lampert
Edward S. Lampert is the Chairman and Chief Executive Officer of ESL, which owns Holdco, and was Chairman of Sears Holdings. Mr. Lampert is also the Chairman of Seritage.
As of September 30, 2019, Mr. Lampert beneficially owned a
Subsidiaries of Holdco, as lessees, and subsidiaries of the Company, as lessors, are parties to the Holdco Master Lease and subsidiaries of Sears Holdings, as lessees, and subsidiaries of the Company, as lessors, were parties to the Original Master Lease (see Note 5).
Unconsolidated Joint Ventures
Certain unconsolidated joint ventures have engaged the Company to provide management, leasing and development services at the properties owned by the unconsolidated joint ventures. Fees for the services performed are reported at
In addition, as of September 30, 2019, the Company had incurred $
Note 11 – Non-Controlling Interests
Partnership Agreement
On July 7, 2015, Seritage and ESL entered into the agreement of limited partnership of the Operating Partnership which was amended and restated on December 14, 2017 (the “Partnership Agreement”). Pursuant to the Partnership Agreement, as the sole general partner of the Operating Partnership, Seritage exercises exclusive and complete responsibility and discretion in its day-to-day management, authority to make decisions, and control of the Operating Partnership, and may not be removed as general partner by the limited partners.
As of September 30, 2019, the Company held a
- 29 -
Note 12 – Shareholders’ Equity
Class A Common Shares
During the three and nine months ended September 30, 2019,
As of September 30, 2019,
Class B Non-Economic Common Shares
During the three and nine months ended September 30, 2019,
As of September 30, 2019,
Class C Non-Voting Common Shares
As of September 30, 2019, there were
Series A Preferred Shares
In December 2017, the Company issued
The Company may not redeem the Series A Preferred Shares before December 14, 2022 except to preserve its status as a REIT or upon the occurrence of a Change of Control, as defined in the Trust Agreement addendum designating the Series A Preferred Shares. On and after December 14, 2022, the Company may redeem any or all of the Series A Preferred Shares at $
Dividends and Distributions
The Company’s Board of Trustees declared the following common stock dividends during 2019 and 2018, with holders of Operating Partnership units entitled to an equal distribution per Operating Partnership unit held on the record date:
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Dividends per |
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Class A and Class C |
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Declaration Date |
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Record Date |
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Payment Date |
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Common Share |
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2019 |
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February 25 |
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March 29 |
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April 11 |
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$ |
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2018 |
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October 23 |
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December 31 |
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$ |
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July 24 |
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September 28 |
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October 11 |
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April 24 |
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June 29 |
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July 12 |
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February 20 |
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March 30 |
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April 12 |
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- 30 -
The Company’s Board of Trustees declared the following preferred stock dividends during 2019 and 2018:
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Series A |
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Declaration Date |
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Record Date |
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Payment Date |
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Preferred Share |
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2019 |
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October 23 |
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December 31 |
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$ |
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July 23 |
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September 30 |
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October 15 |
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April 30 |
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June 28 |
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July 15 |
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February 25 |
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March 29 |
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April 15 |
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0.43750 |
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2018 |
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October 23 |
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December 31 |
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January 14, 2019 |
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$ |
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July 24 |
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September 28 |
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October 15 |
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April 24 |
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June 29 |
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July 16 |
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February 20 |
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March 30 |
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April 16 |
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February 20 (1) |
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March 30 |
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April 16 |
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(1) |
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- 31 -
As previously disclosed, the Company’s Board of Trustees does not currently expect to declare additional dividends on the Company’s Class A and Class C common shares 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. Also, as previously disclosed, the Company’s Board of Trustees expects that cash dividends for the Company’s preferred shares will continue to be paid each quarter.
Note 13 – Earnings per Share
The table below provides a reconciliation of net income (loss) and the number of common shares used in the computations of “basic” earnings per share (“EPS”), which utilizes the weighted-average number of common shares outstanding without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares. Potentially dilutive securities consist of shares of non-vested restricted stock and the redeemable non-controlling interests in the Operating Partnership.
All outstanding non-vested shares that contain non-forfeitable rights to dividends are considered participating securities and are included in computing EPS pursuant to the two-class method which specifies that all outstanding non-vested share-based payment awards that contain non-forfeitable rights to distributions are considered participating securities and should be included in the computation of EPS.
Earnings per share has not been presented for Class B shareholders, as they do not have economic rights.
(in thousands except per share amounts) |
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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||||
Numerator |
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Net loss |
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$ |
( |
) |
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( |
) |
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$ |
( |
) |
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$ |
( |
) |
Net income attributable to non-controlling interests |
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Preferred dividends |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Net loss attributable to common shareholders |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Earnings allocated to unvested participating securities |
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— |
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— |
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— |
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— |
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Net loss available to common shareholders - Basic and diluted |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
( |
) |
|
$ |
( |
) |
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Denominator |
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Weighted average Class A common shares outstanding |
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Weighted average Class C common shares outstanding |
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— |
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|
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— |
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|
Weighted average Class A and Class C common shares outstanding - Basic |
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|
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Restricted shares and share units |
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— |
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— |
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— |
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— |
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Weighted average Class A and Class C common shares outstanding - Diluted |
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Net loss per share attributable to Class A and Class C common shareholders - Basic |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Net loss per share attributable to Class A and Class C common shareholders - Diluted |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
No adjustments were made to the numerator for the three and nine months ended September 30, 2019 and September 30, 2018 because the Company generated a net loss. During periods of net loss, undistributed losses are not allocated to the participating securities as they are not required to absorb losses.
No adjustments were made to the denominator for the three and nine months ended September 30, 2019 and September 30, 2018 because (i) the inclusion of outstanding non-vested restricted shares would have had an anti-dilutive effect and (ii) including the non-controlling interest in the Operating Partnership would also require that the share of the Operating Partnership loss attributable to such interests be added back to net loss, therefore, resulting in no effect on earnings per share.
As of September 30, 2019 and December 31, 2018, there were
- 32 -
Note 14 – Share Based Compensation
On July 7, 2015, the Company adopted the Seritage Growth Properties 2015 Share Plan (the “Plan”). The number of shares of common stock reserved for issuance under the Plan is
Restricted Shares and Share Units
Pursuant to the Plan, the Company has periodically made grants of restricted shares or share units. The vesting terms of these grants are specific to the individual grant and vary in that a portion of the restricted shares and share units vest in equal annual amounts over the subsequent
In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). Restricted shares and share units that do not vest are forfeited. Dividends on restricted shares and share units with time-based vesting are paid to holders of such shares and share units and are not returnable, even if the underlying shares or share units do not ultimately vest. Dividends on restricted shares and share units with performance-based vesting are accrued when declared and paid to holders of such shares on the third, and in some instances, the fourth anniversary of the initial grant subject to the vesting of the underlying shares. See Note 2 for valuation information related to the grants of the awards that are subject to market-based vesting conditions.
The following table summarizes restricted share activity for the nine months ended September 30, 2019:
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Nine Months Ended September 30, 2019 |
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Weighted- |
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Average Grant |
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Shares |
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Date Fair Value |
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Unvested restricted shares at beginning of period |
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$ |
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Share units granted |
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Restricted shares vested |
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( |
) |
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Restricted shares forfeited |
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( |
) |
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Unvested restricted shares at end of period |
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The Company recognized $
As of September 30, 2019, there were approximately $
- 33 -
Note 15 – Accounts Payable, Accrued Expenses and Other Liabilities
The following table summarizes the significant components of accounts payable, accrued expenses and other liabilities as of September 30, 2019 and December 31, 2018 (in thousands):
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September 30, 2019 |
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December 31, 2018 |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Accrued development expenditures |
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Accrued real estate taxes |
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Below-market leases |
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Environmental reserve |
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Lease liability |
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— |
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Accrued interest |
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Prepaid rental income |
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Unearned tenant reimbursements |
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Deferred maintenance |
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Common and preferred dividends and OP Unit distributions payable |
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Total accounts payable, accrued expenses and other liabilities |
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$ |
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$ |
|
|
Note 16 – Subsequent Events
Subsequent to September 30, 2019, the Company signed an agreement for the disposition of
- 34 -
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “will,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part 1 of this Quarterly Report.
Overview
We are principally engaged in the acquisition, ownership, development, redevelopment, management, and leasing of diversified retail real estate throughout the United States. As of September 30, 2019, the Company’s portfolio consisted of interests in 217 properties totaling approximately 34.4 million square feet of gross leasable area, including 189 wholly owned properties totaling approximately 29.6 million square feet of GLA across 44 states and Puerto Rico, and interests in 28 joint venture properties totaling approximately 4.8 million square feet of GLA across 14 states.
We have historically generated revenues primarily by leasing our properties to tenants, including both Sears and diversified, non-Sears tenants, who operate retail stores (and potentially other uses) in the leased premises.
Our primary objective is to create value for our shareholders through the re-leasing and redevelopment of the majority of our Wholly Owned Properties and JV Properties. In doing so, we expect to meaningfully grow NOI and diversify our tenant base while transforming our portfolio from one with a single-tenant orientation to one comprised predominately of first-class, multi-tenant shopping centers and larger-scale, mixed-use properties. In order to achieve our objective, we intend to execute the following strategies:
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• |
Convert single-tenant buildings into multi-tenant properties at meaningfully higher rents |
|
• |
Maximize value of vast land holdings through retail and mixed-use densification; |
|
• |
Leverage existing and future joint venture relationships with leading landlords and financial partners; and |
|
• |
Maintain a flexible capital structure to support value creation activities. |
On October 15, 2018, Sears Holdings and certain of its affiliates filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On February 28, 2019, the Company and certain affiliates of Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., executed a master lease with respect to 51 Acquired Properties (the “Holdco Master Lease”), which became effective on March 12, 2019, when the Bankruptcy Court issued an order approving the rejection of the Original Master Lease. As of September 30, 2019, the Company leased space at 49 Wholly Owned Properties to Holdco pursuant to the Holdco Master Lease and also leased space to Holdco at three JV Properties pursuant to the Holdco JV Leases. The Original JV Master Leases where Sears Holdings was the principal tenant have been assumed or rejected.
The Holdco Master Lease and Holdco JV Leases contain provisions that help facilitate the redevelopment of our properties and the diversification of our tenant base. The Holdco Master Lease provides us with the right to recapture all or some of the space occupied by Holdco at each of the Wholly Owned Properties included in the lease (subject to certain exceptions and limitations). In addition, Seritage has the right to recapture any automotive care centers which are free-standing or attached as “appendages” to the properties, and all outparcels or outlots and certain portions of parking areas and common areas. Upon exercise of this recapture right, we generally incur certain costs and expenses for the separation of the recaptured space from the remaining Sears space, if any, and can reconfigure and rent the recaptured space to diversified, non-Sears tenants at potentially superior terms.
Edward S. Lampert is the Chairman and Chief Executive Officer of ESL Investments, Inc, which owns Holdco. Mr. Lampert is also the Chairman of Seritage and the Chairman of the Board of each of the tenant entities that is a party to the Holdco Master Lease.
- 35 -
Results of Operations
We derive substantially all of our revenue from rents received from tenants under existing leases at each of our properties. This revenue generally includes fixed base rents and recoveries of expenses that we have incurred and that we pass through to the individual tenants, in each case as provided in the respective leases.
Our primary cash expenses consist of our property operating expenses, general and administrative expenses, interest expense, and construction and development related costs. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is on our loans payable. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties and related intangible assets and liabilities resulting from the Transaction.
Rental Income
For the three months ended September 30, 2019:
|
- |
The Company recognized total rental income of $46.8 million as compared to $56.5 million for the three months ended September 30, 2018. The $9.7 million decrease was driven by lower rental income of $28.1 million derived from Sears or Kmart occupied stores, offset by (i) increased non-Sears, diversified rental income of $10.8 million and (ii) increased straight line rent of $7.7 million. |
|
- |
Rental income derived from Sears or Kmart occupied stores was $11.2 million (excluding straight-line rental income of $2.1 million), or 27.8% of total rental income earned in the period. For the prior year period, the comparable rental income derived from Sears or Kmart occupied stores was $39.2 million, or approximately 68.4% of total rental income earned in the period. |
|
- |
Rental income attributable to diversified, non-Sears tenants was $28.9 million (excluding straight-line rental income and amortization of above and below market leases of $4.7 million), or 72.2% of total rental income earned in the period. For the prior year period, the comparable rental income attributable to diversified, non-Sears tenants was $18.1 million, or approximately 31.6% of total rental income earned in the period. |
|
- |
Straight-line rent was $6.7 million as compared to $(1.1) million for the prior year period. The prior year period straight-line rental income was lower primarily due to the accelerated amortization of accrued rental revenues related to the straight-line method of reporting that were deemed uncollectable as result of recapture and termination activity under the Original Master Lease. |
For the nine months ended September 30, 2019:
|
- |
The Company recognized total rental income of $129.1 million as compared to $158.6 million for the nine months ended September 30, 2018. The $29.5 million decrease was driven primarily by lower rental income of $65.4 million derived from Sears or Kmart occupied stores, offset by (i) increased non-Sears, diversified rental income of $22.4 million and (ii) increased straight-line rent of $13.9 million. |
|
- |
Rental income derived from Sears or Kmart occupied stores was $43.4 million (excluding straight-line rental income of $3.9 million), or 38.3% of total rental income earned in the period. For the prior year period, the comparable rental income derived from Sears or Kmart occupied stores was $108.7 million, or approximately 69.6% of total rental income earned in the period. |
|
- |
Rental income attributable to diversified, non-Sears tenants was $69.7 million (excluding straight-line rental income and amortization of above and below market leases of $12.1 million), or 61.7% of total rental income earned in the period. For the prior year period, the comparable rental income attributable to diversified, non-Sears tenants was $47.4 million, or approximately 30.4% of total rental income earned in the period. |
|
- |
Straight-line rent was $15.6 million as compared to $1.8 million for the prior year period. The increase in straight-line rental income was due primarily to (i) the commencement of new leases with fixed rent increases at redeveloped properties and (ii) in the prior year period, straight-line rental income that was lower due to the accelerated amortization of accrued rental revenues related to the straight-line method of reporting that were deemed uncollectable as result of recapture and termination activity under the Original Master Lease. |
- 36 -
Property Operating Expenses and Real Estate Taxes
The Company incurs certain property operating and real estate tax expenses.
For the three months ended September 30, 2019, the Company incurred property operating and real estate tax expenses totaling $20.6 million as compared to $18.5 million in the prior year period. For the nine months ended September 30, 2019, the Company incurred property operating and real estate tax expenses totaling $60.5 million as compared to $52.9 million in the prior year period. In both periods, the increase in the current year was primarily due to the Company directly incurring utility and certain common area maintenance expenses at properties for which Sears or Kmart paid such expenses directly during the prior year period, partially offset by a decrease in both property operating and real estate tax expenses as a result of asset sales and an increase in amounts capitalized due to development activity.
Depreciation and Amortization Expenses
Depreciation and amortization expenses consist of depreciation of real property, depreciation of furniture, fixtures and equipment, and amortization of certain lease intangible assets.
For the three months ended September 30, 2019, the Company incurred depreciation and amortization expenses of $21.6 million as compared to depreciation and amortization expenses of $49.8 million in the prior year period. The decrease of $28.2 million was due primarily to (i) a reduction of $31.3 million in accelerated amortization attributable to certain lease intangible assets, (ii) approximately $1.1 million of lower net scheduled depreciation and amortization and (iii) a $4.2 million increase in accelerated depreciation attributable to certain buildings that were demolished for redevelopment in 2019.
For the nine months ended September 30, 2019, the Company incurred depreciation and amortization expenses of $68.0 million as compared to depreciation and amortization expenses of $134.0 million in the prior year period. The decrease of $66.0 million was due primarily to (i) a reduction of $57.3 million in accelerated amortization attributable to certain lease intangible assets (ii) approximately $13.7 million of lower net scheduled depreciation and amortization and (iii) a $5.2 million increase in accelerated depreciation attributable to certain buildings that were demolished for redevelopment in 2019.
Accelerated amortization results from the recapture of space from, or the termination of space by, Sears Holdings or Holdco. Such recaptures and terminations are deemed lease modifications and require related lease intangibles to be amortized over the shorter of the shortened lease term or the remaining useful life of the asset.
General and Administrative Expenses
General and administrative expenses consist of personnel costs, including share-based compensation, professional fees, office expenses and overhead expenses.
For the three months ended September 30, 2019, the Company incurred general and administrative expenses of $8.1 million compared to general and administrative expenses of $8.3 million for the prior year period.
For the nine months ended September 30, 2019, the Company incurred general and administrative expenses of $26.2 million compared to general and administrative expenses of $24.8 million for the prior year period. The $1.4 million increase was driven primarily by increased compensation and related costs resulting from an increase in personnel as well as certain legal and advisory fees related to the Sears Holdings’ bankruptcy filing.
Gain on Sale of Real Estate
During the three months ended September 30, 2019, the Company:
|
- |
Sold five properties for aggregate consideration of $36.1 million and recorded gain totaling $12.4 million, which is included in gain on sale of real estate within the condensed consolidated statement of operations; and |
|
- |
Contributed a portion of its property located in Austin, TX to the Tech Ridge JV for a contribution value of $3.0 million and recorded a gain of approximately $100 thousand which is included in gain on sale of real estate within the condensed consolidated statements of operations. |
During the nine months ended September 30, 2019, in addition to the transactions described above, the Company:
|
- |
Sold eleven properties for aggregate consideration of $48.2 million and recorded gains totaling $22.1 million which is included in gain on the sale of real estate within the condensed consolidated statement of operations; |
- 37 -
|
- |
Exchanged one owned land parcel for a land parcel of approximately equal size owned by an adjacent land owner and recorded a gain of $6.9 million; and |
|
- |
Contributed its property located in Cockeysville, MD to the Cockeysville JV for a contribution value of $12.5 million and recorded a gain of $3.8 million which is included in gain on sale of real estate within the condensed consolidated statements of operations. |
During the three months ended September 30, 2018, the Company:
|
- |
The Company sold eleven properties in three transactions that generated gross proceeds of $42.2 million and recorded a gain of $16.7 million which is included in gain on the sale of real estate within the condensed consolidated statements of operations. The eleven properties were generally located in smaller markets and five of the properties were vacant at the time of sale. |
During the nine months ended September 30, 2018, in addition to the transactions described above, the Company:
|
- |
Contributed its property located in San Diego, CA to the UTC JV for a gross contribution value of $68.0 million and recorded a gain of $28.3 million. which is included in gain on the sale of real estate within the condensed consolidated statements of operations; and |
|
- |
Contributed its property located in West Hartford, CT to the West Hartford JV for a gross contribution value of $25.0 million and recorded a gain of $1.2 million which is included in gain on sale of real estate within the condensed consolidated statements of operations. |
|
- |
Contributed its property located in Santa Monica, CA to the Mark 302 JV for a gross contribution value of $90.0 million and recorded a gain of $38.8 million which is included in gain on sale of real estate within the condensed consolidated statements of operations. |
|
- |
The Company sold 16 properties in five transactions that generated gross proceeds of $58.5 million and recorded a gain of $21.0 million which is included in gain on the sale of real estate within the condensed consolidated statements of operations. The 16 properties were generally located in smaller markets and nine of the properties were vacant at the time of sale. |
Interest Expense
For the three months ended September 30, 2019, the Company incurred $22.0 million of interest expense (net of amounts capitalized) as compared to interest expense of $30.7 million for the prior year period. The decrease in interest expense is primarily driven by the nonrecurrence of the accelerated amortization of $6.3 million of deferred financing costs resulting from the full repayment of the Company’s Mortgage Loans Payable and Unsecured Term Loan during the three months ended September 30, 2018.
For the nine months ended September 30, 2019, the Company incurred $67.6 million of interest expense (net of amounts capitalized) as compared to interest expense of $65.0 million for the prior year period. The increase in interest expense is driven by higher average borrowings and interest rates under the Term Loan Facility, offset by lower amortization of deferred financing costs in 2019 due to the nonrecurrence of the accelerated amortization of deferred financing costs resulting from the full repayment of the Company’s Mortgage Loans Payable and Unsecured Term Loan Facility during the nine months ended September 30, 2018.
Liquidity and Capital Resources
Property rental income is our primary source of cash and is dependent on a number of factors, including occupancy levels and rental rates, as well as our tenants’ ability to pay rent. Our primary uses of cash include payment of operating expenses, debt service, and reinvestment in and redevelopment of properties. We believe that we currently have sufficient liquidity to fund such uses in the form of, as of September 30, 2019, (i) $232.3 million of unrestricted cash and (ii) our $400 million Incremental Funding Facility (subject to certain conditions as described in Note 6 - Debt). We may also raise additional capital through the public or private issuance of debt securities, common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity, as well as through asset sales or joint ventures.
Summary of Cash Flows
Net cash used in operating activities was $38.3 million for the nine months ended September 30, 2019 compared to net cash provided by operating activities of $14.3 million for the nine months ended September 30, 2018. Significant changes in the components of net cash provided by operating activities include:
|
- |
In 2019, a decrease in operating cash inflows due to net reductions in rental income derived from stores occupied by Sears or Kmart and an increase in unleased properties, partially offset by an increase in diversified, non-Sears income. |
- 38 -
Net cash used in investing activities was $227.0 million for the nine months ended September 30, 2019 compared to $47.3 million for the nine months ended September 30, 2018. Significant components of net cash used in investing activities include:
|
- |
In 2019, development of real estate and property improvements of ($279.1) million and investments in unconsolidated joint ventures of ($32.7) million, partially offset by $83.1 million of net proceeds from the sale of real estate; and |
|
- |
In 2018, development of real estate and property improvements of ($210.3) million and investments in unconsolidated joint ventures of ($19.5) million, partially offset by $170.7 million of net proceeds from the sale of real estate. |
Net cash used in financing activities was $35.2 million for the nine months ended September 30, 2019 compared to net cash provided by financing activities of $197.4 million for the nine months ended September 30, 2018. Significant components of net cash used in financings activities include:
|
- |
In 2019, cash distributions to common stockholders and holders of Operating Partnership units, ($18.0) million; |
|
- |
In 2019, cash payments of preferred dividends, ($3.7) million; |
|
- |
In 2018, proceeds from Term Loan Facility, $1.6 billion |
|
- |
In 2018, repayment of mortgage loan payables and Unsecured Term Loan, ($1.4) billion and |
|
- |
In 2018, cash distributions to common stockholders and holders of Operating Partnership units, ($41.9) million. |
Dividends and Distributions
The Company’s Board of Trustees declared the following common stock dividends during 2019 and 2018, with holders of Operating Partnership units entitled to an equal distribution per Operating Partnership unit held on the record date:
|
|
|
|
|
|
Dividends per |
|
|
|
|
|
|
|
|
Class A and Class C |
|
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Common Share |
|
|
2019 |
|
|
|
|
|
|
|
|
February 25 |
|
March 29 |
|
April 11 |
|
$ |
0.25 |
|
2018 |
|
|
|
|
|
|
|
|
October 23 |
|
December 31 |
|
January 10, 2019 |
|
$ |
0.25 |
|
July 24 |
|
September 28 |
|
October 11 |
|
|
0.25 |
|
April 24 |
|
June 29 |
|
July 12 |
|
|
0.25 |
|
February 20 |
|
March 30 |
|
April 12 |
|
|
0.25 |
|
The timing, amount, and composition of all dividends and distributions will be made by the Company at the discretion of its Board of Trustees. Such dividends and distributions will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law, and other factors as the Board of Trustees of Seritage deems relevant. The Company’s Board of Trustees does not currently expect to declare additional dividends on the Company’s Class A and Class C common shares 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’s Board of Trustees declared the following preferred stock dividends during 2019 and 2018:
|
|
|
|
|
|
Series A |
|
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Preferred Share |
|
|
2019 |
|
|
|
|
|
|
|
|
October 23 |
|
December 31 |
|
January 15, 2020 |
|
$ |
0.43750 |
|
July 23 |
|
September 30 |
|
October 15 |
|
|
0.43750 |
|
April 30 |
|
June 28 |
|
July 15 |
|
|
0.43750 |
|
February 25 |
|
March 29 |
|
April 15 |
|
|
0.43750 |
|
2018 |
|
|
|
|
|
|
|
|
October 23 |
|
December 31 |
|
January 14, 2019 |
|
$ |
0.43750 |
|
July 24 |
|
September 28 |
|
October 15 |
|
|
0.43750 |
|
April 24 |
|
June 29 |
|
July 16 |
|
|
0.43750 |
|
February 20 |
|
March 30 |
|
April 16 |
|
|
0.43750 |
|
February 20 (1) |
|
March 30 |
|
April 16 |
|
|
0.15556 |
|
(1) |
This dividend covers the period from, and including, December 14, 2017 to December 31, 2017. |
- 39 -
Off-Balance Sheet Arrangements
The Company accounts for its investments in joint ventures that it does not have a controlling interest or is not the primary beneficiary using the equity method of accounting and those investments are reflected on the condensed consolidated balance sheets of the Company as investments in unconsolidated joint ventures. As of September 30, 2019 and December 31, 2018, we did not have any off-balance sheet financing arrangements.
Capital Expenditures
We do not currently anticipate incurring material expenses related to maintenance capital expenditures, tenant improvement costs or leasing commissions, outside of those associated with retenanting and redevelopment projects as described below.
During the nine months ended September 30, 2019, we incurred maintenance capital expenditures of approximately $3.4 million that were not associated with retenanting and redevelopment projects.
During the year ended December 31, 2018, we incurred maintenance capital expenditures of approximately $2.2 million and tenant improvement costs of $0.1 million that were not associated with retenanting and redevelopment projects.
Litigation and Other Matters
In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued or disclose the fact that such a range of loss cannot be estimated. We do not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. In such cases, we disclose the nature of the contingency, and an estimate of the possible loss, range of loss, or disclose the fact that an estimate cannot be made.
During the Sears Holdings bankruptcy proceedings, the Official Committee of Unsecured Creditors of Sears Holdings (the “UCC”) and others, including the Restructuring Subcommittee of the Board of Directors of Sears Holdings, alleged that the 2015 Transactions between us and Sears Holdings constituted a fraudulent conveyance, and indicated an intent to pursue litigation challenging the 2015 Transactions on that and other grounds. The approval of the Holdco Acquisition by the Bankruptcy Court expressly preserved claims relating to the 2015 Transactions between us and Sears Holdings.
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings Corporation, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, the Company, the Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD).
The Litigation alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the master lease with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $649 to $749 million more than the purchase price paid. The Litigation seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015, return of the proceeds of the transactions between Sears Holdings and Seritage, or (ii) in the alternative, payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.
On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Unsecured Creditors’ Committee (the “UCC”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.
The Litigation is at its early stages, and the defendants thereto have not yet filed a response to the complaint described above. The Company believes that the claims against the Seritage Defendants in the Litigation are without merit and intends to defend against them vigorously.
- 40 -
The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, the final outcome of such ordinary course legal proceedings and claims will not have a material effect on the consolidated financial position, results of operations or liquidity of the Company.
Retenanting and Redevelopment Projects
We are currently retenanting or redeveloping several properties primarily to convert single-tenant buildings occupied, or formerly occupied, by Sears or Kmart into multi-tenant properties occupied by a diversity of retailers and related concepts. The table below provides a brief description of each of the 89 new redevelopment projects originated on the Seritage platform as of September 30, 2019. These projects represent an estimated total investment of $1,560-1,635 million ($1,435-1,510 million at share), of which an estimated $750-825 million ($695-775 million at share) remains to be spent.
Total Project Costs under $10 Million |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Estimated |
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Project |
|
|
Construction |
|
Substantial |
|
Property |
|
Description |
|
Square Feet |
|
|
Start |
|
Completion |
|||||||||
King of Prussia, PA |
|
Repurpose former auto center space for Outback Steakhouse, Yard House and Escape Room |
|
|
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 |
||||||||||
Westwood, TX |
|
Termination property; site has been leased to Sonic Automotive for an auto dealership |
|
|
213,600 |
|
|
Complete |
||||||||||
Florissant, MO |
|
Site densification; new outparcel for Chick-fil-A |
|
|
5,000 |
|
|
Complete |
||||||||||
Kearney, NE |
|
Termination property; redevelop existing store for Marshall's, PetSmart, Ross Dress for Less and Five Below |
|
|
92,500 |
|
|
Complete |
||||||||||
Albany, NY |
|
Recapture and repurpose auto center space for BJ's Brewhouse, Ethan Allen and additional small shop retail |
|
|
28,000 |
|
|
Substantially complete |
||||||||||
Dayton, OH |
|
Recapture and repurpose auto center space for Outback Steakhouse and additional restaurants |
|
|
14,100 |
|
|
Substantially complete |
||||||||||
New Iberia, LA |
|
Termination property; redevelop existing store for Ross Dress for Less, Rouses Supermarkets, Hobby Lobby and small shop retail |
|
|
93,100 |
|
|
Substantially complete |
||||||||||
Hopkinsville, KY |
|
Termination property; redevelop existing store for Bargain Hunt, Farmer's Furniture, Harbor Freight Tools and small shop retail |
|
|
87,900 |
|
|
Substantially complete |
||||||||||
Mt. Pleasant, PA |
|
Termination property; redevelop existing store for Aldi, Big Lots and additional retail |
|
|
86,300 |
|
|
Substantially complete |
||||||||||
Layton, UT |
|
Termination property; a portion of the space has been leased to Extra Space Storage; existing tenants include Vasa Fitness and small shop retail |
|
|
172,100 |
|
|
Substantially complete |
||||||||||
St. Clair Shores, MI |
|
100% recapture; demolish existing store and develop site for new Kroger grocery store |
|
|
107,200 |
|
|
Substantially complete |
||||||||||
Houston, TX (Memorial City) |
|
100% recapture; entered into ground lease with adjacent mall owner; potential to participate in future redevelopment |
|
|
214,400 |
|
|
Substantially complete |
||||||||||
North Little Rock, AR |
|
Recapture and repurpose auto center space for LongHorn Steakhouse and small shop retail |
|
|
17,300 |
|
|
Delivered to tenant(s) |
||||||||||
Oklahoma City, OK |
|
Site densification; new fitness center for Vasa Fitness |
|
|
59,500 |
|
|
Delivered to tenant(s) |
||||||||||
Greensboro, NC |
|
Site densification; new outparcel for Mavis Tires |
|
|
6,900 |
|
|
Q1 2020 |
|
Q4 2020 |
||||||||
St. Petersburg, FL (freestanding) |
|
100% recapture; redevelop existing store for At Home, Blink Fitness and additional small shop retail |
|
|
188,800 |
|
|
Q2 2020 |
|
Q4 2020 |
||||||||
Middletown, NJ |
|
Termination property; redevelop site for new ShopRite grocery store and additional retail |
|
|
191,100 |
|
|
Q1 2020 |
|
Q2 2021 |
||||||||
Gainesville, FL |
|
Termination property; repurpose existing store as office space for Florida Clinical Practice Association / University of Florida College of Medicine |
|
|
139,100 |
|
|
Sold |
||||||||||
Hagerstown, MD |
|
Recapture and repurpose auto center space for BJ's Brewhouse, Verizon and additional retail |
|
|
15,400 |
|
|
Sold |
||||||||||
Hampton, VA |
|
Site densification; new outparcel for Chick-fil-A |
|
|
2,200 |
|
|
Sold |
- 41 -
Total Project Costs $10 - $20 Million |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Estimated |
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Project |
|
|
Construction |
|
Substantial |
|
Property |
|
Description |
|
Square Feet |
|
|
Start |
|
Completion |
|||||||||
Braintree, MA |
|
100% recapture; redevelop existing store for Nordstrom Rack, Saks OFF 5th and additional retail |
|
|
90,000 |
|
|
Complete |
||||||||||
Honolulu, HI |
|
100% recapture; redevelop existing store for Longs Drugs (CVS), PetSmart and Ross Dress for Less |
|
|
79,000 |
|
|
Complete |
||||||||||
Anderson, SC |
|
100% recapture (project expansion); redevelop existing store for Burlington Stores, Gold's Gym, Sportsman's Warehouse, additional retail and restaurants |
|
|
111,300 |
|
|
Complete |
||||||||||
Springfield, IL |
|
Termination property; redevelop existing store for Burlington Stores, Binny's Beverage Depot, Marshall's, Orangetheory Fitness, Outback Steakhouse, Core Life Eatery and additional small shop retail |
|
|
133,400 |
|
|
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 |
|
|
Complete |
||||||||||
Hialeah, FL (freestanding) |
|
100% recapture; redevelop existing store for Bed, Bath & Beyond, Ross Dress for Less and dd's Discounts to join current tenant, Aldi |
|
|
88,400 |
|
|
Complete |
||||||||||
Madison, WI |
|
Partial recapture; redevelop existing store for Dave & Busters, Total Wine & More, additional retail and restaurants |
|
|
75,300 |
|
|
Substantially complete |
||||||||||
Paducah, KY |
|
Termination property; redevelop existing store for Burlington Stores, Ross Dress for Less and additional retail |
|
|
102,300 |
|
|
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 (note: contributed to the Cockeysville JV in Q1 2019) |
|
|
83,500 |
|
|
Substantially complete |
||||||||||
Temecula, CA |
|
Partial recapture; redevelop existing store and detached auto center for Round One, small shop retail and restaurants |
|
|
65,100 |
|
|
Substantially complete |
||||||||||
North Hollywood, CA |
|
Partial recapture; redevelop existing store for Burlington Stores and Ross Dress for Less |
|
|
79,800 |
|
|
Substantially complete |
||||||||||
West Jordan, UT |
|
Termination property (project expansion); redevelop existing store and attached auto center for At Home, Burlington Stores, Planet Fitness and small shop retail |
|
|
190,300 |
|
|
Substantially complete |
||||||||||
Austin, TX (Tech Ridge) |
|
Partial recapture; redevelop existing store for AMC Theatres and restaurants (note: a portion of this property was contributed to the Tech Ridge JV in Q3 2019; this project reflects the retained, wholly-owned redevelopment) |
|
|
53,900 |
|
|
Delivered to tenant(s) |
||||||||||
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 tenant(s) |
||||||||||
Fairfax, VA |
|
Partial recapture; redevelop existing store and attached auto center for Dave & Busters, additional junior anchors and restaurants |
|
|
110,300 |
|
|
Delivered to tenant(s) |
||||||||||
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 |
|
|
Delivered to tenant(s) |
||||||||||
Olean, NY |
|
Termination property (project expansion); redevelop existing store for Marshall's, Ollie's Bargain Basement and additional retail |
|
|
125,700 |
|
|
Delivered to tenant(s) |
||||||||||
Las Vegas, NV |
|
Partial recapture; redevelop existing store for Round One and additional retail |
|
|
78,800 |
|
|
Delivered to tenant(s) |
||||||||||
Roseville, MI |
|
Termination property (project expansion); redevelop existing store for At Home, Hobby Lobby and additional retail |
|
|
369,800 |
|
|
Delivered to tenant(s) |
||||||||||
Warrenton, VA |
|
Termination property; redevelop existing store for HomeGoods and additional retail |
|
|
97,300 |
|
|
Delivered to tenant(s) |
||||||||||
Yorktown Heights, NY |
|
Partial recapture; redevelop existing store for 24 Hour Fitness and other retail uses |
|
|
85,200 |
|
|
Underway |
|
Q4 2019 |
||||||||
Reno, NV |
|
100% recapture; redevelop existing store and auto center for Round One and additional retail |
|
|
169,800 |
|
|
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, Five Below, 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, Five Below and additional retail |
|
|
114,700 |
|
|
Underway |
|
Q4 2019 |
||||||||
Pensacola, FL |
|
Termination property; redevelop existing store for BJ's Wholesale, additional retail and restaurants |
|
|
134,700 |
|
|
Underway |
|
Q1 2020 |
||||||||
Fresno, CA |
|
Partial recapture, redevelop existing store and detached auto center for Ross Dress for Less, dd's Discounts and additional retail |
|
|
78,300 |
|
|
Underway |
|
Q1 2020 |
||||||||
North Miami, FL |
|
100% recapture; redevelop existing store for Burlington Stores, Michael's and Ross Dress for Less |
|
|
124,300 |
|
|
Underway |
|
Q2 2020 |
||||||||
Manchester, NH |
|
Termination property; redevelop existing store for Dick's Sporting Goods, Dave & Busters, additional retail and restaurants |
|
|
117,700 |
|
|
Underway |
|
Q3 2020 |
||||||||
Victor, NY |
|
Termination property, redevelop existing store for Dick's Sporting Goods and additional retail |
|
|
140,500 |
|
|
Underway |
|
Q3 2020 |
||||||||
Merced, CA |
|
Termination property; redevelop existing store for Burlington Stores, dd's Discounts, Five Below, Ulta Beauty and additional retail |
|
|
92,600 |
|
|
Underway |
|
Q1 2021 |
||||||||
Chesapeake, VA |
|
Termination property; redevelop existing store for Rosie's Gaming Emporium, additional entertainment and restaurants |
|
|
185,900 |
|
|
Q2 2020 |
|
Q3 2021 |
||||||||
Santa Cruz, CA |
|
Partial recapture; redevelop existing store for TJ Maxx, HomeGoods and additional junior anchors |
|
|
62,200 |
|
|
Sold |
||||||||||
Vancouver, WA |
|
Partial recapture; redevelop existing store for Round One, Hobby Lobby and additional retail and restaurants |
|
|
72,400 |
|
|
Sold |
||||||||||
Saugus, MA |
|
Partial recapture; redevelop existing store and detached auto center (temporarily on hold) |
|
|
99,000 |
|
|
To be determined |
- 42 -
Total Project Costs over $20 Million |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Estimated |
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Project |
|
|
Construction |
|
Substantial |
|
Property |
|
Description |
|
Square Feet |
|
|
Start |
|
Completion |
|||||||||
Memphis, TN |
|
100% recapture; demolish and construct new buildings for LA Fitness, Nordstrom Rack, Ulta Beauty, Hopdoddy Burger Bar and additional retail and restaurants |
|
|
135,200 |
|
|
Complete |
||||||||||
St. Petersburg, FL (Tyrone Square) |
|
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 |
||||||||||
Orlando, FL |
|
100% recapture; demolish and construct new buildings for Floor & Decor, LongHorn Steakhouse, Mission BBQ, Olive Garden and additional small shop retail and restaurants |
|
|
139,200 |
|
|
Substantially 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 the West Hartford JV in Q2 2018) |
|
|
147,600 |
|
|
Substantially complete |
||||||||||
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 |
|
|
Substantially complete |
||||||||||
Wayne, NJ |
|
Partial recapture (project expansion); redevelop existing store and detached auto center for Cinemark, Dave & Busters, Yardhouse and additional retail and restaurants (note: contributed to the GGP II JV in Q3 2017) |
|
|
156,700 |
|
|
Delivered to tenant(s) |
||||||||||
Carson, CA |
|
100% recapture (project expansion); redevelop existing store for Burlington Stores, Ross Dress for Less and additional retail |
|
|
163,800 |
|
|
Delivered to tenant(s) |
||||||||||
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 |
|
|
Delivered to tenant(s) |
||||||||||
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 basement has been leased to Extra Space Storage |
|
|
242,700 |
|
|
Delivered to tenant(s) |
||||||||||
Anchorage, AK |
|
100% recapture; redevelop existing store for Safeway, Guitar Center, Planet Fitness and additional retail to join current tenant, Nordstrom Rack |
|
|
142,500 |
|
|
Delivered to tenant(s) |
||||||||||
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 |
|
|
Initial deliveries to tenants Q1 2020 |
||||||||||
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 |
|
|
Initial deliveries to tenants 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 the Mark 302 JV in Q1 2018) |
|
|
96,500 |
|
|
Completing core building construction Q4 2019 |
||||||||||
East Northport, NY |
|
Termination property; redevelop existing store and attached auto center for AMC Theatres, 24 Hour Fitness, additional junior anchors and small shop retail |
|
|
179,700 |
|
|
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 |
||||||||
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 |
||||||||
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 |
||||||||
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 |
|
|
Underway |
|
Q2 2020 |
||||||||
Ft. Wayne, IN |
|
Termination property (project expansion); redevelop existing store for Dave & Buster's, HomeGoods and additional retail to complement new outparcels for BJ's Brewhouse, Chick-fil-A and Portillo's |
|
|
96,400 |
|
|
Underway |
|
Q4 2020 |
||||||||
Hialeah, FL (Westland Mall) |
|
100% recapture (project expansion); redevelop existing store and auto center for Paragon Theaters, Ulta Beauty, Five Below, Panera Bread and additional retail and restaurants |
|
|
158,100 |
|
|
Q4 2019 |
|
Q2 2021 |
||||||||
Asheville, NC |
|
100% recapture; redevelop existing store and auto center for Alamo Drafthouse, restaurants and small shop retail |
|
|
110,600 |
|
|
Q4 2019 |
|
Q2 2021 |
||||||||
Orland Park, IL |
|
100% recapture; redevelop existing store for AMC Theatres, 24 Hour Fitness, additional retail and restaurants |
|
|
181,900 |
|
|
Q1 2020 |
|
Q2 2021 |
||||||||
Canton, OH |
|
100% recapture (project expansion); redevelop existing store for Dick's Sporting Goods, Dave & Busters and additional retail and restaurants |
|
|
208,200 |
|
|
Q2 2020 |
|
Q1 2021 |
Critical Accounting Policies
A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2018 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. For the nine months ended September 30, 2019, there were no material changes to these policies, other than the adoption of the Accounting Standards Codification Topic 842, Leases, described in Note 2 to the unaudited consolidated financial statements in Part I, Item I of this Quarterly Report on Form 10-Q.
- 43 -
Non-GAAP Supplemental Financial Measures and Definitions
The Company makes reference to NOI, Total NOI, FFO and Company FFO which are considered non-GAAP measures.
Net Operating Income ("NOI") and Total NOI
We define NOI 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. We believe NOI provides useful information regarding the Company, 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. We believe this form of presentation offers insights into the financial performance and condition of the Company as a whole given our ownership of unconsolidated properties that are accounted for under GAAP using the equity method. We also consider Total NOI to be a helpful supplemental measure of our 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.
Due to the adjustments noted, NOI and Total NOI should only be used as an alternative measure of the Company's financial performance.
Funds from Operations ("FFO") and Company FFO
We define FFO using the definition set forth by the National Association of REITs, or NAREIT, which may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO. FFO is calculated 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.
In November 2018, NAREIT restated its definition of FFO effective for annual periods beginning after December 15, 2018. The definition was restated to additionally exclude from net income amortization of a lessee’s right-of-use asset and gains and losses from change in control. The Company will calculate FFO under the restated definition beginning in 2019.
We consider 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. FFO facilitates an understanding of the operating performance of our properties between periods because it does not give effect to real estate depreciation and amortization which are calculated to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, the Company believes that FFO provides investors with a clearer view of the Company's operating performance.
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, changes in fair value of interest rate cap, litigations charges, acquisition-related expenses, amortization of deferred financing costs and up-front-hiring and personnel costs, that it does not believe are representative of ongoing operating results.
Due to the adjustments noted, FFO and Company FFO should only be used as an alternative measure of the Company's financial performance.
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
None of NOI, Total NOI, FFO and 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 are presented below on a comparative basis for all periods.
- 44 -
The following table reconciles NOI and Total NOI to GAAP net income (loss) for the three and nine months ended September 30, 2019 and September 30, 2018 (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
NOI and Total NOI |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Net loss |
|
$ |
(16,482 |
) |
|
$ |
(34,744 |
) |
|
$ |
(53,261 |
) |
|
$ |
(29,145 |
) |
Termination fee income |
|
|
(5,525 |
) |
|
|
(6,988 |
) |
|
|
(5,525 |
) |
|
|
(7,162 |
) |
Management and other fee income |
|
|
(795 |
) |
|
|
(115 |
) |
|
|
(2,891 |
) |
|
|
(1,029 |
) |
Depreciation and amortization |
|
|
21,593 |
|
|
|
49,830 |
|
|
|
68,003 |
|
|
|
134,048 |
|
General and administrative expenses |
|
|
8,130 |
|
|
|
8,338 |
|
|
|
26,186 |
|
|
|
24,808 |
|
Equity in loss of unconsolidated joint ventures |
|
|
5,616 |
|
|
|
2,266 |
|
|
|
14,338 |
|
|
|
7,006 |
|
Gain on sale of real estate |
|
|
(12,445 |
) |
|
|
(17,401 |
) |
|
|
(45,318 |
) |
|
|
(93,419 |
) |
Interest and other income |
|
|
(1,416 |
) |
|
|
(1,162 |
) |
|
|
(6,189 |
) |
|
|
(2,298 |
) |
Interest expense |
|
|
22,046 |
|
|
|
30,723 |
|
|
|
67,641 |
|
|
|
65,004 |
|
Change in fair value of interest rate cap |
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
23 |
|
Provision for income taxes |
|
|
(40 |
) |
|
|
93 |
|
|
|
83 |
|
|
|
437 |
|
NOI |
|
$ |
20,682 |
|
|
$ |
30,856 |
|
|
$ |
63,067 |
|
|
$ |
98,273 |
|
NOI of unconsolidated joint ventures |
|
|
1,086 |
|
|
|
4,337 |
|
|
|
8,245 |
|
|
|
14,102 |
|
Straight-line rent adjustment (1) |
|
|
(6,759 |
) |
|
|
885 |
|
|
|
(15,662 |
) |
|
|
(2,289 |
) |
Above/below market rental income/expense (1) |
|
|
(348 |
) |
|
|
(365 |
) |
|
|
(2,066 |
) |
|
|
(1,034 |
) |
Total NOI |
|
$ |
14,661 |
|
|
$ |
35,713 |
|
|
$ |
53,584 |
|
|
$ |
109,052 |
|
(1) |
Includes adjustments for unconsolidated joint ventures. |
The following table reconciles FFO and Company FFO to GAAP net income (loss) for the for the three and nine months ended September 30, 2019 and September 30, 2018 (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
FFO and Company FFO |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Net loss |
|
$ |
(16,482 |
) |
|
$ |
(34,744 |
) |
|
$ |
(53,261 |
) |
|
$ |
(29,145 |
) |
Real estate depreciation and amortization (consolidated properties) |
|
|
21,011 |
|
|
|
49,266 |
|
|
|
66,386 |
|
|
|
132,364 |
|
Real estate depreciation and amortization (unconsolidated joint ventures) |
|
|
6,752 |
|
|
|
3,671 |
|
|
|
22,134 |
|
|
|
10,980 |
|
Gain on sale of real estate |
|
|
(12,445 |
) |
|
|
(17,401 |
) |
|
|
(45,318 |
) |
|
|
(93,419 |
) |
Dividends on preferred shares |
|
|
(1,225 |
) |
|
|
(1,225 |
) |
|
|
(3,675 |
) |
|
|
(3,678 |
) |
FFO attributable to common shareholders and unitholders |
|
$ |
(2,389 |
) |
|
$ |
(433 |
) |
|
$ |
(13,734 |
) |
|
$ |
17,102 |
|
Termination fee income |
|
|
(5,525 |
) |
|
|
(6,988 |
) |
|
|
(5,525 |
) |
|
|
(7,162 |
) |
Change in fair value of interest rate cap |
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
23 |
|
Amortization of deferred financing costs |
|
|
106 |
|
|
|
6,631 |
|
|
|
329 |
|
|
|
10,221 |
|
Company FFO attributable to common shareholders and unitholders |
|
$ |
(7,808 |
) |
|
$ |
(774 |
) |
|
$ |
(18,930 |
) |
|
$ |
20,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per diluted common share and unit |
|
$ |
(0.04 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.31 |
|
Company FFO per diluted common share and unit |
|
$ |
(0.14 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares and Units Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
36,829 |
|
|
|
35,598 |
|
|
|
36,268 |
|
|
|
35,535 |
|
Weighted average OP units outstanding |
|
|
18,973 |
|
|
|
20,119 |
|
|
|
19,532 |
|
|
|
20,165 |
|
Weighted average common shares and units outstanding |
|
|
55,802 |
|
|
|
55,717 |
|
|
|
55,800 |
|
|
|
55,700 |
|
- 45 -
Item 3. |
Quantitative and Qualitative Disclosure about Market Risk |
Except as discussed below, there were no material changes in the Quantitative and Qualitative Disclosures about Market Risk set forth in our 2018 Annual Report on Form 10-K.
Interest Rate Fluctuations
As of September 30, 2019, we had $1.6 billion of consolidated debt, all of which is borrowed under our fixed-rate Term Loan Facility that is not subject to interest rate fluctuations.
Fair Value of Debt
As of September 30, 2019, the estimated fair value of our debt was $1.6 billion. The estimated fair value of our debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.
Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date.
Changes in Internal Controls.
There were no changes in our internal control over financial reporting that occurred during the period ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 46 -
PART II. |
OTHER INFORMATION |
Item 1. |
Legal Proceedings |
The information required by this Item is incorporated by reference to Note 9 of the condensed consolidated financial statements included herein.
Item 1A. |
Risk Factors |
Information regarding risk factors appears in our 2018 Annual Report on Form 10-K in Part I, Item 1A. Risk Factors. Other than as noted, there have been no material changes from the risk factors previously disclosed in our 2018 Annual Report on Form 10-K.
Following the Sears Holdings bankruptcy, we have been named as a defendant in litigation that could adversely affect our business and financial condition, divert management’s attention from our business, and subject us to significant liabilities.
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, plaintiffs Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) naming us and certain of our affiliates, as well as affiliates of ESL and Sears Holdings, as defendants. The Litigation alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $649 to $749 million more than the purchase price paid. The Litigation seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, in the alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property. The Litigation is at its early stages, and the defendants thereto have not yet filed a response to the complaint described above.
On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Unsecured Creditors’ Committee (the “UCC”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.
A court could deem aspects of the transactions with Sears Holdings (such as the acquisition of properties from Sears Holdings) to be a fraudulent conveyance. Fraudulent conveyances include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors, or transfers made or obligations incurred in exchange for less than reasonably equivalent value when the debtor was, or was rendered, insolvent, inadequately capitalized or unable to pay its debts as they become due. To remedy a fraudulent conveyance, a court could void the challenged transfer or obligation, requiring us to return consideration that we received, or impose substantial liabilities upon us for the benefit of unpaid creditors of the debtor that made the fraudulent conveyance, which could adversely affect our financial condition and our results of operations. Among other things, the court could require our shareholders to return to Sears Holdings or its creditors some or all of the securities issued in the distribution. Whether a transaction is a fraudulent conveyance may vary depending upon, among other things, the jurisdiction whose law is being applied.
Although we believe that the claims against us in the Litigation are without merit and intend to defend against them vigorously, we are not able to predict the ultimate outcome of the Litigation, the magnitude of any potential losses or the effect such litigation may have on us or our operations. It is possible that the Litigation could cause us to incur substantial costs and that they could be resolved adversely to us, result in substantial damages or other forms of relief, result in or be connected to additional claims, and divert management’s attention and resources, any of which could harm our business. Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, results of operations or financial condition and could subject us to adverse publicity and require us to incur significant legal fees. Please see Note 9 – Commitments and Contingencies – in this Quarterly Report on Form 10-Q for additional information regarding the Litigation.
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. |
Defaults Upon Senior Securities |
None.
Item 4. |
Mine Safety Disclosures |
Not applicable.
Item 5. |
Other Information |
None.
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Item 6. |
Exhibits |
Exhibit No. |
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Description |
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SEC Document Reference |
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31.1 |
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Filed herewith. |
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31.2 |
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Filed herewith. |
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32.1 |
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Furnished herewith. |
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32.2 |
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Furnished herewith. |
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101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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Filed herewith. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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Filed herewith. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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Filed herewith. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Filed herewith. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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Filed herewith. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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Filed herewith. |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SERITAGE GROWTH PROPERTIES |
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Dated: November 1, 2019 |
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/s/ Benjamin Schall |
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By: |
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Benjamin Schall |
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President and Chief Executive Officer |
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Dated: November 1, 2019 |
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/s/ Brian Dickman |
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By: |
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Brian Dickman |
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Executive Vice President and Chief Financial Officer |
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