UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED |
or
|
|
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)
|
|
|
|
(State of Incorporation) |
(I.R.S. Employer Identification No.) |
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
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.
|
|
☒ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
|
|
|
|
|
Emerging growth company |
|
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, 2020, the registrant had the following common shares outstanding:
|
Class |
Shares Outstanding |
|
Class A common shares of beneficial interest, par value $0.01 per share |
|
|
Class B common shares of beneficial interest, par value $0.01 per share |
|
|
Class C common shares of beneficial interest, par value $0.01 per share |
|
SERITAGE GROWTH PROPERTIES
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2020
TABLE OF CONTENTS
|
PART I. |
|
|
|
|
|
Page |
|
|
|
|
|
Item 1. |
3 |
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 |
3 |
|
|
4 |
|
|
|
5 |
|
|
|
7 |
|
|
|
9 |
|
|
|
|
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
34 |
|
|
|
|
|
Item 3. |
46 |
|
|
|
|
|
|
Item 4. |
46 |
|
|
|
|
|
|
PART II. |
|
|
|
|
|
|
|
Item 1. |
47 |
|
|
|
|
|
|
Item 1A. |
47 |
|
|
|
|
|
|
Item 2. |
49 |
|
|
|
|
|
|
Item 3. |
49 |
|
|
|
|
|
|
Item 4. |
49 |
|
|
|
|
|
|
Item 5. |
49 |
|
|
|
|
|
|
Item 6. |
50 |
|
|
|
|
|
|
|
51 |
|
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)
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Investment in real estate |
|
|
|
|
|
|
|
|
|
Land |
|
$ |
|
|
|
$ |
|
|
|
Buildings and improvements |
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
|
|
|
|
|
|
|
Real estate held for sale |
|
|
|
|
|
|
|
|
|
Investment in unconsolidated entities |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
— |
|
|
Tenant and other receivables, net |
|
|
|
|
|
|
|
|
|
Lease intangible assets, net |
|
|
|
|
|
|
|
|
|
Prepaid expenses, deferred expenses and other assets, net |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Term Loan Facility, net |
|
$ |
|
|
|
$ |
|
|
|
Sales-leaseback financing obligations |
|
|
|
|
|
|
— |
|
|
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
Class A common shares $ as of September 30, 2020 and December 31, 2019, respectively |
|
|
|
|
|
|
|
|
|
Class B common shares $ as of September 30, 2020 and December 31, 2019, respectively |
|
|
— |
|
|
|
|
|
|
Series A preferred shares $ December 31, 2019; liquidation preference of $ |
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
|
Total shareholders' equity |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
|
|
|
$ |
|
|
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)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Management and other fee income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Gain on sale of real estate, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of real estate assets |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Equity in loss of unconsolidated entities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss before taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Provision for taxes |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Seritage |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Preferred dividends |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss attributable to Seritage common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Seritage Class A and Class C common shareholders - Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net loss per share attributable to Seritage Class A and Class C common shareholders - Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Weighted average Class A and Class C common shares outstanding - Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A and Class C common shares outstanding - Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
Class A Common |
|
|
Class B Common |
|
|
Class C Common |
|
|
Series A Preferred |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Non- Controlling |
|
|
Total |
|
||||||||||||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interests |
|
|
Equity |
|
||||||||||||
|
Balance at January 1, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Cumulative effect of accounting change (see Note 2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Common dividends and distributions declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Preferred dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Vesting of restricted share units |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Share class surrenders |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
OP Unit exchanges ( |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Balance at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Preferred dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Vesting of restricted share units |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Share class surrenders ( |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
OP Units exchanges ( |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Balance at September 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
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)
|
|
|
Class A Common |
|
|
Class B Common |
|
|
Class C Common |
|
|
Series A Preferred |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Non- Controlling |
|
|
Total |
|
||||||||||||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interests |
|
|
Equity |
|
||||||||||||
|
Balance at July 1, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Preferred dividends declared ($ share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Vesting of restricted share units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance at September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2020 |
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Preferred dividends declared ($ share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Vesting of restricted share units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance at September 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
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, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated entities |
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated entities |
|
|
|
|
|
|
|
|
|
Gain on sale of real estate, net |
|
|
( |
) |
|
|
( |
) |
|
Impairment of real estate assets |
|
|
|
|
|
|
- |
|
|
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 operating activities |
|
|
( |
) |
|
|
( |
) |
|
CASH FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Investment in unconsolidated entities |
|
|
( |
) |
|
|
( |
) |
|
Distributions from unconsolidated entities |
|
|
|
|
|
|
|
|
|
Net proceeds from sale of real estate |
|
|
|
|
|
|
|
|
|
Development of real estate |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
CASH FLOW FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Proceeds from sale-leaseback financing obligations |
|
|
|
|
|
|
- |
|
|
Purchase of shares related to stock grant recipients' tax withholdings |
|
|
( |
) |
|
|
( |
) |
|
Preferred dividends paid |
|
|
( |
) |
|
|
( |
) |
|
Common dividends paid |
|
|
— |
|
|
|
( |
) |
|
Non-controlling interests distributions paid |
|
|
— |
|
|
|
( |
) |
|
Net cash provided (used) in financing activities |
|
|
|
|
|
|
( |
) |
|
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
Cash and cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
Cash and 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, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
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 |
|
$ |
|
|
|
$ |
|
|
|
Preferred dividends declared and unpaid |
|
|
|
|
|
|
|
|
|
Decrease in real estate, net resulting from deconsolidated properties |
|
|
|
|
|
|
|
|
|
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 |
|
|
— |
|
|
|
|
|
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”) (NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, is a fully integrated, self-administered and self-managed real estate investment trust (“REIT”) as defined under Section 856(c) of the Internal Revenue Code (the “Code”). Seritage’s assets are held by and its operations are primarily conducted, directly or indirectly, through Seritage Growth Properties, L.P., a Delaware limited partnership (the “Operating Partnership”). Under the partnership agreement of the Operating Partnership, Seritage, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership. Unless otherwise expressly stated or the context otherwise requires, the “Company” and “Seritage” refer to Seritage, the Operating Partnership and its owned and controlled subsidiaries.
Seritage is principally engaged in the acquisition, ownership, development, redevelopment, management and leasing of diversified retail and mixed-use properties throughout the United States. As of September 30, 2020, the Company’s portfolio consisted of interests in
On June 11, 2015, Sears Holdings Corporation (“Sears Holdings” or “Sears”) effected a rights offering to Sears Holdings stockholders to purchase common shares of Seritage in order to fund, in part, the $
As of September 30, 2020, the Company leased space at
Since inception, and excluding
COVID-19 Pandemic
The COVID-19 pandemic continues to have a significant impact on the retail, retail real estate and real estate development industries in the United States, including the Company’s properties. As of October 30, 2020, approximately
As of October 30, 2020, the
The Company continues to maintain a cautious approach as it responds to the evolving COVID-19 pandemic with an emphasis on managing its cash resources and preserving the value of its assets and its platform. The Company expects to continue monetizing certain assets and selectively allocating capital to a priority set of assets and redevelopment opportunities, including its premier and larger-scale portfolio, suburban retail projects with near-term rent commencements and, potentially, other retail and non-retail projects.
As a result of the rapid development, fluidity and uncertainty surrounding this situation, the Company expects that these conditions will change, potentially significantly, in future periods and results for the three and nine months ended September 30, 2020 may not be
- 9 -
indicative of the impact of the COVID-19 pandemic on the Company’s business for the fourth quarter of 2020 or for future periods. As such, the Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operations or cash flows over the foreseeable future.
Liquidity
The Company’s primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service (collectively, “obligations”), and, on a selective basis given the current environment, the reinvestment in and redevelopment of its properties (“development expenditures”). As a result of a decrease in occupancy levels due to the Company’s recapture of space for redevelopment purposes and the execution of certain termination rights by Sears Holdings under the Original Master Lease and Holdco under the Holdco Master Lease, property rental income, which is the Company’s primary source of operating cash flow, did not fully fund obligations incurred during the nine months ended September 30, 2020 and the Company had net operating cash outflows of $
Obligations are projected to continue to exceed property rental income and the COVID-19 pandemic has created uncertainty with respect to rent collections and the timing of the Company’s construction projects, the majority of which remain on hold. While the Company does not currently have the liquid funds available to satisfy its obligations and development expenditures, the Company expects to fund such obligations and any development expenditures with a combination of capital sources including, cash on hand, sales of Wholly Owned Properties, sales of interests in Unconsolidated Properties, and potential credit and capital markets transactions, subject to any approvals that may be required under the Company’s Term Loan Facility, as described in Note 6, Debt. Management has determined that it is probable its plans will be effectively implemented within one year after the date the financial statements are issued and that these actions will provide the necessary cash flows to fund the Company’s obligations and development expenditures.
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, 2019. 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 and nine months ended September 30, 2020 may not be indicative of the results that may be expected for any other interim period or for the year ending December 31, 2020. Capitalized terms used, but not defined in this quarterly report, have the same meanings as set forth in our Annual Report.
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.
Where the Company has an interest in a VIE and 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 evaluates whether it qualifies as the primary beneficiary and reconsiders its determination of whether an entity is a VIE upon reconsideration events. As of September 30, 2020 and December 31, 2019, the Company has several unconsolidated VIEs and 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.
- 10 -
As of September 30, 2020, 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.
Impairment losses of $
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.
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.
Depreciation of real estate assets, excluding land, is recognized on a straight-line basis over their estimated useful lives as follows:
|
Buildings: |
|
|
Site improvements: |
|
|
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. These indicators include macroeconomic conditions, such as the expected impact of the current COVID-19 pandemic. If an indicator is identified, a real estate asset is considered impaired 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. Changes in any estimates and/or assumptions, including the anticipated holding period, could have a material impact on the projected operating cash flows. 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. If the COVID-19 pandemic causes economic and market conditions to deteriorate further, subsequent tests for impairment may result in future impairment charges. The Company recognized $
- 11 -
assets. Such impairment losses are included within impairment of real estate assets on the condensed consolidated statements of operations.
Real Estate Dispositions
When the Company disposes of all or a portion of a real estate asset, it recognizes a gain or loss on sale of real estate as the difference between the carrying value and consideration received. Consideration consists of cash proceeds received and in certain circumstances, non-cash consideration which is typically in the form of equity in unconsolidated entities on the Company’s condensed consolidated statements of operations. For more information on the Company’s unconsolidated entity transactions refer to Note 4.
The following table summarizes our gain on sale of real estate, net during the three and nine months ended September 30, 2020 and September 30, 2019 (in millions):
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Contributions to unconsolidated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(Loss) gain on sale of real estate, net |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Dispositions to third parties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Gain on sale of real estate, net (1) (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains on contributions and dispositions, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1)
(2)
During the three months ended September 30, 2020, the Company sold an outparcel for proceeds of $
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, 2020,
Investments in Unconsolidated Entities
The Company accounts for its investments in unconsolidated entities using the equity method of accounting as the Company exercises significant influence but does not have a controlling financial interest. 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 (which include macroeconomic conditions such as the expected impact of the current COVID-19
- 12 -
pandemic), that the value of the Company’s investments in unconsolidated entities may be impaired. An investment’s value is impaired 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. If the COVID-19 pandemic causes economic and market conditions to deteriorate further, subsequent tests for impairment may result in future impairment charges.
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.
Restricted Cash
Restricted cash typically 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 and other instances where cash may be legally restricted for the Company’s use.
As of September 30, 2020, restricted cash represents cash received as proceeds for a sale which did not meet the criteria for sale accounting at September 30, 2020. As of September 30, 2020, the Company had restricted cash of $
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, including the expected impact of the COVID-19 pandemic, and economic conditions in the area where the property is located. The Company recognizes changes in the collectability assessments of these operating leases as an adjustment to rental revenue in accordance with ASC 842 Leases. The Company also recognizes a general reserve, as a reduction to rental income, for its portfolio of operating lease receivables which are not expected to be fully collectible.
Tenant receivables, including receivables arising from the straight-lining of rents, are written-off directly when management deems that the collectability of substantially all future lease payments from a specified lease is not probable of collection, at which point, the Company will begin recognizing revenue from such leases prospectively, based on actual amounts received. Any receivables that are deemed to be uncollectible are recognized as a reduction to rental income in the Company’s condensed consolidated statements of operations.
The Company recorded an allowance for doubtful accounts of $
Due to the COVID-19 pandemic, the Company has entered into amendments to existing leases with certain tenants (the “Rent Deferral Agreements”), that provide for the deferral of all or some portion of rental payments due during the period which such tenant was affected by the COVID-19 pandemic (“Deferred Rent”). The Rent Deferral Agreements typically provide for repayment of the Deferred Rent within 6-12 months following the end of the rent deferral period and, in many instances, waive certain other conditions in favor of the Company while Deferred Rent is outstanding. Deferred Rent generally becomes immediately due and payable under the Rent Deferral Agreements if the tenant does not make the minimum contractual payments or otherwise defaults on the lease.
Tenant and other receivables also include management fees receivable for services performed for the benefit of certain unconsolidated entities. 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.
- 13 -
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 a lease incentive and is recognized over the lease term as a 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.
As discussed further below in Recently Issued Accounting Pronouncements, the Company has elected to avail itself of the relief provided in the Lease Modification Question and Answer Document (the “Lease Modification Q&A”) issued by the Financial Accounting Standards Board (the “FASB”) in April 2020 and elected to not account for the Deferral Agreements on a lease by lease basis as modifications because the overall amount and term of the modified leases are significantly unchanged. As a result, the Company has not adjusted accrued rental revenues or the portion of accrued rental revenues related to the straight-line method for the portion which has been deferred. When the Deferred Rents are repaid, the Company will relieve the accrual in tenant and other receivables.
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 property management, construction, leasing and development fees for services performed for the benefit of certain unconsolidated entities.
Property management fee income is reported at
Leasing and development fees are initially reported at the portion of revenue earned attributable to outside ownership of the related unconsolidated entities. The Company’s share in leasing and development fee income is recognized over the useful life of the associated development project, in the case of development fees, or lease term, in the case of leasing fees, as the associated asset is depreciated over the same term and included in equity in income (loss) of unconsolidated entities on the condensed consolidated statements of operations and in other expenses in the combined financial data in Note 4.
- 14 -
Conversely, leasing services are considered to be performance obligations, 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 obligations are typically satisfied at lease execution and tenant opening date, and revenue is recognized in accordance with the related agreement at the point in time when the obligation has been satisfied.
Accounting for Recapture and Termination Activity Pursuant to the Original Master Lease and Holdco Master Lease (see Note 5)
Seritage Recapture Rights. The Company generally treats the delivery of a 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, if any, 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, if any, is amortized over the remaining useful life of the asset or liability. |
A 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 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.
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. |
Share-Based Compensation
The Company generally recognizes equity awards to employees as compensation expense and includes such expense within general and administrative expenses on the condensed consolidated statements of operations. Compensation expense for equity awards is based on the grant date fair value of the awards. Compensation expense is recognized ratably over the vesting period for awards with time-based vesting and awards with market-based vesting conditions (e.g. total shareholder return). For awards with performance-based vesting determined by Company operating criteria, the Company recognizes compensation expense at the date the achievement of performance criteria is deemed probable for the amount 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. A material amount of the Company’s rental revenues for the nine months ended September 30, 2020 was derived from the Holdco
- 15 -
Master Lease, however, as of September 30, 2020, the Company leased space at only
Management believes the Company's portfolio is reasonably diversified by tenant and geographical location and does not contain any other significant concentrations of credit risk. As of September 30, 2020, 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. As of September 30, 2020, all outstanding Class B common shares have been surrendered and there are currently
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
The following presents Accounting Standards Updates (“ASU”) issued by the FASB which have been adopted by the Company:
|
ASU |
Description |
Adoption Date |
Effect on the financial statements or other significant matters |
- 16 -
|
ASU |
Description |
Adoption Date |
Effect on the financial statements or other significant matters |
|
ASU 2016-02, Leases (“Topic 842”)
ASU 2018-10, Codification Improvements
ASU 2018-11, Leases, Targeted Improvements
ASU 2018-20, Leases
|
This standard, as amended by subsequent ASUs on the topic, 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. |
January 1, 2019 |
The Company adopted this standard by 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 $ |
|
ASU 2018-01, Leases, Land Easement Practical Expedient for Transition to Topic 842 |
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. |
January 1, 2019 |
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 for leases where the Company is the lessor. 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. |
|
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
ASU 2018-19, Codification improvements to Topic 326, Financial Instruments – Credit Losses |
ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, requiring the use of an "expected credit loss" model and adding more disclosure requirements. ASU 2018-19 clarifies that impairment of receivables arising from operating leases should accounted for in accordance with Topic 842, Leases. |
January 1, 2020 |
The Company’s adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements. |
- 17 -
|
ASU |
Description |
Adoption Date |
Effect on the financial statements or other significant matters |
|
The Lease Modification Q&A |
In April 2020, the FASB staff issued the Lease Modification Q&A focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant or if a lease concession was under the enforceable rights and obligations within the existing lease agreement. The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. |
April 10, 2020 |
The Company has elected to avail itself of the relief provided in the Lease Modification Q&A for all leases which were modified during the second quarter of 2020. The Company entered into Rent Deferral Agreements on |
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, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
- 18 -
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of $
|
Remainder of 2020 |
|
$ |
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
Amortization of an acquired below-market ground lease resulted in additional property expense of $
|
Remainder of 2020 |
|
$ |
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
Amortization of acquired in-place leases resulted in additional depreciation and amortization expense of $
|
Remainder of 2020 |
|
$ |
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
Note 4 – Investments in Unconsolidated Entities
The Company conducts a portion of its property rental activities through investments in unconsolidated entities. The Company’s partners in these unconsolidated entities are unrelated real estate entities or commercial enterprises. The Company and its partners in these unconsolidated entities make initial and/or ongoing capital contributions to these unconsolidated entities. The obligations to make capital contributions are governed by each unconsolidated entity’s respective operating agreement and related governing documents.
- 19 -
As of September 30, 2020, the Company had investments in ten unconsolidated entities as follows:
|
|
|
|
|
|
|
Seritage % |
|
|
# of |
|
|
Total |
|
|||
|
Unconsolidated Entities |
|
Entity Partner(s) |
|
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 |
|
|
|
% |
|
|
|
|
|
|
— |
|
||
|
J&J Baldwin Park LLC ("Carson Investment") |
|
An affiliate of NewMark Merrilll Companies and other entities |
|
|
|
% |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has contributed certain properties to unconsolidated entities in exchange for equity interests in those unconsolidated entities. The contribution of property to unconsolidated entities is accounted for as a sale of real estate and the Company recognizes the (loss) gain on the sale (the “Gain (Loss)”) based upon the transaction price attributed to the property at the closing of the unconsolidated entities transaction (the “Contribution Value”). The Gain (Loss) is included in (loss) gain on sale of real estate on the condensed consolidated statements of operations.
In certain circumstances, the Contribution Value is subject to revaluation as defined in the respective unconsolidated entity agreements, which may result in an adjustment to the Gain (Loss) recognized. If the Contribution Value is subject to revaluation, the Company initially recognizes the Gain (Loss) at the value that is the expected amount within the range of possible outcomes and will re-evaluate the expected amount on a quarterly basis through the final determination date.
Upon revaluation, the primary inputs in determining the Contribution Value will be updated for actual results and may result in a cash settlement or capital account adjustment between the unconsolidated entity partners, as well as an adjustment to the Initial Gain (Loss).
Each reporting period, the Company re-analyzes the primary inputs that determine the Contribution Value and the Gain (Loss) for those unconsolidated entities subject to a revaluation.
|
|
|
|
|
September 30, 2020 |
|
|||||
|
Unconsolidated Entity |
|
Contribution Date |
|
Contribution Value |
|
|
Gain (Loss) |
|
||
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
Mark 302 JV (1) |
|
|
|
$ |
|
|
|
$ |
|
|
|
UTC JV |
|
|
|
|
|
|
|
|
|
|
|
West Hartford JV (2) |
|
|
|
|
|
|
|
|
( |
) |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
Cockeysville JV (3) |
|
|
|
$ |
|
|
|
$ |
|
|
|
Tech Ridge JV (4) |
|
|
|
|
|
|
|
|
|
|
- 20 -
|
(1) |
The Mark 302 JV is subject to a revaluation upon the earlier of the first anniversary of project stabilization or |
The Company continued to re-evaluate the Contribution Value for the Mark 302 JV and during the three months ended September 30, 2020 determined that it was no longer probable that the $90.0 million Contribution Value would be achieved by
Subsequent to September 30, 2020, the Company and the investment fund managed by Invesco Real Estate entered into an agreement to extend the revaluation date for the Mark 302 JV to
|
(2) |
|
|
(3) |
|
|
(4) |
|
- 21 -
The following tables present combined condensed financial data for the Company’s unconsolidated entities (in thousands):
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members' Interest |
|
|
|
|
|
|
|
|
|
Additional paid in capital |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
( |
) |
|
|
( |
) |
|
Total members interest |
|
|
|
|
|
|
|
|
|
Total liabilities and members interest |
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
||||
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Property operating expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
Operating income |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
Other expenses |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Equity in loss of unconsolidated entities (1) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
(1) |
|
Each unconsolidated entity is obligated to maintain financial statements in accordance with GAAP. The Company shares in the profits and losses of these unconsolidated entities 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 entity that differ from the Company’s equity interest in the unconsolidated entity. This may arise from impairments that the Company recognizes related to its investment that differ from the impairments the unconsolidated entity recognizes with respect to its assets, differences between the Company’s basis in assets it has transferred to the unconsolidated entity and the unconsolidated entity’s basis in those assets or other items. There were
Unconsolidated Entity 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
- 22 -
services to certain of its unconsolidated entities. Refer to Note 2 for the Company’s accounting policies. The Company also acts as the development manager for one of the properties in the GGP II JV which entitles the Company to receive certain development fees. The Company reversed $
Note 5 – Leases
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 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.
On June 3, 2020, the Company entered into an amendment to the Holdco Master Lease (the “Amendment”) relating to the remaining
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 , 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
Revenues from the Holdco Master Lease, as amended by the Amendment, and the Original Master Lease for the three months ended September 30, 2020 and September 30, 2019 are as follows (in thousands and excluding straight-line rental income of $
- 23 -
$
|
(in thousands) |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Fixed rental income |
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Variable rental income (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1)
Seritage Recapture Rights
The Holdco 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.
As of September 30, 2020, the Company had previously exercised certain recapture rights with respect to
The following table provides a summary of the Company’s recapture activity as of September 30, 2020:
|
(in thousands except property count) |
|
|
|
|
|
|
|
|
|
|||||||
|
Year |
|
Square Feet |
|
|
Total Number of Properties |
|
|
100% Recaptures (1) |
|
|
Partial Recaptures (2) |
|
||||
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
(2) |
|
- 24 -
Holdco Termination Rights
Sears Holdings exercised termination rights with respect to
|
(in thousands except property count) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Notice Date |
|
Termination Date |
|
Square Feet |
|
|
Number of Properties |
|
|
Redevelopments Announced |
|
|
Properties Sold |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
(2) |
|
|
(3) |
|
As of September 30, 2020, 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, 2020, including adjustments for amounts subject to Rent Deferral Agreements, and December 31, 2019 are approximately as follows:
|
(in thousands) |
|
September 30, 2020 |
|
|
|
Remainder of 2020 |
|
|
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total Lease Payments |
|
$ |
|
|
|
|
- 25 -
|
(in thousands) |
|
December 31, 2019 |
|
|
|
2020 |
|
$ |
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total Lease Payments |
|
$ |
|
|
The components of lease revenues for the three and nine months ended September 30, 2020 and 2019 were as follows:
|
(in thousands) |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Fixed rental income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Variable rental income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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, 2020:
|
|
|
As of September 30, 2020 |
|
|
|
Weighted average remaining lease term (in years) |
|
|
|
|
|
Weighted average discount rate |
|
|
|
% |
|
Cash paid for operating leases (in thousands) |
|
$ |
|
|
Financing Obligations
During the three months ended September 30, 2020, the Company completed a sale-leaseback transaction of a property in Hialeah, Florida for $
Future sale-leaseback financing obligations as of September 30, 2020 are approximately as follows:
- 26 -
|
(in thousands) |
|
September 30, 2020 |
|
|
|
|
|
|
|
|
|
Remainder of 2020 |
|
|
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Interest Portion |
|
|
( |
) |
|
Total Lease Payments |
|
$ |
|
|
Note 6 – Debt
Term Loan Facility
The Term Loan Agreement provides for a $
The Company used a portion of the proceeds from the Initial Funding to (i) repay existing indebtedness and (ii) pay transaction and related costs. 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, 2020, 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 SNO Leases expected to commence rent payment within 12 months) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $
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 Operating Partnership. The Term Loan Facility is secured on a first lien basis by a pledge of the capital stock of the direct subsidiaries of the Operating Partnership 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 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 requirements and certain covenant exceptions set forth in the Term Loan Agreement, including: (i) a total fixed charge coverage ratio of not less than
- 27 -
make certain investments (including limitations on joint ventures) and other restricted payments; pay distributions on or repurchase the Company’s capital stock; and enter into certain transactions with affiliates.
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, 2020, 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, 2020, Berkshire Hathaway had provided such consent for all such transactions submitted for approval. There can be no assurance that the lender will consent to future dispositions of assets. During 2019, Berkshire Hathaway requested mortgages on a majority of the Company’s portfolio which were recorded in accordance with the mortgage and collateral requirement (the “Lender Request”). There are no other 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 mortgage and collateral requirement. The Company accounted for the Lender Request transaction as a modification of debt as of December 31, 2019.
The Company believes it is in compliance with all other terms and conditions of the Term Loan Agreement.
The Company incurred $
On May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment to the Term Loan Agreement by and among the Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the Term Loan Agreement if, as of the first day of each applicable month, (x) the amount of unrestricted and unencumbered (other than liens created under the Term Loan Agreement) cash on hand of the Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or less than $30.0 million. In such instances, for each interest period, the Operating Partnership is obligated to make payments of interest in an amount equal to the difference between (i) Available Cash and (ii) $20.0 million (provided that such payment shall not exceed the amount of current interest otherwise due under the Term Loan Agreement). Any deferred interest shall accrue interest at
Additionally, the amendment to the Term Loan Agreement provides that the administrative agent and the lenders express their continued support for asset dispositions, subject to the administrative agent’s right to approve the terms of individual transactions due to the occurrence of a Financial Metric Trigger Event, as such term is defined under the Term Loan Facility.
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
- 28 -
As a REIT, the Company generally will not be subject to U.S. 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 U.S. federal income tax at regular corporate rates (including for any taxable year ended on or before December 31, 2017, any applicable alternative minimum tax) and any applicable state and local income taxes. In addition, if the Company fails to qualify as a REIT, it may not be able to qualify as a REIT for four subsequent taxable years in some cases.
Even if the Company qualifies for taxation as a REIT, the Company is subject to certain U.S. state, local and Puerto Rico taxes on its income and property, and to U.S. federal income and excise taxes on its undistributed REIT taxable income. The Company’s taxable REIT subsidiaries are subject to U.S. corporate income tax.
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.
Assets Measured at Fair Value on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis on our condensed consolidated balance sheet consist of real estate assets that have been written down to estimated fair value and are classified as Level 3 within the fair value hierarchy. The Company’s estimates of fair value are determined using discounted cash flow models, which consider, among other things, anticipated holding periods, current market conditions, potential development projects and utilize unobservable quantitative inputs, including appropriate capitalization and discount rates. In addition, signed contracts or letters of intent from third parties are considered.
The Company recorded impairment losses of $
The most significant inputs utilized in determining the fair value of these assets are capitalization rates which were between
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 term loan facility. The fair value of cash equivalents and restricted cash are classified as Level 1 and the fair value of term loan facility is classified as Level 2. Cash equivalents and restricted cash 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, 2020 and December 31, 2019, 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.
- 29 -
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 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 $
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.
On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions have been completed, and the parties are awaiting a decision. 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 and due to the current environment. 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, 2020, and December 31, 2019, 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, 2020, 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 Entities
Certain unconsolidated entities have engaged the Company to provide management, leasing, construction supervision and development services at the properties owned by the unconsolidated entities. Refer to Note 2 for the Company’s accounting policies.
In addition, as of September 30, 2020, the Company had incurred $
- 30 -
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. Pursuant to this 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, 2020, the Company held a
Note 12 – Shareholders’ Equity
Class A Common Shares
During the nine months ended September 30, 2020,
As of September 30, 2020,
Class B Non-Economic Common Shares
During the nine months ended September 30, 2020,
As of September 30, 2020, there were
Class C Non-Voting Common Shares
As of September 30, 2020, 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 has not declared dividends on the Company’s Class A and Class C common shares during 2020. The Company’s Board of Trustees declared the following common stock dividends during 2019 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
- 31 -
The Company’s Board of Trustees declared the following dividends on preferred shares during 2020 and 2019:
|
|
|
|
|
|
|
Series A |
|
|
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Preferred Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
June 9 |
|
June 30 |
|
July 15 |
|
|
0.43750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30 |
|
June 28 |
|
July 15 |
|
|
0.43750 |
|
|
February 25 |
|
March 29 |
|
April 15 |
|
|
0.43750 |
|
As previously disclosed, the Company declared a dividend on the Company’s Class A and Class C common shares for the first quarter of 2019 and has not declared dividends on the Company’s Class A and Class C common shares since that time, based on our Board of Trustees’ assessment of the Company’s investment opportunities and its expectations of taxable income for the remainder of 2020. The Company intends to, at a minimum, make distributions to its shareholders to comply with the REIT requirements of the Code, which may be satisfied by dividends on the Company’s Series A Preferred Shares.
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) |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Numerator - Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net income attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss attributable to common shareholders - Basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class C common shares outstanding |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Weighted average Class A and Class C common shares outstanding - Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares and share units |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Weighted average Class A and Class C common shares outstanding - Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Class A and Class C common shareholders - Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net loss per share attributable to Class A and Class C common shareholders - Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
- 32 -
No adjustments were made to the numerator for the three and nine months ended September 30, 2020 or September 30, 2019 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, 2020 or September 30, 2019 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, 2020 and December 31, 2019, there were
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, 2020:
|
|
|
Nine Months Ended September 30, 2020 |
|
|||||
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
Average Grant |
|
|
|
|
|
Shares |
|
|
Date Fair Value |
|
||
|
Unvested restricted shares at beginning of period |
|
|
|
|
|
$ |
|
|
|
Share units granted |
|
|
|
|
|
|
|
|
|
Restricted shares vested |
|
|
( |
) |
|
|
|
|
|
Restricted shares forfeited |
|
|
( |
) |
|
|
|
|
|
Unvested restricted shares at end of period |
|
|
|
|
|
|
|
|
The Company recognized $
Such expenses are included in general and administrative expenses on the Company's condensed consolidated statements of operations.
As of September 30, 2020, there were approximately $
- 33 -
|
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, 2019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. 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 and mixed-use properties throughout the United States. As of September 30, 2020, our portfolio consisted of interests in 195 properties totaling approximately 30.4 million square feet of gross leasable area (“GLA”), including 166 wholly owned properties totaling approximately 25.7 million square feet of GLA across 44 states and Puerto Rico (the “Wholly Owned Properties”), and interests in 29 properties totaling approximately 4.7 million square feet of GLA across 14 states that are owned in unconsolidated entities (the “Unconsolidated Properties”).
We were formed to unlock the underlying real estate value of a high-quality retail portfolio we acquired from Sears Holdings in July 2015 and 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 Unconsolidated Properties. In doing so, we target meaningful growth in net operating income (“NOI”) and diversification of our tenant base while transforming our portfolio from one with a single-tenant retail orientation to one comprised predominately of multi-tenant shopping centers, multifamily properties and larger-scale, mixed-use environments.
In order to achieve our objective, we intend to execute the following strategies:
|
|
• |
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. |
Since inception, and excluding nine projects that have been sold, we have completed or substantially completed 59 redevelopment projects and, as of September 30, 2020, had an additional 12 projects in various stages of redevelopment, the majority of which remain on hold due to adverse conditions resulting from the coronavirus (“COVID-19”) pandemic. As of September 30, 2020, including our proportional share of Unconsolidated Properties, we had 6.4 million square feet of GLA leased to diversified tenants under in-place leases, 2.9 million square feet of GLA leased to diversified tenants under signed not yet opened (“SNO”) leases, and 18 million square feet of GLA available for lease and/or redevelopment.
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 Bankruptcy Court. On February 28, 2019, the Company and Holdco, an affiliate of ESL Investments, Inc., executed the Holdco Master Lease with respect to 51 Wholly Owned Properties, 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, 2020, the Company leased space at five Wholly Owned Properties to Holdco under the Holdco Master Lease.
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 controls each of the tenant entities that is a party to the Holdco Master Lease.
- 34 -
COVID-19 Pandemic
The COVID-19 pandemic continues to have a significant impact on the retail, retail real estate and real estate development industries in the United States, including our properties. As of October 30, 2020, approximately 95% of our in-place tenants (representing 97% of leased GLA and 95% of annual base rent (“ABR”)) were open and/or operating in some capacity and we continue to work with tenants to manage rent collections.
As of October 30, 2020, we had collected 86% of rental income for the three months ended September 30, 2020, and agreed to defer an additional 10%. As of October 30, 2020, we had also collected 86% of October 2020 rental income, and agreed to defer an additional 8%. While we intend to enforce our contractual rights under our leases, there can be no assurance that additional rental modification agreements will be reached or that tenants will meet their future obligations.
We continue to maintain a cautious approach as we respond to the evolving COVID-19 pandemic with an emphasis on managing our cash resources and preserving the value of our assets and our platform. We expect to continue monetizing certain assets and selectively allocating capital to a priority set of assets and redevelopment opportunities, including our premier and larger-scale portfolio, suburban retail projects with near-term rent commencements and, potentially, other retail and non-retail projects.
As a result of the rapid development, fluidity and uncertainty surrounding this situation, we expect that these conditions will change, potentially significantly, in future periods and results for the three and nine months ended September 30, 2020 may not be indicative of the impact of the COVID-19 pandemic on our business for the fourth quarter of 2020 or for future periods. As such, we cannot reasonably estimate the impact of COVID-19 on our financial condition, results of operations or cash flows over the foreseeable future.
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 fees, 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 term loan facility. In addition, we incur substantial non-cash charges for depreciation of our properties and amortization of intangible assets and liabilities.
Comparison of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019
The following table presents selected data on comparative results from the Company’s condensed consolidated statements of operations for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019 (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|||
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
33,966 |
|
|
$ |
46,833 |
|
|
$ |
(12,867 |
) |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
|
11,154 |
|
|
|
11,462 |
|
|
|
(308 |
) |
|
Real estate taxes |
|
|
9,487 |
|
|
|
9,164 |
|
|
|
323 |
|
|
Depreciation and amortization |
|
|
23,647 |
|
|
|
21,593 |
|
|
|
2,054 |
|
|
General and administrative |
|
|
11,203 |
|
|
|
8,130 |
|
|
|
3,073 |
|
|
(Loss) Gain on sale of real estate, net |
|
|
(14,706 |
) |
|
|
12,445 |
|
|
|
(27,151 |
) |
|
Impairment of real estate assets |
|
|
(14,594 |
) |
|
|
- |
|
|
|
(14,594 |
) |
|
Interest expense |
|
|
22,742 |
|
|
|
22,046 |
|
|
|
696 |
|
- 35 -
Rental Income
The following table presents the results for rental income for the three months ended September 30, 2020, as compared to the corresponding period in 2019 (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
||||||||||
|
|
|
Rental Income |
|
|
% of Total Rental Income |
|
|
Rental Income |
|
|
% of Total Rental Income |
|
|
$ Change |
|
|||||
|
Sears or Kmart |
|
$ |
5,997 |
|
|
|
17.7 |
% |
|
$ |
11,150 |
|
|
|
23.8 |
% |
|
$ |
(5,153 |
) |
|
Diversified tenants |
|
|
24,654 |
|
|
|
72.6 |
% |
|
|
28,888 |
|
|
|
61.7 |
% |
|
|
(4,234 |
) |
|
Straight-line rent |
|
|
1,775 |
|
|
|
5.2 |
% |
|
|
6,661 |
|
|
|
14.2 |
% |
|
|
(4,886 |
) |
|
Amortization of above/below market leases |
|
|
1,540 |
|
|
|
4.5 |
% |
|
|
134 |
|
|
|
0.3 |
% |
|
|
1,406 |
|
|
Total rental income |
|
$ |
33,966 |
|
|
|
100.0 |
% |
|
$ |
46,833 |
|
|
|
100.0 |
% |
|
$ |
(12,867 |
) |
The decrease of $5.1 million in Sears or Kmart rental income for the three months ended September 30, 2020 was due primarily to a reduction in the number of properties leased to Sears or Kmart under the Holdco Master Lease, as a result of recapture and termination activity.
The decrease of $4.2 million in diversified tenants rental income for the three months ended September 30, 2020 was due primarily to (i) asset sales and (ii) the recognition of rental income deemed uncollectible, partially offset by newly commenced leases at locations formerly occupied by Sears or Kmart.
The decrease of $4.8 million in straight-line rental income for the three months ended September 30, 2020 was due primarily to (i) the accelerated amortization of straight-line rent receivables as a result of termination activity under the Holdco Master Lease and (ii) the reversal of previously recorded straight-line rent that the Company deemed was improbable of being collected.
The increase of $1.4 million in amortization of above/below market leases for the three months ended September 30, 2020 was due primarily to the termination of certain leases previously acquired by the Company.
Property Operating Expenses and Real Estate Taxes
The following table presents the comparative results for property operating expenses and real estate taxes for the three months ended September 30, 2020, as compared to the corresponding period in 2019 (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|||
|
Property operating expenses |
|
$ |
11,154 |
|
|
$ |
11,462 |
|
|
$ |
(308 |
) |
|
Real estate taxes |
|
|
9,487 |
|
|
|
9,164 |
|
|
|
323 |
|
The decrease of $308 thousand in property operating expense for the three months ended September 30, 2020 was due primarily to (i) asset sales and (ii) certain cost savings initiatives implemented in response to the COVID-19 pandemic, partially offset by (i) an increase in utility and certain common area maintenance expenses at properties for which Sears or Kmart paid such expenses directly during the three months ended September 30, 2019 and (ii) a decrease in amounts capitalized due to reduced development activity.
The increase of $323 thousand in real estate taxes for the three months ended September 30, 2020 was due primarily to (i) higher tax assessments at redeveloped properties and (ii) a decrease in amounts capitalized due to reduced development activity, partially offset by asset sales.
- 36 -
Depreciation and Amortization Expenses
The increase of $2.1 million in depreciation and amortization expenses for the three months ended September 30, 2020 was due primarily to (i) approximately $5.7 million of higher net scheduled depreciation as result of additional projects being placed in service and (ii) $0.5 million of accelerated amortization attributable to certain lease intangible assets, partially offset by the non-recurrence of $4.2 million of accelerated depreciation during the three months ended September 30, 2019 related to certain buildings that were demolished for redevelopment.
Accelerated amortization results from non-Sears terminations. 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
The increase of $3.1 million in general and administrative expenses for the three months ended September 30, 2020 was driven by an increase in legal and other expenses related to the Litigation (as described in Litigation and Other Matters below) and a decrease in capitalized personnel expenses as a result of reduced development activity, partially offset by a decrease in personnel and other expenses resulting from cost savings initiatives implemented in response to the COVID-19 pandemic.
(Loss) Gain on Sale of Real Estate, Net
During the three months ended September 30, 2020, the Company recognized a loss of $30.0 million on the revaluation of the Mark 302 JV to adjust a previously recorded gain from $38.8 million to $8.8 million. This loss is partially offset by the sale of five properties and eight outparcels for aggregate consideration of $62.8 million and a gain of $15.3 million, which is included in (loss) gain on sale of real estate, net within the condensed consolidated statements of operations.
Impairment of Real Estate Assets
During the three months ended September 30, 2020, the Company recognized $10.3 million in impairment of real estate assets that were sold during the quarter and $4.3 million in impairment of real estate assets the Company continues to hold, which are included within the condensed consolidated statements of operations.
Interest Expense
The increase of $696 thousand in interest expense for the three months ended September 30, 2020 was driven by a decrease in amounts capitalized due a decrease in project development activity.
Comparison of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019
The following table presents selected data on comparative results from the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019 (in thousands):
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
88,724 |
|
|
$ |
129,108 |
|
|
$ |
(40,384 |
) |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
|
30,152 |
|
|
|
31,001 |
|
|
|
(849 |
) |
|
Real estate taxes |
|
|
28,096 |
|
|
|
29,515 |
|
|
|
(1,419 |
) |
|
Depreciation and amortization |
|
|
81,446 |
|
|
|
68,003 |
|
|
|
13,443 |
|
|
General and administrative |
|
|
29,267 |
|
|
|
26,186 |
|
|
|
3,081 |
|
|
(Loss) Gain on sale of real estate, net |
|
|
59,959 |
|
|
|
45,318 |
|
|
|
14,641 |
|
|
Impairment of real estate assets |
|
|
(16,407 |
) |
|
|
- |
|
|
|
(16,407 |
) |
|
Interest expense |
|
|
66,400 |
|
|
|
67,641 |
|
|
|
(1,241 |
) |
- 37 -
Rental Income
The following table presents the results for rental income for the nine months ended September 30, 2020, as compared to the corresponding period in 2019 (in thousands):
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
||||||||||
|
|
|
Rental Income |
|
|
% of Total Rental Income |
|
|
Rental Income |
|
|
% of Total Rental Income |
|
|
$ Change |
|
|||||
|
Sears or Kmart |
|
$ |
13,302 |
|
|
|
15.0 |
% |
|
$ |
43,356 |
|
|
|
33.6 |
% |
|
$ |
(30,054 |
) |
|
Diversified tenants |
|
|
77,367 |
|
|
|
87.2 |
% |
|
|
69,745 |
|
|
|
54.0 |
% |
|
|
7,622 |
|
|
Straight-line rent |
|
|
(3,621 |
) |
|
|
(4.1 |
)% |
|
|
15,625 |
|
|
|
12.1 |
% |
|
|
(19,246 |
) |
|
Amortization of above/below market leases |
|
|
1,676 |
|
|
|
1.9 |
% |
|
|
382 |
|
|
|
0.3 |
% |
|
|
1,294 |
|
|
Total rental income |
|
$ |
88,724 |
|
|
|
100.0 |
% |
|
$ |
129,108 |
|
|
|
100.0 |
% |
|
$ |
(40,384 |
) |
The decrease of $30.0 million in Sears or Kmart rental income for the nine months ended September 30, 2020 was due primarily to a reduction in the number of properties leased to Sears or Kmart under the Holdco Master Lease, as a result of recapture and termination activity.
The increase of $7.6 million in diversified tenants rental income for the nine months ended September 30, 2020 was due primarily to newly commenced leases at locations formerly occupied by Sears or Kmart, partially offset by the recognition of rental income deemed uncollectible.
The decrease of $19.2 million in straight-line rental income for the nine months ended September 30, 2020 was due primarily to (i) the accelerated amortization of straight-line rent receivables as a result of termination activity under the Holdco Master Lease and (ii) the reversal of previously recorded straight-line rent that the Company deemed was improbable of being collected.
The increase of $1.3 million in amortization of above/below market leases for the nine months ended September 30, 2020 was due primarily to the termination of certain leases previously acquired by the Company.
Property Operating Expenses and Real Estate Taxes
The following table presents the comparative results for property operating expenses and real estate taxes for the nine months ended September 30, 2020, as compared to the corresponding period in 2019 (in thousands):
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
$ |
30,152 |
|
|
$ |
31,001 |
|
|
$ |
(849 |
) |
|
Real estate taxes |
|
|
28,096 |
|
|
|
29,515 |
|
|
|
(1,419 |
) |
The decrease of $849 thousand in property operating expense for the nine months ended September 30, 2020 was due primarily to (i) asset sales and (ii) and (ii) certain cost savings initiatives implemented in response to the COVID-19 pandemic, partially offset by (i) an increase of utility and certain common area maintenance expenses at properties for which Sears or Kmart paid such expenses directly during the nine months ended September 30, 2019 and (ii) a decrease in amounts capitalized due to reduced development activity.
The decrease of $1.4 million in real estate taxes for the nine months ended September 30, 2020 was due primarily to due to asset sales, partially offset by a decrease in amounts capitalized as a result of reduced development activity.
- 38 -
Depreciation and Amortization Expenses
The increase of $13.4 million in depreciation and amortization expenses for the nine months ended September 30, 2020 was due primarily to (i) $16.4 million of accelerated amortization attributable to certain lease intangible assets and (ii) approximately $5.5 million of higher net scheduled depreciation, partially offset by the non-recurrence of $8.5 million of accelerated depreciation during the nine months ended September 30, 2019 related to certain buildings that were demolished for redevelopment.
General and Administrative Expenses
The increase of $3.1 million in general and administrative expenses for the nine months ended September 30, 2020 was driven by an increase in legal and other expenses related to the Litigation (as described in Litigation and Other Matters below), offset by a decrease in personnel and other expenses resulting from cost savings initiatives implemented in response to the COVID-19 pandemic.
(Loss) Gain on Sale of Real Estate, Net
During the nine months ended September 30, 2020, the Company sold 18 properties and 11 outparcels for aggregate consideration of $221.7 million and recorded gains totaling $90.0 million, which are included in (loss) gain on sale of real estate, net within the condensed consolidated statements of operations. These gains are partially offset by the $30.0 million loss recorded in relation to the Mark 302 JV revaluation to adjust the previously recorded gain from $38.8 million to $8.8 million.
Impairment of Real Estate Assets
During the nine months ended September 30, 2020, the Company recognized $10.3 million in impairment of real estate assets that were sold during the quarter and $6.1 million in impairment of real estate assets the Company holds, which are included within the condensed consolidated statements of operations.
Interest Expense
The decrease of $1.2 million in interest expense for the nine months ended September 30, 2020 was driven by an increase in amounts capitalized due to increased development activity.
Liquidity and Capital Resources
Our primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service (collectively, “obligations”), and, on a selective basis given the current environment, the reinvestment in and redevelopment of our properties (“development expenditures”). As a result of a decrease in occupancy levels due to our recapture of space for redevelopment purposes and the execution of certain termination rights by Sears Holdings under the Original Master Lease and Holdco under the Holdco Master Lease, property rental income, which is our primary source of operating cash flow, we did not fully fund obligations incurred during the nine months ended September 30, 2020 and we had net operating cash outflows of $25.3 million. Additionally, our development expenditures during the nine months ended September 30, 2020 drove net investing cash outflows of $9.7 million.
Obligations are projected to continue to exceed property rental income and the COVID-19 pandemic has created uncertainty with respect to rent collections and the timing of our construction projects, the majority of which remain on hold. While we do not currently have the liquid funds available to satisfy our obligations and development expenditures, we expect to fund such obligations and any development expenditures with a combination of capital sources including cash on hand, sales of Wholly Owned Properties, sales of interests in Unconsolidated Properties, and potential credit and capital markets transactions, subject to any approvals that may be required under our Term Loan Facility, as described in Note 6 of the condensed consolidated financial statements included herein. While we do not currently have the liquid funds available to satisfy our obligations and development expenditures, we expect to fund such obligations and any development expenditures with cash on hand and a combination of capital sources including, but not limited to the following, subject to any approvals that may be required under the Term Loan Agreement:
|
|
• |
Sales of Wholly Owned Properties. As of September 30, 2020, we had sold 59 Wholly Owned Properties, and additional outparcels at certain properties, and generated approximately $479.4 million of gross proceeds since we began our capital recycling program in July 2017. Subsequent to September 30, 2020, we sold two Wholly Owned Properties and one additional outparcel for gross proceeds of $11.8 million and, as of October 30, 2020, had entered into contracts to sell additional assets for anticipated gross proceeds of $62.5 million; |
|
|
• |
Sales of interests in Unconsolidated Properties. As of September 30, 2020, we had sold our interests in 13 Unconsolidated Properties and generated approximately $258.1 million of gross proceeds since July 2017. Certain of our unconsolidated |
- 39 -
|
|
entity agreements also include rights that allow us to sell our interests in select Unconsolidated Properties to our partners at fair market value; |
|
|
• |
New Unconsolidated Entities. As of September 30, 2020, we had contributed interests in 11 properties to unconsolidated entities, which generated approximately $212.4 million of gross proceeds since July 2017. In addition to generating liquidity upon closing, these entities also reduce our development expenditures by the amount of our partners’ interests in the unconsolidated entities; |
|
|
• |
Unconsolidated entities debt. We may incur property-level debt in new or existing unconsolidated entities, including construction financing for properties under development and longer-term mortgage debt for stabilized properties; and |
|
|
• |
Other credit and capital markets transactions. We may 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. |
In response to the COVID-19 pandemic, we have taken a number of actions to manage our cash resources, including keeping the majority of our construction projects on hold, reducing operating and corporate expenses, and amending certain terms of our Term Loan Facility, as described below.
As previously disclosed, on May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment to the Senior Secured Term Loan Agreement by and among the Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the Term Loan Agreement if, as of the first day of each applicable month, (x) the amount of unrestricted and unencumbered (other than liens created under the Term Loan Agreement) cash on hand of the Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or less than $30.0 million. In such instances, for each interest period, the Operating Partnership is obligated to make payments of interest in an amount equal to the difference between (i) Available Cash and (ii) $20.0 million (provided that such payment shall not exceed the amount of current interest otherwise due under the Term Loan Agreement). Any deferred interest shall accrue interest at 2.0% in excess of the then applicable interest rate and shall be due and payable on July 31, 2023; provided, that the Operating Partnership is required to pay any deferred interest from Available Cash in excess of $30.0 million (unless otherwise agreed to by the administrative agent under the Term Loan Agreement in its sole discretion). In addition, repayment of any outstanding deferred interest is a condition to any borrowings under the $400.0 million incremental funding facility under the Term Loan Agreement.
Additionally, the amendment to the Term Loan Agreement provides that the administrative agent and the lenders express their continued support for asset dispositions, subject to the administrative agent’s right to approve the terms of individual transactions due to the occurrence of a Financial Metric Trigger Event, as such term is defined under the Term Loan Facility.
Our Term Loan Facility includes a $400.0 million Incremental Funding Facility, access to which is subject to rental income from non-Sears Holdings tenants of at least $200.0 million, on an annualized basis and after giving effect to SNO leases expected to commence rent payment within 12 months, which we have not yet achieved. The timing of our ability to access the Incremental Funding Facility, if at all, will be adversely impacted by the COVID-19 pandemic.
Cash Flows for the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
The following table summarizes the Company’s cash flow activities for the nine months ended September 30, 2020 and 2019 (in thousands):
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|||
|
Net cash used in operating activities |
|
$ |
(25,300 |
) |
|
$ |
(38,349 |
) |
|
$ |
13,049 |
|
|
Net cash used in investing activities |
|
|
(9,697 |
) |
|
|
(226,966 |
) |
|
|
217,269 |
|
|
Net cash provided (used) in financing activities |
|
|
16,656 |
|
|
|
(35,222 |
) |
|
|
51,878 |
|
Cash Flows from Operating Activities
Significant changes in net cash used in operating activities include:
|
− |
In 2020, a decrease in rental income and an increase in tenant and other receivables, partially offset by an increase in accounts payable, accrued expenses and other liabilities. |
- 40 -
Cash Flows from Investing Activities
Significant components of net cash used in investing activities include:
|
− |
In 2020, development of real estate and property improvements of ($195.0) million and investments in unconsolidated entities of ($50.7) million, offset by $234.8 million of net proceeds from the sale of real estate; and |
|
− |
In 2019, development of real estate and property improvements of ($279.1) million and investments in unconsolidated entities of $(32.7) million, partially offset by $83.1 million of net proceeds from the sale of real estate. |
Cash Flows from Financing Activities
Significant components of net cash provided by (used in) by financing activities include:
|
− |
In 2020, cash proceeds from sales-leaseback financing, $20.4 million; |
|
− |
In 2020, cash payments of preferred dividends, ($3.7) million; |
|
− |
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. |
Dividends and Distributions
The Company’s Board of Trustees has not declared dividends on the Company’s Class A and Class C common shares during the nine months ended September 30, 2020. The Company’s Board of Trustees declared the following common stock dividends during 2019 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 |
|
The Company’s Board of Trustees declared the following dividends on preferred shares during 2020 and 2019:
|
|
|
|
|
|
|
Series A |
|
|
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Preferred Share |
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
September 17 |
|
September 30 |
|
October 15, 2020 |
|
$ |
0.43750 |
|
|
June 9 |
|
June 30 |
|
July 15 |
|
|
0.43750 |
|
|
February 18 |
|
March 31 |
|
April 15 |
|
|
0.43750 |
|
|
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 |
|
As previously disclosed, the Company declared a dividend on the Company’s Class A and Class C common shares for the first quarter of 2019 and has not declared dividends on the Company’s Class A and Class C common shares since that time, based on our Board of Trustees’ assessment of the Company’s investment opportunities and its expectations of taxable income for the remainder of 2020. The Company intends to, at a minimum, make distributions to our shareholders to comply with the REIT requirements of the Code, which may be satisfied by dividends on the Company’s Series A Preferred shares.
- 41 -
Off-Balance Sheet Arrangements
The Company accounts for its investments in entities 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 entities. As of September 30, 2020, and December 31, 2019, we did not have any off-balance sheet financing arrangements.
Contractual Obligations
There have been no significant changes in the contractual obligations disclosed in our Form 10-K for the year ended December 31, 2019.
Capital Expenditures
The majority of our capital expenditures, tenant improvement costs and leasing commissions are from our retenanting and redevelopment projects described under the caption “—Retenanting and Redevelopment Projects” below.
During the three months ended September 30, 2020, we incurred maintenance capital expenditures of approximately $66 thousand that were not associated with retenanting and redevelopment projects.
During the year ended December 31, 2019, we incurred maintenance capital expenditures of approximately $6.6 million that were not associated with retenanting and redevelopment projects.
Litigation and Other Matters
In accordance with accounting standards regarding loss contingencies, we accrue 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 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, 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.
- 42 -
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.
On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions have been completed, and the parties are awaiting a decision. We believe that the claims against the Seritage Defendants in the Litigation are without merit and intend to defend against them vigorously.
We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business and due to the current environment. 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 condensed consolidated financial position, results of operations or liquidity of the Company.
Retenanting and Redevelopment Projects
During the three months ended September 30, 2020, we continued work on components of certain suburban retail redevelopment projects, including those we had restarted during the three months ended June 30, 2020 and certain spaces that had been previously delivered to tenants. This project activity represents a total investment of approximately $45.8 million, of which approximately $15.5 million was incurred during the three months ended September 30, 2020, and potential annual rental income of approximately $13.5 million, of which $1.3 million commenced during the three months ended September 30, 2020. The balance of the rental income is expected to commence over the next 12 months, subject to tenant opening schedules.
We also continue to perform limited non-tenant construction activity at select properties, including our previously underway premier projects in Aventura (FL), Santa Monica (CA) and La Jolla (CA). We continue to work with tenants to preserve signed leases and modify schedules for project completion.
Additionally, we continue to work with our development partners to obtain project financing and reassess construction schedules for two previously announced multifamily projects, in Redmond (WA) and Dallas (TX), each of which represents the first phase of larger, mixed-use developments. A third previously announced multifamily project in Chicago (IL) was sold during the three months ended September 30, 2020.
The remainder of our previously announced redevelopment projects remain on hold due to the COVID-19 pandemic and the direct impacts on our business. We deem this approach to capital deployment prudent given the uncertainty regarding tenants’ ability to construct and open new stores and the feasibility of sustaining labor levels with safe working conditions, as well as the risk to future rent collections and asset sales, the latter of which has been a meaningful source of capital for our development program.
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, 2019 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. For the nine months ended September 30, 2020, there were no material changes to these policies.
- 43 -
Non-GAAP Supplemental Financial Measures and Definitions
The Company makes reference to NOI, Total NOI, FFO and Company FFO which are financial measures that include adjustments to GAAP.
Net Operating Income ("NOI") and Total NOI
NOI is defined as income from property operations less property operating expenses. Other REITs may use different methodologies for calculating NOI, and accordingly, the Company's depiction of NOI may not be comparable to other REITs. The Company believes NOI provides useful information regarding Seritage, its financial condition, and results of operations because it reflects only those income and expense items that are incurred at the property level.
The Company also uses Total NOI, which includes its proportional share of unconsolidated properties. The Company believes 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.
The Company also considers NOI and Total NOI to be a helpful supplemental measure of its operating performance because it excludes from NOI variable items such as termination fee income, as well as non-cash items such as straight-line rent and amortization of lease intangibles.
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
FFO is calculated in accordance with National Association of REITs which defines FFO as net income computed in accordance with GAAP, excluding gains (or losses) from property sales, real estate related depreciation and amortization, and impairment charges on depreciable real estate assets. The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry.
The Company makes certain adjustments to FFO, which it refers to as Company FFO, to account for certain non-cash and non-comparable items, such as termination fee income, unrealized loss on interest rate cap, litigation charges, acquisition-related expenses, amortization of deferred financing costs and certain up-front-hiring 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 loss for the three and nine months ended September 30, 2020 and September 30, 2019 (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
NOI and Total NOI |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net loss |
|
$ |
(72,401 |
) |
|
$ |
(16,482 |
) |
|
$ |
(103,272 |
) |
|
$ |
(53,261 |
) |
|
Termination fee income |
|
|
(5,300 |
) |
|
|
(5,525 |
) |
|
|
(6,290 |
) |
|
|
(5,525 |
) |
|
Management and other fee income |
|
|
259 |
|
|
|
(795 |
) |
|
|
(119 |
) |
|
|
(2,891 |
) |
|
Depreciation and amortization |
|
|
23,647 |
|
|
|
21,593 |
|
|
|
81,446 |
|
|
|
68,003 |
|
|
General and administrative expenses |
|
|
11,203 |
|
|
|
8,130 |
|
|
|
29,267 |
|
|
|
26,186 |
|
|
Equity in loss of unconsolidated entities |
|
|
335 |
|
|
|
5,616 |
|
|
|
2,551 |
|
|
|
14,338 |
|
|
Loss (gain) on sale of real estate |
|
|
14,706 |
|
|
|
(12,445 |
) |
|
|
(59,959 |
) |
|
|
(45,318 |
) |
|
Impairment of real estate assets |
|
|
14,594 |
|
|
|
— |
|
|
|
16,407 |
|
|
|
— |
|
|
Interest and other income |
|
|
(1,986 |
) |
|
|
(1,416 |
) |
|
|
(2,460 |
) |
|
|
(6,189 |
) |
|
Interest expense |
|
|
22,742 |
|
|
|
22,046 |
|
|
|
66,400 |
|
|
|
67,641 |
|
|
Provision for income taxes |
|
|
226 |
|
|
|
(40 |
) |
|
|
215 |
|
|
|
83 |
|
|
Straight-line rent |
|
|
(1,774 |
) |
|
|
(6,661 |
) |
|
|
3,621 |
|
|
|
(15,625 |
) |
|
Above/below market rental income/expense |
|
|
(1,541 |
) |
|
|
(135 |
) |
|
|
(1,677 |
) |
|
|
(382 |
) |
|
NOI |
|
$ |
4,710 |
|
|
$ |
13,886 |
|
|
$ |
26,130 |
|
|
$ |
47,060 |
|
|
Unconsolidated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOI (before adjustments) |
|
|
1,481 |
|
|
|
1,086 |
|
|
|
4,297 |
|
|
|
8,245 |
|
|
Straight-line rent |
|
|
(136 |
) |
|
|
(98 |
) |
|
|
(407 |
) |
|
|
(37 |
) |
|
Above/below market rental income/expense |
|
|
(76 |
) |
|
|
(213 |
) |
|
|
(616 |
) |
|
|
(1,684 |
) |
|
Termination fee income |
|
|
— |
|
|
|
— |
|
|
|
(293 |
) |
|
|
— |
|
|
Total NOI |
|
$ |
5,979 |
|
|
$ |
14,661 |
|
|
$ |
29,111 |
|
|
$ |
53,584 |
|
The following table reconciles FFO and Company FFO to GAAP net loss for the three and nine months ended September 30, 2020 and September 30, 2019 (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
||||||||||
|
FFO and Company FFO |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
||||
|
Net loss |
|
$ |
(72,401 |
) |
|
$ |
(16,482 |
) |
|
$ |
(103,272 |
) |
|
$ |
(53,261 |
) |
|
|
Real estate depreciation and amortization (consolidated properties) |
|
|
23,158 |
|
|
|
21,011 |
|
|
|
79,946 |
|
|
|
66,386 |
|
|
|
Real estate depreciation and amortization (unconsolidated entities) |
|
|
1,270 |
|
|
|
6,752 |
|
|
|
5,711 |
|
|
|
22,134 |
|
|
|
Loss (gain) on sale of real estate |
|
|
14,706 |
|
|
|
(12,445 |
) |
|
|
(59,959 |
) |
|
|
(45,318 |
) |
|
|
Impairment of real estate assets |
|
|
14,594 |
|
|
|
— |
|
|
|
16,407 |
|
|
|
— |
|
|
|
Dividends on preferred shares |
|
|
(1,225 |
) |
|
|
(1,225 |
) |
|
|
(3,675 |
) |
|
|
(3,675 |
) |
|
|
FFO attributable to common shareholders and unitholders |
|
$ |
(19,898 |
) |
|
$ |
(2,389 |
) |
|
$ |
(64,842 |
) |
|
$ |
(13,734 |
) |
|
|
Termination fee income |
|
|
(5,300 |
) |
|
|
(5,525 |
) |
|
|
(6,290 |
) |
|
|
(5,525 |
) |
|
|
Termination fee income (unconsolidated entities) |
|
|
— |
|
|
|
— |
|
|
|
(293 |
) |
|
|
— |
|
|
|
Amortization of deferred financing costs |
|
|
105 |
|
|
|
106 |
|
|
|
316 |
|
|
|
329 |
|
|
|
Severance costs |
|
|
— |
|
|
|
— |
|
|
|
425 |
|
|
|
— |
|
|
|
Company FFO attributable to common shareholders and unitholders |
|
$ |
(25,093 |
) |
|
$ |
(7,808 |
) |
|
$ |
(70,684 |
) |
|
$ |
(18,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per diluted common share and unit |
|
$ |
(0.36 |
) |
|
$ |
(0.04 |
) |
|
$ |
(1.16 |
) |
|
$ |
(0.25 |
) |
|
|
Company FFO per diluted common share and unit |
|
$ |
(0.45 |
) |
|
$ |
(0.14 |
) |
|
$ |
(1.27 |
) |
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares and Units Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
38,645 |
|
|
|
36,829 |
|
|
|
38,172 |
|
|
|
36,268 |
|
|
|
Weighted average OP units outstanding |
|
|
17,255 |
|
|
|
18,973 |
|
|
|
17,694 |
|
|
|
19,532 |
|
|
|
Weighted average common shares and units outstanding |
|
|
55,900 |
|
|
|
55,802 |
|
|
|
55,866 |
|
|
|
55,800 |
|
|
- 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 2019 Annual Report on Form 10-K.
Interest Rate Fluctuations
As of September 30, 2020, 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, 2020, 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, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, including any material impact from many of our employees working remotely due to the COVID-19 pandemic.
- 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 2019 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 2019 Annual Report on Form 10-K.
The current pandemic of the novel coronavirus (COVID-19) is expected to, and the future outbreak of other highly infectious or contagious diseases may, materially and adversely impact the business of our tenants and materially or adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service our debt obligations and our ability to pay dividends and other distributions to our shareholders.
Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
The COVID-19 pandemic has had, and other pandemics in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity, the U.S. economy and the local economies in which our properties are located and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.
Certain states and cities, including where our tenants conduct their business and where we own properties, have development sites and where our corporate offices are located, have also reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. The Company cannot predict if additional states and cities will implement similar restrictions, when restrictions currently in place will expire or if such restrictions will be implemented again. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate.
These containment measures and other factors have affected operations at the Company’s properties. As of October 30, 2020, approximately 95% of the Company’s in-place tenants (representing 97% of leased GLA and 95% of annual base rent (“ABR”)) were open and/or operating in some capacity and the Company continues to work with tenants to manage rent collections. As of October 30, 2020, the Company had collected 86% of rental income for the three months ended September 30, 2020, and agreed to defer an additional 10%. As of October 30, 2020, the Company had also collected 86% of October 2020 rental income, and agreed to defer an additional 8%. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that additional rental modification agreements will be reached or that tenants will meet their future obligations. Some of our tenants may not re-open even after the aforementioned restrictions are lifted, which could have a material impact on occupancy at our properties which could result in an increase in the number of co-tenancy claims due to falling below required occupancy thresholds and may impact our results.
Furthermore, in the event of any default by a tenant for non-payment of lease charges or early or limited cessation of operations, we might not be able to fully recover and/or experience delays and additional costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with such parties due to potential moratoriums imposed by various jurisdictions in light of the COVID-19 pandemic on landlord initiated commercial eviction and collection actions. One or more of our tenants may seek the protection of the bankruptcy laws as a result of the prolonged impact of the COVID-19 pandemic, which could result in the termination of such tenants’ leases, and consequently causing a reduction in our income. Tenant bankruptcies may make it more difficult for us to lease the remainder of the property or properties in which the bankrupt tenant operates and adversely impact our ability to successfully execute our re-leasing strategy.
Many experts predict that the outbreak will trigger, or may have already triggered, a period of global economic slowdown or a global recession. A sustained downturn in the U.S. economy and reduced consumer spending as well as consumer activity at brick-and-mortar commercial establishments due to the prolonged existence and threat of the COVID-19 pandemic could impose an economic recession in the United States which could impact our tenants’ ability to meet their lease obligations due to poor operating results, lack of liquidity or other reasons and therefore decrease the revenue generated by our properties or the value of our properties. Our ability to lease space and negotiate and maintain favorable rents could also be negatively impacted by a prolonged recession in the U.S.
- 47 -
economy. Moreover, the demand for leasing space in our properties could substantially decline during a significant downturn in the U.S. economy which could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates and lead us to incur significant re-leasing costs.
The COVID-19 pandemic has also led to complete or partial shutdowns of manufacturing facilities and distribution centers in many countries, which could result in temporary or long-term disruptions in our tenants’ supply chains, or otherwise delay the delivery of inventory or other goods necessary for our tenants’ operations. Our tenants may also be negatively impacted if the outbreak of COVID-19 occurs within their workforce or otherwise disrupts their management. Further, certain of our tenants may not have been eligible for or successful in securing stimulus funds under the Coronavirus Aid, Relief, and Economic Security Act of 2020.
In addition, in response to an executive order issued by the Governor of New York, all of our employees based at our executive offices in New York are currently working remotely. The effects of the executive order, including an extended period of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.
The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations, liquidity and cash flows due to, among other factors:
|
|
• |
Difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us; |
|
|
• |
The financial impact could negatively impact our ability to pay dividends to our shareholders; |
|
|
• |
The financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our Term Loan Facility or result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our Incremental Term Loan Facility, conduct asset sales, fund development activity or pay dividends to our shareholders; |
|
|
• |
The worsening of estimated future cash flows due to a change in our plans, policies, or views of market and economic conditions as it relates to one or more of our adversely impacted properties could result in the recognition of substantial impairment charges imposed on our assets; |
|
|
• |
The credit quality of our tenants could be negatively impacted and we may significantly increase our allowance for doubtful accounts; |
|
|
• |
Difficulties completing our redevelopment projects on a timely basis, on budget or at all; |
|
|
• |
A general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to reinvest in or redevelop our properties; and |
|
|
• |
The potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption. |
The extent to which the COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional closures by our tenants of their stores and early terminations by our tenants of their leases could reduce our cash flows, which could impact our ability to pay dividends.
The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents, and future outbreak of other highly infectious or contagious diseases may present, material uncertainty and risk with respect to our business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service our debt obligations and our ability to pay dividends and other distributions to our shareholders. Moreover, many risk factors set forth in the 2019 Annual Report on Form 10-K should be interpreted as heightened risks as a result of the impact of the COVID‑19 pandemic.
- 48 -
|
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.
- 49 -
|
Item 6. |
Exhibits |
|
Exhibit No. |
|
Description |
|
SEC Document Reference |
|||
|
|
|
|
|
|
|||
|
31.1 |
|
|
Filed herewith. |
||||
|
|
|
|
|
|
|||
|
31.2 |
|
|
Filed herewith. |
||||
|
|
|
|
|
|
|||
|
32.1 |
|
|
Furnished herewith. |
||||
|
|
|
|
|
|
|||
|
32.2 |
|
|
Furnished herewith. |
||||
|
|
|
|
|
|
|||
|
101.INS |
|
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. |
|
Filed herewith. |
|||
|
|
|
|
|
|
|||
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
Filed herewith. |
|||
|
|
|
|
|
|
|||
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
Filed herewith. |
|||
|
|
|
|
|
|
|||
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
Filed herewith. |
|||
|
|
|
|
|
|
|||
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
Filed herewith. |
|||
|
|
|
|
|
|
|||
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
Filed herewith. |
|||
|
|
|
|
|
|
|||
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
Filed herewith. |
|||
- 50 -
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.
|
|
|
|
|
SERITAGE GROWTH PROPERTIES |
||
|
|
|
|
||||
|
Dated: November 6, 2020 |
|
|
|
/s/ Benjamin W. Schall |
||
|
|
|
|
|
By: |
|
Benjamin W. Schall |
|
|
|
|
|
President and Chief Executive Officer |
||
|
|
|
|
|
|
||
|
Dated: November 6, 2020 |
|
|
|
/s/ Brian R. Dickman |
||
|
|
|
|
|
By: |
|
Brian R. Dickman |
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
||
- 51 -