UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

Commission file number 001-37420

SERITAGE GROWTH PROPERTIES

(Exact name of registrant as specified in its charter)

Maryland	38-3976287
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

500 Fifth Avenue, Suite 1530, New York, New York	10110
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (212) 355-7800

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Class A common shares of beneficial interest, par value $0.01 per share	SRG	New York Stock Exchange
7.00% Series A cumulative redeemable preferred shares of beneficial interest, par value $0.01 per share	SRG-PA	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐    No  ☒

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. Yes  ☒    No  ☐

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). Yes  ☒    No  ☐

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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐    No  ☒

On June 30, 2020, the last business day of the most recently completed second quarter of the registrant, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $407,000,000 based upon the closing price of $11.40 of the common stock as reported on the New York Stock Exchange on such date.

As of March 9, 2021, the registrant had the following common shares outstanding:

Class	Shares Outstanding
Class A common shares of beneficial interest, par value $0.01 per share	38,903,146
Class B common shares of beneficial interest, par value $0.01 per share	0
Class C common shares of beneficial interest, par value $0.01 per share	0

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Seritage Growth Properties’ Proxy Statement for its 2021 Annual Meeting of Shareholders, to be held May 20, 2021, are incorporated by reference into Part III of this Annual Report on Form 10-K.

SERITAGE GROWTH PROPERTIES

ANNUAL REPORT ON FORM 10-K

DECEMBER 31, 2020

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	30
Item 3.	Legal Proceedings	37
Item 4.	Mine Safety Disclosures	38
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	39
Item 6.	Selected Financial Data	41
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 8.	Financial Statements and Supplementary Data	57
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	57
Item 9A.	Controls and Procedures	57
Item 9B.	Other Information	58
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	58
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	58
Item 13.	Certain Relationships and Related Transactions, and Director Independence	58
Item 14.	Principal Accounting Fees and Services	58
PART IV
Item 15.	Exhibits and Financial Statement Schedule	59
	Signatures	63

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (the “Annual Report”) of Seritage Growth Properties contains statements that constitute forward-looking statements within the meaning of the federal securities laws.  Any statements that do not relate to historical or current facts or matters are forward-looking statements.  You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the opposite of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters.  Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions.  You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events.  Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them.  The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

• Declines in retail, real estate and general economic conditions;

• The impact of ongoing negative operating cash flow on our ability to fund operations and ongoing development;

• The impact of the novel coronavirus (“COVID-19”) pandemic on the business of our tenants and 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;

• Competition in the real estate and retail industries;

• Risks relating to our redevelopment activities and potential acquisition or disposition of properties;

• Failure to achieve expected occupancy and/or rent levels within the projected time frame or at all;

• Contingencies to the commencement of rent under signed leases;

• Our historical exposure to Sears Holdings and the effects of its previously announced bankruptcy filing;

• The litigation filed against us and other defendants in the Sears Holdings adversarial proceeding pending in bankruptcy court;

• The terms of our indebtedness and availability or sources of liquidity;

• Environmental, health, safety and land use laws and regulations;

• Restrictions with which we are required to comply in order to maintain REIT status and other legal requirements to which we are subject; and

• Our relatively limited operating history as an independent public company.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance.  Except as required by law, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors of new information, data or methods, future events or other changes.  For a further discussion of these and other factors that could impact our future results, performance or transactions, see “Item 1A. Risk Factors.”

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PART I

ITEM 1. BUSINESS

The Company

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 for and discretion in the management and control of the Operating Partnership.  Unless otherwise expressly stated or the context otherwise requires, the “Company”, “we,” “us,” and “our” as used herein 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 December 31, 2020, the Company’s portfolio consisted of interests in 183 properties totaling approximately 26.5 million square feet of gross leasable area, including 158 wholly owned properties totaling approximately 24.5 million square feet of gross leasable area (“GLA”) across 41 states and Puerto Rico (the “Wholly Owned Properties”), and interests in 25 properties totaling approximately 1.9 million square feet of GLA across 13 states that are owned in unconsolidated entities (the “Unconsolidated Properties”).

The Company’s mission is to create long-term value for our shareholders by unlocking the value of our portfolio whether through re-leasing, redevelopment, formation of strategic partnerships or other bespoke solutions.

Background

The Company commenced operations on July 7, 2015 following a rights offering to the shareholders of Sears Holding Corporation (“Sears Holdings” or “Sears”) to purchase common shares of Seritage in order to fund, in part, the $2.7 billion acquisition of certain of Sears Holdings’ owned properties and its 50% interests in three joint ventures which were simultaneously leased back to Sears Holdings under master lease agreements (the “Original Master Lease” and the “JV Original Master Leases”, respectively).  

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”).  Subsequently, the Company and certain affiliates of Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., executed a master lease with respect to 51 Wholly Owned Properties (the “Holdco Master Lease”), which became effective when the Bankruptcy Court issued an order approving the rejection of the Original Master Lease.

As of December 31, 2020, the Company did not have any remaining properties leased to Holdco or Sears Holdings after giving effect to the pending termination of the last five Wholly Owned Properties which is scheduled to be completed in March 2021.

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.

COVID-19 Pandemic

The COVID-19 pandemic continues to have a significant impact on the real estate industry in the United States, including the Company’s properties.  As of December 31, 2020, the Company had collected 93% of rental income for the three months ended December 31, 2020, and agreed to defer an additional 4%. As of March 5, 2021, the Company had also collected 95% of January and February 2021 rental income, and agreed to defer an additional 2%. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.

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 intends to continue monetizing appropriate assets and selectively allocating capital to the assets with opportunistic risk-adjusted returns.

As a result of the fluidity and uncertainty surrounding the nation’s response to and limitations as a result of the pandemic, the Company expects that conditions will change, potentially significantly, in future periods and, as such, results for the year ended December 31, 2020 may not be indicative of the Company’s business results 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 for the foreseeable future.

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Business Strategies

The Company’s primary objective is to create value for its shareholders through the re-leasing and redevelopment of the majority of its Wholly Owned Properties and Unconsolidated Properties.  In doing so, the Company intends to meaningfully grow net operating income (“NOI”) while diversifying its tenant base and adding other uses to its properties to more fully realize the value of the portfolio.

In order to achieve its objective, the Company intends to execute the following strategies:

• Maximize value of vast land holdings through accretive densification.  As of December 31, 2020, our portfolio included approximately 2,400 acres of land, or an average of 13 acres per site, and our most significant geographic concentrations were in higher growth markets in California, Florida, Texas and the Northeast.  We believe these land holdings will provide meaningful opportunities to create value through relevant investments and developments that maximize the potential of this additional land.

In particular, we have identified various sites that we believe have the demand and demographic profile to support other uses such as residential, biotechnology, office and others.  Given our fee ownership of these properties and control over parking lots and outparcels, we believe that these sites are well positioned for such value creation opportunities.

• Convert single-tenant buildings into multi-tenant properties at meaningfully higher rents.  We intend to increase NOI and diversify our portfolio by actively redeveloping space at our properties and re-leasing such space to new, diversified tenants at higher rents than those paid for space currently or as formerly occupied by Sears or Kmart prior to redevelopment. This also further diversifies and improves the credit profile and duration of our rental revenue.

• Leverage existing and future joint venture relationships with leading real estate and financial partners.  As of December 31, 2020, we owned interests in 25 Unconsolidated Properties in joint ventures with leading partners specifically chosen for their unique ability to drive value on the specific assets that best suit their and our abilities taken together. We are focused on making sure each party is adding their unique value and working together seamlessly for the ultimate success of the project.

• Maintain a flexible capital structure to support value creation activities.  We intend to maintain a capital structure that provides us with the financial flexibility to leverage the various sources of capital that best fit the needs of the portfolio and the overall business at the most attractive rates. This capital will be used to fund accretive projects that will maximize our cash flow in the short and longer term.  

Significant Tenants

Management believes the Company's portfolio is reasonably diversified and does not contain any other significant concentrations of credit risk.  As of December 31, 2020, the Company's portfolio of 158 Wholly Owned Properties and 25 Unconsolidated Properties was diversified by location across 41 states and Puerto Rico.

Competition

We compete for investment opportunities and prospective tenants with other REITs, real estate partnerships and other real estate companies, private individuals, investment companies, private equity and hedge fund investors, sovereign funds, pension funds, insurance companies, lenders and other investors, including retailer operators that may close stores and pursue similar real estate strategies.  In addition, revenues from our properties are dependent on the ability of our tenants and operators to compete.

Some of our competitors are significantly larger and have greater financial resources and lower costs of capital than we have.  Increased competition will make it more challenging to identify and successfully capitalize on investment opportunities that meet our objectives.  Our ability to compete is also impacted by national and local economic trends, availability of investment alternatives, availability and cost of capital, construction and renovation costs, existing laws and regulations, new legislation and population trends.

As a landlord, we compete in the real estate market with numerous developers and owners of properties, including the shopping centers in which our properties are located.  Some of our competitors have greater economies of scale, relationships with national tenants at multiple properties which are owned or operated by such competitors, access to more resources and greater name recognition than we do.  If our competitors offer space at rental rates below the current market rates or below the rentals we currently charge, or on terms and conditions which include locations at multiple properties, we may lose our existing and/or potential tenants and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options in order to win new tenants and retain tenants when our leases expire.

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Environmental Matters

Our properties are subject to environmental laws regulating, among other things, air emissions, wastewater discharges and the handling and disposal of wastes.  Certain of the properties were built during the time that asbestos-containing building materials were routinely installed in residential and commercial structures.  In addition, a substantial portion of the properties we acquired from Sears Holdings currently include, or previously included, automotive care center facilities and retail fueling facilities, and are or were subject to laws and regulations governing the handling, storage and disposal of hazardous substances contained in some of the products or materials used or sold in the automotive care center facilities (such as motor oil, fluid in hydraulic lifts, antifreeze and solvents and lubricants), the recycling/disposal of batteries and tires, air emissions, wastewater discharges and waste management.  In addition to these products or materials, the equipment in use or previously used at such properties, such as service equipment, car lifts, oil/water separators, and storage tanks, has been subject to increasing environmental regulation relating to, among other things, the storage, handling, use, disposal, and transportation of hazardous materials.  Our leases include, or are expected to include, provisions obligating the operator to comply with applicable environmental laws and to indemnify us if such operator’s noncompliance results in losses or claims against us with respect to environmental matters first arising during such operator’s occupancy.  An operator’s failure to comply could result in fines and penalties or the requirement to undertake corrective actions which may result in significant costs to the operator and thus adversely affect their ability to meet their obligations to us.

Pursuant to U.S. federal, state and local environmental laws and regulations, a current or previous owner or operator of real property may be required to investigate, remove and/or remediate a release of hazardous substances or other regulated materials at, or emanating from, such property.  Further, under certain circumstances, such owners or operators of real property may be held liable for property damage, personal injury and/or natural resource damage resulting from or arising in connection with such releases.  Certain of these laws have been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility.  We also may be liable under certain of these laws for damage that occurred prior to our ownership of a property or at a site where we sent wastes for disposal.  The failure to properly remediate a property may also adversely affect our ability to lease, sell or rent the property or to borrow funds using the property as collateral.

Under the Holdco Master Lease, Holdco is required to indemnify us from certain environmental liabilities at the Wholly Owned Properties before or during the period in which each Wholly Owned Property is leased to Holdco, including removal and remediation of all affected facilities and equipment constituting the automotive care center facilities.  In addition, an environmental reserve was funded concurrently with the formation of the Company in the amount of approximately $12.0 million.  As of December 31, 2020, the balance of the environmental reserve was approximately $9.5 million.

In connection with the ownership of our current or past properties and any properties that we may acquire in the future, we could be legally responsible for environmental liabilities or costs relating to a release of hazardous substances or other regulated materials at or emanating from such property.  We are not aware of any environmental issues that are expected to have a material impact on the operations of our properties. However, we can make no assurances that the discovery of previously unknown environmental conditions or future laws, ordinances or regulations will not impose material environmental liabilities on us, or the current environmental condition of our properties will not be affected by tenants, the condition of land or operations in the vicinity of our properties (such as releases from underground storage tanks), or by third parties unrelated to us.

Insurance

We have comprehensive liability, property and rental loss insurance with respect to our portfolio of properties. We believe that such insurance provides adequate coverage.

REIT Qualification

We elected to be treated as a REIT commencing with the taxable year ended December 31, 2015 and expect to continue to operate so as to qualify as a REIT.  So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on net taxable income that we distribute annually to our shareholders.  In order to qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, including, but not limited to, the real estate qualification of sources of our income, the composition and values of our assets, the amounts we distribute to our shareholders and the diversity of ownership of our stock.  In order to comply with REIT requirements, we may need to forego otherwise attractive opportunities and limit our expansion opportunities and the manner in which we conduct our operations.  See “Risk Factors—Risks Related to Status as a REIT.”

Financial Information about Industry Segments

We currently operate in a single reportable segment, which includes the acquisition, ownership, development, redevelopment, management and leasing of real estate properties.  We review operating and financial results for each property on an individual basis and do not distinguish or group our properties based on geography, size, or type.  We, therefore, aggregate all of our properties into

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one reportable segment due to their similarities with regard to the nature and economics of the properties, tenants and operational process.

Human Capital

We believe that our employees are our most important asset.  As of December 31, 2020, we had 61 full-time employees, all of whom are located in the United States, with the majority located in New York and California.  We strive to hire and develop the top talent in the industry, and we believe that our business offers a unique opportunity for individuals to grow and learn.

During 2020, our number one priority was the health and safety of our team, our families and loved ones, our communities and our partners, including our tenants, contractors, and other stakeholders. We understand the importance of the mental, physical and social health and well-being of our employees and take actions to promote good health such as providing mental health days off.

Our core principles guide how we conduct ourselves and approach the challenges and opportunities that we face. Our core principles are:

- Maintain a diverse and inclusive culture based on respect

- Build relationships for the long term

- Create an environment of constant improvement

- Be entrepreneurial and proactive

- Inspire people and communities through our projects

We believe that diversity and inclusion at all levels of our organization are imperative to our future successes. This means that bringing your authentic self to work every day is seen as an asset. We have focused our diversity and inclusion efforts on employee recruitment, employee engagement, community outreach and in partnering with like-minded organizations. Our organization is comprised of 33% women and 23% people of color.  Our management team, which is defined as Senior Vice Presidents and above, is comprised of 18% women and 18% people of color. We have two members of our Board of Trustees who are diverse candidates. We regularly review our compensation practices to ensure employees from underrepresented groups are not being underpaid relative to others doing the same or similar work. All employees receive training in the prevention and reporting of sexual harassment, discriminatory and abusive conduct in the workplace.

Because the engagement of our employees is important, we encourage a work environment that fosters collaboration across departments and levels. We take pride in being able to have the newest member of the teamwork side-by-side with our most tenured and senior executives.  We believe this encourages creativity, creates opportunities for improvements and efficiencies, and strengthens our team. We regularly solicit feedback from our employees and take actions designed to increase employee engagement.

We depend on our people to create value in our portfolio and company. We offer attractive compensation with comprehensive benefits for employees and their dependents.

Available Information

Our principal offices are located at 500 Fifth Avenue, New York, New York 10110 and our telephone number is (212) 355-7800. Our website address is www.seritage.com. Our reports electronically filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act can be accessed through this site, free of charge, as soon as reasonably practicable after we electronically file or furnish such reports. These filings are also available on the SEC’s website at www.sec.gov. Our website also contains copies of our corporate governance guidelines and code of business conduct and ethics as well as the charters of our audit, compensation and nominating and corporate governance committees. The information on our website is not part of this or any other report we file with or furnish to the SEC.

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ITEM 1A. RISK FACTORS

Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.  If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected.  In that event, the trading price of our common shares of beneficial interest could decline, and you could lose part or all of your investment.

Risk Factor Summary

The following is a summary of the principal factors that make an investment in our securities speculative or risky.

Risks Related to Our Business and Operations

• The COVID-19 pandemic 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 our business.

• We are dependent on the ability of our top tenants to successfully operate their businesses and a failure to operate successfully, including a bankruptcy or insolvency, could have a material adverse effect on our business.

• We may not be able to renew leases or re-lease space at our properties and property vacancies could result in significant capital expenditures.

• Following the Sears Holdings bankruptcy, we have been named as a defendant in litigation that could adversely affect our business, divert management’s attention from our business and subject us to liabilities.

• Real estate investments are relatively illiquid and our pursuit of investments, including redevelopments, in properties may be unsuccessful or fail to meet our expectations.

• Both we and our tenants face a wide range of competition that could affect our ability to operate profitably.

• Rising expenses could reduce cash flow, funds available for future development, and increase development costs.

• We have ongoing capital needs and may not be able to obtain additional financing on acceptable terms. We may incur mortgage indebtedness and other borrowings, which may increase our business risks.

• Changes in federal tax law could materially adversely affect our business by increasing our tax or tax compliance costs, including if we are unable to pass increased taxes on any real estate onto our tenants.

• Changes in building and/or zoning laws may require us to meet additional or more stringent construction requirements.

• Our real estate assets may be subject to impairment charges.

• Properties in our portfolio may be subject to ground leases; if we are found to be in breach of these ground leases or are unable to renew them, we could be materially and adversely affected.

• Certain properties within our portfolio are subject to restrictions, some of which contain a purchase option or right of first refusal or right of first offer in favor of a third party.

• Compliance with the Americans with Disabilities Act may require us to make expenditures.

• Environmental, health, safety and land use laws and regulations may limit or restrict some of our operations and compliance costs or liabilities may materially and adversely affect us.

• Possible terrorist activity or other acts of violence or cybersecurity incidents could adversely affect our financial condition and results of operations.

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• Covenants in our Term Loan Facility may limit our operational flexibility and a covenant breach or default could adversely affect our business and financial condition.

• We have limited operating history as a REIT and an independent public company, and our inexperience may impede our ability to successfully manage our business or implement effective internal controls.

• Our rights and the rights of our shareholders to take action against our trustees and officers are limited.

• Seritage’s and the Operating Partnership’s organizational documents and Maryland law contain provisions that may delay, defer or prevent an acquisition of Class A common shares or a change in control.

• We may experience insurance related losses or insurance proceeds may not be available to us, which could result in a significant loss, decrease anticipated future revenues or cause us to incur unanticipated expense.

• Conflicts of interest may exist between the interests of Seritage shareholders and the interests of holders of Operating Partnership units, which could result in harm the interests of Seritage shareholders.

• ESL exerts substantial influence over us, and its interests may differ from or conflict with the interests of our other shareholders. ESL owns a substantial percentage of the Operating Partnership units, which may be exchanged, and which will result in certain transactions requiring the approval of ESL.

• The businesses of several of our unconsolidated entities are similar to each other and the occurrence of risks that adversely affect one unconsolidated entity could also adversely affect the others.

Risks Related to Status as a REIT

• Qualifying as a REIT involves highly technical and complex provisions of the Code. If we do not qualify to be taxed as a REIT, or fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders. Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

• Dividends payable by REITs do not qualify for the reduced tax rates available for certain “qualified dividends,” but would generally qualify for a partial deduction with respect to certain taxpayers. We may from time to time make distributions to our shareholders in the form of taxable stock dividends, which could result in shareholders incurring tax liability without receiving sufficient cash to pay such tax.

• REIT distribution requirements could adversely affect our ability to execute our business plan. Complying with REIT requirements may cause us to liquidate or forgo otherwise attractive opportunities, including limitations on our ability to hedge effectively, and may cause us to incur tax liabilities.

• Changes in federal tax law affected the taxation of us and may affect the desirability of investing in a REIT. Further legislation or other actions could have a negative effect on us.

Risks Related to Ownership of our Securities

• The market price and trading volume of our securities may be volatile.

• Debt or preferred equity securities, such as the Series A Preferred Shares, rank senior to our common shares and may adversely affect the market price of our common shares.

• The transactions with Sears Holdings and Holdco could give rise to disputes or other unfavorable effects, which could have a material adverse effect on our business, financial condition or results of operations.

• The number of shares available for future sale, our earnings and cash distributions could adversely affect the market price of Class A common shares.

• A lack of active trading market for the Series A Preferred Shares may negatively affect the market value of, and the ability of holders of our Series A Preferred Shares to transfer or sell, their shares.

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• The Series A Preferred Shares are subordinate in right of payment to debt. The interests of holders of Series A Preferred Shares could be diluted by transactions such as the issuance of additional preferred shares.

• Dividends on our preferred shares, including the Series A Preferred Shares, are discretionary.

• Holders of Series A Preferred Shares will have limited voting rights.

Risks Related to Our Business and Operations

The COVID-19 pandemic 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 December 31, 2020, the Company had collected 93% of rental income for the three months ended December 31, 2020, and agreed to defer an additional 4%.  As of March 5, 2021, the Company had also collected 95% of January and February 2021 rental income, and agreed to defer an additional 2%.  While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.  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. 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.

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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.

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 $2.0 billion term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire Hathaway”) 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 Funding Facility (as defined below), 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 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.

We are dependent on the ability of our major tenants, to successfully operate their businesses. Our tenants’ failure to operate their businesses successfully, or the occurrence of an event that has a material adverse effect on the business, financial condition or results of operations of any of our major tenants, could have a material adverse effect on our business, financial condition or results of operations.

A significant portion of our leased properties are leased to our major tenants. As a result, the success of our investments, at least in the short-term, is materially dependent on the financial condition of our major tenants. At any time, our tenants may experience a downturn in their respective businesses that may significantly weaken their financial condition, particularly during periods of economic uncertainty.  This uncertainty may be exacerbated as a result of actual changes in economic conditions, including as a result of market dynamics, trends in consumer income, rising energy prices, tariffs or trade disputes, and natural or manmade disasters, including epidemic or pandemic disease, or the impact of the fear of such changes on consumer behavior.  As a result, our tenants may delay lease commencements, decline to extend or renew leases upon expiration, fail to make rental payments when due, close a number of locations or declare bankruptcy.

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The inability or unwillingness of our any of major tenants to meet rent obligations and other obligations could materially adversely affect our business, financial condition or results of operations, including a reduction in operating cash flow that can be used to pay the interest, principal and other costs and expenses under our financings, or to pay cash dividends to Seritage shareholders.

In addition, certain of our lease agreements require our tenants to pay certain insurance, taxes, utilities and maintenance and repair expenses in connection with the leased properties and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective business, subject to proportionate sharing of expenses and certain other limitations. Our exposure to rental payments from our major tenants as a material source of our rental income may limit our ability to enforce our rights under our lease agreements with such tenants.

The risk of financial failure of, or default in payment by, a major tenant is magnified in situations where we lease multiple properties to a single tenant under a master lease, and we may be limited in our ability to enforce our rights under such agreements.  In such event, we may have been unable to locate a suitable master lessee or a lessee for individual properties at similar rental rates and other obligations and in a timely manner at all, which would have had the effect of reducing our rental revenues.

There can be no assurance as to how our major tenants will perform in the future. Outcomes not currently foreseen by us may occur, any of which could have a material and adverse impact on our business, results of operations and financial condition.

The future bankruptcy or insolvency of any of our tenants could result in the termination of such tenant’s lease and material losses to us.

The future bankruptcy or insolvency of any of our tenants, could diminish the rental revenue we receive from that property or could force us to “take back” tenant space as a result of a default or a rejection of the lease by a tenant in bankruptcy. Any claims against bankrupt tenants for unpaid future rent are subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under their leases or no payments at all. In addition, any claim we have for unpaid past rent may not be paid in full. Federal law may prohibit us from evicting a tenant based solely upon its recent bankruptcy filing (or a tenant in the event of such tenant’s bankruptcy or insolvency). We may also be unable to re-lease a terminated or rejected space or re-lease it on comparable or more favorable terms. If we do re-lease rejected space, we may incur costs for brokerage, marketing and tenant expenses.

Bankruptcy laws afford certain protections to tenants that may also affect the treatment of master leases. Subject to certain restrictions, a tenant under a master lease generally is required to assume or reject the master lease as a whole, rather than making the decision on a property-by-property basis. This prevents the tenant from assuming only the better performing properties and terminating the master lease with respect to the poorer performing properties.

We may not be able to renew leases or re-lease space at our properties and property vacancies could result in significant capital expenditures.

When leases for our properties expire or are terminated, the premises may not be re-leased in a timely manner or at all, or the terms of re-leasing, including the cost of allowances and concessions to tenants, may be less favorable than the then-existing lease terms. The loss of a tenant through lease expiration or other circumstances may require us to spend (in addition to other re-letting expenses) significant amounts of capital to renovate the property before it is suitable for a new tenant and cause us to incur significant costs in the form of ongoing expenses for property maintenance, taxes, insurance and other expenses. Many of the leases we will enter into or acquire may be for properties that are especially suited to the particular business of the tenants operating on those properties. Because these properties have been designed or physically modified for a particular tenant, if the current lease is terminated or not renewed, we may be required to renovate the property at substantial costs, decrease the rent we charge or provide other concessions to re-lease the property. In addition, if we are required or otherwise determine to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed or modified. This potential illiquidity may limit our ability to quickly modify our portfolio in response to changes in economic or other conditions, including tenant demand. Also, we may not be able to lease new properties to an appropriate mix of tenants or for rents that are consistent with our expectations. To the extent that our leasing plans are not achieved or we incur significant capital expenditures as a result of property vacancies, our business, results of operations and financial condition could be materially adversely affected.

Following the Sears Holdings bankruptcy, we have been named as a defendant in litigation that could adversely affect our business and financial condition, divert management’s attention from our business, and subject us to significant liabilities, including remedies that may be imposed as a result of a finding of fraudulent conveyance.

On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, plaintiffs Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC commenced a litigation (the “Litigation”) in the Bankruptcy Court naming us and certain of our affiliates, as well as

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affiliates of ESL Investments, Inc. and Sears Holdings, and certain other third parties, as 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 initial complaint has been superseded by the Amended Complaint described below.

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 11 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 Official Committee of Unsecured Creditors’ (the “Creditors’ Committee”). 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 November 25, 2019, the Creditors’ Committee filed a first amended complaint (the “Amended Complaint”) in the Bankruptcy Court naming us and certain of our affiliates, as well as affiliates of ESL Investments, Inc. and Sears Holdings, and certain other third parties, as defendants. The Amended Complaint alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 (including the July 2015 transactions giving rise to Seritage, the execution of the Master Lease with Sears Holdings (the “Original Master Lease”), and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings and that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth hundreds of millions of dollars more than the purchase price paid.  The Amended Complaint further alleges that certain releases provided to Seritage and certain other defendants in connection with the Sears Holdings derivative litigation in the Delaware Court of Chancery in 2017 should be avoided and/or declared null and void as an actual and/or constructive fraudulent conveyance.  The Amended Complaint seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers, disgorgement, recovery of the property fraudulently transferred or, in the alternative, compensatory damages in an unspecified amount to be determined at trial, equitable subordination and disallowance of defendants’ claims as creditors, punitive and exemplary damages for any intentional wrongdoing, and reasonable attorneys’ fees, costs, and expenses.  On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the Amended Complaint relating to the release received in the Sears Holdings derivative litigation unjust enrichment and equitable subordination.

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 were completed in August 2020, 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.

Fraudulent transfers or conveyances include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors, or transfers made or obligations incurred in exchange for less than reasonably equivalent value when the debtor was, or was rendered, insolvent, inadequately capitalized or unable to pay its debts as they become due. To remedy a fraudulent conveyance, a court could void the challenged transfer or obligation, requiring us to return consideration that we received, or impose substantial liabilities upon us for the benefit of unpaid creditors of the debtor that made the fraudulent conveyance, which could adversely affect our financial condition and our results of operations. Among other things, a court could require our shareholders to return to Sears Holdings or its creditors some or all of the securities issued in the distribution made in connection with the formation of Seritage.

Although we believe that the claims against us in the Litigation are without merit and intend to defend against them vigorously, we are not able to predict the ultimate outcome of the Litigation, the magnitude of any potential losses or the effect such litigation may have on us or our operations. It is possible that the Litigation could cause us to incur substantial costs and that they could be resolved adversely to us, result in substantial damages or other forms of relief, result in or be connected to additional claims, affect our relations with counterparties to commercial transactions and divert management’s attention and resources, any of which could harm our business. Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, results of operations or financial condition and could subject us to adverse publicity and require us to incur significant legal fees.  Please see Note 9 – Commitments and Contingencies – in this Annual Report on Form 10-K for additional information regarding the Litigation.

Real estate investments are relatively illiquid.

Our properties represent a substantial portion of our total consolidated assets, and these investments are relatively illiquid. Significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes, insurance, and repair and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. If income from a property declines while the related expenses do not decline, our income and cash available to us would be adversely affected. If it becomes necessary or desirable for us to dispose of one or more of our mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt or other costs and expenses. As a result, our ability to

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sell one or more of our properties or investments in real estate in response to any changes in economic or other conditions may be limited. If we want to sell a property, we may not be able to dispose of it in the desired time period or at a sale price that would exceed the cost of our investment in that property. In addition, our ability to enter into asset sales or joint ventures is subject to among other uncertainties, our ability to identify prospective purchasers, the willingness of prospective purchasers to enter into transactions on commercially reasonable terms, negotiations with counterparties, satisfactory examination of property and title by the purchasers, the ability to obtain title and other relevant insurance, applicable consent rights of the lender under our term loan facility, the ability of purchasers to obtain adequate financing, and customary closing conditions.

The number of potential buyers for certain properties that we may seek to sell may be limited by the presence of such properties in retail or mall complexes owned or managed by other property owners. If we decide to sell any of our properties, we may provide financing to purchasers and bear the risk that the purchasers may default, which may delay or prevent our use of the proceeds of the sales for other purposes or the distribution of such proceeds to our shareholders.

Both we and our tenants face a wide range of competition that could affect our ability to operate profitably.

The presence of competitive alternatives, both to our properties and the businesses that lease our properties, affects our ability to lease space and the level of rents we can obtain. Our properties operate in locations that compete with other retail properties and also compete with other forms of retailing, such as catalogs and e-commerce websites. Competition may also come from strip centers, outlet centers, lifestyle centers and malls, and both existing and future development projects. New construction, renovations and expansions at competing sites could also negatively affect our properties. In addition, we compete with other retail property companies for tenants and qualified management. These other retail property companies may have relationships with tenants that we do not have since we have a limited operating history, including with respect to national chains that may be desirable tenants. If we are unable to successfully compete, our business, results of operations and financial condition could be materially adversely affected. See also “Item 1. Business - Competition.”

In addition, the retail business is highly competitive and if our retail tenants fail to differentiate their shopping experiences, create an attractive value proposition or execute their business strategies, they may terminate, default on, or fail to renew their leases with us, and our results of operations and financial condition could be materially adversely affected. Furthermore, we believe that the increase in digital and mobile technology usage has increased the speed of the transition from shopping at physical locations to web-based purchases and that our tenants, including Holdco, may be negatively affected by these changing consumer spending habits. If our tenants are unsuccessful in adapting their businesses, and, as a result terminate, default on, or fail to renew their leases with us, our results of operations and financial condition could be materially adversely affected.

Our pursuit of investments in and redevelopment of properties, and investments in and acquisitions or development of additional properties, may be unsuccessful or fail to meet our expectations.

We intend to grow our business through investments in, and acquisitions or development of, properties, including through the recapture and redevelopment of space at many of our properties. However, our industry is highly competitive, and we face competition from other REITs, investment companies, private equity and hedge fund investors, sovereign funds, lenders, and other investors, some of whom are significantly larger and have greater resources and lower costs of capital. This competition will make it more challenging to identify and successfully capitalize on acquisition and development opportunities that meet our investment objectives. If we are unable to finance acquisitions or other development opportunities on commercially favorable terms, our business, financial condition or results of operations could be materially adversely affected. Additionally, the fact that we must distribute 90% of our net taxable income in order to maintain our qualification as a REIT may limit our ability to rely upon rental payments from leased properties or subsequently acquired properties in order to finance acquisitions. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions or other development opportunities might be limited or curtailed.

Investments in, and acquisitions of, properties we might seek to acquire entail risks associated with real estate investments generally, including (but not limited to) the following risks and as noted elsewhere in this section:

• we may be unable to acquire a desired property because of competition;

• even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price;

• even if we enter into agreements for the acquisition of properties, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction;

• we may incur significant costs and divert management attention in connection with evaluation and negotiation of potential acquisitions, including ones that we are subsequently unable to complete;

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• we may acquire properties that are not initially accretive to our results upon acquisition, and we may not successfully manage and lease those properties to meet our expectations;

• we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all;

• even if we are able to finance the acquisition, our cash flow may be insufficient to meet our required principal and interest payments;

• we may spend more than budgeted to make necessary improvements or renovations to acquired properties;

• we may be unable to quickly and efficiently integrate new acquisitions, particularly the acquisition of portfolios of properties, into our existing operations;

• market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and

• we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities.

In addition, we intend to redevelop a significant portion of the properties after termination or recapture of asset from the Holdco Master Lease or Original Master Lease in order to make space available for lease to additional retail tenants and potentially other lessees for other uses. The redevelopment of these properties involves the risks associated with real estate development activities generally. If we are unable to successfully redevelop properties or to lease the redeveloped properties to third parties on acceptable terms, our business, results of operations and financial condition could be materially adversely affected.

Current and future redevelopment may not yield expected returns.

We expect to undertake redevelopment, expansion and reinvestment projects involving our properties as part of our long-term strategy. Likewise, each unconsolidated entity expects to undertake redevelopment, expansion and reinvestment projects involving its Unconsolidated Properties, with respect to which we may be required to make additional capital contributions to the applicable unconsolidated entity under certain circumstances. These projects are subject to a number of risks, including (but not limited to):

• abandonment of redevelopment activities after expending resources to determine feasibility;

• loss of rental income, as well as payments of maintenance, repair, real estate taxes and other charges, including from Holdco related to space that is recaptured pursuant to the Holdco Master Lease, which may not be re-leased to third parties;

• restrictions or obligations imposed pursuant to other agreements;

• construction and/or lease-up costs (including tenant improvements or allowances) and delays and cost overruns, including construction costs that exceed original estimates;

• failure to achieve expected occupancy and/or rent levels within the projected time frame or at all;

• inability to operate successfully in new markets where new properties are located;

• failure to successfully manage, or find suitable third-party development partners for, the development of residential, office or other mixed-use properties;

• inability to successfully integrate new or redeveloped properties into existing operations;

• difficulty obtaining financing on acceptable terms or paying operating expenses and debt service costs associated with redevelopment properties prior to sufficient occupancy and commencement of rental obligations under new leases;

• changes in zoning, building and land use laws, and conditions, restrictions or limitations of, and delays or failures to obtain, necessary zoning, building, occupancy, land use and other governmental permits;

• changes in local real estate market conditions, including an oversupply of, or a reduction in demand for, retail space or retail goods, and the availability and creditworthiness of current and prospective tenants;

• negative perceptions by retailers or shoppers of the safety, convenience and attractiveness of the property;

• exposure to fluctuations in the general economy due to the significant time lag between commencement and completion of redevelopment projects; and

• vacancies or ability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or below-market renewal options.

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If any of these events occur at any time during the process with respect to any project, overall project costs may significantly exceed initial cost estimates, which could result in reduced returns or losses from such investments. In addition, we may not have sufficient liquidity to fund such projects, and delays in the completion of a redevelopment project may provide various tenants the right to withdraw from a property.

Rising expenses could reduce cash flow and funds available for future development.

If any property is not fully occupied or becomes vacant in whole or in part, or if rents are being paid in an amount that is insufficient to cover operating costs and expenses, we could be required to expend funds with respect to that property for operating expenses. Our properties are subject to increases in tax rates and tax assessments, utility costs, insurance costs, repairs, maintenance and administrative expenses, and other operating expenses. We may also incur significant expenditures as a result of deferred maintenance for the properties we have already acquired (subject to reserved funds to cover certain of these costs) and other properties we may acquire in the future. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions and other operating expenses, we could be required to pay those costs which could adversely affect funds available for future development or cash available for distributions.

We have ongoing capital needs and may not be able to obtain additional financing or other sources of funding on acceptable terms.

As of December 31, 2020, we had aggregate outstanding indebtedness of $1.6 billion. We may incur additional indebtedness in the future to refinance our existing indebtedness, to finance newly acquired properties or capital contributions to joint ventures, or to fund retenanting and redevelopment projects. Our existing debt and any significant additional indebtedness could require a substantial portion of our cash flow to make interest and principal payments. Demands on our cash resources from debt service will reduce funds available to us to pay dividends, make capital expenditures and acquisitions or carry out other aspects of our business strategy. Our indebtedness may also limit our ability to adjust rapidly to changing market conditions, make us more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for us compared to other companies with relatively lower debt levels. Increased future debt service obligations may limit our operational flexibility, including our ability to acquire properties, finance or refinance our properties, contribute properties to joint ventures or sell properties as needed.

Our primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service, and the reinvestment in and redevelopment of our properties.  As a result of a decrease in occupancy levels due to our recapture of space for redevelopment purposes and the execution of termination rights under the Original Master Lease and Holdco Master Lease, our property rental income, which is our primary source of operating cash flow, did not fully fund property operating and other expenses incurred during the year ended December 31, 2020. Property operating and other expenses are projected to continue to exceed property rental income until such time as additional tenants commence paying rent, and we plan to incur additional development expenditures as we continue to invest in the redevelopment of our portfolio. While we do not currently have the liquid funds available to fully fund projected property and other expenses and planned development expenditures, we expect to fund these uses of cash with a combination of capital sources including, but not limited to, sales of Wholly Owned Properties, sales of interests in Unconsolidated Properties and potential credit and capital markets transactions, subject to compliance with certain conditions and/or the consent of our lender under our Term Loan Facility.

As of December 31, 2020, we were not in compliance with certain financial metrics applicable to us under the agreements governing our term loan facility. As a result, we must receive the consent of the lender to dispose of assets via sale or joint venture and, as of December 31, 2020, the lender 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.  Additionally, the lender has the right to request mortgages against our assets pursuant to the mortgage and collateral requirement. During the year ended December 31, 2019, the lender requested mortgages on a majority of our portfolio, and then during the year ended December 31, 2020, the lender requested mortgages on the remaining unencumbered assets.

The Term Loan Facility also provides for a $400 million incremental facility (the “Incremental Funding Facility”). Our ability to access the Incremental Funding Facility is subject to (i) our 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 $200 million (ii) our good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under the amendment to the Term Loan Agreement (as defined below) as further described below.

We may be unable to obtain additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under any indebtedness outstanding from time to time. Among other things, the absence of an

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investment grade credit rating or any credit rating downgrade could increase our financing costs and could limit our access to financing sources. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to enhance our properties or develop new properties, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. A decrease in available liquidity could also impair our ability to pay dividends to our shareholders.

If additional funds are raised through the issuance of equity securities, our shareholders may experience significant dilution. Additionally, sales of substantial amounts of Class A common shares in the public market, or the perception that such sales could occur, could adversely affect the market price of Class A common shares, may make it more difficult for our shareholders to sell their common shares at a time and price that they deem appropriate, and could impair our future ability to raise capital through an offering of our equity securities.

Changes in federal tax law could materially adversely affect our business, financial condition and profitability by increasing our tax or tax compliance costs.

On December 20, 2017, the U.S. Congress passed Public Law No. 115-97, known as the “Tax Cuts and Jobs Act of 2017” (the “TCJA”), which was signed into law on December 22, 2017. The enactment of the TCJA has given rise to numerous interpretive issues and ambiguities and future legislation may be enacted to clarify or modify the TCJA. In addition, federal legislation intended to ameliorate the economic impact of the COVID-19 pandemic has been enacted that makes technical corrections to, or modifies on a temporary basis, certain provisions of the TCJA, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law as Public Law No. 116-136 on March 27, 2020.   It is possible that additional legislation may be enacted in the future. Any such future legislation, as well as any regulations or other interpretive guidance, could take effect retroactively, and could adversely affect our business and financial condition increasing our tax or tax compliance costs. The impact of any such law, regulation or interpretation may have a material and adverse impact on us and our shareholders.

Real estate related taxes may increase, and if these increases are not passed on to tenants, our income will be reduced.

Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisitions and/or redevelopment of properties. Generally, from time to time, our property taxes increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some leases may permit us to pass through such tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will reduce our income and the cash available for distributions to our shareholders.

Changes in building and/or zoning laws may require us to update a property or prevent us from fully restoring a property in the event of a substantial casualty loss and/or require us to meet additional or more stringent construction requirements.

Due to changes in, among other things, applicable building and zoning laws, ordinances and codes that may affect certain of our properties that have come into effect after the initial construction of the properties, certain properties may not comply fully with current building and/or zoning laws, including electrical, fire, health and safety codes and regulations, use, lot coverage, parking and setback requirements, but may qualify as permitted non-conforming uses. Such changes in building and zoning laws may require updating various existing physical conditions of buildings in connection with our recapture, renovation, and/or redevelopment of properties. In addition, such changes in building and zoning laws may limit our or our tenants’ ability to restore the premises of a property to its previous condition in the event of a substantial casualty loss with respect to the property or the ability to refurbish, expand or renovate such property to remain compliant, or increase the cost of construction in order to comply with changes in building or zoning codes and regulations. If we are unable to restore a property to its prior use after a substantial casualty loss or are required to comply with more stringent building or zoning codes and regulations, we may be unable to re-lease the space at a comparable effective rent or sell the property at an acceptable price, which may materially and adversely affect us.

Our real estate assets may be subject to impairment charges.

On a periodic basis, we must assess whether there are any indicators that the value of our real estate assets and other investments may be impaired. If an impairment indicator is identified, a property’s value is considered to be impaired only if management’s estimate of current and projected operating cash flows (undiscounted and unlevered), taking into account the anticipated and probability weighted holdings periods, are less than the carrying value of the property. In our estimate of cash flow projections, we consider factors such as expected future operating income, trends and prospects, the effects of demand, competition and other factors. If we are evaluating the potential sale of an asset or development alternatives, the undiscounted future cash flows consider the most likely course of action at the balance sheet date based on current plans, intended holding periods and available market information. We are required to make subjective assessments as to whether there are impairments in the value of our real estate assets and other investments. These assessments may have a direct impact on our earnings because recording an impairment charge results in an immediate negative

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adjustment to earnings. We may take impairment charges in the future related to the impairment of our assets, and any future impairment could have a material adverse effect on our results of operations in the period in which the impairment charge is taken.

Properties in our portfolio may be subject to ground leases; if we are found to be in breach of these ground leases or are unable to renew them, we could be materially and adversely affected.

We currently have two properties in our wholly-owned portfolio that are on land subject to a ground lease. Accordingly, we only own a long-term leasehold in the land underlying these properties, and we own the improvements thereon only during the term of the ground lease. In the future, our portfolio may include additional properties subject to ground leases or similar interests. If we are found to be in breach of a ground lease, we could lose the right to use the property and could also be liable to the ground lessor for damages. In addition, unless we can purchase a fee interest in the underlying land or extend the terms of these leases before their expiration, which we may be unable to do, we will lose our right to operate these properties and our interest in the improvements upon expiration of the leases. Our ability to exercise options to extend the term of our ground lease is subject to the condition that we are not in default under the terms of the ground lease at the time that we exercise such options, and we may not be able to exercise our options at such time. In addition, two Unconsolidated Properties are currently ground leased or leased and, therefore, subject to similar risks. Furthermore, we may not be able to renew our ground lease or future ground leases upon their expiration (after the exercise of all renewal options). If we were to lose the right to use a property due to a breach or non-renewal or final expiration of the ground lease, we would be unable to derive income from such property, which could materially and adversely affect our business, financial conditions or results of operations.

Certain properties within our portfolio are subject to restrictions pursuant to reciprocal easement agreements, operating agreements, or similar agreements, some of which contain a purchase option or right of first refusal or right of first offer in favor of a third party.

Many of the properties in our portfolio are, and properties that we acquire in the future may be, subject to use restrictions and/or operational requirements imposed pursuant to ground leases, restrictive covenants or conditions, reciprocal easement agreements or operating agreements (collectively, “Property Restrictions”) that could adversely affect our ability to redevelop the properties or lease space to third parties. Such Property Restrictions could include, for example, limitations on alterations, changes, expansions, or reconfiguration of properties; limitations on use of properties, including for retail uses only; limitations affecting parking requirements; restrictions on exterior or interior signage or facades; or access to an adjoining mall, among other things. In certain cases, consent of the other party or parties to such agreements may be required when altering, reconfiguring, expanding, redeveloping or re-leasing properties. Failure to secure such consents when necessary may harm our ability to execute leasing, redevelopment or expansion strategies, which could adversely affect our business, financial condition or results of operations. In certain cases, a third party may have a purchase option or right of first refusal or right of first offer that is activated by a sale or transfer of the property, or a change in use or operations, including a closing of the Sears operation or cessation of business operations, on the encumbered property.  From time to time, we have been involved in disputes or legal proceedings relating to such Property Restrictions, which may result in the incurrence of legal costs and diversion of management resources to resolve.

Economic conditions may affect the cost of borrowing, which could materially adversely affect our business.

Our business is affected by a number of factors that are largely beyond our control but may nevertheless have a significant negative impact on us. These factors include, but are not limited to:

• interest rates and credit spreads;

• the availability of credit, including the price, terms and conditions under which it can be obtained;

• a decrease in consumer spending or sentiment, including as a result of increases in savings rates and tax increases, and any effect that this may have on retail activity;

• the actual and perceived state of the real estate and retail markets, market for dividend-paying stocks and public capital markets in general; and

• unemployment rates, both nationwide and within the primary markets in which we operate.

In addition, economic conditions such as inflation or deflation could materially adversely affect our business, financial condition and results of operations. Deflation may have an impact on our ability to repay our debt. Deflation may delay consumption and thus weaken tenant sales, which may reduce our tenants’ ability to pay rents. Deflationary pressure on retailers may diminish their ability to rent our space and decrease our ability to re-lease the space on favorable terms to us. In an inflationary economic environment, increased inflation may have a pronounced negative impact on the interest expense we pay in connection with our indebtedness and our general and administrative expenses, as these costs could increase at a rate higher than rents we collect. Also, inflation may

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adversely affect tenant leases with stated rent increases, which could be lower than the increase in inflation at any given time. Inflation could also have an adverse effect on consumer spending, which could impact our tenants’ sales and, in turn, our own results of operations. Restricted lending practices may impact our ability to obtain financing for our properties and may also negatively impact our tenants’ ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.

Compliance with the Americans with Disabilities Act may require us to make expenditures that adversely affect our cash flows.

The Americans with Disabilities Act (the “ADA”) has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. While the tenants to whom our properties are leased are generally obligated by law or lease to comply with the ADA provisions applicable to the property being leased to them, if required changes involve other property not being leased to such tenants, if the required changes include greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs could be adversely affected. Moreover, certain other leases may require the landlord to comply with the ADA with respect to the building as a whole and/or the tenant’s space. As a result of any of the foregoing circumstances, we could be required to expend funds to comply with the provisions of the ADA, which could adversely affect our results of operations and financial condition.

Environmental, health, safety and land use laws and regulations may limit or restrict some of our operations or otherwise cause us to incur significant costs.

As the owner or operator of various real properties and facilities, we must comply with various federal, state and local environmental, health, safety and land use laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances and employee health and safety, as well as zoning restrictions. A substantial portion of our properties that have resulted in certain remediation activities currently include, or previously included, automotive care center facilities and retail fueling facilities, and/or above-ground or underground storage tanks, and are or were subject to laws and regulations governing the handling, storage and disposal of hazardous substances contained in some of the products or materials used or sold in the automotive care center facilities (such as gasoline, motor oil, fluid in hydraulic lifts, antifreeze, solvents and lubricants), the recycling/disposal of batteries and tires, air emissions, wastewater discharges and waste management. In addition to these products, the equipment in use or previously used at such properties, such as service equipment, car lifts, oil/water separators, and storage tanks, has been subject to increasing environmental regulation relating to, among other things, the storage, handling, use, disposal and transportation of hazardous materials. There are also federal, state and local laws, regulations and ordinances that govern the use, removal and/or replacement of underground storage tanks in the event of a release on, or an upgrade or redevelopment of, certain properties. Such laws, as well as common-law standards, may impose liability for any releases of hazardous substances associated with the underground storage tanks and may provide for third parties to seek recovery from owners or operators of such properties for damages associated with such releases. If hazardous substances are released from any underground storage tanks on any of our properties, we may be materially and adversely affected. In a few states, transfers of some types of sites are conditioned upon clean-up of contamination. If any of our properties are subject to such contamination, we may be subject to substantial clean-up costs in order to sell or otherwise transfer the property.

As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material (or “ACM”). Environmental, health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements.  These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs.  In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment.  In addition, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or increase ventilation and/or expose us to liability from our tenants, employees of our tenants, or others if property damage or personal injury occurs.

Moreover, additional laws which may be passed in the future, or a finding of a violation of or liability under existing laws, could require us and/or one or more of the unconsolidated entities to make significant expenditures and otherwise limit or restrict some of our or its or their operations, which could have an adverse effect on our business, financial condition and results of operations.

Environmental costs and liabilities associated with contamination at real estate properties owned by us may materially and adversely affect us.

Our properties may be subject to known and unknown environmental liabilities under various federal, state and local laws and regulations relating to human health and the environment. Certain of these laws and regulations may impose joint and several liability on certain statutory classes of persons, including current and former owners or operators, for the costs of investigation or remediation

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of contaminated properties. These laws and regulations apply to past and present business operations on the properties, including the use, storage, handling and recycling or disposal of hazardous substances or wastes. We may face liability for costs relating to the investigation and clean-up of any of our properties from which there has been a release or threatened release of hazardous substances or other regulated material or any third-party sites to which we have arranged for the disposed of hazardous substances, regardless of our knowledge of the contamination, the timing of the contamination, the cause of the contamination or the party responsible for the contamination of the property.

In addition to these costs, which could exceed a property’s value, we could be liable for certain other costs, including governmental fines, and injuries to persons, property or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs the government incurs in connection with such contamination. Any such costs or liens could have a material adverse effect on our business or financial condition. Moreover, the presence of contamination or the failure to remediate contamination may adversely affect our ability to sell or lease the real estate or to borrow using the real estate as collateral.

The Original Master Lease contained requirements that Sears Holdings indemnify us from certain environmental liabilities; however, following Sears Holdings’ bankruptcy, there can be no assurance that we would be able to collect any amounts due under such indemnification obligations. Under the Holdco Master Lease, Holdco is required to indemnify us from certain environmental liabilities at certain properties, including removal and remediation of all affected facilities and equipment constituting the automotive care center facilities. Although existing and future leases are expected to require tenants generally to indemnify us for their non-compliance with environmental laws as a result of their occupancy, such tenants typically will not be required to indemnify us for environmental non-compliance arising prior to their occupancy.   In such cases, we may incur costs and expenses under such leases or as a matter of law. The amount of any environmental liabilities could exceed the amounts for which Holdco or other third parties would be required to indemnify us (or the applicable unconsolidated entity) or their financial ability to do so. In addition, under the terms of the agreements governing our indebtedness, we have deposited funds in a reserve account that will be used to fund costs incurred in correcting certain environmental and other conditions. The amount of such funds may not be sufficient to correct the environmental and other conditions to which they are expected to be applied.

Each unconsolidated entity is subject to similar risks relating to environmental compliance costs and liabilities associated with its Unconsolidated Properties, which may reduce the value of our investment in, or distributions to us by, one or more unconsolidated entities, or require that we make additional capital contributions to one or more unconsolidated entities.

Our business faces potential risks associated with natural disasters, severe weather conditions and climate change and related legislation and regulations, which could have an adverse effect on our cash flow and operating results.

Climate change may add to the unpredictability and frequency of natural disasters and severe weather conditions and create additional uncertainty as to future trends and exposures. Certain of our properties are located in areas that are subject to natural disasters and severe weather conditions, such as hurricanes, droughts, snow storms, floods and fires.  Over time, the impact of climate change or the occurrence of natural disasters can delay new development and redevelopment projects, increase the costs of such projects if required to include resiliency measures to address climate-related risks, increase investment costs to repair or replace damaged properties, increase operating costs, create additional investment costs to make improvements to existing properties to comply with climate change regulations, increase future property insurance costs, and otherwise negatively impact the tenant demand for space. In addition, changes in federal, state and local legislation and regulations relating to climate change, such as “green building codes,” could result in increased operating expenses and capital expenditures to improve the energy efficiency of our properties, or potentially result in fines for noncompliance.  We may not be able to effectively pass on such costs to our tenants. Moreover, any such legislation and regulations could impose substantial costs on our tenants, thereby impacting the financial condition of our tenants and their ability to meet their lease obligations and to lease or re-lease our properties.

Possible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations.

Terrorist attacks or other acts of violence may result in declining economic activity, which could harm the demand for goods and services offered by our tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand, could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. Terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be lower or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent that our tenants are affected by future attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our new or redeveloped properties, and limit our access to capital or increase our cost of raising capital.

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Cybersecurity incidents could cause a disruption to our operations, a compromise of confidential information and damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.

Seritage is susceptible to cybersecurity risks that include, among other things, theft, unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks; unauthorized access to relevant systems, compromises to networks or devices; or operational disruption or failures in the physical infrastructure or operating systems of Seritage’s information systems. Seritage’s information systems are essential to the operation of our business and our ability to perform day-to-day operations, including for the secure processing, storage and transmission of confidential and personal information. Seritage must continuously monitor and develop its systems to protect its technology infrastructure and data from misappropriation, corruption and disruption. Cybersecurity risks may also impact properties in which we invest on behalf of clients and tenants of those properties, which could result in a loss of value in our clients’ investment. In addition, due to Seritage’s interconnectivity with third-party service providers and other entities with which Seritage conducts business, Seritage could be adversely impacted if any of them is subject to a successful cyber incident. Although we and our service providers have implemented processes, procedures and controls to help mitigate these risks, there can be no assurance that these measures will be effective or that security breaches or disruptions will not occur. The result of these incidents may include disrupted operations, liability for loss or misappropriation of data, stolen assets or information, increased cybersecurity protection and insurance costs, increased compliance costs, litigation, regulatory enforcement actions and damage to our reputation or business relationships.

We may incur mortgage indebtedness and other borrowings, which may increase our business risks.

We may incur mortgage debt and pledge all or some of our real properties as security for that debt to finance newly acquired properties or capital contributions to joint ventures, or to fund retenanting and redevelopment projects. As of December 31, 2019, we were required to provide mortgages to the lender under our term loan facility on a majority of our portfolio. This restriction, together with the other provisions of the Term Loan Facility, will limit our ability to obtain additional secured financing using such properties as collateral. We may also borrow if we need funds or deem it necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on a property, then the amount available for distributions to shareholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default. For U.S. federal income tax purposes, a foreclosure of any of our properties generally would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In such event, the Company may be unable to pay the amount of distributions required in order to maintain its REIT status. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any properties are foreclosed upon due to a default, our ability to pay cash distributions to our shareholders may be adversely affected.

Covenants in our Term Loan Facility may limit our operational flexibility and a covenant breach or default could adversely affect our business and financial condition.

Our Term Loan Facility includes certain financial metrics to govern certain collateral and covenant exceptions set forth in the agreement, including: (i) a total fixed charge coverage ratio of not less than 1.00 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.20 to 1.00 for each fiscal quarter thereafter; (ii) an unencumbered fixed charge coverage ratio of not less than 1.05 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.30 to 1.00 for each fiscal quarter thereafter; (iii) a total leverage ratio of not more than 65%; (iv) an unencumbered ratio of not more than 60%; and (v) a minimum net worth of at least $1.2 billion. Any failure to satisfy any of these financial metrics will limit our ability to dispose of assets via sale or joint venture and trigger a requirement for us to provide mortgage collateral to our lender, but will not result in an event of default, mandatory amortization, cash flow sweep or similar provision. As of December 31, 2019, we were in breach of one or more of the financial metrics described above, as a result of which we were required to provide mortgages to the lender under the Term Loan Facility with respect to a majority of our portfolio. Additionally, the lender under our Term Loan Facility has the right to consent to dispositions of properties via asset sales and formation of new joint ventures. This consent right may have the effect of limiting our ability to dispose of properties, whether for strategic reasons or to raise liquidity to fund our operations. The Term Loan Facility also includes certain limitations relating to, among other activities, our ability to: sell assets or merge, consolidate or transfer all or substantially all of our assets; incur additional debt; incur certain liens; enter into, terminate or modify certain material leases and/or the material agreements for our properties; make certain investments (including limitations on joint ventures) and other restricted payments; pay distributions on or repurchase our capital stock; and enter into certain transactions with affiliates.

The Term Loan Facility also provides for the Incremental Funding Facility. Our ability to access the incremental facility is subject to (i) our 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 $200 million and (ii) our good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal

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quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million. As of December 31, 2020, we have not achieved this level of rental income from non-Sears Holdings tenants.

We have limited operating history as a REIT and an independent public company, and our inexperience may impede our ability to successfully manage our business or implement effective internal controls.

We have limited operating history owning, leasing or developing properties or operating as a REIT. Similarly, we have limited operating history as an independent public company. We cannot assure you that our past experience will be sufficient to successfully operate our company as a REIT and an independent public company. We are required to implement substantial control systems and procedures in order to maintain our qualification as a REIT, satisfy our periodic and current reporting requirements under applicable SEC regulations and comply with the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the NYSE listing standards. As a result, our management and other personnel need to devote a substantial amount of time to comply with these rules and regulations and establish the corporate infrastructure and controls demanded of a publicly traded REIT. These costs and time commitments could be substantially more than we currently expect. If our finance and accounting organization is unable for any reason to respond adequately to the increased demands, the quality and timeliness of our financial reporting may suffer, and we could experience significant deficiencies or material weaknesses in our disclosure controls and procedures or our internal control over financial reporting.

An inability to establish effective disclosure controls and procedures and internal control over financial reporting or remediate existing deficiencies could cause us to fail to meet our reporting obligations under the Exchange Act, or result in material weaknesses, material misstatements or omissions in our Exchange Act reports, any of which could cause investors to lose confidence in our company, which could have an adverse effect on our revenues and results of operations or the market price of Class A common shares, par value $0.01 per share, Class B non-economic common shares of beneficial interest, par value $0.01 per share (“Class B non-economic common shares”), and Class C non-voting common shares of beneficial interest, par value $0.01 per share (“Class C non-voting common shares”).

Our rights and the rights of our shareholders to take action against our trustees and officers are limited.

As permitted by the Maryland REIT Law, the Company’s Declaration of Trust limits the liability of its trustees and officers to Seritage and its shareholders for money damages, except for liability resulting from:

• actual receipt of an improper benefit or profit in money, property or services; or

• a final judgment based upon a finding of active and deliberate dishonesty by the trustee or officer that was material to the cause of action adjudicated.

In addition, our Declaration of Trust authorizes us and our bylaws obligate us to indemnify our present and former trustees and officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by Maryland law, and we have entered into indemnification agreements with our trustees and executive officers. As a result, the Company and our shareholders may have more limited rights against our trustees and officers than might otherwise exist absent the provisions in our Declaration of Trust and bylaws or that might exist with other companies. Accordingly, in the event that actions taken by any of our trustees or officers are immune or exculpated from, or indemnified against, liability but which impede our performance, the Company and our shareholders’ ability to recover damages from that trustee or officer will be limited.

Seritage’s Declaration of Trust and bylaws, Maryland law, and the partnership agreement of Operating Partnership contain provisions that may delay, defer or prevent an acquisition of Class A common shares or a change in control.

The Company’s Declaration of Trust and bylaws, Maryland law and the partnership agreement of Operating Partnership contain a number of provisions, the exercise or existence of which could delay, defer or prevent a transaction or a change in control that might involve a premium price for our shareholders or otherwise be in their best interests, including the following:

• The Company’s Declaration of Trust Contains Restrictions on the Ownership and Transfer of Seritage Shares of Beneficial Interest. In order for us to qualify as a REIT, no more than 50% of the value of all outstanding shares of beneficial interest may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year other than 2015, the first taxable year for which we elected to be taxed as a REIT. Additionally, at least 100 persons must beneficially own our shares of beneficial interest during at least 335 days of a taxable year (other than 2015, the first taxable year for which we elected to be taxed as a REIT). The Company’s Declaration of Trust, with certain exceptions, authorizes the Company’s board of trustees (the “Board of Trustees”) to take such actions as are necessary and desirable to preserve its qualification as a REIT. For this and other purposes, subject to certain exceptions, our Declaration of Trust provides that no person may beneficially or constructively own more than 9.6%, in value or in number of shares, whichever is more restrictive, of all outstanding shares, or all outstanding common shares (including our Class A common shares, our Class B

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non-economic common shares and our Class C non-voting common shares), of beneficial interest of the Company. We refer to these restrictions collectively as the “ownership limits.” The constructive ownership rules under the Code are complex and may cause shares owned directly or constructively by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.6% of the outstanding shares of beneficial interest by an individual or entity could cause that individual or entity or another individual or entity to own, beneficially or constructively, the Company’s shares of beneficial interest in violation of the ownership limits. In addition, because we have multiple classes of common shares, the acquisition of Class A common shares may result in a shareholder inadvertently owning, beneficially or constructively, the Company’s shares of beneficial interest in violation of the ownership limits. Our Declaration of Trust also prohibits any person from owning Class A common shares, Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”), or other shares of beneficial interest that would generally result in (i) our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT, (ii) our being beneficially owned by fewer than 100 persons, (iii) any of our income that would otherwise qualify as “rents from real property” for purposes of Section 856(d) of the Code failing to qualify as such, or (iv) our failing to qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code. Any attempt to own or transfer Class A common shares, Series A Preferred Shares or any of our other shares of beneficial interest in violation of the restrictions on ownership or transfer in our Declaration of Trust may result in the transfer being automatically void. The Company’s Declaration of Trust also provides that if any purported transfer of Class A common shares, Series A Preferred Shares, or other such shares of beneficial interest would otherwise result in any person violating the ownership limits or any other restriction on ownership and transfer of shares of beneficial interest described above, then that number of shares (rounded up to the nearest whole share) that would cause the violation will be automatically transferred to, and held by, a trust for the exclusive benefit of a designated charitable beneficiary. Any person who acquires such shares in violation of the ownership limits or any other restriction on ownership and transfer of shares of beneficial interest described above will not be entitled to any dividends on the shares or be entitled to vote the shares or receive any proceeds from the subsequent sale of the shares in excess of the lesser of the price paid by such person for the shares (or, if such person did not give value for such shares, the market price on the day the shares were transferred to the trust) or the amount realized from the sale. We or our designee will have the right to purchase the shares from the trustee at this calculated price as well. The ownership limits and other restrictions on ownership and transfer in our Declaration of Trust may have the effect of preventing, or may be relied upon to prevent, a third party from acquiring control of us if the Board of Trustees does not grant an exemption from the ownership limits, even if our shareholders believe the change in control is in their best interests.

• The Company’s Board of Trustees Has the Power to Cause Us to Issue Additional Shares of Beneficial Interest and Classify and Reclassify Any Unissued Class A Common Shares without Shareholder Approval. Our Declaration of Trust authorizes us to issue additional authorized but unissued common shares or preferred shares of beneficial interest. We have also issued 2,800,000 shares of Series A Preferred Shares that are senior to our common shares with respect to priority of dividend payments and rights upon liquidation, dissolution or winding up.  In addition, the Board of Trustees may, without shareholder approval, (i) amend the Declaration of Trust to increase or decrease the aggregate number of shares of beneficial interest or the number of shares of beneficial interest of any class or series that we have authority to issue and (ii) classify or reclassify any unissued common shares or preferred shares of beneficial interest and set the preferences, rights and other terms of the classified or reclassified shares. As a result, the Board of Trustees may establish a class or series of common shares or preferred shares of beneficial interest that could delay or prevent a transaction or a change in control that might involve a premium price for Class A common shares or otherwise be in the best interests of our shareholders.

• The Board of Trustees Is Divided into Three Classes and Trustee Elections Require a Vote of Two-Thirds of the Class A Common Shares and Class B Non-Economic Common Shares Votes Cast. The Board of Trustees is divided into three classes of trustees, with each class to be as nearly equal in number as possible. As a result, approximately one-third of the Board of Trustees will be elected at each annual meeting of shareholders, with, in both contested and uncontested elections, trustees elected by the vote of two-thirds of the votes cast of the Class A common shares and Class B non-economic common shares (voting together as a single class) entitled to be cast in the election of trustees. In the event that an incumbent trustee does not receive a sufficient percentage of votes cast for election, he or she will continue to serve on the Board of Trustees until a successor is duly elected and qualifies. The classification of trustees and requirement that trustee nominees receive a vote of two-thirds of the votes cast of the Class A common shares and Class B non-economic shares (voting together as a single class) entitled to be cast in the election of trustees may have the effect of making it more difficult for shareholders to change the composition of the Board of Trustees. The requirement that trustee nominees receive a vote of two-thirds of the votes cast of the common shares entitled to be cast in the election of trustees may also have the effect of making it more difficult for shareholders to elect trustee nominees that do not receive the votes of shares of beneficial interest held by ESL, which controls approximately 6.5% of the voting power of the Company.

• The Partnership Agreement of Operating Partnership Provides Holders of Operating Partnership Units Approval Rights over Certain Change in Control Transactions Involving the Company or Operating Partnership. Pursuant to the partnership agreement of Operating Partnership, certain transactions, including mergers, consolidations, conversions or other combinations or extraordinary transactions or transactions that constitute a “change of control” of the Company or Operating

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Partnership, as defined in the partnership agreement, will require the approval of the partners (other than the Company and entities controlled by it) holding a majority of all the outstanding Operating Partnership units held by all partners (other than the Company and entities controlled by it). These provisions could have the effect of delaying or preventing a change in control. ESL holds all of the Operating Partnership units not held by the Company and entities controlled by it.

• Certain Provisions of Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us. Certain provisions of the Maryland General Corporation Law (the “MGCL”) applicable to Maryland REITs may have the effect of inhibiting a third party from acquiring us or of impeding a change of control of the Company under circumstances that otherwise could provide Class A common shareholders with the opportunity to realize a premium over the then-prevailing market price of such shares or otherwise be in the best interest of shareholders, including:

o “business combination” provisions that, subject to certain exceptions and limitations, prohibit certain business combinations between a Maryland REIT and an “interested shareholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the Company’s outstanding voting shares or an affiliate or associate of the Maryland REIT who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding shares of the Company) or an affiliate of any interested shareholder and the Maryland REIT for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes two supermajority shareholder voting requirements on these combinations;

o “control share” provisions that provide that, subject to certain exceptions, holders of “control shares” of our company (defined as voting shares that, if aggregated with all other shares owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights with respect to the control shares except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares; and

o Additionally, Title 3, Subtitle 8 of the MGCL permits the Board of Trustees, without shareholder approval and regardless of what is currently provided in our Declaration of Trust or bylaws, to implement certain takeover defenses.

The Board of Trustees has, by resolution, exempted from the provisions of the Maryland Business Combination Act all business combinations (a) between us and (i) Sears Holdings or its affiliates or (ii) ESL or Fairholme Capital Management L.L.C. (“FCM”) and/or certain clients of FCM or their respective affiliates and (b) between us and any other person, provided that in the latter case the business combination is first approved by the Board of Trustees (including a majority of our trustees who are not affiliates or associates of such person). In addition, our bylaws contain a provision opting out of the Maryland control share acquisition act.

We may experience uninsured or underinsured losses, or insurance proceeds may not otherwise be available to us which could result in a significant loss of the capital we have invested in a property, decrease anticipated future revenues or cause us to incur unanticipated expense.

While many of our existing leases require, and new lease agreements are expected to require, that comprehensive general insurance and hazard insurance be maintained by the tenants with respect to their premises, and we have obtained casualty insurance with respect to our properties, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, that may be uninsurable or not economically insurable. Insurance coverage (net of deductibles) may not be effective or be sufficient to pay the full current market value or current replacement cost of a loss. Inflation, changes in building and zoning codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to restore or replace the property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore the economic position with respect to such property or to comply with the requirements of our mortgages and Property Restrictions. Moreover, the holders of any mortgage indebtedness may require some or all property insurance proceeds to be applied to reduce such indebtedness, rather than being made available for property restoration.

If we experience a loss that is uninsured or that exceeds our policy coverage limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties were subject to recourse indebtedness, Property Restrictions or ground leases, we could continue to be liable for the indebtedness or subject to claims for damages even if these properties were irreparably damaged.

In addition, even if damage to our properties is covered by insurance, a disruption of our business or that of our tenants caused by a casualty event may result in the loss of business and/or tenants. The business interruption insurance we or our tenants carry may not fully compensate us for the loss of business or tenants due to an interruption caused by a casualty event. Further, if one of our tenants

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has insurance but is underinsured, that tenant may be unable to satisfy its payment obligations under its lease with us or its other payment or other obligations.

A disruption in the financial markets may make it more difficult to evaluate the stability, net assets and capitalization of insurance companies and any insurer’s ability to meet its claim payment obligations. A failure of an insurance company to make payments to us upon an event of loss covered by an insurance policy, losses in excess of our policy coverage limits or disruptions to our business or the business of our tenants caused by a casualty event could adversely affect our business, financial condition and results of operations.

Each unconsolidated entity may also experience uninsured or underinsured losses, and also faces other risks related to insurance that are similar to those we face, which could reduce the value of our investment in, or distributions to us by, one or more unconsolidated entities, or require that we make additional capital contributions to one or more unconsolidated entities.

Conflicts of interest may exist or could arise in the future between the interests of Seritage shareholders and the interests of holders of Operating Partnership units, and the partnership agreement of Operating Partnership grants holders of Operating Partnership units certain rights, which may harm the interests of Seritage shareholders.

Conflicts of interest may exist or could arise in the future as a result of the relationships between Seritage and its affiliates, on the one hand, and Operating Partnership or any of its partners, on the other. Seritage’s trustees and officers have duties to Seritage under Maryland law in connection with their oversight and management of the company. At the same time, Seritage, as general partner of Operating Partnership, will have duties and obligations to Operating Partnership and its limited partners under Delaware law, as modified by the partnership agreement of Operating Partnership in connection with the management of Operating Partnership.

For example, without the approval of the majority of the Operating Partnership units not held by Seritage and entities controlled by it, Seritage will be prohibited from taking certain extraordinary actions, including change of control transactions of Seritage or Operating Partnership.

ESL owns a substantial percentage of the Operating Partnership units, which may be exchanged for cash or, at the election of Seritage, Class A common shares, and which will result in certain transactions involving Seritage or Operating Partnership requiring the approval of ESL.

As of December 31, 2020, ESL owns approximately 30.4% of the Operating Partnership units, with the remainder of the units held by the Company. In addition, ESL will have the right to acquire additional Operating Partnership units in order to allow it to maintain its relative ownership interest in Operating Partnership if Operating Partnership issues additional units to the Company under certain circumstances, including if we issue additional equity and contribute the funds to Operating Partnership to fund acquisitions or redevelopment of properties, among other uses. In addition, ESL will have the right to require the Operating Partnership to redeem its Operating Partnership units in whole or in part in exchange for cash or, at the election of the Company, Class A common shares, except as described below. Due to the ownership limits set forth in our Declaration of Trust, ESL may dispose of some or all of the Class A common shares it beneficially owns prior to exercising its right to require Operating Partnership to redeem Operating Partnership units, and the partnership agreement of Operating Partnership will permit ESL (and only ESL) to transfer its Operating Partnership units to one or more underwriters to be exchanged for Class A common shares in connection with certain dispositions in order to achieve the same effect as would occur if ESL were to exchange a larger portion of its Operating Partnership units for Class A common shares and then dispose of those shares in an underwritten offering. Sales of a substantial number of Class A common shares in connection with or to raise cash proceeds to facilitate, such a redemption, or the perception that such sales may occur, could adversely affect the market price of the Class A common shares.

In addition, the partnership agreement of Operating Partnership requires the approval of a majority of the Operating Partnership units not held by the Company and entities controlled by it for certain transactions and other actions, including certain modifications to the partnership agreement, withdrawal or succession of the Company as general partner of Operating Partnership, limits on the right of holders of Operating Partnership units to redeem their units, tax elections and certain other matters. Because ESL currently owns a majority of the outstanding Operating Partnership units not held by the Company and entities controlled by it, ESL’s approval will be required in order for the general partner to undertake such actions unless ESL no longer owns a majority of such units. If ESL refuses to approve any such action, our business could be materially adversely affected. Furthermore, ESL owns approximately 6.5% of the outstanding Class A common shares. In any of these matters, the interests of ESL may differ from or conflict with the interests of our other shareholders.

ESL exerts substantial influence over us, and its interests may differ from or conflict with the interests of our other shareholders.

ESL beneficially owns approximately 30.4% of the Operating Partnership units, and approximately 6.5% of the outstanding Class A common shares, which corresponds to 6.5% of the voting power of Seritage. Sears Holdings was, and Holdco is, an affiliate of ESL.

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In addition, Mr. Lampert, who previously served as the Chairman of the Board and Chief Executive Officer of Sears Holdings, and is the Chairman and Chief Executive Officer of ESL, serves as the Chairman of the Seritage Board of Trustees. As a result, ESL and its affiliates have substantial influence over us and Holdco. In any matter affecting us, including our relationship with Holdco, the interests of ESL may differ from or conflict with the interests of our other shareholders.

The businesses of each of the GGP joint ventures, the Simon joint venture, and the Macerich joint venture are similar to each other and the occurrence of risks that adversely affect one unconsolidated entity, could also adversely affect our investment in the other unconsolidated entities.

The GGP joint ventures are joint ventures that own and operate certain Unconsolidated Properties, which consist of seven properties formerly owned or leased by Sears Holdings, the Simon joint venture is a joint venture that owns and operates certain other Unconsolidated Properties, which consist of five other properties formerly owned by Sears Holdings and the Macerich joint venture is a joint venture that owns and operates certain other Unconsolidated Properties, which consist of seven other properties formerly owned by Sears Holdings.  As a result, each unconsolidated entity’s business is similar to our business, and each unconsolidated entity is subject to many of the same risks that we face.  The occurrence of risks that adversely affect us could also adversely affect one or more unconsolidated entities and reduce the value of our investment in, or distributions to us from, one or more joint ventures, or require that we make additional capital contributions to one or more unconsolidated entities.  Our influence over each unconsolidated entity may be limited by the fact that day-to-day operation of the GGP joint ventures, the Simon joint venture and the Macerich joint venture, and responsibility for leasing and redevelopment activities related to the Unconsolidated Properties owned by the GGP joint ventures, the Simon joint venture and the Macerich joint venture, as applicable, are generally delegated to GGP, Simon and Macerich, respectively, subject to certain exceptions. The Unconsolidated Properties owned by the GGP joint ventures are located at malls owned and operated by Brookfield Properties Retail (formerly GGP Inc.), the Unconsolidated Properties owned by the Simon joint venture are located at malls owned and operated by the Simon joint venture and the Unconsolidated Properties owned by the Macerich joint venture are located at malls owned and operated by the Macerich joint venture. As a result, conflicts of interest may exist or could arise in the future between the interests of GGP, Simon or Macerich and our interests as a holder of 50% interests in the GGP joint ventures, the Simon joint venture and the Macerich joint venture, respectively, including, for example, with respect to decisions as to whether to lease to third parties space at an Unconsolidated Property or other space at the mall at which such Unconsolidated Property is located.

Risks Related to Status as a REIT

If we do not qualify to be taxed as a REIT, or fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders.

We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our initial taxable year ended December 31, 2015 and have operated, and expect to continue to operate, to qualify as a REIT. In connection with the Company commencing operations, and the December 2017 offering of Series A Preferred Shares, we received opinions of counsel concluding that we have been organized in conformity with the requirements for qualification as a REIT and our current and/or proposed method of operation should enable us to satisfy the requirements for qualification as a REIT as of the respective dates. Investors should be aware, however, that opinions of counsel are not binding on the IRS or any court, and that each opinion was expressed as of the date it was issued and has not been updated. We believe we have continued to operate in conformity with the requirements to qualify as a REIT and that we continue to satisfy all requirements to maintain our REIT status. However, qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which only a limited number of judicial and administrative interpretations exist.

If we were to fail to qualify as a REIT in any taxable year, and no available relief provision applied, we would be subject to U.S. federal income tax, including, for any taxable year ending on or before December 31, 2017, any applicable alternative minimum tax, on our taxable income at regular corporate rates (which, in the case of U.S. federal income tax, is a maximum of 35% for periods ending on or before December 31, 2017 and 21% thereafter), as well as U.S. state and local income tax, and dividends paid to our shareholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of Class A common shares. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a REIT.

Qualifying as a REIT involves highly technical and complex provisions of the Code.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification

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as a REIT depends on the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the requirements to qualify as a REIT may depend in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.

We could fail to qualify to be taxed as a REIT if income we receive is not treated as qualifying income.

Under applicable provisions of the Code, we will not be treated as a REIT unless we satisfy various requirements, including requirements relating to the sources of our gross income. Rents we receive or accrue from tenants may not be treated as qualifying rent for purposes of these requirements if the applicable lease is not respected as a true lease for U.S. federal income tax purposes and is instead treated as a service contract, joint venture, financing, or some other type of arrangement. We believe that the Holdco Master Lease should be respected as a true lease for U.S. federal income tax purposes for the years in which such lease was in effect. If, contrary to expectations, the Holdco Master Lease is not respected as a true lease for U.S. federal income tax purposes, the IRS may determine that we failed to qualify to be taxed as a REIT during such time, and we may be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a REIT. Furthermore, our qualification as a REIT depends on the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for some of which we will not obtain independent appraisals.

In addition, subject to certain exceptions, rents we receive or accrue from our tenants will not be treated as qualifying rent for purposes of these requirements if we or an actual or constructive owner of 10% or more of our outstanding shares (by value) actually or constructively owns 10% or more of the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock of such tenant entitled to vote or 10% or more of the total value of all classes of stock of such tenant. For purposes of determining whether rental payments received by a REIT are treated as qualifying rent, the stock, assets or net profits owned by a partner in an entity classified as a partnership for U.S. federal income tax purposes are attributed to such partnership only if the partner owns (directly or indirectly) 25% or more of the capital interest or profits interest in the partnership. As a result of these rules, it is possible that we could be treated as owning 10% or more of a tenant due to entering into a joint venture with a third party that is an actual or constructive owner of such tenant, and in such case rent payments received from such tenant may not be treated as qualifying rent for purposes of these requirements. Our Declaration of Trust provides for restrictions on ownership and transfer of Class A common shares and Series A Preferred Shares, including restrictions on such ownership or transfer that would cause the rents we receive or accrue from a tenant to be treated as non-qualifying rent for purposes of the REIT gross income requirements. Nevertheless, such restrictions may not be effective in ensuring that rents we receive or accrue from our tenants will be treated as qualifying rent for purposes of REIT qualification requirements.

Dividends payable by REITs do not qualify for the reduced tax rates available for certain “qualified dividends,” but would generally qualify for a partial deduction with respect to certain taxpayers.

The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable by U.S. corporations to U.S. shareholders that are individuals, trusts and estates is currently 20%. Ordinary dividends payable by REITs, however, generally are not eligible for the reduced rates. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the Class A common shares. However, for taxable years beginning after December 31, 2017 and ending before January 1, 2026, a U.S. shareholder that is an individual, trust or estate would generally be entitled to deduct up to 20% of certain ordinary REIT dividends, effectively reducing the rate at which such ordinary REIT dividends are subject to tax. U.S. shareholders should consult their own tax advisors regarding all aspects of such rules and their potential application to dividends from us.

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REIT distribution requirements could adversely affect our ability to execute our business plan.

We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. We declared a dividend on the Company’s Class A and Class C common shares for the first quarter of 2019 and have 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 2021. We intend 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.

From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year; alternatively, we may distribute taxable stock dividends to our shareholders in the form of additional shares of stock. See “—We may from time to time make distributions to our shareholders in the form of taxable stock dividends, which could result in shareholders incurring tax liability without receiving sufficient cash to pay such tax”. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of Class A common shares.

Restrictions in our indebtedness, including restrictions on our ability to incur additional indebtedness or make certain distributions, could preclude us from meeting the 90% distribution requirement. Decreases in funds from operations due to unfinanced expenditures for acquisitions of properties or increases in the number of Class A common shares outstanding without commensurate increases in funds from operations each would adversely affect our ability to maintain distributions to our shareholders. Moreover, the failure of tenants to make rental payments under any applicable lease could materially impair our ability to make distributions. Consequently, we may be unable to make distributions at the anticipated distribution rate or any other rate.

We may from time to time make distributions to our shareholders in the form of taxable stock dividends, which could result in shareholders incurring tax liability without receiving sufficient cash to pay such tax.

Although we have no current intention to do so, we may in the future distribute taxable stock dividends to our shareholders in the form of additional shares of our stock. Taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash distributions received. If a U.S. shareholder sells our shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale.  Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in its common stock.

Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state, local and foreign taxes on our income and assets, including taxes on any undistributed income and state, local or foreign income, property and transfer taxes. For example, in order to meet the REIT qualification requirements, we may hold some of our assets or conduct certain of our activities through one or more taxable REIT subsidiaries (“TRSs”) or other subsidiary corporations that will be subject to federal, state and local corporate-level income taxes as regular C corporations. For taxable years beginning after December 31, 2017, taxpayers, including TRSs, are subject to a limitation on their ability to deduct net business interest (i.e., interest paid or accrued on indebtedness allocable to a trade or business), generally up to 50% of adjusted taxable income for taxable years beginning in 2019 and 2020 pursuant to the CARES Act and 30% for prior and subsequent taxable years, subject to certain exceptions. This provision may limit the ability of our TRS to deduct interest, which could increase its taxable income and corporate income tax. Further, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis. Any of these taxes would decrease cash available for distribution to our shareholders.

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Complying with REIT requirements may cause us to liquidate or forgo otherwise attractive opportunities.

To qualify to be taxed as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and securities, REIT stock and debt instruments issued by publicly offered REITs. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets can consist of the securities of any one issuer (other than government securities, qualified real estate assets and securities issued by a TRS), and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.

In addition to the asset tests set forth above, to qualify to be taxed as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our shareholders and the ownership of our shares of beneficial interest. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make and, in certain cases, maintain ownership of certain attractive investments.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging transaction that we enter into to manage the risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets (or that we enter into to manage risk with respect to a prior hedge entered into in connection with property that has been disposed of or liabilities that have been extinguished) does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRS will generally not provide any tax benefit, except that such losses may only be carried forward and may only be deducted against 80% of future taxable income in the TRS if the losses are incurred generally after December 31, 2017, although the CARES Act temporarily removes this 80% limitation if the losses are used in taxable years beginning before January 1, 2021.

Changes in federal tax law affected the taxation of us and may affect the desirability of investing in a REIT relative to a regular non-REIT corporation.

The TCJA reduced the relative competitive advantage of operating as a REIT as compared with operating as a regular non-REIT corporation by reducing the maximum tax rate applicable to regular corporations from 35% to 21% beginning on January 1, 2018. On the other hand, the TCJA also decreased the U.S. federal income tax rate applicable to non-corporate shareholders on ordinary REIT dividends by lowering the maximum applicable individual rate from 39.6% to 37% and permitting non-corporate shareholders of REITs to deduct 20% of ordinary REIT dividends from their taxable income for the taxable years beginning after December 31, 2017 and ending before January 1, 2026 (as discussed above). The TCJA and the CARES Act also provided a new limitation on the deduction of net business interest (as discussed above). A taxpayer engaged in certain businesses relating to real property may elect out of the business interest provision; however, the requirements of this election may be onerous to implement and would require the REIT to utilize potentially disadvantageous depreciation methods on some or all of its assets, including certain “qualified improvement property.” We will determine whether or not to make such an election in our sole discretion and based on all the facts and circumstances. In addition, finalized U.S. Treasury regulations could limit the deduction we may claim for our proportionate share of the compensation expense attributable to the remuneration paid by the Operating Partnership to certain of our employees who are or have been highly ranked and highly compensated employees.

Legislative or other actions affecting REITs or other entities could have a negative effect on us.

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws or interpretations thereof, with or without retroactive application, including those contemplated by the new presidential administration in the United States, could materially and adversely affect our investors or us. Individual and corporate income tax rates may increase, possibly on a retroactive basis, income deferral

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provisions such as section 1031 like-kind exchanges may be curtailed or eliminated, and certain deductions such as the 20% deduction for ordinary REIT dividends may be limited or disallowed.  We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the U.S. federal income tax consequences to us and our investors of such qualification.

Risks Related to Ownership of our Securities

The market price and trading volume of our securities may be volatile.

The market price of our securities may be volatile, and the trading volume in our securities may fluctuate and cause significant price variations to occur. Some of the factors that could negatively affect the market price of our securities or result in fluctuations in the price or trading volume of our securities include:

• actual or anticipated variations in our quarterly results of operations or distributions;

• changes in our funds from operations or earnings estimates;

• publication of research reports about us or the real estate or retail industries;

• increases in market interest rates that may cause purchasers of our securities to demand a higher yield;

• changes in market valuations of similar companies;

• adverse market reaction to any additional debt we may incur in the future;

• actions by ESL, or by institutional shareholders;

• speculation in the press or investment community about our company or industry or the economy in general;

• adverse performance or potential financial distress or bankruptcy of our major tenants, including Holdco;

• the occurrence of any of the other risk factors presented in this filing;

• adverse developments in the Litigation;

• specific real estate market and real estate economic conditions; and

• general market and economic conditions.

We have issued Series A Preferred Shares, which, along with future offerings of debt or preferred equity securities, rank senior to our common shares for purposes of distributions or upon liquidation, may adversely affect the market price of our common shares.

We have issued 2,800,000 Series A Cumulative Redeemable Preferred Shares, which are senior to our common shares for purposes of distributions or upon liquidation. The Series A Preferred Shares may limit our ability to make distributions to holders of our common shares.

In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred shares. Upon liquidation, holders of our debt securities, Series A Preferred Shares and any additional preferred shares and lenders with respect to other borrowings may receive distributions of our available assets prior to the holders of our common shares. Any additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common shares, or both. Holders of our common shares are not entitled to preemptive rights or other protections against dilution, and will have no voting rights in connection with the issuance of these securities. Our Series A Preferred Shares have, and any additional preferred shares of beneficial interest issued could have, a preference on liquidating distributions or a preference on distribution payments that could limit our ability to make a distribution to the holders of our common shares. Since our decision to issue securities in any future offering will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common shares and diluting their holdings in us.

The transactions with Sears Holdings and Holdco could give rise to disputes or other unfavorable effects, which could have a material adverse effect on our business, financial condition or results of operations.

Disputes with third parties could arise out of our historical transactions with Sears Holdings or future transactions with Holdco, and we could experience unfavorable reactions from employees, ratings agencies, regulators or other interested parties. These disputes and reactions of third parties could have a material adverse effect on our business, financial condition or results of operations. In addition, disputes between us and Sears Holdings or Holdco could arise in connection with any of our past or future agreements with those counterparties.

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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 commenced the Litigation in the Bankruptcy Court against 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). On November 25, 2019, acting pursuant to the Confirmation Order, the Creditors’ Committee filed the Amended Complaint alleging, among other things, that certain transactions undertaken by Sears Holdings since 2011 (including 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) constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings and that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth hundreds of millions of dollars more than the purchase price paid.  The Amended Complaint further alleges, among other things, that certain releases provided to Seritage and certain other defendants in connection with the Sears Holdings derivative litigation in the Delaware Court of Chancery in 2017 should be avoided and/or declared null and void as an actual and/or constructive fraudulent conveyance.  The Amended Complaint seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers, disgorgement, recovery of the property fraudulently transferred or, in the alternative, compensatory damages in an unspecified amount to be determined at trial, equitable subordination and disallowance of defendants’ claims as creditors, punitive and exemplary damages for any intentional wrongdoing, and reasonable attorneys’ fees, costs, and expenses.  On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the Amended Complaint relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions were completed in August 2020, and the parties are awaiting a decision.

The number of shares available for future sale could adversely affect the market price of Class A common shares.

We cannot predict whether future issuances of Class A common shares, the availability of Class A common shares for resale in the open market or the conversion of Class C non-voting common shares into Class A common shares will decrease the market price per share of Class A common shares. Sales of a substantial number of Class A common shares in the public market, or the perception that such sales might occur, could adversely affect the market price of the Class A common shares.

Our earnings and cash distributions will affect the market price of Class A common shares.

We believe that the market value of a REIT’s equity securities is based primarily upon market perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales, acquisitions, development or refinancing, and is secondarily based upon the value of the underlying assets. For these reasons, Class A common shares may trade at prices that are higher or lower than the net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes rather than distributing the cash flow to shareholders, these retained funds, while increasing the value of our underlying assets, may negatively impact the market price of Class A common shares. Our failure to meet market expectations with regard to future earnings and cash distributions would likely adversely affect the market price of Class A common shares.

The Series A Preferred Shares have not been rated.

The Series A Preferred Shares have not been rated, and may never be rated, by any nationally recognized statistical rating organization, which may negatively affect their market value and your ability to sell such shares. It is possible, however, that one or more rating agencies might independently determine to assign a rating to the Series A Preferred Shares or that we may elect to obtain a rating of the Series A Preferred Shares in the future. Furthermore, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to the Series A Preferred Shares in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the Series A Preferred Shares. Ratings only reflect the views of the issuing rating agency or agencies, and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. Any such downward revision or withdrawal of a rating could have an adverse effect on the market price of the Series A Preferred Shares. Further, a rating is not a recommendation to purchase, sell or hold any particular security, including the Series A Preferred Shares. In addition, ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of the Series A Preferred Shares may not reflect all risks related to us and our business, or the structure or market value of the Series A Preferred Shares.

An active trading market may not develop for the Series A Preferred Shares or, even if it does develop, may not continue, which may negatively affect the market value of, and the ability of holders of our Series A Preferred Shares to transfer or sell, their shares.

Since the Series A Preferred Shares have no stated maturity date, investors seeking liquidity will be limited to selling their shares in the secondary market. The Series A Preferred Shares are listed on the NYSE under the symbol “SRG PrA,” but there can be no assurance that an active trading market on the NYSE for the Series A Preferred Shares will develop or continue, in which case the market price of the Series A Preferred Shares could be materially and adversely affected and the ability to transfer or sell Series A Preferred Shares would be limited. The market price of the shares will depend on many factors, including:

• prevailing interest rates;

- 28 -

• the market for similar securities;

• investors’ perceptions of us;

• our issuance of additional preferred equity or indebtedness;

• general economic and market conditions; and

• our financial condition, results of operations, business and prospects.

The Series A Preferred Shares are subordinate in right of payment to our existing and future debt, and the interests of the holders of Series A Preferred Shares could be diluted by the issuance of additional preferred shares, including additional Series A Preferred Shares, and by other transactions.

The Series A Preferred Shares rank junior to all of our existing and future debt and to other non-equity claims on us and our assets available to satisfy claims against us, including claims in bankruptcy, liquidation or similar proceedings. Our future debt may include restrictions on our ability to pay dividends to preferred shareholders. As of December 31, 2020, our total indebtedness was $1.6 billion. In addition, we may incur additional indebtedness in the future. Our Declaration of Trust currently authorizes the issuance of up to 10,000,000 shares of preferred shares in one or more classes or series. Our board of trustees has the power to reclassify unissued common shares and preferred shares and to amend our Declaration of Trust, without any action by our shareholders, to increase the aggregate number of shares of beneficial interest of any class or series, including preferred shares, that we are authorized to issue. The issuance of additional preferred shares on parity with or senior to the Series A Preferred Shares with respect to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up would dilute the interests of the holders of the Series A Preferred Shares, and any issuance of preferred shares senior to the Series A Preferred Shares or of additional indebtedness could adversely affect our ability to pay dividends on, redeem or pay the liquidation preference on the Series A Preferred Shares. Other than the limited conversion right afforded to holders of Series A Preferred Shares that may occur in connection with a Change of Control, none of the provisions relating to the Series A Preferred Shares contain any provisions relating to or limiting our indebtedness or affording the holders of the Series A Preferred Shares protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or business, that might adversely affect the holders of the Series A Preferred Shares, so long as the rights of holders of the Series A Preferred Shares are not materially and adversely affected.

Dividends on our preferred shares, including the Series A Preferred Shares, are discretionary. We cannot guarantee that we will be able to pay dividends in the future or what the actual dividends will be for any future period.

Future dividends on our preferred shares, including the Series A Preferred Shares, will be authorized by our Board of Trustees and declared by us at the discretion of our board of trustees and will depend on, among other things, our results of operations, cash flow from operations, financial condition and capital requirements, any debt service requirements and any other factors our Board of Trustees deems relevant. Accordingly, we cannot guarantee that we will be able to make cash dividends on our preferred shares or what the actual dividends will be for any future period. However, until we declare payment and pay or set apart the accrued dividends on the Series A Preferred Shares, our ability to pay dividends and make other distributions on our common shares and non-voting shares (including redemptions) will be limited by the terms of the Series A Preferred Shares.

Holders of Series A Preferred Shares will have limited voting rights.

Holders of the Series A Preferred Shares have limited voting rights. Our Class A common shares and our non-economic shares are currently the only shares of beneficial interest of our company with full voting rights. Voting rights for holders of Series A Preferred Shares exist primarily with respect to the right to elect two additional trustees to our Board of Trustees in the event that six quarterly dividends (whether or not consecutive) payable on the Series A Preferred Shares are in arrears, and with respect to voting on amendments to our Declaration of Trust or articles supplementary relating to the Series A Preferred Shares that would materially and adversely affect the rights of holders of the Series A Preferred Shares or create additional classes or series of our shares that are senior to the Series A Preferred Shares with respect to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up of our affairs. Other than in limited circumstances, holders of Series A Preferred Shares will not have any voting rights.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved comments from the staff of the SEC as of the date of this Annual Report.

- 29 -

ITEM 2. PROPERTIES

As of December 31, 2020, the Company’s portfolio consisted of interests in 183 properties totaling approximately 26.5 million square feet of GLA, including 158 wholly owned properties totaling approximately 24.5 million square feet of GLA across 41 states and Puerto Rico, and interests in 25 properties totaling approximately 1.9 million square feet of GLA across 13 states that are owned in unconsolidated entities. The following tables set forth certain information regarding our Wholly Owned Properties and unconsolidated entities based on signed leases as of December 31, 2020, including signed but not yet open leases (“SNO” or “SNO Leases”), and after giving effect to the pending termination:

			GLA (1)
	City	State	Total		Leased		Not Leased		Significant Tenants (1)	Leased (1)
1	Anchorage	AK		158,500		134,000		24,500	Guitar Center, Nordstrom Rack, Planet Fitness, Safeway		84.5	%
2	North Little Rock	AR		177,100		13,000		164,100	Aspen Dental, Longhorn Steakhouse		7.3	%
3	Glendale	AZ		125,000		—		125,000	n/a		0.0	%
4	Mesa	AZ		121,900		16,800		105,100	Carvana		13.8	%
5	Peoria	AZ		104,400		104,400		—	At Home		100.0	%
6	Phoenix	AZ		144,200		—		144,200	n/a		0.0	%
7	Phoenix	AZ		151,200		151,200		—	At Home		100.0	%
8	Sierra Vista	AZ		94,700		—		94,700	n/a		0.0	%
9	Tucson	AZ		218,900		50,600		168,300	Round One Entertainment		23.1	%
10	Yuma	AZ		90,400		—		90,400	n/a		0.0	%
11	Big Bear Lake (2)	CA		80,000		4,000		76,000	Subway, Wells Fargo Bank		5.0	%
12	Chula Vista	CA		250,100		—		250,100	n/a		0.0	%
13	Citrus Heights	CA		289,500		—		289,500	n/a		0.0	%
14	El Cajon	CA		244,900		188,700		56,200	Ashley Furniture, Bob's Discount Furniture, Burlington Stores, Extra Space Storage		77.1	%
15	El Centro	CA		139,700		—		139,700	Hobby Lobby		0.0	%
16	Fairfield	CA		146,500		28,500		118,000	Dave & Busters		19.5	%
17	Florin	CA		329,700		57,000		272,700	n/a		17.3	%
18	Fresno	CA		216,600		43,400		173,200	Ross Dress for Less, dd's Discounts		20.0	%
19	McKinleyville	CA		94,800		—		94,800	n/a		0.0	%
20	Merced	CA		92,600		79,800		12,800	Burlington Stores, dd's Discounts, Five Below		86.2	%
21	Montclair	CA		174,700		—		174,700	n/a		0.0	%
22	North Hollywood	CA		161,900		74,900		87,000	Burlington Stores, Ross Dress for Less		46.3	%
23	Palm Desert	CA		136,500		—		136,500	n/a		0.0	%
24	Ramona	CA		107,500		14,700		92,800	Dollar Tree		13.7	%
25	Riverside	CA		214,200		12,200		202,000	Bank of America		5.7	%
26	Riverside	CA		132,600		38,100		94,500	Jack in the Box, Stater Brothers		28.7	%
27	Roseville	CA		125,800		109,500		16,300	AAA, Cinemark, Round One Entertainment		87.0	%
28	Salinas	CA		132,900		32,200		100,700	Burlington		24.2	%
29	San Bruno	CA		276,600		31,300		245,300	Industrious		11.3	%
30	San Bernardino	CA		264,700		—		264,700	n/a		0.0	%
31	San Jose	CA		262,500		—		262,500	n/a		0.0	%
32	Santa Maria	CA		108,600		—		108,600	n/a		0.0	%
33	Temecula	CA		120,100		112,800		7,300	Round One Entertainment, Dick's Sporting Goods		93.9	%
34	Thousand Oaks	CA		161,400		161,400		—	Dave & Busters, DSW, Nordstrom Rack		100.0	%
35	Ventura	CA		178,600		—		178,600	n/a		0.0	%
36	West Covina	CA		142,000		—		142,000	n/a		0.0	%
37	Westminster	CA		197,900		—		197,900	n/a		0.0	%
38	Lakewood	CO		153,000		—		153,000	n/a		0.0	%
39	Thornton	CO		203,000		61,700		141,300	Vasa Fitness		30.4	%
40	Waterford	CT		149,200		—		149,200	n/a		0.0	%

- 30 -

	City	State	Total		Leased		Not Leased		Significant Tenants (1)	Leased (1)
41	Rehoboth Beach	DE		118,300		75,900		42,400	andThat!, PetSmart, Aldi		64.2	%
42	Boca Raton	FL		178,500		4,200		174,300	Washington Mutual		2.4	%
43	Bradenton	FL		82,900		49,900		33,000	Target		60.2	%
44	Clearwater	FL		211,300		87,600		123,700	Whole Foods, Nordstrom Rack		41.5	%
45	Doral	FL		212,900		—		212,900	n/a		0.0	%
46	Ft. Myers	FL		146,800		—		146,800	n/a		0.0	%
47	Hialeah	FL		145,200		77,900		67,300	Five Below, Ulta Beauty, Panera		53.7	%
48	Hialeah (3)	FL		106,300		106,300		—	Aldi, Bed Bath & Beyond, Ross Dress for Less, dd’s Discounts		100.0	%
49	Lakeland	FL		156,200		—		156,200	n/a		0.0	%
50	Aventura	FL		215,400		111,500		103,900	Mercado del Rio, Pinstripes, Industrious		51.8	%
51	Miami	FL		170,100		—		170,100	n/a		0.0	%
52	North Miami	FL		125,400		125,400		—	Aldi, Burlington Stores, Ross Dress for Less, Michaels Stores		100.0	%
53	Ocala	FL		146,200		—		146,200	n/a		0.0	%
54	Orlando	FL		118,400		96,700		21,700	Floor & Décor		81.7	%
55	Panama City	FL		139,300		—		139,300	n/a		0.0	%
56	Pensacola	FL		106,100		106,100		—	BJ's Wholesale Club, Bubba's 33		100.0	%
57	Plantation	FL		184,400		136,100		48,300	GameTime, Lazy Dog, Powerhouse Gym		73.8	%
58	Sarasota	FL		212,400		—		212,400	n/a		0.0	%
59	St. Petersburg	FL		113,800		11,800		102,000	n/a		10.4	%
60	St. Petersburg	FL		133,800		133,800		—	Dick's Sporting Goods, Five Below, PetSmart		100.0	%
61	Savannah	GA		167,300		—		167,300	n/a		0.0	%
62	Honolulu	HI		76,100		76,100		—	Long's Drugs (CVS), Ross Dress for Less, PetSmart		100.0	%
63	Cedar Rapids	IA		146,000		—		146,000	n/a		0.0	%
64	Charles City	IA		96,600		—		96,600	n/a		0.0	%
65	Webster City	IA		40,800		—		40,800	n/a		0.0	%
66	Boise	ID		123,600		—		123,600	n/a		0.0	%
67	Chicago	IL		120,700		89,100		31,600	Ross Dress for Less, dd's Discounts, Five Below		73.8	%
68	Joliet	IL		204,600		—		204,600	n/a		0.0	%
69	Lombard	IL		139,300		139,300		—	The Dump		100.0	%
70	North Riverside	IL		216,400		95,700		120,700	Round One Entertainment, Aldi, Blink Fitness, Amita Health		44.2	%
71	Orland Park	IL		140,000		45,900		94,100	AMC		32.8	%
72	Springfield	IL		119,500		103,000		16,500	Binny's Beverage Depot, Burlington Stores, Marshalls		86.2	%
73	Steger	IL		87,400		—		87,400	n/a		0.0	%
74	Elkhart	IN		86,600		86,600		—	Big R		100.0	%
75	Ft. Wayne	IN		84,400		63,700		20,700	Dave & Busters, Five Below, HomeGoods		75.5	%
76	Merrillville	IN		170,900		161,400		9,500	At Home, Dollar Tree		94.4	%
77	Hopkinsville	KY		85,100		64,600		20,500	Bargain Hunt, Farmer's Furniture, Harbor Freight		75.9	%
78	Paducah	KY		97,300		66,800		30,500	Burlington Stores, Ross Dress for Less		68.7	%
79	Lafayette	LA		194,900		—		194,900	n/a		0.0	%
80	New Iberia	LA		4,500		4,500		—	Chase Bank		100.0	%

- 31 -

	City	State	Total		Leased		Not Leased		Significant Tenants (1)	Leased (1)
81	Braintree	MA		89,700		85,000		4,700	Nordstrom Rack, Ulta Beauty		94.8	%
82	Saugus	MA		210,700		100,000		110,700	APEX Entertainment		47.5	%
83	Bowie	MD		123,000		15,000		108,000	BJ's Brewhouse		12.2	%
84	Edgewater	MD		117,200		—		117,200	n/a		0.0	%
85	Madawaska	ME		49,700		—		49,700	n/a		0.0	%
86	Lincoln Park	MI		301,700		68,800		232,900	Bank of America, Burlington Stores, Planet Fitness		22.8	%
87	Manistee	MI		94,700		—		94,700	n/a		0.0	%
88	Roseville	MI		364,600		154,600		210,000	At Home, Hobby Lobby		42.4	%
89	Sault Ste. Marie	MI		92,700		—		92,700	n/a		0.0	%
90	Troy	MI		379,600		91,100		288,500	At Home		24.0	%
91	Ypsilanti	MI		91,700		91,700		—	At Home		100.0	%
92	Burnsville	MN		167,300		—		167,300	n/a		0.0	%
93	Maplewood	MN		175,000		—		175,000	n/a		0.0	%
94	St. Paul	MN		217,900		100		217,800	n/a		0.0	%
95	Florissant	MO		119,000		4,300		114,700	n/a		3.6	%
96	Jefferson City	MO		92,600		92,600		—	Orscheln Farm and Home		100.0	%
97	Springfield	MO		112,900		112,900		—	At Home		100.0	%
98	Columbus	MS		166,700		45,400		121,300	Bargain Hunt		27.2	%
99	Asheville	NC		110,600		—		110,600	n/a		0.0	%
100	Greensboro	NC		178,500		168,200		10,300	Floor & Décor, Gabriel Brothers		94.2	%
101	Kearney	NE		64,900		64,900		—	Ross Dress for Less, Five Below, Marshall's		100.0	%
102	Manchester	NH		106,600		80,400		26,200	Dick's Sporting Goods, Dave & Buster's		75.4	%
103	Nashua	NH		167,100		—		167,100	n/a		0.0	%
104	Portsmouth	NH		127,100		—		127,100	n/a		0.0	%
105	Salem	NH		251,600		123,000		128,600	Cinemark, Dick's Sporting Goods		48.9	%
106	Watchung	NJ		116,400		115,600		800	Cinemark, HomeGoods, Sierra Trading Post, Ulta Beauty, Chick-fil-A , City MD		99.3	%
107	Henderson	NV		133,400		128,500		4,900	At Home, Seafood City		96.3	%
108	Las Vegas	NV		130,300		42,500		87,800	Round One Entertainment		32.6	%
109	Reno	NV		162,700		41,300		121,400	Round One Entertainment		25.4	%
110	Albany	NY		277,900		76,700		201,200	Whole Foods, REI, Ethan Allen		27.6	%
111	Clay	NY		146,500		—		146,500	n/a		0.0	%
112	East Northport	NY		179,700		93,300		86,400	24 Hour Fitness, AMC		51.9	%
113	Hicksville	NY		284,900		96,600		188,300	Chase Bank, Chipotle		33.9	%
114	Olean	NY		120,700		55,400		65,300	Marshall's, Ollie's Bargain Hunt		45.9	%
115	Rochester	NY		128,500		—		128,500	n/a		0.0	%
116	Sidney	NY		94,400		—		94,400	n/a		0.0	%
117	Victor	NY		119,600		119,600		—	Dick's Sporting Goods		100.0	%
118	Yorktown Heights	NY		160,000		38,500		121,500	24 Hour Fitness		24.1	%
119	Canton	OH		190,600		116,300		74,300	Dick's Sporting Goods, Dave & Busters, Cheddar's		61.0	%
120	Dayton	OH		180,200		13,400		166,800	Outback Steakhouse		7.4	%

- 32 -

	City	State	Total		Leased		Not Leased		Significant Tenants (1)	Leased (1)
121	Kenton	OH		96,100		—		96,100	n/a		0.0	%
122	Mentor	OH		219,100		—		219,100	n/a		0.0	%
123	Middleburg Heights	OH		359,000		35,800		323,200	Carvana		10.0	%
124	Toledo	OH		218,700		—		218,700	n/a		0.0	%
125	Oklahoma City	OK		223,600		50,300		173,300	Vasa Fitness		22.5	%
126	Happy Valley	OR		144,300		45,000		99,300	Dick's Sporting Goods		31.2	%
127	King of Prussia (3)	PA		210,800		174,500		36,300	Dick's Sporting Goods, Primark, Outback Steakhouse, Yardhouse		82.8	%
128	Lebanon	PA		117,200		—		117,200	n/a		0.0	%
129	Walnutport	PA		121,200		—		121,200	n/a		0.0	%
130	Bayamon (2)	PR		114,600		—		114,600	n/a		0.0	%
131	Caguas (2)	PR		138,700		—		138,700	n/a		0.0	%
132	Carolina (2)	PR		198,000		—		198,000	n/a		0.0	%
133	Mayaguez (2)	PR		118,200		—		118,200	n/a		0.0	%
134	Ponce	PR		126,900		—		126,900	n/a		0.0	%
135	Warwick	RI		131,500		123,100		8,400	At Home, Hook & Reel, Skechers		93.6	%
136	Anderson	SC		117,100		117,100		—	Burlington Stores, Sportsman's Warehouse		100.0	%
137	Charleston	SC		106,400		52,900		53,500	Burlington Stores		49.7	%
138	Cordova	TN		160,900		—		160,900	n/a		0.0	%
139	Memphis	TN		112,700		100,000		12,700	LA Fitness, Hopdoddy, Nordstrom Rack, Ulta Beauty		88.7	%
140	Austin	TX		52,700		45,000		7,700	AMC		85.4	%
141	El Paso	TX		114,200		99,100		15,100	dd's Discount, Ross Dress for Less, Five Below, Burlington Stores		86.8	%
142	Friendswood	TX		166,000		—		166,000	n/a		0.0	%
143	Houston	TX		134,000		134,000		—	At Home		100.0	%
144	Houston	TX		201,700		—		201,700	n/a		0.0	%
145	Ingram	TX		168,400		—		168,400	n/a		0.0	%
146	Irving	TX		92,000		39,700		52,300	CareNow, Chick-fil-A		43.2	%
147	San Antonio	TX		164,200		157,800		6,400	Tru Fit, Bed Bath & Beyond		96.1	%
148	Valley View	TX		235,000		52,700		182,300	Industrious		22.4	%
149	Layton	UT		86,500		66,400		20,100	Vasa Fitness		76.8	%
150	West Jordan	UT		171,000		171,000		—	Burlington Stores, At Home		100.0	%
151	Alexandria	VA		262,100		—		262,100	n/a		0.0	%
152	Chesapeake	VA		169,700		—		169,700	n/a		0.0	%
153	Fairfax	VA		211,000		179,400		31,600	Dave & Busters, Dick's Sporting Goods		85.0	%
154	Virginia Beach	VA		166,200		79,300		86,900	DSW, The Fresh Market, Nordstrom Rack, Smokey Bones		47.7	%
155	Warrenton	VA		75,500		62,200		13,300	HomeGoods		82.4	%
156	Redmond	WA		230,700		—		230,700	n/a		0.0	%
157	Greendale	WI		187,500		133,700		53,800	Dick's Sporting Goods, Round One Entertainment		71.3	%
158	Madison	WI		118,400		118,400		—	Dave & Busters, Total Wine & More, Hobby Lobby		100.0	%
	Total - Wholly Owned Properties			24,540,800		7,913,200		16,627,600			32.2	%

(1) Based on signed leases as of December 31, 2020, including SNO Leases totaling 2.1 million GLA.

(2) Denotes property subject to termination notices pursuant to the terms of the Holdco Master Lease.

(3) Property subject to a ground lease.

- 33 -

Unconsolidated Properties
							GLA (1)
		City	State	Joint Venture	Total			Leased		Not Leased		Significant Tenants (1)	Leased (1)
1		Carson	CA	Carson JV		182,200			109,700		72,500	Burlington Stores, Chipotle, Ross Dress for Less		60.2	%
2		Cockeysville	MD	Cockeysville JV		160,200			98,300		61,900	HomeGoods, Michaels Stores, OneLife Fitness		61.4	%
3		Frisco	TX	GGP I JV		162,900			—		162,900	n/a		0.0	%
4		Lynnwood	WA	GGP I JV		99,900			49,300		50,600	Dave & Busters, Cheesecake Factory		49.3	%
5		Natick (2)	MA	GGP I JV		190,700			88,500		102,200	Dave & Busters, Open World Entertainment		46.4	%
6		Norman (2)	OK	GGP I JV		66,900			—		66,900	n/a		0.0	%
7		Altamonte Springs	FL	GGP II JV		125,700			67,500		58,200	n/a		53.7	%
8		Naples	FL	GGP II JV		67,400			67,400		—	CMX Cinebistro, Uncle Julio’s		100.0	%
9		Wayne	NJ	GGP II JV		281,000			205,400		75,600	Cinemark, Dave & Busters, Yardhouse, BJ's Wholesale		73.1	%
10		Cerritos	CA	Macerich JV		277,600			—		277,600	n/a		0.0	%
11		Chandler	AZ	Macerich JV		139,500			74,000		65,500	Firestone		53.0	%
12		Danbury	CT	Macerich JV		178,500			70,100		108,400	Primark		39.3	%
13		Deptford	NJ	Macerich JV		191,700			149,200		42,500	Dick's Sporting Goods, Round One Entertainment, Crunch Fitness		77.8	%
14		Freehold	NJ	Macerich JV		138,800			66,600		72,200	Primark		48.0	%
15		Modesto	CA	Macerich JV		120,500			80,500		40,000	Dave & Busters, Dick's Sporting Goods		66.8	%
16		Portland	OR	Macerich JV		220,000			—		220,000	n/a		0.0	%
17		Santa Monica	CA	Mark 302 JV		103,000			—		103,000	n/a		0.0	%
18		Austin	TX	Tech Ridge JV		—			—		—	n/a		0.0	%
19		Ann Arbor	MI	Simon JV		170,600			—		170,600	n/a		0.0	%
20		Austin	TX	Simon JV		164,600			—		164,600	n/a		0.0	%
21		Nanuet	NY	Simon JV		221,400			—		221,400	n/a		0.0	%
22		Santa Rosa	CA	Simon JV		165,400			—		165,400	n/a		0.0	%
23		Tulsa	OK	Simon JV		150,200			—		150,200	n/a		0.0	%
24		San Diego	CA	UTC JV		226,200			130,300		95,900	Equinox, Pinstripes, CB2, Industrious		57.6	%
25		West Hartford	CT	West Hartford JV		163,700			112,500		51,200	buybuy Baby, REI, Cost Plus World Market, Shake Shack, Saks OFF 5th		68.7	%
		Total - Unconsolidated Properties				3,968,600			1,369,300		2,599,300			34.5	%
(1)     Based on signed leases as of December 31, 2020, including SNO Leases totaling 0.6 million (0.3 million at share) GLA.
(2)     Property subject to a ground lease.
	183	Grand Total - All Properties				28,509,400			9,282,500		19,226,900			32.6	%
	183	Grand Total - All Properties (at share)				26,470,400			8,564,900		17,905,500			32.4	%

- 34 -

The following table sets forth information regarding the geographic diversification of the portfolio based on signed leases as of December 31, 2020, including Unconsolidated Entities presented at the Company’s proportional share and after giving effect to the pending termination:

State	Number of Properties		Annual Rent		% of Total Annual Rent			Rent PSF
Florida		21	$	29,321		19.5	%	$	26.30
California		33		24,325		16.2	%		21.80
New York		10		10,525		7.0	%		21.92
New Jersey		4		7,889		5.2	%		24.19
Texas		12		7,069		4.7	%		13.38
Illinois		7		6,992		4.6	%		14.78
Virginia		5		6,838		4.5	%		21.30
Massachusetts		3		4,764		3.2	%		20.78
Pennsylvania		3		4,638		3.1	%		26.58
Wisconsin		2		4,083		2.7	%		16.20
Total Top 10		100	$	106,444		70.7	%	$	21.22
Other (1)		83		44,159		29.3	%		12.44
Total		183	$	150,603		100.0	%	$	17.58

(1) Includes 32 states.

Tenant Overview

The following table provides a summary of annual base rent for the portfolio based on signed leases as of December 31, 2020, including Unconsolidated Entities presented at the Company’s proportional share and after giving effect to the pending termination:

(in thousands except number of leases and PSF data)
	Number of		Leased		% of Total			Annual		% of Total			Annual
Tenant	Leases		GLA		Leased GLA			Rent		Annual Rent			Rent PSF
In-place diversified leases		251		6,196		72.3	%	$	96,065		63.8	%	$	15.50
SNO diversified leases		125		2,369		27.7	%		54,538		36.2	%		23.02
Total		376		8,565		100.0	%	$	150,603		100.0	%	$	17.58

During the year ended December 31, 2020, the majority of the $23.5 million of SNO leases that were sold, contributed to unconsolidated entities or terminated were comprised of leases terminated with fitness, entertainment and food & beverage tenants for which the Company had not yet deployed significant amounts of capital. The Company continues to evaluate and prioritize its SNO leases based upon tenant health, asset quality, risk-adjusted returns and near-term income opportunities.

- 35 -

Top Tenants

The following table lists the top tenants in our portfolio based on signed leases as of December 31, 2020, including Unconsolidated Properties presented at the Company’s proportional share and giving effect to the pending termination:

Tenant (1)	Number of Leases		Annual Rent		% of Total Annual Rent			Concepts/Brands
Dick's Sporting Goods		12	$	12,437		8.3	%
Dave & Buster's		11		9,212		6.1	%
Round One Entertainment		8		7,225		4.8	%
Burlington Stores		13		6,799		4.5	%
At Home		11		6,786		4.5	%
Ross Dress For Less		16		5,430		3.6	%	Ross Dress for Less, dd's Discounts
Cinemark		4		4,899		3.3	%
Nordstrom Rack		6		4,614		3.1	%
AMC		3		4,202		2.8	%
Primark		3		3,002		2.0	%
Bed Bath & Beyond		6		2,489		1.7	%	Bed Bath & Beyond, buybuyBaby, Cost Plus World Market, andThat!
BJ's Wholesale Club		2		2,422		1.6	%
TJX		9		2,356		1.6	%	TJ Maxx, Marshalls, HomeGoods, HomeSense, Sierra Trading Post
Equinox Fitness		7		2,283		1.5	%	Equinox, Blink Fitness
Pinstripes		2		2,035		1.4	%
Floor & Décor		2		2,032		1.3	%
PetSmart		4		2,012		1.3	%
Vasa Fitness		3		1,862		1.2	%
24 Hour Fitness		2		1,791		1.2	%
Ulta Salon		6		1,685		1.1	%

(1)    The Company has signed eight leases with Industrious to occupy 278,000 SF under revenue-sharing agreements that are expected to place Industrious among the Company’s top tenants.

Lease Expirations

The following table sets forth a summary schedule of lease expirations for signed leases, including SNO leases, as of December 31, 2020, including Unconsolidated Properties presented at the Company’s proportional share and giving effect to the pending termination.  The information set forth in the table assumes that no other tenants exercise renewal options or early termination rights: 

(in thousands except number of leases)
Year	Number of Leases (1)		Leased GLA		% of Total Leased GLA			Annual Rent		% of Total Annual Rent
Month-to-Month		9		66		0.7	%	$	639		0.4	%
2021		6		29		0.3	%		479		0.3	%
2022		13		300		3.5	%		2,848		1.9	%
2023		14		446		5.2	%		7,411		4.9	%
2024		14		291		3.4	%		2,146		1.4	%
2025		11		278		3.3	%		3,990		2.7	%
2026		17		450		5.3	%		6,822		4.5	%
2027		13		596		7.0	%		5,171		3.5	%
2028		30		738		8.6	%		11,765		7.8	%
2029		54		1,262		14.7	%		21,246		14.1	%
2030		23		386		4.5	%		5,943		4.0	%
Thereafter		47		1,354		15.8	%		27,605		18.3	%
SNO Leases		125		2,369		27.7	%		54,538		36.2	%
Total		376		8,565		100.0	%	$	150,603		100.0	%

- 36 -

ITEM 3. LEGAL PROCEEDINGS

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 $649 to $749 million more than the purchase price paid.  The Litigation seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, in the alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.  

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 November 25, 2019, the Creditors’ Committee filed a first amended complaint (the “Amended Complaint”) in the Bankruptcy Court naming us and certain of our affiliates, as well as affiliates of ESL and Sears Holdings, and certain other third parties, as defendants. The Amended Complaint alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 (including the July 2015 transactions giving rise to Seritage, the execution of the Master Lease with Sears Holdings (the “Original Master Lease”), and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings and that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth hundreds of millions of dollars more than the purchase price paid.  The Amended Complaint further alleges that certain releases provided to Seritage and certain other defendants in connection with the Sears Holdings derivative litigation in the Delaware Court of Chancery in 2017 should be avoided and/or declared null and void as an actual and/or constructive fraudulent conveyance.  The Amended Complaint seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers, disgorgement, recovery of the property fraudulently transferred or, in the alternative, compensatory damages in an unspecified amount to be determined at trial, equitable subordination and disallowance of defendants’ claims as creditors, punitive and exemplary damages for any intentional wrongdoing, and reasonable attorneys’ fees, costs, and expenses.

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 were completed in August 2020, 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.

On March 2, 2021, the Company brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American

Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O

insurance providers of the Company (the “D&O Insurers”). The Company’s lawsuit is seeking, among other things, declaratory relief

and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the

Litigation discussed above.

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 consolidated financial position, results of operations, cash flows or liquidity of the Company.  As of December 31, 2020, and December 31, 2019, the Company did not record any amounts for litigation or other matters.

- 37 -

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

- 38 -

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s Class A common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “SRG”.  

The following graph provides a comparison, from December 31, 2015 through December 31, 2020, of the cumulative total shareholder return (assuming reinvestment of dividends) on $100 invested in each of Class A shares of the Company, the Standard & Poor's ("S&P") 500 Index and the SNL US REIT Index, an industry index of publicly-traded REITs (including the Company).

Data for the S&P 500 Index and the SNL US REIT Index were provided by SNL Financial LLC.

Index		12/31/2015		12/31/2016		12/31/2017		12/31/2018			12/31/2019		12/31/2020
Seritage Growth Properties	Cum $		100		108		105		86			107		39
	Return %				8		5		(14	)		7		(61	)
S&P 500	Cum $		100		112		136		130			171		203
	Return %				12		36		30			71		103
SNL US REIT Equity	Cum $		100		109		118		112			145		137
	Return %				9		18		12			45		37

Common Shares and Operating Partnership Units

On March 3, 2021, the reported closing sale price per share of our Class A common stock on the NYSE was $20.99.

As of March 3, 2021, there were 38,903,146 Class A common shares issued and outstanding which were held by approximately 138 shareholders of record.  The number of shareholders of record does not reflect persons or entities that held their shares in nominee or “street” name.

In addition, as of March 3, 2021, there were no Class B non-economic common shares issued and outstanding and 17,002,906 outstanding Operating Partnership units (“OP Units”) held by limited partners other than the Company.  As of March 3, 2021, there are no Class B non-economic common shares outstanding and there are no Class C non-voting common shares outstanding.

The Class B non-economic common shares have voting rights, but do not have economic rights and, as such, do not receive dividends and are not included in earnings per share computations.

- 39 -

Class C non-voting common shares have economic rights, but do not have voting rights.  Upon any transfer of a Class C non-voting common share to any person other than an affiliate of the holder of such share, such share shall automatically convert into one Class A common share.

The OP Units are generally exchangeable into shares of Class A common stock on a one-for-one basis.

Share-Based Compensation

The following table provides information with respect to the Company’s equity compensation plan at December 31, 2020:

	Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan Category	(a)			(b)			(c)
Equity compensation plans approved    by security holders		159,581	(1)	n/a		(2)		2,728,012	(3)
Equity compensation plans not    approved by security holders		—			—			—
Total		159,581			—			2,728,012

(1) Represents restricted stock awards and units previously granted and that remain unvested as of December 31, 2020.

(2) Weighted average exercise price does not apply to restricted stock units (“RSU”).

(3) Shares remaining available for future issuance under the Seritage Growth Properties 2015 Share Plan, taking into account 79,516 shares of restricted stock previously granted and 442,472 shares subject to grants of RSUs previously granted (including those that remain unvested reported in column (a)).

Dividends and Distributions

The timing, amount and composition of all distributions will be made by the Company at the discretion of its Board of Trustees.  Such distributions will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the Board of Trustees of Seritage deems relevant.

The Company 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 2021.  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 preferred shares.

REIT Election

We have elected to be treated as a REIT for U.S. federal income tax and intend to maintain this status in future periods.  To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including requirements to distribute at least 90% of its ordinary taxable income and to either distribute capital gains to shareholders, or pay corporate income tax on the undistributed capital gains. A REIT will generally not pay U.S. federal income tax if it distributes 100% of its capital gains and ordinary income.

- 40 -

ITEM 6. SELECTED FINANCIAL DATA

None.

- 41 -

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section contains forward-looking statements that involve risks and uncertainties.  Our actual results may vary materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in "Risk Factors" and the other matters set forth in this Annual Report.  See "Cautionary Statement Regarding Forward-Looking Statements."

All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements included in this Annual Report.  You should read this discussion in conjunction with our Consolidated Financial Statements, the notes thereto and other financial information included elsewhere in this Annual Report.  Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  Capitalized terms used, but not defined, in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") have the same meanings as in such Notes.

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 December 31, 2020, our portfolio consisted of interests in 183 properties totaling approximately 26.5 million square feet of GLA, including 158 Wholly Owned Properties totaling approximately 24.5 million square feet of GLA across 41 states and Puerto Rico, and interests in 25 Unconsolidated Properties totaling approximately 1.9 million square feet of GLA across 13 states that are owned in Unconsolidated Entities.

The Company’s mission is to create long-term value for our shareholders by unlocking the value of our portfolio through re-leasing, redevelopment, formation of strategic partnerships or other bespoke solutions.  In doing so, we target meaningful growth in NOI and diversification of our tenant base while transforming our portfolio from one with a single-tenant retail and enclosed shopping center orientation to a diversified portfolio, including residential, biotechnology, office, open-air shopping and other uses.

In order to achieve our objective, we intend to execute the following strategies:

• Maximize value of vast land holdings through retail and mixed-use accretive densification;

• Convert single-tenant buildings into multi-tenant properties at meaningfully higher rents

• Leverage existing and future joint venture relationships with leading real estate and financial partners; and

• Maintain a flexible capital structure to support value creation activities.

Since inception, and excluding 17 projects that have been sold, we have completed or substantially completed 51 redevelopment projects and, as of December 31, 2020, we had an additional 15 projects in various stages of redevelopment, with the remaining commenced projects on hold due to adverse conditions resulting from the novel coronavirus (“COVID-19”) pandemic.  As of December 31, 2020, including our proportional share of Unconsolidated Properties, we had 6.2 million square feet of GLA leased to diversified tenants under in-place leases, 2.4 million square feet of GLA leased to diversified tenants under signed not yet opened leases, and 17.9 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.  Subsequently, 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 December 31, 2020, after giving effect to the pending termination of the Holdco Master Lease at the five remaining properties, the Company does not lease any 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.

- 42 -

COVID-19 Pandemic

The COVID-19 pandemic continues to have a significant impact on the real estate industry in the United States, including our properties.  As of December 31, 2020, we had collected 93% of rental income for the three months ended December 31, 2020, and agreed to defer an additional 4%.  As of March 5, 2021, we had also collected 95% of January and February 2021 rental income, and agreed to defer an additional 2%.  While we intend to enforce our contractual rights under our leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.

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 appropriate assets and selectively allocating capital to the assets with opportunistic risk-adjusted returns in our portfolio.

As a result of the fluidity and uncertainty surrounding the nation’s response to and limitations as a result of the pandemic, we expect that conditions will change, potentially significantly, in future periods and, as such, results for the year then ended December 31, 2020 may not be indicative of the Company’s business results 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.

Asset Sales and Joint Ventures

During the year ended December 31, 2020, the Company sold 27 properties, plus additional outparcels, totaling 4.2 million square feet and generated gross proceeds of $333.4 million and also entered into an unconsolidated entity that generated an additional $27.0 million of gross proceeds. The Company also sold the 50% interests in three properties held in Unconsolidated Entities for gross proceeds of $35.9 million in gross proceeds and the Company also completed a sale-leaseback transaction for one property for gross proceeds of $21.0 million.

Subsequent to December 31, 2020, we sold four Wholly Owned Properties for gross proceeds of $46.9 million.  As of March 9, 2021, we had assets under contract to sell for total anticipated proceeds of $66.0 million, subject to buyer diligence and closing conditions.

Effects of Natural Disasters

The Company assessed the impact of the natural disasters that occurred during the year ended December 31, 2020 and determined that natural disasters did not have a material impact on our operating results or financial position.  The Company did not experience interruptions in rental payments related to natural disasters nor has it incurred material capital expenditures to repair any property damage. As a result of changes to weather patterns caused by climate change, our properties could experience increased storm intensity and other natural disasters in future periods and, as such, we cannot provide assurance that natural disasters will not have a material impact on our financial condition, results of operations or cash flows over the foreseeable future.

Appointment of New Chief Executive Officer, President and Trustee

On February 9, 2021, the Company announced that Ms. Andrea Olshan has been appointed Chief Executive Officer and President of the Company and will join the Company’s Board of Trustees, each effective as of March 16, 2021. In connection with Ms. Olshan’s appointment, the Company and the Operating Partnership entered into an employment agreement with Ms. Olshan, dated February 7, 2021. Ms. Olshan will replace the former Chief Executive Officer, President and Trustee, Mr. Benjamin W. Schall whose departure from the Company was on January 22, 2021. Since Mr. Schall’s departure, the day-to-day operations of the Company have continued to be overseen by members of existing senior management who report directly to the Board of Trustees. Matthew Fernand, a member of existing senior management and Executive Vice President, General Counsel and Secretary of the Company, is signing this Annual Report as the principal executive officer.

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.

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Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019

The following table presents selected data on comparative results from the Company’s consolidated statements of operations for the year ended December 31, 2020, as compared to the year ended December 31, 2019 (in thousands):

	Year Ended December 31,
	2020			2019			$ Change			% Change
Revenue
Rental income	$	116,202		$	167,035		$	(50,833	)		-30	%
Expenses
Property operating	$	41,164		$	42,123		$	(959	)		-2	%
Real estate taxes		36,768			38,595			(1,827	)		-5	%
Depreciation and amortization		95,997			104,581			(8,584	)		-8	%
General and administrative		28,849			39,156			(10,307	)		-26	%
Gain on sale of real estate		88,555			71,104			17,451			25	%
Gain on sale of interests in unconsolidated entities		1,758			—			1,758			100	%
Impairment on real estate assets		(64,108	)		—			(64,108	)		-100	%
Equity in loss of unconsolidated entities		(4,712	)		(17,994	)		13,282			-74	%
Interest and other income		3,394			6,824			(3,430	)		-50	%
Interest expense		(91,316	)		(94,519	)		3,203			-3	%

Rental Income

The following table presents the results for rental income for the year ended December 31, 2020, as compared to the corresponding period in 2019 (in thousands):

	Year Ended December 31,
	2020						2019
	Rental Income			% of Total Rental Income			Rental Income		% of Total Rental Income			$ Change
Sears/Kmart	$	14,693			13	%	$	51,153		31	%	$	(36,460	)
Diversified tenants		104,699			90	%		99,797		60	%		4,902
Straight-line rent		(4,983	)		-4	%		15,590		9	%		(20,573	)
Amortization of above/below market leases		1,793			1	%		495		0	%		1,298
Total rental income	$	116,202			100	%	$	167,035		100	%	$	(50,833	)

The decrease of $36.5 million in Sears or Kmart rental income during 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 termination activity. As of December 31, 2020, after giving effect to the pending termination of the Holdco Master Lease at five properties, the Company has no properties leased to Sears or Kmart.

The increase of $4.9 million in diversified tenants rental income during 2020 was due primarily to newly commenced leases at locations formerly occupied by Sears or Kmart.

The decrease of $20.6 million in straight-line rental income during 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 during 2020 was due primarily to the termination of certain leases previously acquired by the Company.

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Property Operating Expenses and Real Estate Taxes

The following table presents the comparative results for property operating expenses and real estate taxes for the year ended December 31, 2020, as compared to the corresponding period in 2019 (in thousands):

	Year Ended December 31,
	2020		2019		$ Change
Property operating expenses	$	41,164	$	42,123	$	(959	)
Real estate taxes		36,768		38,595		(1,827	)

The decrease of $1.0 million in property operating expense during 2020 was due primarily to asset sales, partially offset by an increase in utility and certain common area maintenance expenses at properties for which Sears or Kmart paid such expenses directly during 2019 and a decrease in amounts capitalized due to reduced development activity.

The decrease of $1.8 million in real estate taxes during 2020 was due primarily to asset sales and partially offset by a decrease in amounts capitalized due to reduced development activity.

Depreciation and Amortization Expenses

The decrease of $8.6 million in depreciation and amortization expenses during 2020 was due primarily to accelerated depreciation during the year ended December 31, 2019 related to certain buildings that were demolished for redevelopment, lower accelerated amortization attributable to certain lease intangible assets, offset by of higher net scheduled depreciation related to assets placed in service during the periods.

Accelerated amortization results from the recapture of space from, or termination of space by Holdco.  Such recaptures and terminations are deemed lease modifications and require related lease intangibles to be amortized over the shorter of the shortened lease term or the remaining useful life of the asset.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, including share-based compensation, professional fees, office expenses and overhead expenses.

The $10.3 million decrease was primarily related to reduced share-based compensation as a result of forfeitures and reversals of the bonus accrual related to the resignation of our former chief executive officer and chief financial officer, a decrease in personnel and other expenses resulting from cost savings initiatives implemented in response to the COVID-19 pandemic, as well as lower share-based compensation related to equity awards with performance-based vesting, and partially offset by increased legal activity surrounding ongoing litigation with Sears and a decrease in capitalized personnel expenses as a result of reduced development activity.

Gain on Sale of Real Estate

During the year ended December 31, 2020, the Company sold 27 properties, plus additional outparcels, for aggregate consideration of $333.4 million and recorded gains totaling $120.1 million, which are included in gain on sale of real estate within the consolidated statements of operations.  These gains are partially offset by the $30.0 million loss recognized in relation to the Mark 302 unconsolidated entity revaluation to adjust a previously recorded gain from $38.8 million to $8.8 million. The Company also contributed its property located in Carson, CA to an unconsolidated entity for a contribution value of $27.0 million and recorded a loss of $1.5 million which is included in gain on sale of real estate within the consolidated statements of operations. 

Impairment of Real Estate Assets

During 2020, the Company recognized $10.3 million in impairment related to real estate assets that were sold during the year and $53.8 million in impairment on vacant assets partially and stabilized assets that are leased primarily to theater and fitness tenants which have been negatively impacted by COVID-19.

Interest Expense

The Company incurs interest expense on its debt net of capitalized costs.

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The decrease in interest expense is driven by incurring $5.0 million of mortgage recording costs in 2019 as a result of the Company’s lender’s request for mortgages against its assets pursuant to the springing mortgage and collateral requirement of the Term Loan Facility and was partially offset by decreased capitalized interest in 2020 as a result of reduced 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 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 year ended December 31, 2020 and we had net operating cash outflows of $47.3 million.  However, our property dispositions during the year ended December 31, 2020 drove net investing cash inflows of $42.9 million and financing inflows of $15.4 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, many 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 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 December 31, 2020, we had sold 69 Wholly Owned Properties, and additional outparcels at certain properties, and generated approximately $591.4 million of gross proceeds since we began our capital recycling program in July 2017.  Subsequent to December 31, 2020, we sold four Wholly Owned Properties for gross proceeds of $46.9 million.  As of March 9, 2021, we had assets under contract to sell for total anticipated proceeds of $66.0 million, subject to buyer diligence and closing conditions;

• Sales of interests in Unconsolidated Properties.  As of December 31, 2020, we had sold our interests in 15 Unconsolidated Properties and generated approximately $278.1 million of gross proceeds since July 2017.  Certain of our unconsolidated 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 December 31, 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 many 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 (the “Term Loan 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.

Additionally, the Term Loan Amendment 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 Agreement.

Our Term Loan Facility includes a $400.0 million Incremental Funding Facility (as defined below), 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.

The availability of liquidity from the above sources or initiatives is subject to a range of risks and uncertainties, including those discussed under “Risk Factors—Real estate investments are relatively illiquid” and “Risk Factors—We have ongoing capital needs and may not be able to obtain additional financing or other sources of funding on acceptable terms.”

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Term Loan Facility

On July 31, 2018, the Operating Partnership, as borrower, and the Company, as guarantor, entered into a Senior Secured Term Loan Agreement (the “Term Loan Agreement”) providing for a $2.0 billion term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire Hathaway”) as lender and Berkshire Hathaway as administrative agent.  The Term Loan Facility provided for an initial funding of $1.6 billion at closing (the “Initial Funding”) and includes a $400 million incremental funding facility (the “Incremental Funding Facility”). The Term Loan Facility matures on July 31, 2023.

Funded amounts under the Term Loan Facility bear interest at an annual rate of 7.0% and unfunded amounts under the Incremental Funding Facility are subject to an annual fee of 1.0% until drawn.  The Company prepays the annual fee and amortizes the expense to interest expense on the consolidated statements of operations. 

As of December 31, 2020, the aggregate principal amount outstanding under the Term Loan Facility was $1.6 billion.

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 $200 million (ii) the Company’s good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under Term Loan Amendment as further described below.

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.

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 1.00 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.20 to 1.00 for each fiscal quarter thereafter; (ii) an unencumbered fixed charge coverage ratio of not less than 1.05 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.30 to 1.00 for each fiscal quarter thereafter; (iii) a total leverage ratio of not more than 65%; (iv) an unencumbered ratio of not more than 60%; and (v) a minimum net worth of at least $1.2 billion.  Any failure to satisfy any of these financial metrics limits the Company’s ability to dispose of assets via sale or joint venture and triggers the springing mortgage and collateral requirements but will not result in an event of default.  The Term Loan Facility also includes certain limitations relating to, among other activities, the Company’s ability to: sell assets or merge, consolidate or transfer all or substantially all of its assets; incur additional debt; incur certain liens; enter into, terminate or modify certain material leases and/or the material agreements for the Company’s properties; 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 2.0% in excess of the then applicable interest rate.

As of December 31, 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 December 31, 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 $2.1 million of debt issuance costs related to the Term Loan Facility which are recorded as a direct deduction from the carrying amount of the Term Loan Facility and amortized over the term of the Term Loan Agreement.  As of December 30,

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2020 and December 31, 2019, the unamortized balance of the Company’s debt issuance costs were $1.1 million and $1.5 million, respectively.

On May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into the Term Loan Amendment 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 Incremental Funding Facility under the Term Loan Agreement.  The Company has paid all interest due under the Term Loan Agreement and has not deferred any interest as permitted under the Term Loan Amendment.  

Additionally, the Term Loan Amendment 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.

Preferred Shares

As of December 31, 2020, we had 2,800,000 7.00% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”) outstanding.  We may not redeem the Series A Preferred Shares before December 14, 2022, except to preserve our status as a REIT or upon the occurrence of a Change of Control, as defined in the trust agreement addendums designating the Series A Preferred Shares.  On and after December 14, 2022, we may redeem any or all of the Series A Preferred Shares at $25.00 per share plus any accrued and unpaid dividends.

Dividends and Distributions

The Company’s Board of Trustees did not declare dividends on the Company’s Class A and Class C common shares during 2020. The last dividend on the Company’s Class A and C common shares that the Board of Trustees declared was on February 25, 2019, which was paid on April 11, 2019 to shareholders of record on March 29, 2019.

The Company’s Board of Trustees also declared the following dividends on Company’s Series A Preferred Shares during 2021, 2020 and 2019:

Declaration Date	Record Date	Payment Date	Preferred Share
2021
February 23	March 31	April 15	$	0.43750
2020
December 17	December 31	January 15, 2021	$	0.43750
September 17	September 30	October 15		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

Our Board of Trustees will continue to assess the Company’s investment opportunities and its expectations of taxable income in its determination of future distributions, if any.  The Company intends to, at a minimum, make distributions to shareholders to comply with the REIT requirements of the Code, which may be satisfied by dividends on the Company’s Series A Preferred Shares.

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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 consolidated balance sheets of the Company as investments in unconsolidated entities.  As of December 31, 2020, and December 31, 2019, we did not have any off-balance sheet financing arrangements.

Contractual Obligations

Our contractual obligations relate to our Term Loan Facility and non-cancelable operating leases in the form of a ground lease at two of our properties, as well as operating leases for our corporate offices.

Information concerning our obligations and commitments to make future payments under contracts for these loan and lease agreements as of December 31, 2020 is aggregated in the following table (in thousands):

			Payments due by Period
			Within						After
Contractual Obligation	Total		1 year		1 - 3 years		3 -5 years		5 years
Long-term debt (1)	$	1,906,045	$	117,556	$	1,788,489	$	—	$	—
Operating leases		10,755		1,521		2,785		2,574		3,875
Total	$	1,916,800	$	119,077	$	1,791,274	$	2,574	$	3,875
(1)  Includes expected interest payments.

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 year ended December 31, 2020, we incurred maintenance capital expenditures of approximately $2.6 million 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.

Cash Flows for the Year Ended December 31, 2020 Compared to December 31, 2019

The following table summarizes the Company’s cash flow activities for the years ended December 31, 2020 and 2019 (in thousands):

	Year Ended December 31,
	2020			2019			$ Change
Net cash (used in) provided by operating activities	$	(47,314	)	$	(57,660	)	$	10,346
Net cash used in investing activities		42,868			(299,490	)		342,358
Net cash (used in) provided by financing activities		15,440			(36,447	)		51,887

Cash Flows from Operating Activities

Significant changes in the components of net cash (used in) provided by operating activities include:

- In 2020, a decrease in rental income due primarily to a reduction in the number of properties leased to Sears or Kmart under the Holdco Master Lease, as a result of termination activity and an increase in tenant and other receivables due to Rent Deferral Agreements, partially offset by an increase in accounts payable, accrued expenses and other liabilities.  

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Cash Flows from Investing Activities

Significant components of net cash used in investing activities include:

− In 2020, $331.9 million of net proceeds from the sale of real estate and $13.1 million of net proceeds from the sale of 50% membership interests in two of the assets in the GGP II JV, partially offset by development of real estate and property improvements of ($246.8) million and investments in unconsolidated entities of ($62.9) million; and

− In 2019, development of real estate and property improvements of ($387.7) million and investments in unconsolidated entities of ($54.2) million, partially offset by $140.1 million of net proceeds from the sale of real estate; and

Cash Flows from Financing Activities

Significant components of net cash (used in) and provided by financing activities include:

− In 2020, cash distributions to holders of Series A Preferred Shares, ($4.9) million;

− In 2020, proceeds from sale-leaseback financing obligations, $20.4 million;

− In 2019, cash distributions to common stockholders and holders of OP Units, ($28.0) million;

− In 2019, cash distributions to holders of Series A Preferred Shares, ($4.9) million;

Litigation and Other Matters

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and 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.

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, 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 $649 to $749 million more than the purchase price paid.  The Litigation seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, in the alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.  

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.

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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 were completed in August 2020, 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.

On March 2, 2021, the Company brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American

Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O

insurance providers of the Company (the “D&O Insurers”). The Company’s lawsuit is seeking, among other things, declaratory relief

and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the

Litigation discussed above.

The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, the final outcome of such ordinary course legal proceedings and claims will not have a material effect on the consolidated financial position, results of operations or liquidity of the Company.

Redevelopment

During the year ended December 31, 2020, the Company continued work on certain suburban retail redevelopment projects. The Company had previously resumed $46 million of suburban retail development activity which was expected to generate total potential annual base rent of $13 million. As of December 31, 2020, for those projects $31 million has now been incurred and $6 million of annual base rent has commenced. The remaining potential annual base rent is expected to commence in the next twelve months, subject to tenant opening schedules.  In addition, during the fourth quarter, the Company resumed $39 million of additional suburban retail development activity with total potential income of $6 million, with the majority expected to commence in the next twelve months, subject to tenant opening schedules.

The Company also continued to advance its previously underway premier projects in Aventura (FL), Santa Monica (CA) and La Jolla (CA), and its pipeline of such projects, including its two previously announced multifamily projects, in Redmond (WA) and Dallas (TX), each of which represents the first phase of larger, mixed-use developments.  A multifamily project in Lynwood (WA) in an Unconsolidated Entity is also underway and has been scheduled for opening in the fourth quarter of 2021. A previously announced multifamily project in Chicago (IL) was sold during the year ended December 31, 2020.

During the quarter ended December 31, 2020, the Company, together with Foulger-Pratt and The Howard Hughes Corporation (NYSE: HHC), announced that it had entered into an initial agreement to advance the development of a 4.0 million-square-foot mixed-use community to include a new hospital campus at its Alexandria (VA) property.

The remainder of our previously announced redevelopment projects remain on hold due to the COVID-19 pandemic.  The Company deems 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.  

Critical Accounting Policies

In preparing the consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  Refer to the discussion of our accounting policies included in Note 2 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report.

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.

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Depreciation of real estate assets, excluding land, is recognized on a straight-line basis over their estimated useful lives as follows:

Buildings:	25 – 40 years
Site improvements:	5 – 15 years
Tenant improvements:	shorter of the estimated useful life or non-cancelable term of lease

The Company amortizes identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired, generally the remaining non-cancelable term of a related lease.

The Company on a periodic basis, assesses whether there are indicators that the value of the real estate assets may be impaired. These indicators include macroeconomic conditions, such as the expected impact of the current COVID-19 pandemic.  If an indicator is identified, management will estimate the real estate asset recoverability based on projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated holding period and capitalization rates, to determine if the undiscounted cash flows are less than a real estate asset’s carrying value.  If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the estimated fair value of the real asset. In estimating the fair value of an asset, various factors are considered, including expected future operating income, trends and leasing prospects including the effects of demand, competition, and other economic factors such as discount rates and market comparables.  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.   Subsequent tests for impairment may result in future impairment charges if the COVID-19 pandemic causes economic and market conditions to deteriorate further.  The Company recognized $64.1 million in impairment losses for years ended December 31, 2020 and no impairment losses on real estate assets were recognized for the years ended December 31, 2019, and 2018.

Approximately $10.3 million of impairment losses were attributable to a change in holding period for two properties that were sold during the year ended December 31, 2020 at values that were less than the Company’s carrying values at the time of sale.  In addition, the Company recorded impairment losses of $53.8 million during the year ended December 31, 2020 as a result of estimated fair values that were less than the Company’s carrying values for 23 assets.  Such impairment losses are included within impairment on real estate assets on the consolidated statements of operations.  No impairment losses were recognized for the years ended December 31, 2019 and 2018.

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 COVID-19 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. No such impairment losses were recognized for the years ended December 31, 2020, 2019 or 2018.

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 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.

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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 Rent 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 Rent is 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.    

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 treated the delivery of a recapture notice as a modification of the lease as of the date of notice.  

When a recapture notice was delivered, the portion of accrued rental revenues related to the straight-line method that were subject to the lease modification were amortized over the remaining shortened life of the lease from the date of notice to the date of vacancy.  

In addition, the portion of intangible lease assets and liabilities that was deemed to be impacted by the lease modification was amortized over the shorter of the shortened lease term from the date of notice to the date of vacancy or the remaining useful life of the asset or liability.  

A recapture typically occurred in conjunction with obtaining a new tenant or a real estate development project.  As such, termination fees, if any, associated with the recapture notice were 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.  

The Company accounted for the termination by amortizing the accrued rental revenues related to the straight-line method that were subject to the termination over the remaining shortened life of the lease from the date of notice to the date of vacancy. In addition, intangible lease assets and liabilities that are deemed to be impacted by the termination were 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.

If the Company received a termination fee, the portion of the termination fee attributable to the base rent of the subject property 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.

Recent Accounting Pronouncements

Refer to Note 2 of the consolidated financial statements for recently issued accounting pronouncements.

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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 Nareit which defines FFO as net income computed in accordance with GAAP, excluding gains (or losses) from property sales, real estate related depreciation and amortization, and impairment charges on depreciable real estate assets.  The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry.  

The Company makes certain adjustments to FFO, which it refers to as Company FFO, to account for certain non-cash and non-comparable items, such as termination fee income, unrealized loss on interest rate cap, litigation charges, acquisition-related expenses, amortization of deferred financing costs and certain up-front-hiring 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.

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The following table reconciles NOI and Total NOI to GAAP net loss for the years ended December 31, 2020, 2019 and 2018 (in thousands):

	Year Ended December 31,
NOI and Total NOI	2020			2019			2018
Net loss	$	(152,964	)	$	(90,603	)	$	(114,878	)
Termination fee income		(7,604	)		(5,545	)		(18,711	)
Management and other fee income		(293	)		(1,598	)		(1,196	)
Depreciation and amortization		95,997			104,581			226,675
General and administrative expenses		28,849			39,156			34,788
Equity in loss of unconsolidated entities		4,712			17,994			10,448
Gain on sale of interests in unconsolidated entities		(1,758	)		—			—
Gain on sale of real estate		(88,555	)		(71,104	)		(96,165	)
Impairment on real estate assets		64,108			—			—
Interest and other income		(3,394	)		(6,824	)		(7,886	)
Interest expense		91,316			94,519			90,020
Change in fair value of interest rate cap		—			—			23
Provision for income taxes		252			196			321
Straight-line rent adjustment		4,983			(15,590	)		2,825
Above/below market rental income/expense		(1,793	)		(495	)		(883	)
NOI	$	33,856		$	64,687		$	125,381
Unconsolidated entities
NOI of unconsolidated entities		6,122			9,851			19,138
Straight-line rent		(681	)		(152	)		(655	)
Above/below market rental income/expense		(713	)		(1,719	)		(757	)
Termination fee income		(827	)		—			—
Total NOI	$	37,757		$	72,667		$	143,107

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The following table reconciles FFO and Company FFO to GAAP net loss the years ended December 31, 2020, 2019, and 2018 (in thousands):

	Year Ended December 31,
FFO and Company FFO	2020			2019			2018
Net loss	$	(152,964	)	$	(90,603	)	$	(114,878	)
Real estate depreciation and amortization    (consolidated properties)		93,963			102,439			224,217
Real estate depreciation and amortization    (unconsolidated entities)		9,108			30,375			15,840
Gain on sale of interests in unconsolidated entities		(1,758	)		—			—
Gain on sale of real estate		(88,555	)		(71,104	)		(96,165	)
Impairment on real estate assets		64,108			—			—
Dividends on preferred shares		(4,900	)		(4,900	)		(4,903	)
FFO attributable to common shareholders    and unitholders	$	(80,998	)	$	(33,793	)	$	24,111
Termination fee income		(7,604	)		(5,545	)		(18,711	)
Unconsolidated entity termination fee income		(827	)		—			—
Change in fair value of interest rate cap		—			—			23
Amortization of deferred financing costs		421			434			10,323
Mortgage recording costs		—			5,008			—
Severance costs		425			—			—
Company FFO attributable to common    shareholders and unitholders	$	(88,583	)	$	(33,896	)	$	15,746
FFO per diluted common share and unit	$	(1.45	)	$	(0.61	)	$	0.43
Company FFO per diluted common share and unit	$	(1.59	)	$	(0.61	)	$	0.28
Weighted Average Common Shares and Units Outstanding
Weighted average common shares outstanding		38,298			36,413			35,560
Weighted average OP Units outstanding		17,576			19,387			20,153
Weighted average common shares and    units outstanding		55,874			55,800			55,713

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2020, we had $1.6 billion of consolidated debt, all of which is borrowed under our fixed-rate Term Loan Facility and an additional $20.4 million of sales-leaseback financing which is based on a fixed term and imputed interest rate and therefore; neither are subject to interest rate fluctuations.

As of December 31, 2020, the estimated fair value of our consolidated debt was $1.6 billion.  The estimated fair value of our consolidated 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Consolidated Financial Statements and Consolidated Financial Statement Schedule beginning on page F-1 for the required information.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 2020, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in "Internal Control—Integrated Framework (2013)." Based on this assessment, management believes that, as of December 31, 2020, the Company maintained effective internal controls over financial reporting. Deloitte & Touche LLP, the independent registered public accounting firm who audited our consolidated financial statements contained in this Form 10-K, has issued a report on our internal control over financial reporting, which is included herein.

Changes in Internal Controls over Financial Reporting

There were no changes in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by Item 10 is hereby incorporated by reference to our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is hereby incorporated by reference to our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is hereby incorporated by reference to our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is hereby incorporated by reference to our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 14 is hereby incorporated by reference to our definitive proxy statement with respect to our 2021 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of our fiscal year.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

(a) Consolidated Financial Statements and Consolidated Financial Statement Schedule.

The consolidated financial statements and consolidated financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule are filed as part of this Annual Report.

(b) Exhibits.

Exhibit No.	Description	SEC Document Reference
2.1	Subscription, Distribution and Purchase and Sale Agreement, dated as of June 8, 2015, by and between Seritage Growth Properties and Sears Holdings Corporation	Incorporated by reference to Exhibit 2.1 to our Registration Statement on Form S-11, filed on June 9, 2015.
3.1	Articles of Amendment and Restatement	Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on July 10, 2015.
3.2	Articles Supplementary Establishing and Fixing the Rights and Preferences of 7.00% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share	Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form 8-A, filed on December 14, 2017.
3.3	Amended and Restated Bylaws	Incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q, filed on May 3, 2019.
4.1	Registration Rights Agreement by and among Seritage Growth Properties, ESL Investments, Inc., and Seritage Growth Properties, L.P., dated as of July 7, 2015	Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K, filed on July 10, 2015.
4.2	Form of specimen certificate evidencing the 7.00% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share	Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form 8-A, filed on December 14, 2017.
4.3	Description of Capital Stock of Seritage Growth Properties Registered Pursuant to Section 12 of the Securities Exchange Act of 1934	Incorporated by reference to Exhibit 4.3 to our Annual Report on Form 10-K, filed on March 2, 2020.
10.1	Transition Services Agreement by and between Sears Holdings Management Corporation and Seritage Growth Properties, L.P., dated as of July 7, 2015	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 10, 2015.
10.2	Amended and Restated Agreement of Limited Partnership of Seritage Growth Properties, L.P., dated as of December 14, 2017	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on December 14, 2017.
10.3*	Holdco Master Lease by and among Seritage SRC Finance LLC, Seritage KMT Finance LLC, Transform SR Operations LLC and Transform KM Operations LLC, dated as of February 28, 2019	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on March 15, 2019.
10.4*	Side Letter to Holdco Master Lease, by and among Seritage KMT Finance LLC, Seritage SRC Finance LLC, Transform SR Operations LLC and Transform KM Operations LLC, dated as of February 28, 2019	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed on March 15, 2019.
10.5	Mortgage Loan Agreement by and among Seritage SRC Finance LLC, Seritage KMT Finance LLC, certain other subsidiaries of Operating Partnership, JPMorgan Chase Bank, National Association and H/2 SO III Funding LLC, dated as of July 7, 2015	Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K, filed on July 10, 2015.

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Exhibit No.	Description	SEC Document Reference
10.6	Omnibus Amendment to the Mortgage Loan Agreement, dated as of September 28, 2015, by and among Seritage SRC Finance LLC, Seritage KMT Finance LLC, certain other subsidiaries of Operating Partnership, Seritage Growth Properties, Seritage Growth Properties L.P., JPMorgan Chase Bank, National Association and H/2 SO III Funding LLC	Incorporated by reference to Exhibit 10.6 to our Annual Report on Form 10-K, filed on March 1, 2017.
10.7	Second Amendment to Mortgage Loan Agreement, dated as of November 8, 2016, by and among Seritage SRC Finance LLC, Seritage KMT Finance LLC, certain other subsidiaries of Operating Partnership, Seritage Growth Properties, Seritage Growth Properties L.P. and Wells Fargo Bank, National Association	Incorporated by reference to Exhibit 10.7 to our Annual Report on Form 10-K, filed on March 1, 2017.
10.8	Mezzanine Loan Agreement by and among Seritage SRC Mezzanine Finance LLC, Seritage KMT Mezzanine Finance LLC, JPMorgan Chase Bank, National Association and H/2 Special Opportunities III Corp., dated as of July 7, 2015	Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K, filed on July 10, 2015.
10.9	Omnibus Amendment to Mezzanine Loan Agreement, dated as of September 28, 2015, by and among Seritage SRC Mezzanine Finance LLC, Seritage KMT Mezzanine Finance LLC, Seritage Growth Properties, Seritage Growth Properties L.P., JPMorgan Chase Bank, National Association and H/2 Special Opportunities III Corp.	Incorporated by reference to Exhibit 10.9 to our Annual Report on Form 10-K, filed on March 1, 2017.
10.10	Second Amendment to Mezzanine Loan Agreement, dated as of November 8, 2016, by and among Seritage SRC Mezzanine Finance LLC, Seritage KMT Mezzanine Finance LLC, Seritage Growth Properties, Seritage Growth Properties, L.P. and Wells Fargo Bank, National Association	Incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K, filed on March 1, 2017.
10.11	Third Amendment to Mezzanine Loan Agreement, entered into as of November 8, 2017 and effective as of June 30, 2017, by and among Seritage SRC Mezzanine Finance LLC, Seritage KMT Mezzanine Finance LLC, Seritage Growth Properties, Seritage Growth Properties, L.P. and Wells Fargo Bank, National Association	Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K, filed on February 28, 2018.
10.12	Term Loan Facility by and among Seritage Growth Properties, L.P., Seritage Growth Properties, JPP, LLC and JPP II, LLC, dated as of February 23, 2017	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on February 24, 2017.
10.13	Senior Unsecured Term Loan Agreement, dated as of December 27, 2017, among Seritage Growth Properties, L.P., Seritage Growth Properties, JPP, LLC, JPP II, LLC and Empyrean Investments, LLC, as lenders, and JPP, LLC, as administrative agent	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on December 28, 2017.
10.14†	Form of Seritage Growth Properties 2015 Share Plan	Incorporated by reference to Exhibit 10.6 to our Registration Statement on Form S-11, filed on May 11, 2015.
10.15†	Seritage Growth Properties Restricted Share Agreement	Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K, filed on July 10, 2015.
10.16†	Form of Seritage Growth Properties Restricted Share Agreement	Incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K, filed on March 1, 2017.
10.17†	Form of Seritage Growth Properties Sign-On P-RSU Restricted Share Agreement	Incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K, filed on July 10, 2015.

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Exhibit No.	Description	SEC Document Reference
10.18†	Form of Seritage Growth Properties Time-Vesting Restricted Share Unit Agreement	Incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K, filed on July 10, 2015.
10.19†	Form of Seritage Growth Properties Annual P-RSU Restricted Share Agreement	Incorporated by reference to Exhibit 10.9 to our Current Report on Form 8-K, filed on July 10, 2015.
10.20†	Employment Agreement with Brian Dickman, dated as of July 6, 2015	Incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K, filed on July 10, 2015.
10.21†	Employment Agreement with Mary Rottler, dated as of June 2, 2015	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on June 19, 2015.
10.22†	Employment Agreement, dated April 17, 2015, between Benjamin Schall and Seritage Growth Properties	Incorporated by reference to Exhibit 10.8 to our Registration Statement on Form S-11, filed on May 26, 2015.
10.23†	Letter Agreement, dated April 30, 2015, among Seritage Growth Properties, Seritage Growth Properties, L.P. and Benjamin Schall	Incorporated by reference to Exhibit 10.9 to our Registration Statement on Form S-11, filed on May 26, 2015.
10.24†	Letter Agreement, dated May 15, 2015, between Matthew Fernand and Seritage Growth Properties	Incorporated by reference to Exhibit 10.10 to our Registration Statement on Form S-11, filed on May 26, 2015.
10.25†	Letter Agreement, dated May 13, 2015, between James Bry and Seritage Growth Properties	Incorporated by reference to Exhibit 10.11 to our Registration Statement on Form S-11, filed on May 26, 2015.
10.26	Exchange Agreement by and among Seritage Growth Properties, Seritage Growth Properties, L.P., ESL Partners, L.P., and Edward S. Lampert, dated as of June 26, 2015	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 2, 2015.
10.27	Exchange Agreement by and among Seritage Growth Properties and Fairholme Capital Management, L.L.C., dated as of June 30, 2015	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed on July 2, 2015.
10.28	Senior Secured Term Loan Agreement, dated July 31, 2018, among Seritage Growth Properties, Seritage Growth Properties, L.P. and Berkshire Hathaway Life Insurance Company of Nebraska	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 31, 2018.
10.29†	Employment Agreement, dated May 2, 2018, among Seritage Growth Properties, Seritage Growth Properties, L.P. and Benjamin Schall	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 7, 2018.
10.30†	Employment Agreement, dated May 16, 2018, among Seritage Growth Properties, Seritage Growth Properties, L.P. and Kenneth Lombard	Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q, filed on August 3, 2018.
10.31†	Form of Seritage Growth Properties Time-Vesting Restricted Share Unit Agreement – 2018 Incentive RSUs	Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q, filed on August 3, 2018.
10.32†	Form of Seritage Growth Properties Performance-Vesting Restricted Share Unit Agreement – 2018 Incentive P-RSUs	Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q, filed on August 3, 2018.
10.33	First Amendment to the Master Lease, effective as of October 29, 2019, by and among Seritage SRC Finance LLC and Seritage KMT Finance LLC	Incorporated by reference to Exhibit 10.33 to our Annual Report on Form 10-K, filed on March 2, 2020.
10.34	Amendment No. 1 to Senior Secured Term Loan Agreement, dated May 5, 2020, among Seritage Growth Properties, L.P. and Berkshire Hathaway Life Insurance Company of Nebraska	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on May 8, 2020.

- 61 -

Exhibit No.	Description	SEC Document Reference
10.35	Master Lease Modification and Settlement Agreement, dated as of June 3, 2020, by and among Seritage SRC Finance LLC, Seritage KMT Finance LLC, Transform SR Operations LLC and Transform KM Operations LLC	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on June 4, 2020.
10.36	Second Master Lease Modification and Settlement Agreement, dated December 02, 2020, by and among Seritage SRC Finance LLC, Seritage KMT Finance LLC, Transform SR Operations LLC and Transform KM Operations LLC	Filed herewith.
10.37†	Employment Agreement, dated February 7, 2021, among Seritage Growth Properties, Seritage Growth Properties, L.P. and Andrea Olshan	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on February 9, 2021.
21.1	List of subsidiaries	Filed herewith.
23.1	Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm	Filed herewith.
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.
32.1	Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Furnished herewith.
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	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.

* Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

†    Management contract or compensatory plan or arrangement.

- 62 -

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: March 15, 2021	/s/ Matthew Fernand

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Edward S. Lampert	Chairman of the Board of Trustees	March 15, 2021
Edward S. Lampert
/s/ Matthew Fernand	Executive Vice President, General Counsel & Secretary (principal executive officer)	March 15, 2021
Matthew Fernand
/s/ Amanda Lombard	Executive Vice President, Chief Financial Officer (principal financial and accounting officer)	March 15, 2021
Amanda Lombard
/s/ David S. Fawer	Trustee	March 15, 2021
David S. Fawer
/s/ John T. McClain	Trustee	March 15, 2021
John T. McClain
/s/ Sharon Osberg	Trustee	March 15, 2021
Sharon Osberg
/s/ Thomas M. Steinberg	Trustee	March 15, 2021
Thomas M. Steinberg
/s/ Allison Thrush	Trustee	March 15, 2021
Allison Thrush

- 63 -

SERITAGE GROWTH PROPERTIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

Financial Statements

	Page
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2020 and 2019	F-6
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018	F-7
Consolidated Statements of Equity for the years ended December 31, 2020, 2019, and 2018	F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018	F-11
Notes to Consolidated Financial Statements	F-13
Financial Statement Schedule
Schedule III—Real estate and accumulated depreciation	F-39

All other schedules are omitted since the required information is either not present in any amounts, is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and related notes.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of Seritage Growth Properties

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Seritage Growth Properties and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Liquidity — Refer to Note 1 to the financial statements

Critical Audit Matter Description

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 year ended December 31, 2020. Obligations are projected to continue to exceed property rental income until such time as additional tenants commence paying rent and the Company plans to incur additional development expenditures as it continues to invest in the redevelopment of its portfolio.

The Company expects to fund its obligations and any development expenditures with cash on hand and sales of wholly owned properties, subject to any approvals that may be required under the Company’s term Loan facility.

F-2

We identified the Company’s liquidity disclosure as a critical audit matter because of the significant judgments in management’s plans to fund its obligations and development expenditures. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s conclusion that it is probable the Company’s plans will be effectively implemented within one year after the date the financial statements are issued and will provide the necessary cash flows to fund the Company’s obligations and development expenditures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s liquidity disclosure included the following, among others:

• We tested the effectiveness of the controls over management’s plan and related disclosures.

• We tested management’s key assumptions, including projected rental income and property operating costs by comparing such assumptions to underlying lease agreements and historical operating costs.

• We evaluated management’s estimates relating to redevelopment costs by comparing to underlying development plans and costs spent to date.

• We evaluated the timing and likelihood of potential asset sales by comparing expected proceeds to comparable market information and historical transactions executed by the Company.

• We engaged in discussions with management regarding the Company’s intent and ability to generate the planned capital through sales of wholly owned properties.

• We evaluated management’s plans in the context of other audit evidence and analyzed external filings and press releases to determine whether it supported or contradicted the conclusion reached by management.

Real Estate Investments – Impairment — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company on a periodic basis, assesses whether there are indicators that real estate assets carrying value may not be recoverable. These indicators include macroeconomic conditions, such as the expected on-going impact of the current COVID-19 pandemic.  If an indicator is identified, management will estimate the real estate asset recoverability based on projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated holding period, to determine if the undiscounted cash flows are less than a real estate asset’s carrying value.   If the carrying value of a real estate asset exceeds the undiscounted cash flows, an analysis is performed to determine the estimated fair value of the real estate asset. 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 value over its estimated fair value.  

The Company makes significant assumptions in estimating future undiscounted cash flows including the anticipated hold period and capitalization rates and, as necessary, the discount rate and sales comparables to determine the estimated fair value of real estate assets. The Company recorded $10.3 million of impairment losses attributable to a change in holding period during 2020.  Additionally, the Company recorded impairment losses of $53.8 million on vacant assets and partially stabilized assets which have been negatively impacted by COVID-19 and where the Company decided to reevaluate its redevelopment plan.  

The Company’s assumptions used in estimating the undiscounted cash flow for real estate assets and the estimated fair value for real estate assets when not recoverable, is subjective and requires judgment. Because of this, auditing these assumptions required a high degree of auditor judgment and extensive auditor effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to evaluate management’s estimated undiscounted cash flows and the estimated fair value of real estate assets included the following, among others:

• We tested the effectiveness of the controls over management’s evaluation of real estate assets for impairment, specifically controls over the estimated undiscounted cash flows and the estimated fair value of real estate assets.    

• We evaluated whether the assumptions were consistent with evidence obtained in other areas in the audit and industry reports.

• We evaluated the reasonableness of management’s assertions regarding its anticipated hold period over real estate assets by performing the following:

o Engaged in discussions with management to evaluate the Company’s plans to develop an asset or dispose of an asset before the end of its estimated useful life.

o Inspected Board of Directors meeting minutes to identify whether assets have been identified for potential sale.

o Compared management’s assertions regarding its intent to hold an asset with internal strategic and operating plans.

F-3

• We evaluated the Company’s determination of anticipated future undiscounted cash flows for those assets with impairment indicators and, as necessary, the fair value for assets that the carrying value was determined not to be recoverable by performing the following:

o With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) significant assumptions made, including testing the source information underlying the determination of the capitalization rates and, as necessary, discount rates and sales comparables and (3) mathematical accuracy of the cash flow models utilized by management..

/s/ DELOITTE & TOUCHE LLP

New York, New York

March 15, 2021

We have served as the Company's auditor since 2015.

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of Seritage Growth Properties

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Seritage Growth Properties and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 15, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

New York, New York

March 15, 2021

F-5

SERITAGE GROWTH PROPERTIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share amounts)

	December 31, 2020			December 31, 2019
ASSETS
Investment in real estate
Land	$	592,770		$	667,004
Buildings and improvements		1,107,532			1,112,653
Accumulated depreciation		(142,206	)		(147,696	)
		1,558,096			1,631,961
Construction in progress		352,776			338,672
Net investment in real estate		1,910,872			1,970,633
Real estate held for sale		1,864			5,275
Investment in unconsolidated entities		457,033			445,077
Cash and cash equivalents		143,728			139,260
Restricted cash		6,526			—
Tenant and other receivables, net		46,570			54,470
Lease intangible assets, net		18,595			68,153
Prepaid expenses, deferred expenses and other assets, net		63,755			67,744
Total assets	$	2,648,943		$	2,750,612
LIABILITIES AND EQUITY
Liabilities
Term loan facility, net	$	1,598,909		$	1,598,487
Sales-leaseback financing obligations		20,425			—
Accounts payable, accrued expenses and other liabilities		146,882			108,755
Total liabilities		1,766,216			1,707,242
Commitments and contingencies (Note 9)
Shareholders' Equity
Class A common shares $0.01 par value; 100,000,000 shares authorized;    38,896,428 and 36,897,364 shares issued and outstanding    as of December 31, 2020 and December 31, 2019, respectively		389			369
Class B common shares $0.01 par value; 5,000,000 shares authorized;   0 and 1,242,536 shares issued and outstanding    as of December 31, 2020 and December 31, 2019, respectively		—			12
Series A preferred shares $0.01 par value; 10,000,000 shares authorized;     2,800,000 shares issued and outstanding as of December 31, 2020 and     December 31, 2019; liquidation preference of $70,000		28			28
Additional paid-in capital		1,177,260			1,149,721
Accumulated deficit		(528,637	)		(418,711	)
Total shareholders' equity		649,040			731,419
Non-controlling interests		233,687			311,951
Total equity		882,727			1,043,370
Total liabilities and equity	$	2,648,943		$	2,750,612

The accompanying notes are an integral part of these consolidated financial statements.

F-6

SERITAGE GROWTH PROPERTIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

	Year Ended December 31,
	2020			2019			2018
REVENUE
Rental income	$	116,202		$	167,035		$	213,558
Management and other fee income		293			1,598			1,196
Total revenue		116,495			168,633			214,754
EXPENSES
Property operating		41,164			42,123			28,705
Real estate taxes		36,768			38,595			42,446
Depreciation and amortization		95,997			104,581			226,675
General and administrative		28,849			39,156			34,788
Provision for doubtful accounts		—			—			257
Total expenses		202,778			224,455			332,871
Gain on sale of real estate		88,555			71,104			96,165
Gain on sale of interests in unconsolidated entities		1,758			—			—
Impairment of real estate assets		(64,108	)		—			—
Equity in loss of unconsolidated entities		(4,712	)		(17,994	)		(10,448	)
Interest and other income		3,394			6,824			7,886
Interest expense		(91,316	)		(94,519	)		(90,020	)
Change in fair value of interest rate cap		—			—			(23	)
Loss before income taxes		(152,712	)		(90,407	)		(114,557	)
Provision for income taxes		(252	)		(196	)		(321	)
Net loss		(152,964	)		(90,603	)		(114,878	)
Net loss attributable to    non-controlling interests		47,938			31,206			41,406
Net loss attributable to Seritage	$	(105,026	)	$	(59,397	)	$	(73,472	)
Preferred dividends		(4,900	)		(4,900	)		(4,903	)
Net loss attributable to Seritage common    shareholders	$	(109,926	)	$	(64,297	)	$	(78,375	)
Net loss per share attributable to Seritage    Class A and Class C common shareholders - Basic	$	(2.87	)	$	(1.77	)	$	(2.20	)
Net loss per share attributable to Seritage    Class A and Class C common shareholders - Diluted	$	(2.87	)	$	(1.77	)	$	(2.20	)
Weighted average Class A and Class C common    shares outstanding - Basic		38,298			36,413			35,560
Weighted average Class A and Class C common    shares outstanding - Diluted		38,298			36,413			35,560

The accompanying notes are an integral part of these consolidated financial statements.

F-7

SERITAGE GROWTH PROPERTIES

CONSOLIDATED STATEMENT OF EQUITY

(Amounts in thousands)

																				Additional						Non-
	Class A Common				Class B Common					Class C Common						Series A Preferred				Paid-In			Accumulated			Controlling			Total
	Shares		Amount		Shares			Amount		Shares			Amount			Shares		Amount		Capital			Deficit			Interests			Equity
Balance at January 1, 2018		32,416	$	324		1,329		$	13		3,151		$	31			2,800	$	28	$	1,116,060		$	(229,760	)	$	434,164		$	1,320,860
Net loss		—		—		—			—		—			—			—		—		—			(73,472	)		(41,406	)		(114,878	)
Common dividends and    distributions declared    ($1.00 per share and unit)		—		—		—			—		—			—			—		—		—			(35,997	)		(20,144	)		(56,141	)
Preferred dividends    declared ($1.75 per share)																								(4,093	)		—			(4,093	)
Vesting of restricted share units		2		—		—			—		—			—			—		—		—			—			—			—
Share-based compensation		—		—		—			—		—			—			—		—		5,632			—			—			5,632
Preferred stock offering costs																					(113	)		—			—			(113	)
Share class exchanges, net    (3,151,131 common shares)		3,151		32		—			—		(3,151	)		(31	)		—		—		—			—			—			1
Share class surrenders    (6,501 common shares)		—		—		(7	)		—		—			—			—		—		—			—			—			—
OP Unit exchanges    (98,923 units)		99		1		—			—		—			—			—		—		2,925			—			(2,926	)		—
Balance at December 31, 2018		35,668	$	357		1,322		$	13		—			—			2,800	$	28	$	1,124,504		$	(344,132	)	$	369,688		$	1,150,458

F-8

SERITAGE GROWTH PROPERTIES

CONSOLIDATED STATEMENT OF EQUITY (Continued)

(Amounts in thousands)

																			Additional						Non-
	Class A Common				Class B Common						Class C Common				Series A Preferred				Paid-In			Accumulated			Controlling			Total
	Shares		Amount		Shares			Amount			Shares		Amount		Shares		Amount		Capital			Deficit			Interests			Equity
Balance at January 1, 2019		35,668	$	357		1,322		$	13			-	$	-		2,800	$	28	$	1,124,504		$	(344,132	)	$	369,688		$	1,150,458
Net loss		—		—		—			—			—		—		—		—		—			(59,397	)		(31,206	)		(90,603	)
Cumulative effect of    accounting change    (see Note 2)		—		—		—			—			—		—		—		—		—			(1,286	)		-			(1,286	)
Common dividends and    distributions declared    ($0.25 per share and unit)		—		—		—			—			—		—		—		—		—			(8,996	)		(5,030	)		(14,026	)
Preferred dividends    declared ($1.75 per share)		—		—		—			—			—		—		—		—		—			(4,900	)		—			(4,900	)
Vesting of restricted share units		15		—		—			—			—		—		—		—		(3,523	)		—			—			(3,523	)
Share-based compensation		—		—		—			—			—		—		—		—		7,250			—			—			7,250
Share class surrenders    (79,829 common shares)		—		—		(79	)		(1	)		—		—		—		—		1			—			—			—
OP Unit exchanges    (1,214,577 units)		1,214		12		—			—			—		—		—		—		21,489			—			(21,501	)		—
Balance at December 31, 2019		36,897	$	369		1,243		$	12			—		—		2,800	$	28	$	1,149,721		$	(418,711	)	$	311,951		$	1,043,370

F-9

SERITAGE GROWTH PROPERTIES

CONSOLIDATED STATEMENT OF EQUITY (Continued)

(Amounts in thousands)

																			Additional						Non-
	Class A Common				Class B Common						Class C Common				Series A Preferred				Paid-In			Accumulated			Controlling			Total
	Shares		Amount		Shares			Amount			Shares		Amount		Shares		Amount		Capital			Deficit			Interests			Equity
Balance at January 1, 2020		36,897	$	369		1,243		$	12			—	$	—		2,800	$	28	$	1,149,721		$	(418,711	)	$	311,951		$	1,043,370
Net loss		—		—		—			—			—		—		—		—		—			(105,026	)		(47,938	)		(152,964	)
Preferred dividends    declared ($1.75 per share)		—		—		—			—			—		—		—		—		—			(4,900	)		—			(4,900	)
Vesting of restricted share units		97		1		—			—			—		—		—		—		(1	)		—			—			—
Share-based compensation		—		—		—			—			—		—		—		—		(2,779	)		—			—			(2,779	)
Share class surrenders    (1,242,536 common shares)		—		—		(1,243	)		(12	)		—		—		—		—		12			—			—			—
OP Unit exchanges    (1,901,739 units)		1,902		19		—			—			—		—		—		—		30,307			—			(30,326	)		—
Balance at December 31, 2020		38,896	$	389		-		$	-			—	$	—		2,800	$	28	$	1,177,260		$	(528,637	)	$	233,687		$	882,727

The accompanying notes are an integral part of these consolidated financial statements.

F-10

SERITAGE GROWTH PROPERTIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
	2020			2019			2018
CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(152,964	)	$	(90,603	)	$	(114,878	)
Adjustments to reconcile net loss to net cash provided by operating    activities:
Equity in loss of unconsolidated entities		4,712			17,994			10,448
Distributions from unconsolidated entities		213			877			3,956
Gain on sale of interest in unconsolidated entities		(1,758	)		—			—
Gain on sale of real estate		(88,555	)		(71,104	)		(96,165	)
Impairment of real estate assets		64,108			—			—
Change in fair value of interest rate cap		—			—			23
Share-based compensation		(3,035	)		6,845			7,472
Depreciation and amortization		95,997			104,581			226,675
Amortization of deferred financing costs		421			434			10,322
Amortization of above and below market leases, net		(1,793	)		(495	)		(768	)
Straight-line rent adjustment		4,983			(15,590	)		2,825
Change in operating assets and liabilities
Tenants and other receivables		9,725			2,556			(256	)
Prepaid expenses, deferred expenses and other assets		(179	)		(5,149	)		(9,811	)
Accounts payable, accrued expenses and other liabilities		20,811			(8,006	)		15,056
Net cash (used in) provided by operating activities		(47,314	)		(57,660	)		54,899
CASH FLOW FROM INVESTING ACTIVITIES
Investment in unconsolidated entities		(62,891	)		(54,193	)		(27,005	)
Net proceeds from disposition of interest in unconsolidated entities		19,551			—			—
Distributions from unconsolidated entities		1,150			1,884			10,988
Net proceeds from sale of real estate		331,878			140,505			210,097
Development of real estate		(246,820	)		(387,686	)		(313,555	)
Net cash provided by (used in) investing activities		42,868			(299,490	)		(119,475	)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Term Loan Facility		—			—			1,600,000
Repayment of mortgage loans payable		—			—			(1,210,561	)
Repayment of Unsecured Term Loan		—			—			(145,000	)
Payment of deferred financing costs		—			—			(2,472	)
Proceeds from sale-leaseback financing obligations		20,425			—			—
Preferred stock offering costs		—			—			(113	)
Purchase of shares related to stock grant recipients' tax withholdings		(85	)		(3,523	)		(1,840	)
Preferred dividends paid		(4,900	)		(4,900	)		(4,020	)
Common dividends paid		—			(17,964	)		(35,677	)
Non-controlling interests distributions paid		—			(10,060	)		(20,118	)
Net cash provided by (used in) financing activities		15,440			(36,447	)		180,199
Net increase (decrease) in cash, cash equivalents, and restricted cash		10,994			(393,597	)		115,623
Cash, cash equivalents, and restricted cash, beginning of period		139,260			532,857			417,234
Cash, cash equivalents, and restricted cash, end of period	$	150,254		$	139,260		$	532,857

F-11

SERITAGE GROWTH PROPERTIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

(Amounts in thousands)

	Year Ended December 31,
	2020			2019			2018
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest	$	117,866		$	117,556		$	102,786
Capitalized interest		27,130			28,497			23,183
Income taxes paid		293			285			321
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND    FINANCING ACTIVITIES
Development of real estate financed with accounts payable	$	20,586		$	17,006		$	26,180
Common dividends and OP unit distributions declared and unpaid		—			—			14,027
Preferred dividends declared and unpaid		1,225			1,225			1,225
Decrease in real estate, net resulting from deconsolidated properties
Real estate, net		(26,977	)		(17,237	)		(156,568	)
Tenants and other receivables, net		(610	)		(2	)		—
Lease intangible assets, net		(567	)		(26	)		(1,416	)
Prepaid expenses, deferred expenses and other assets, net		(528	)		(84	)		(193	)
Accounts payable, accrued expenses and other liabilities		547			6			—
Transfer to real estate assets held for sale		(3,411	)		(5,275	)		(3,094	)
Transfer of below market asset to right of use asset		—			(11,005	)		—
Recording of right of use assets		1,598			19,373			—
Recording of lease liabilities		(1,598	)		(8,368	)		—
Property delivered in exchange		—			(2,075	)		—
Property received in exchange		—			11,326			—
Property received in JV distribution		19,300			—			—
Non-cash property investment in JV distribution		(19,300	)		—			—
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND    RESTRICTED CASH
Cash and cash equivalents	$	143,728		$	139,260		$	532,857
Restricted cash		6,526			—			—
Total cash, cash equivalents, and restricted cash shown in the statement of    cash flows	$	150,254		$	139,260		$	532,857

The accompanying notes are an integral part of these consolidated financial statements.

F-12

SERITAGE GROWTH PROPERTIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 December 31, 2020, the Company’s portfolio consisted of interests in 183 properties totaling approximately 26.5 million square feet of GLA, including 158 wholly owned properties totaling approximately 24.5 million square feet of GLA across 41 states and Puerto Rico (the “Wholly Owned Properties”), and interests in 25 properties totaling approximately 1.9 million square feet of GLA across 13 states that are owned in unconsolidated entities (the “Unconsolidated Properties”).

The Company’s mission is to create long-term value for our shareholders by unlocking the value of our portfolio through re-leasing, redevelopment, formation of strategic partnerships or other bespoke solutions.

Background

The Company commenced operations on July 7, 2015 following a rights offering to the shareholders of Sears Holdings Corporation (“Sears Holdings” or “Sears”) to purchase common shares of Seritage in order to fund, in part, the $2.7 billion acquisition of certain of Sears Holdings’ owned properties and its 50% interests in three joint ventures which were simultaneously leased back to Sears Holdings under a master lease agreement (the “Original Master Lease” and the “Original JV Master Leases”, respectively).

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”).  Subsequently, the Company and certain affiliates of Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., executed a master lease with respect to 51 Wholly Owned Properties (the “Holdco Master Lease”).

As of December 31, 2020, the Company did not have any remaining properties leases to Holdco or Sears Holdings after giving effect to the pending termination of the last five Wholly Owned Properties which is scheduled to be completed in March 2021.

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.

Since inception, and excluding 17 projects that have been sold, we have completed or substantially completed 51 redevelopment projects and, as of December 31, 2020, we had an additional 15 projects in various stages of redevelopment, with the remaining commenced projects on hold due to adverse conditions resulting from the coronavirus (“COVID-19”) pandemic.  As of December 31, 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 leases, and 18 million square feet of GLA available for lease and/or redevelopment.

COVID-19 Pandemic

The novel coronavirus (“COVID-19”) pandemic continues to have a significant impact on the real estate industry in the United States, including the Company’s properties.  

As of December 31, 2020, the Company had collected 93% of rental income for the three months ended December 31, 2020, and agreed to defer an additional 4%.  As of March 5, 2021, the Company had also collected 95% of January and February 2021 rental income, and agreed to defer an additional 2%.  While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.

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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 intends to continue monetizing appropriate assets and selectively allocating capital to the assets with opportunistic risk-adjusted returns within its portfolio.

As a result of the fluidity and uncertainty surrounding the nation’s response to and limitations as a result of the pandemic, the Company expects that these conditions will change, potentially significantly, in future periods and results for the year ended December 31, 2020 may not be indicative of the impact of the COVID-19 pandemic on the Company’s business for future periods.  As such, the Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operations or cash flows over the foreseeable future.

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 year ended December 31, 2020 and the Company had operating cash outflows of $47.3 million.  Additionally, the Company’s asset sales during the year ended December 31, 2020 drove investing cash inflows of $42.9 million and financing cash inflows of $15.4 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 the Company’s construction projects, many 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 cash on hand and sales of Wholly Owned Properties, 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

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  The 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 December 31, 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.

As of December 31, 2020, the Company holds a 69.6% interest in the Operating Partnership and is the sole general partner which gives the Company exclusive and complete responsibility for the day-to-day management, authority to make decisions, and control of the Operating Partnership.  The Company has determined that the Operating Partnership is a VIE as the limited partners in the Operating Partnership, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights.  Accordingly, the Company consolidates its interest in the Operating Partnership.  The assets and liabilities of the Operating Partnership are the same as those of the Company and are presented in the consolidated balance sheets.

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.

F-14

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 real estate impairment assessments, and assessing the recoverability of accounts receivable.  These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances.  Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known.  Actual results could differ from these estimates.

Segment Reporting

The Company currently operates in a single reportable segment which includes the acquisition, ownership, development, redevelopment, management, and leasing of real estate properties.  The Company’s chief operating decision maker, its principal executive officer, assesses and measures the operating and financial results for each property on an individual basis and does not distinguish or group properties based on geography, size, or type. The Company, therefore, aggregates all properties into one reportable segment due to their similarities with regard to the nature and economics of the properties, tenants, and operational process.

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:	25 – 40 years
Site improvements:	5 – 15 years
Tenant improvements:	shorter of the estimated useful life or non-cancelable term of lease

The Company amortizes identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired, generally the remaining non-cancelable term of a related lease.

The Company, on a periodic basis, assesses whether there are indicators that the value of the real estate assets may be impaired.  These indicators include macroeconomic conditions, such as the expected impact of the current COVID-19 pandemic.  If an indicator is identified, management will estimate the real estate asset recoverability based on projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated holding period and capitalization rates, to determine if the undiscounted cash flows are less than a real estate asset’s carrying value.   If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the estimated fair value of the real asset. In estimating the fair value of an asset, various factors are considered, including expected future operating income, trends and leasing prospects including the effects of demand, competition, and other economic factors such as discount rates and market comparables.  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.   Subsequent tests for impairment may result in future impairment charges if the COVID-19 pandemic causes economic and market conditions to deteriorate further.  The Company recognized $64.1 million in impairment losses for year ended December 31, 2020 and no impairment losses on real estate assets were recognized for the years ended December 31, 2019 and 2018.

Approximately $10.3 million of impairment was attributable to a change in holding period for two properties for which management was in active negotiations for a sale at a value below carrying value. These assets were subsequently sold during the year.  In addition, the Company recorded impairment losses of $53.8 million during the year ended December 31, 2020 on vacant assets and partially stabilized assets that are leased primarily to theater and fitness tenants which have been negatively impacted by COVID-19.  Such impairment losses are included within impairment on real estate assets on the consolidated statements of operations.  No impairment losses were recognized for the years ended December 31, 2019 and 2018.

F-15

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 consolidated statements of operations.  For more information on the Company’s unconsolidated entity transactions refer, to Note 4.

The following table summarizes the Company’s gain on sale of real estate, net during the years ended December 31, 2020, 2019, and 2018 (in thousands):

	Year Ended December 31,
	2020			2019		2018
Contributions to unconsolidated entities
Gross proceeds	$	27.0		$	21.7	$	232.7
Gain (loss) on sale of real estate, net		(1.5	)		3.9		63.9
Dispositions to third parties
Gross proceeds	$	333.4		$	144.3	$	114.3
Gain (loss) on sale of real estate, net (1)(2)		120.1			63.7		29.5
Total gains on contributions and dispositions, net	$	118.6		$	67.6	$	93.4

(1)Includes gain of $6.9 million related to the exchange of a portion of one land parcel for two parcels of approximately equal size for the year ended December 31, 2019.

(2)Excludes loss of $30.0 million related to the revaluation of Mark 302 JV to adjust the gain from $38.8 million to $8.8 million as further described in Note 4 below.

During the year ended December 31, 2020, the Company sold an outparcel for proceeds of $2.7 million which did not meet the criteria for sale accounting because the buyer has the right to put the property back to the Company if the property is not delivered to the tenant.  As of December 31, 2020, the Company recognized a deferred purchase price liability for this asset which is located in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets.

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.

F-16

As of December 31, 2020, one property was classified as held for sale with assets of $1.9 million and no liabilities, and as of December 31, 2019, two properties were classified as held for sale with assets of $5.3 million and no liabilities.

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 COVID-19 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.

No such impairment losses were recognized for the years ended December 31, 2020, 2019 or 2018.

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

As of December 31, 2020, restricted cash represented cash received as proceeds for a sale which did not meet the criteria for sale accounting at December 31, 2020, as well as cash collateral for a letter of credit.  As of December 31, 2020, the Company had restricted cash of $6.5 million and as of December 31, 2019, the Company did not have any restricted cash.

Rental Revenue Recognition and Tenant Receivables

Rental income is comprised of base rent and reimbursements of property operating expenses.  The Company commences rental revenue recognition when the lessee takes control of the physical use of the leased asset based on an evaluation of several factors.  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 straight-line rent receivable and included as a component of tenant and other receivables on the consolidated balance sheets.  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.    

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.  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 on a cash basis, 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 consolidated statements of operations. If future circumstances change such that the Company believes that it is reasonably certain that the Company will collect all rental income remaining on such leases, the Company will resume accruing rental income and recognize a cumulative catch up for previously written off receivables.  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.

The Company recorded a reduction to rental income of $5.6 million and $255 thousand during the years ended December 31, 2020 and December 31, 2019 as a result of the Company’s evaluation of collectability.  In addition, the Company also recorded a reversal of previously recorded straight-line rent of $5.0 million for the year ended December 31, 2020. No such reversals were recorded for the year ended December 31, 2019. During the year ended December 31, 2020, the reduction to rental income included an allowance of $1.8 million related to deferral agreements.

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

F-17

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.  

In April 2020, the FASB staff issued a question-and-answer (Q&A) document focusing on the application of the lease guidance in ASC 842, Leases, providing optional relief related to the lease modification guidance under ASC 842 for lease concession agreements entered as a result of COVID-19.  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.

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.

Tenant and Other Receivables

Tenant and other receivables 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, as discussed above.  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.

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 100% of the revenue earned from such Unconsolidated Properties in management and other fee income on the consolidated statements of operations.  The Company’s share of management expenses incurred by the unconsolidated entities is reported in equity in income (loss) of unconsolidated entities on the consolidated statements of operations and in other expenses in the combined financial data in Note 4.  

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 consolidated statements of operations and in other expenses in the combined financial data in Note 4.

Management determined that property and asset management and construction and development management services each represent a series of stand-ready performance obligations satisfied over time with each day of service being a distinct performance obligation. For property and asset management services, the Company is typically compensated for its services through a monthly management fee earned based on a specified percentage of monthly rental income or rental receipts generated from the property under management.  For construction and development services, the Company is typically compensated for planning, administering and monitoring the design and construction of projects within our unconsolidated entities based on a percentage of project costs or a fixed fee.  Revenues from such management contracts are recognized over the life of the applicable contract.

F-18

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 in the 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.  As of December 31, 2020, the Company leased space at only five Wholly Owned Properties to Holdco under the Holdco Master

F-19

Lease, all of which will be terminated effective March 2021. The Company’s exposure to Holdco has been reduced to a level such that Holdco no longer represents a significant concentration of credit risk.  Management believes the Company's portfolio is reasonably diversified and does not contain any other significant concentrations of credit risk.  As of December 31, 2020, the Company's portfolio of 158 Wholly Owned Properties and 25 Unconsolidated Properties was diversified by location across 41 states and Puerto Rico.  

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 no Class C common shares outstanding.

Class B non-economic common shares are excluded from earnings per share computations as they do not have economic rights.  As of December 31, 2020, all outstanding Class B common shares have been surrendered and there are currently no Class B common shares outstanding.  As of December 31, 2019, 1,242,536 Class B non-economic common shares were issued and outstanding.

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 Financial Accounting Standards Board (“FASB”) which have been adopted by the Company:

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 two ground leases 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 $8.4 million of right-of-use assets and corresponding $8.4 million of lease liabilities upon adoption of this standard.  Right-of-use assets and corresponding lease liabilities are included in the prepaid expenses, deferred expenses and other assets and accounts payable, accrued expenses and other liabilities line item respectively on the consolidated balance sheets. Additionally, the Company is no longer able to capitalize certain internal and external leasing costs. Because of this change, $1.3 million of such costs incurred in previous periods for leases which had not commenced at the beginning of current period were adjusted against opening equity upon adoption. The Company also combined $11,005 of below-market lease assets pertaining to a ground lease where we are a lessee with the right of use asset recorded for the ground lease as required upon adoption of ASU 2016-02. The below-market lease asset was previously recorded within the lease intangibles on the consolidated balance sheets.

F-20

ASU	Description	Adoption Date	Effect on the financial statements or other significant matters
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 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 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 consolidated financial statements.
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 66 leases as of December 31, 2020 and one additional leases subsequent to the end of the year. The Company has determined that the deferral agreements are all substantially similar arrangements and has elected to bypass the lease by lease analysis.  This election did not result in a material change to the Company’s financial statements.  The impact of this election is dependent upon the circumstances and characteristics of future modifications and as such the impact of the Lease Modification Q&A may change. Refer to revenue recognition in Note 2 for further information regarding the deferral agreements and their impact to the Company’s results of operations.

F-21

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 $18.6 million and $4.2 million, respectively, as of December 31, 2020, and $68.2 million and $10.6 million, respectively, as of December 31, 2019.  The following table summarizes the Company’s lease intangible assets and liabilities (in thousands): 

December 31, 2020
	Gross		Accumulated
Lease Intangible Assets	Asset		Amortization			Balance
In-place leases, net	$	73,169	$	(56,369	)	$	16,800
Above-market leases, net		4,139		(2,344	)		1,795
Total	$	77,308	$	(58,713	)	$	18,595

	Gross		Accumulated
Lease Intangible Liabilities	Liability		Amortization			Balance
Below-market leases, net	$	6,626	$	(2,440	)	$	4,186
Total	$	6,626	$	(2,440	)	$	4,186

December 31, 2019
	Gross		Accumulated
Lease Intangible Assets	Asset		Amortization			Balance
In-place leases, net	$	245,745	$	(180,639	)	$	65,106
Above-market leases, net		6,625		(3,578	)		3,047
Total	$	252,370	$	(184,217	)	$	68,153

	Gross		Accumulated
Lease Intangible Liabilities	Liability		Amortization			Balance
Below-market leases, net	$	15,912	$	(5,264	)	$	10,648
Total	$	15,912	$	(5,264	)	$	10,648

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of $1.8 million, $0.5 million and $0.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.  Future amortization of these intangibles is estimated to increase rental income as set forth below (in thousands):

2021	$	43
2022		(53	)
2023		1
2024		26
2025		97

Amortization of acquired below-market ground leases resulted in additional rent expense of $0.2 million for each of the years ended December 31, 2020, 2019 and 2018. Future amortization of the below-market ground lease is estimated to increase property expenses as set forth below (in thousands):

2021	$	203
2022		203
2023		203
2024		203
2025		203

F-22

Amortization of acquired in-place leases resulted in additional depreciation and amortization expense of $42.5 million, $40.5 million and $173.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. Future estimated amortization of acquired in-place leases is set forth below (in thousands):

2021	$	3,022
2022		2,750
2023		1,921
2024		1,385
2025		1,077

Note 4 – Investments in Unconsolidated Entities

The Company conducts a portion of its property rental activities through investments in unconsolidated entities.  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.

As of December 31, 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.)		50.0	%		4		520,400
GS Portfolio Holdings (2017) LLC    ("GGP II JV")	Brookfield Properties Retail    (formerly GGP Inc.)		50.0	%		3		474,100
MS Portfolio LLC    ("Macerich JV")	The Macerich Company		50.0	%		7		1,266,600
SPS Portfolio Holdings II LLC    ("Simon JV")	Simon Property Group, Inc.		50.0	%		5		872,200
Mark 302 JV LLC    ("Mark 302 JV")	An investment fund managed    by Invesco Real Estate		50.0	%		1		103,000
SI UTC LLC    ("UTC JV")	A separate account advised by    Invesco Real Estate		50.0	%		1		226,200
SF WH Joint Venture LLC    ("West Hartford JV")	An affiliate of First Washington    Realty		50.0	%		1		163,700
GGCAL SRG HV LLC    ("Cockeysville JV")	An affiliate of    Greenberg Gibbons		50.0	%		1		160,200
Tech Ridge JV Holding LLC    ("Tech Ridge JV")	An affiliate of    RD Management		50.0	%		1		—
J&J Baldwin Park LLC    ("Carson Investment")	An affiliate of NewMark Merrilll Companies and other entities		20.0	%		1		182,200
						25		3,968,600

F-23

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 gain (loss) 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 gain on sale of real estate on the 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.  The following table presents summarizes the properties contributed to the Company’s unconsolidated entities:

		December 31, 2020
Unconsolidated Entity	Contribution Date	Contribution Value		Gain (Loss)
2018
Mark 302 JV (1)	March 20, 2018	$	60.0	$	8.8
UTC JV	May 18, 2018		68.0		28.3
West Hartford JV (2)	May 18, 2018		20.3		(1.1	)
2019
Cockeysville JV (3)	March 29, 2019	$	12.5	$	3.8
Tech Ridge JV (4)	September 27, 2019		3.0		0.1

(1) The Mark 302 JV is subject to a revaluation upon the earlier of the first anniversary of project stabilization or December 31, 2020. The primary inputs in determining the Contribution Value for the Mark 302 JV are property operating income based on signed leases and total project costs and the Contribution Value will be recalculated to yield a pre-determined rate of return to its partner. Initially, the Contribution Value ranged from $105.0 million to $60.0 million, and as a result, the Gain (Loss) will not be more than $53.8 million or less than $8.8 million.  During the year ended December 31, 2020 the Company adjusted the Contribution Value down to $60.0 million and reduced the Gain (Loss) by $30.0 million which is included in gain on sale of real estate on the consolidated statements of operations. The Company also recorded a $15.0 million reduction to the Mark 302 JV investment value and a $15.0 million payable related to the amounts due to its partner which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets.  In addition, 2020, the Company and its partner entered into an agreement to extend the revaluation date for the Mark 302 JV to September 30, 2021. Pursuant to the terms of this agreement, the Company will pay its partner a fee of $1.1 million and the Contribution Value cannot be more than $90.0 million or less than $60.0 million. The Company will continue to re-evaluate the expected amount on a periodic basis through the final determination date.

(2) The West Hartford JV was subject to (i) a revaluation upon the earlier of the first anniversary of project stabilization or December 31, 2019, and (ii) an adjustment based on the timing, method and magnitude of the reassessment of the property for real estate tax purposes between 2018 and 2022. As of December 31, 2019, the Company revalued the Contribution Value and recorded an additional loss of $2.3 million, and the Company does not expect there to be any additional revaluations.

(3) The Cockeysville JV is subject to revaluation if an affiliate of Greenberg Gibbons contributes another adjacent parcel of land (the “Additional Land Parcel”) to the Cockeysville JV if certain milestones are met with respect to entitling the Additional Land Parcel for residential use.  If the Additional Land Parcel is contributed to the Cockeysville JV, the Company will record an increased investment in the Cockeysville JV in an amount equal to 50% of the fair value of the Additional Land Parcel at the time of contribution. The Contribution Value of the Cockeysville JV is based upon the Company’s assessment of the probability of the Additional Land Parcel being entitled for residential use.  The maximum Gain (Loss) is the fair value of the Additional Land Parcel at the time the Contribution Value is revalued, which cannot be less than $3.8 million.

(4)

F-24

The Tech Ridge JV is subject to a revaluation primarily based upon the number of residential units constructed by the Tech Ridge JV.  The Contribution Value cannot be less than $2.75 million.

Other Unconsolidated Entity Transactions

Carson Investment

On September 21, 2020, the Company contributed its property located in Carson, CA to the Carson Investment and retained a 20% interest in the property.  As a result of the sale, the Company recorded an impairment of $6.4 million which is included in impairment on real estate assets on the consolidated statements of operations, and a loss on sale of $1.5 million which is included in gain on sale of real estate on the consolidated statements of operations.

GGP II JV

On December 23, 2020, the Company sold to its partner, Brookfield Properties Retail, its 50% membership interests in two of the assets in the GGP II JV for total consideration of $20.0 million and recorded a reduction of its investment, which is included in Investment in unconsolidated entities on the consolidated balance sheets. As a result of the sale, the Company recorded a gain on sale of $1.8 million in gain on sale of real estate on the consolidated statements of operations.

Macerich JV

On December 30, 2020, the Company acquired full ownership of the former Sears parcel Arrowhead Towne Center in Glendale, AZ, and surrendered its 50% share of the former Sears parcel at South Plains Mall in Lubbock, TX. This transaction was recorded as a distribution of property.

Unconsolidated Entity Management and Related Fees

The Company acts as the operating partner and day-to-day manager for Mark 302, West Hartford, UTC and Tech Ridge. The Company is entitled to receive fees for providing management, leasing, construction supervision and asset management services to these entities.  The Company also acts as the development manager for one of the properties in the group of GGP II entities which entitles the Company to receive certain development fees.  The Company earned $293 thousand and $1.6 million from these services for the years ended December 31, 2020 and December 31, 2019, respectively.

The following tables present combined financial data for all of the Company’s unconsolidated entities (in thousands):

	December 31, 2020			December 31, 2019
ASSETS
Investment in real estate
Land	$	318,540		$	336,739
Buildings and improvements		492,973			517,068
Accumulated depreciation		(81,730	)		(86,496	)
		729,783			767,311
Construction in progress		222,663			177,028
Net investment in real estate		952,446			944,339
Cash and cash equivalents		16,094			27,977
Tenant and other receivables, net		4,104			3,113
Other assets, net		62,882			26,051
Total assets	$	1,035,526		$	1,001,480
LIABILITIES AND MEMBERS' INTERESTS
Liabilities
Mortgage loans payable, net	$	34,672		$	14,218
Accounts payable, accrued expenses    and other liabilities		48,405			89,110
Total liabilities		83,077			103,328
Members Interest
Additional paid in capital		964,868			934,120
Retained earnings		(12,419	)		(35,968	)
Total members interest		952,449			898,152
Total liabilities and members interest	$	1,035,526		$	1,001,480

F-25

	Year Ended December 31,
	2020			2019			2018
EQUITY IN INCOME OF UNCONSOLIDATED ENTITIES
Total revenue	$	22,420		$	31,470		$	48,455
Property operating expenses		(9,962	)		(11,385	)		(9,357	)
Depreciation and amortization		(18,401	)		(60,745	)		(31,676	)
Operating income (loss)		(5,943	)		(40,660	)		7,422
Other expenses		(3,551	)		(2,049	)		(28,317	)
Gain on sale of real estate		166			6,721			—
Net loss	$	(9,328	)	$	(35,988	)	$	(20,895	)
Equity in (loss) income of unconsolidated entities	$	(4,712	)	$	(17,994	)	$	(10,448	)

Note 5 – Leases

Lessor Disclosures

Future minimum rental receipts, excluding variable payments and tenant reimbursements of expenses, under non-cancelable operating leases executed as of December 31, 2020 and December 31, 2019 is approximately as follows:

(in thousands)	December 31, 2020
2021		95,780
2022		89,685
2023		83,864
2024		80,592
2025		80,382
Thereafter		430,456
Total Lease Payments	$	860,759

(in thousands)	December 31, 2019
2020		113,265
2021		121,909
2022		124,067
2023		119,745
2024		116,607
Thereafter		1,019,054
Total Lease Payments	$	1,614,647

The components of lease revenues for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 were as follows:

	Year Ended December 31,
(in thousands)	2020		2019		2018
Fixed rental income		93,259		104,956		140,661
Variable rental income		26,133		45,994		74,839
Total rental income	$	119,392	$	150,950	$	215,500

F-26

Lessee Disclosures

The Company has two ground leases and multiple corporate office leases which are classified as operating leases.  The Company initially recorded $8.6 million of right-of-use, or ROU, assets and lease liabilities. The Company’s ROU assets were subsequently increased by $11.0 million as a result of the reclassification of acquired below-market lease assets, net, from lease intangible assets, net, during the year ended 2019. As of December 31, 2020, and December 31, 2019, the outstanding amount of ROU assets were $18.8 million and $18.5 million, respectively.

The Company recorded rent expense related to leased corporate office space of $1.7 million, $1.6 million, and $0.7 million for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively. Such rent expense is classified within general and administrative expenses on the consolidated statements of operations.

In addition, the Company recorded ground rent expense of approximately $45 thousand for each of the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.  Such ground rent expense is classified within property operating expenses on the consolidated statements of operations. The ground lease requires the Company to make fixed annual rental payments and expires in 2073 assuming all extension options are exercised.

The following table sets forth information related to the measurement of our lease liabilities as of December 31, 2020:

(dollar amounts in thousands)	As of December 31, 2020
Weighted average remaining lease term (in years)		9.94
Weighted average discount rate		6.98	%
Cash paid for operating leases	$	2,145

Sale-leaseback Financing Obligations

During the year ended December 31, 2020, the Company completed a sale-leaseback transaction for its property in Hialeah, Florida for $21.0 million.  As part of the sale-leaseback transaction, the Company agreed to lease all land and improvements on the land for a fixed term of 25 years at an initial base rent of $1.5 million per annum which will increase by 1.5% per year thereafter. For the initial periods of the sale-leaseback, cash payments are less than the interest expense recognized, which causes the obligation to increase during the initial years of the lease term. The implied interest rate is approximately 7.00%. The Company has a purchase option during years four, five or seven of the 25-year term to reacquire, solely at the Company’s option, the Hialeah property at a predetermined price. The Hialeah property continues to be reflected as a long lived asset and depreciated over its remaining useful life.

Future sale-leaseback financing obligations as of December 31, 2020 are approximately as follows:

(in thousands)	December 31, 2020
2021		1,444
2022		1,466
2023		1,488
2024		1,510
2025		1,532
2026		1,555
Thereafter		33,891
Interest Portion		(22,830	)
Total Lease Payments	$	20,056

F-27

Original Master Lease and Holdco Master Lease

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. All remaining properties leased to Holdco were terminated from the Holdco Master Lease in 2020 with the last five properties effective in March 2021.

Lease Structure

The structure of the Holdco Master Lease is consistent with the structure of the Original Master Lease in all material respects, including that it is a triple net lease 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.

The Holdco Master Lease provides for an initial base rent at the same rates which were in place at the time the Original Master Lease was rejected.  In each of the initial term and the first two renewal terms, consistent with the Original Master Lease, base rent under the Holdco Master Lease was increased in August of each year by 2.0% per annum.  For subsequent renewal terms, consistent with the Original Master Lease, rent was to be set at the commencement of the renewal term at a fair market rent based on a customary third-party appraisal process, but in no event would the renewal rent be less than the rent payable in the immediately preceding lease year. The lease provided for annual rent increases and four renewal terms.  The base rent under the Holdco Master Lease was subject to an adjustment in the form of a rent credit of up to approximately $12 million in each of the first and second years of the Holdco Master Lease.  The rent credit was allocated to specific properties based on the trailing twelve- month EBITDA of the particular property as of December 2018.

Revenues from the Holdco Master Lease and the Original Master Lease for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands and excluding straight-line rental income of $(7.9) million, $0.3 million and $(4.9) million, respectively).

	Year Ended December 31,
	2020		2019		2018
Fixed rental income	$	4,268	$	27,628	$	86,224
Variable rental income		10,425		23,525		65,450
Total rental income	$	14,693	$	51,153	$	151,674

Seritage Recapture Rights

The Holdco Master Lease provides the Company with the right to recapture up to approximately 50% of the space occupied by the tenant at all properties (other than five specified properties) and the right to recapture any automotive care centers which are free-standing or attached as “appendages” to the properties, all outparcels or outlots and certain portions of parking areas and common areas.  

As of December 31, 2020, the Company had previously exercised certain recapture rights with respect to 70 properties under the Original Master Lease prior to its rejection on March 12, 2019, and exercised recapture rights with respect to four properties under the Holdco Master Lease during the year ended December 31, 2019, including three properties where the Company had previously exercised certain recapture rights under the Original Master Lease.

The following table provides a summary of the Company’s recapture activity as of December 31, 2020:

(in thousands except property count)
Year	Square Feet		Total Number of Properties		100% Recaptures (1)		Partial Recaptures (2)
2020		—	—		—		—
2019		629	4		3		1
2018		3,428	20		17		3
2017		3,302	27		16		11
2016		1,501	17		4			13
Total		8,860		68		40		28

(1) Includes properties for which the Company had converted partial recapture rights to 100% recapture rights.

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(2) Partial recaptures include the recapture of (i) up to approximately 50% of the space occupied by the tenant at all properties, (ii) automotive care centers which are free-standing or attached as “appendages” to the properties, and/or (iii) outparcels or outlots and certain portions of parking areas and common areas.

Holdco Termination Rights

Under the terms of the Holdco Master Lease, Holdco has the right, at any time, to terminate the Holdco Master Lease with respect to any property upon the payment of a termination fee equal to one year of base rent plus annual taxes and other operating expenses.  

Sears Holdings exercised termination rights with respect to 87 properties under the Original Master Lease prior to its rejection on March 12, 2019 and Holdco had exercised termination rights with respect to all remaining properties under the Holdco Master Lease as of December 31, 2020.

The following table provides a summary of Sears Holdings’ and Holdco’s termination activity (excluding 31 properties totaling 4.3 million square feet that were rejected on March 12, 2019 as part of Sears Holdings’ bankruptcy filing) as of December 31, 2020:

(in thousands except property count)
Notice Date	Termination Date	Square Feet		Number of Properties		Redevelopments Announced		Properties Sold
December 2020	March 2021 (1)		639		5		—		—
June 2020	September 2020 (1)		1,800		12		2		—
November 2019	March 2020		4,332		29		7		1
August 2018	December 2018		1,605		13		6		3
June 2018	November 2018 (2)		1,218		9		6		1
April 2018	August 2018		1,494		9		4		1
June 2017	October 2017 (3)		3,812		20		8		4
January 2017	April 2017		1,872		19		7		8
September 2016	January 2017		1,727		17		8		6
Total			18,499		133		48		24

(1) Properties terminated pursuant to the Amendments signed in 2020.

(2) Two properties were terminated in October 2018.

(3) One property was terminated in November 2017 and one was terminated in January 2018.

As of December 31, 2020, the Company had commenced or completed redevelopment projects at 48 of the terminated properties, and sold an additional 24 of the terminated properties, and will continue to announce redevelopment activity as new leases are signed to occupy the space formerly occupied by Sears or Kmart.

Note 6 – Debt

Term Loan Facility

On July 31, 2018, the Operating Partnership, as borrower, and the Company, as guarantor, entered into a Senior Secured Term Loan Agreement (the “Term Loan Agreement”) providing for a $2.0 billion term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire Hathaway”) as lender and Berkshire Hathaway as administrative agent.  The Term Loan Facility provided for an initial funding of $1.6 billion at closing (the “Initial Funding”) and includes a $400 million incremental funding facility (the “Incremental Funding Facility”) subject to certain conditions described below. The Term Loan Facility matures on July 31, 2023.

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, were 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 7.0% and unfunded amounts under the Incremental Funding Facility are subject to an annual fee of 1.0% until drawn. The Company prepays the annual fee and amortizes the expense to interest expense on the consolidated statements of operations.

As of December 31, 2020, the aggregate principal amount outstanding under the Term Loan Facility was $1.6 billion.

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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 $200 million (ii) the Company’s good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under the amendment to the Term Loan Amendment as further described below.   

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 1.00 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.20 to 1.00 for each fiscal quarter thereafter; (ii) an unencumbered fixed charge coverage ratio of not less than 1.05 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending June 30, 2021, and not less than 1.30 to 1.00 for each fiscal quarter thereafter; (iii) a total leverage ratio of not more than 65%; (iv) an unencumbered ratio of not more than 60%; and (v) a minimum net worth of at least $1.2 billion.  Any failure to satisfy any of these financial metrics limits the Company’s ability to dispose of assets via sale or joint venture and triggers the springing mortgage and collateral requirements but will not result in an event of default.  The Term Loan Facility also includes certain limitations relating to, among other activities, the Company’s ability to: sell assets or merge, consolidate or transfer all or substantially all of its assets; incur additional debt; incur certain liens; enter into, terminate or modify certain material leases and/or the material agreements for the Company’s properties; 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 2.0% in excess of the then applicable interest rate.

As of December 31, 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 December 31, 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”), and in 2021, the Company provided mortgages on the remaining unencumbered assets.  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, 2020. The Company believes it is in compliance with all other terms and conditions of the Term Loan Agreement.

The Company incurred $2.1 million of debt issuance costs related to the Term Loan Facility which are recorded as a direct deduction from the carrying amount of the Term Loan Facility and amortized over the term of the Term Loan Agreement.  As of December 31, 2020 and December 31, 2019, the unamortized balance of the Company’s debt issuance costs were $1.1 million and $1.5 million, respectively.

On May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment (the “Term Loan 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

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(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.  The Company has paid all interest due under the Term Loan Agreement and has not deferred any interest as permitted under the Term Loan Amendment.  

Additionally, the Term Loan Amendment 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 Agreement.

Mortgage Loans Payable

On July 7, 2015, in connection with the Company commencing operations, the Company entered into a mortgage loan agreement (the “Mortgage Loan Agreement”) and mezzanine loan agreement (collectively, the “Mortgage Loan Agreements”), providing for term loans in an initial principal amount of approximately $1,161 million (collectively, the “Mortgage Loans”) and a $100 million future funding facility (the “Future Funding Facility”).  The Mortgage Loans and Future Funding Facility were secured by all of the Company’s Wholly Owned Properties and a pledge of its equity in the unconsolidated entities.  Pursuant to the terms of the Mortgage Loan Agreements, amounts available under the Future Funding Facility were fully drawn by the Company on June 30, 2017.  Such amounts were deposited into a redevelopment reserve and used to fund redevelopment activity at the Company’s properties.  

Interest under the Mortgage Loans was due and payable on the payment dates, and all outstanding principal amounts were due when the loan was scheduled to mature on the payment date in July 2019, pursuant to the Loan Agreements.  The Company had two one-year extension options subject to the payment of an extension fee and satisfaction of certain other conditions.  Borrowings under the Mortgage Loans bore interest at the London Interbank Offered Rates (“LIBOR”) plus, as of July 31, 2018, a weighted-average spread of 485 basis points; payments were made monthly on an interest-only basis.  

The Company incurred $22.3 million of debt issuance costs related to the Mortgage Loans and Future Funding Facility which were recorded as a direct deduction from the carrying amount of the Mortgage Loans and Future Funding Facility and amortized over the term of the Mortgage Loan Agreements.  During the year ended December 31, 2018, the Company fully amortized the remaining unamortized debt issuance costs as a result of the full repayment of the Mortgage Loans and Future Funding Facility on July 31, 2018.  As of December 31, 2020 and December 31, 2019, the Company had no unamortized debt issuance costs related to the Mortgage Loans and Future Funding Facility.

On July 31, 2018, the aggregate principal amounts outstanding under the Mortgage Loans and the Future Funding Facility were repaid in full and no amounts were outstanding as of December 31, 2020.

Unsecured Term Loan

On December 27, 2017, the Operating Partnership, as borrower, and the Company, as guarantor, refinanced its unsecured delayed draw term loan with a $200 million unsecured term loan facility (the “Unsecured Term Loan”).  The principal amount outstanding under the Unsecured Delayed Draw Term Loan at termination was $85 million. No prepayment penalties were triggered and the Unsecured Delayed Draw Term Loan terminated in accordance with its terms.

The lenders under the Unsecured Delayed Draw Term Loan, JPP, LLC and JPP II, LLC, maintained their funding of $85 million in the Unsecured Term Loan, with JPP, LLC appointed as administrative agent under the Unsecured Term Loan.  An affiliate of Empyrean Capital Partners, L.P., a Delaware limited partnership (and together with JPP, LLC and JPP II LLC, each an “Initial Lender” and collectively, the “Initial Lenders”), funded $60 million under the Unsecured Term Loan, resulting in a total of $145 million committed and funded under the Unsecured Term Loan at closing.  The Borrower paid to each Initial Lender an upfront fee in an aggregate amount equal to 1.00% of the principal amount of the loan made by such Initial Lender.

Under an accordion feature, the Company had the right to increase the total commitments up to $200 million and place an additional $55 million of incremental loans with the Initial Lenders or new lenders. The Initial Lenders under the Unsecured Term Loan were not obligated to make all or any portion of the incremental loans.

The Unsecured Term Loan matured on the earlier of (i) December 31, 2018 and (ii) the date on which the outstanding indebtedness under the Company’s existing mortgage and mezzanine facilities are repaid in full.  The Unsecured Term Loan was prepayable at any time in whole or in part, without any penalty or premium.  Amounts drawn under the Unsecured Term Loan and repaid may not have been redrawn.

F-31

The principal amount of loans outstanding under the Unsecured Term Loan bore a base annual interest rate of 6.75%.

The Company incurred $1.8 million of debt issuance costs related to the Unsecured Term Loan which was recorded as a direct deduction from the carrying amount of the Unsecured Term Loan and amortized over the term of the loan.  During the year ended December 31, 2018, the Company fully amortized the remaining unamortized debt issuance costs as a result of the full repayment of the Unsecured Term Loan on July 31, 2018.  As of December 31, 2020 and December 31, 2019, the Company had no unamortized debt issuance costs related to the Unsecured Term Loan.

Edward S. Lampert, the Company’s Chairman, is the Chairman and Chief Executive Officer of ESL Investments, Inc., which controls JPP, LLC and JPP II, LLC.  The terms of the Unsecured Term Loan were approved by the Company’s Audit Committee and the Company’s Board of Trustees (with Mr. Lampert recusing himself).

On July 31, 2018, the principal amounts outstanding under the Unsecured Term Loan were repaid in full and no amounts were outstanding as of December 31, 2020.

Note 7 – Income Taxes

The Company has elected to be taxed as a REIT as defined under Section 856 of the Code for U.S. 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 90% of its adjusted REIT taxable income to its shareholders.

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 corporate income tax.

The Company evaluated whether any uncertain tax positions existed as of December 31, 2020 and 2019 and concluded that there are no uncertain tax positions.

Note 8 – Fair Value Measurements

ASC 820, Fair Value Measurement, defines fair value and establishes a framework for measuring fair value.  The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”).  ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:

Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities

Level 2 - observable prices based on inputs not quoted in active markets, but corroborated by market data

Level 3 - unobservable inputs used when little or no market data is available

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.  In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.  The Company also considers counterparty credit risk in its assessment of fair value.

Financial Assets and Liabilities Measured at Fair Value on a Recurring or Non-Recurring Basis

All derivative instruments were carried at fair value and were valued using Level 2 inputs.  The Company had no derivative instruments as of December 31, 2020 (an interest rate cap associated with the Mortgage Loans and Future Funding Facility was terminated subsequent to the repayment of the Mortgage Loans and Future Funding Facility on July 31, 2018). The Company utilized an independent third party and interest rate market pricing models to assist management in determining the fair value of this instrument.

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The Company had elected not to utilize hedge accounting, and therefore, the change in fair value was included in previous periods within change in fair value of interest rate cap on the consolidated statements of operations.  For the years ended December 31, 2020 and December 31, 2019, the Company did not record any gain or loss compared to a loss of $23 thousand for the year ended December 31, 2018.

Assets Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets 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.  

For the years ended December 31, 2020, 2019 and 2018, in accordance with ASC 360-10, Property, Plant and Equipment, the Company recorded impairment losses of $64.1 million, $0 million and $0 million, respectively, on real estate assets which is included in impairment on real estate assets within the consolidated statements of operations. Approximately $10.3 million of impairment was attributable to a change in holding period for two properties for which management was in active negotiations for a sale at a value below carrying value. These assets were subsequently sold during the year.  In addition, the Company recorded impairment losses of $53.8 million during the years ended December 31, 2020 on vacant assets and partially stabilized assets that are leased primarily to theater and fitness tenants which have been negatively impacted by COVID-19 and where the Company has decided to reevaluate its redevelopment plan. The most significant inputs utilized in determining the fair value of these assets are capitalization rates and discount rates which were between 6.75% and 9.25% and market comparables for land and building.

Financial Assets and Liabilities not Measured at Fair Value

Financial assets and liabilities that are not measured at fair value on the 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 December 31, 2020 and December 31, 2019, the estimated fair values of the Company’s debt obligations were $1.6 billion and $1.6 billion, respectively, which approximated the carrying value at such dates as the current risk-adjusted rate approximates the stated rates on the Company’s debt obligations.

Note 9 – Commitments and Contingencies

Insurance

The Company maintains general liability insurance and all-risk property and rental value, with sub-limits for certain perils such as floods and earthquakes on each of the Company’s properties.  The Company also maintains coverage for terrorism acts as defined by Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2027.

Insurance premiums are charged directly to each of the properties.  The Company will be responsible for deductibles and losses in excess of insurance coverage, which could be material.  The Company continues to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, the Company cannot anticipate what coverage will be available on commercially reasonable terms in the future.

Environmental Matters

Under various federal, state and local laws, ordinances and regulations, the Company may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances. As a result, the Company may be liable for certain costs including removal, remediation, government fines and injuries to persons and property.  

Under the Holdco Master Lease, Holdco is required to indemnify the Company from certain environmental liabilities at the Wholly Owned Properties before or during the period in which each Wholly Owned Property was leased to Holdco, including removal and remediation of all affected facilities and equipment constituting the automotive care center.  In addition, an environmental reserve was funded at the closing of the transactions in connection with the Company commencing operations in the amount of approximately $12.0 million.  As of December 31, 2020, the balance of the environmental reserve was approximately $9.5 million.

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Litigation and Other Matters

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued or discloses the fact that such a range of loss cannot be estimated. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, and the Company, the Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”).  The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD).  The Litigation alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings.  The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $649 to $749 million more than the purchase price paid.  The Litigation seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, in the alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.  

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 were completed in August 2020, 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 consolidated financial position, results of operations, cash flows or liquidity of the Company.  As of December 31, 2020, and December 31, 2019, the Company did not record any amounts for litigation or other matters.

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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 December 31, 2020, Mr. Lampert beneficially owned a 30.4% interest in the Operating Partnership and approximately 6.5% of the outstanding Class A common shares.

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 ventures have engaged the Company to provide management, leasing, construction supervision and development services at the properties owned by the unconsolidated entities.  Fees for the services performed are reported at 100% of the revenue earned from such joint ventures in management and other fee income on the consolidated statements of operations.  The Company’s share of the expenses incurred by the unconsolidated entities is reported in equity in income (loss) of unconsolidated entities on the consolidated statements of operations and in other expenses in the combined financial data in Note 4.

In addition, as of December 31, 2020, the Company had incurred $5.0 million of development expenditures at properties owned by certain unconsolidated entities for which the Company will be repaid by the respective unconsolidated entities.  These amounts are included in tenant and other receivables, net on the Company’s consolidated balance sheets. As of December 31, 2019, the Company had incurred $9.7 million of these development expenditures.

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 December 31, 2020, the Company held a 69.6% interest in the Operating Partnership and ESL held a 30.4% interest.  The portions of consolidated entities not owned by the Company are presented as non-controlling interest as of and during the periods presented. 

Note 12 – Shareholders’ Equity

Class A Common Shares

As of December 31, 2020, 38,896,428 Class A common shares were issued and outstanding. Class A shares have a par value of $0.01 per share.

During the year ended December 31, 2020, 1,901,739 OP Units were exchanged for an equal number of Class A shares.

Class B Non-Economic Common Shares

During the year ended December 31, 2020, 1,242,536 Class B non-economic common shares were surrendered to the Company. As of December 31, 2020, there were no Class B non-economic common shares issued or outstanding. Class B non-economic common shares have a par value of $0.01 per share.   

Class C Non-Voting Common Shares

As of December 31, 2020, there were no Class C non-voting common shares issued or outstanding. Class C non-voting shares have a par value of $0.01 per share.

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Series A Preferred Shares

In December 2017, the Company issued 2,800,000 7.00% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”) in a public offering at $25.00 per share.  The Company received net proceeds from the offering of approximately $66.4 million, after deducting payment of the underwriting discount and offering expenses.

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 $25.00 per share plus any accrued and unpaid dividends. The Series A Preferred Shares have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company redeems or otherwise repurchases them or they are converted.

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 last dividend on the Company’s Class A and C common shares that the Board of Trustees declared was on February 25, 2019, which was paid on April 11, 2019 to shareholders of record on March 29, 2019.

Our Board of Trustees will continue to assess the Company’s investment opportunities and its expectations of taxable income in its determination of future distributions, if any.  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.

The Company declared total dividends of $0.25 and $1.00 per common share for the years ended December 31, 2019 and 2018, respectively. The dividends have been reflected as follows for U.S. federal income tax purposes:

	Year Ended December 31,
	2020		2019			2018
Ordinary income	$	—	$	—		$	0.01
Capital gain distributions		—		—			0.35
Return of capital		—		0.50			0.39
Dividends reallocation (1)		—		(0.25	)		0.25
Total	$	—	$	0.25		$	1.00

  (1) In 2018, the fourth quarter dividend of 2018 declared on October 23, 2018 was allocated to the 2019 tax year. 

The Company’s Board of Trustees also declared the following dividends on preferred shares during 2021, 2020 and 2019:

Declaration Date	Record Date	Payment Date	Preferred Share
2021
February 23	March 31	April 15	$	0.43750
2020
December 17	December 31	January 15, 2021	$	0.43750
September 17	September 30	October 15		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

Note 13 – Earnings per Share

The table below provides a reconciliation of net 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.

F-36

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.

	Year Ended December 31,
(in thousands except per share amounts)	2020			2019			2018
Numerator - Basic and Diluted
Net loss	$	(152,964	)	$	(90,603	)	$	(114,878	)
Net loss attributable to non-controlling interests		47,938			31,206			41,406
Preferred dividends		(4,900	)		(4,900	)		(4,903	)
Net loss attributable to common shareholders	$	(109,926	)	$	(64,297	)	$	(78,375	)
Earnings allocated to unvested participating securities		—			—			—
Net loss available to common shareholders - Basic    and diluted	$	(109,926	)	$	(64,297	)	$	(78,375	)
Denominator - Basic and Diluted
Weighted average Class A common shares outstanding		38,298			36,413			35,103
Weighted average Class C common shares outstanding		-			-			457
Weighted average Class A and Class C common shares outstanding		38,298			36,413			35,560
Net income (loss) per share attributable to Class A and    Class C common shareholders	$	(2.87	)	$	(1.77	)	$	(2.20	)

No adjustments were made to the numerator for the years ended December 31, 2020, 2019 or 2018 because the Company generated a net loss.  During periods of net loss, undistributed losses are not allocated to the participating securities as they are not required to absorb losses.

No adjustments were made to the denominator for the years ended December 31, 2020, 2019 or 2018 because (i) the inclusion of outstanding non-vested restricted shares would have had an anti-dilutive effect and (ii) including the non-controlling interest in the Operating Partnership would also require that the share of Operating Partnership loss attributable to such interests be added back to net loss, therefore, resulting in no effect on earnings per share.

As of December 31, 2020, 2019 and 2018, there were 157,465, 349,318 and 403,129 shares, respectively, of non-vested restricted shares outstanding.

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 3,250,000. The Plan provides for grants of restricted shares, share units, other share-based awards, options, and share appreciation rights, each as defined in the Plan (collectively, the "Awards"). Directors, officers, other employees, and consultants of the Company and its subsidiaries and affiliates are eligible for Awards.

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 three years (time-based vesting) and a portion of the restricted shares and share units vest on the third, and in some instances, the fourth anniversary of the grants subject to the achievement of certain performance criteria (performance-based and market-based vesting).

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.

F-37

The following table summarizes restricted share activity for the grant periods ended December 31, 2020 and 2019:

	Year Ended December 31, 2020					Year Ended December 31, 2019
				Weighted-					Weighted-
				Average Grant					Average Grant
	Shares			Date Fair Value		Shares			Date Fair Value
Unvested restricted shares at beginning of period		349,318		$	44.88		403,129		$	41.57
Restricted shares granted		106,327			31.06		76,948			57.04
Restricted shares vested		(55,308	)		43.23		(127,767	)		41.76
Restricted shares forfeited		(242,872	)		43.19		(2,992	)		45.02
Unvested restricted shares at end of period		157,465		$	38.73		349,318		$	44.88

The Company recognized share-based compensation of $4.0 million for the year ended December 31, 2020 offset by $7.0 million of forfeitures of unvested shares related to the resignation of certain executives. The Company recognized share-based compensation of $6.8 million and $7.5 million for the years ended December 31, 2019 and 2018, respectively. Compensation expenses related to the restricted shares are included in general and administrative expenses on the Company's consolidated statements of operations.

As of December 31, 2020, there were $1.9 million of total unrecognized compensation costs related to the outstanding restricted shares which is expected to be recognized over a weighted-average period of approximately 1.7 years. As of December 31, 2019, there were $7.4 million of total unrecognized compensation costs related to the outstanding restricted shares which is expected to be recognized over a weighted-average period of approximately 1.6 years.

F-38

SERITAGE GROWTH PROPERTIES

SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2020

(Dollars in thousand)

							Costs Capitalized						Gross Amount at Which Carried
			Acquisition Costs				Subsequent to Acquisition (1)						at Close of Period (2)										Life Upon Which
					Buildings and					Buildings and					Buildings and				Accumulated			Date	Depreciation
City	State	Encumbrances	Land		Improvements		Land			Improvements			Land		Improvements		Total		Depreciation			Acquired	is Computed
Anchorage	AK	(3)	$	11,517	$	11,729	$	—		$	20,945		$	11,517	$	32,674	$	44,191	$	(3,334	)	July, 2015	(4)
North Little Rock	AR	(3)		1,288		2,881		—			2,047			1,288		4,928		6,216		(542	)	July, 2015	(4)
Glendale	AZ	(3)		19,040		-		—			300			19,040		300		19,340		-		December, 2020	(4)
Mesa/East	AZ	(3)		2,661		2,559		—			(642	)		2,661		1,917		4,578		(319	)	July, 2015	(4)
Park Mall	AZ	(3)		5,207		3,458		(2,221	)		5,183			2,986		8,641		11,627		(649	)	July, 2015	(4)
Phoenix	AZ	(3)		568		1,088		—			(624	)		568		464		1,032		(72	)	July, 2015	(4)
Phoenix-Desert Sky	AZ	(3)		2,605		2,448		—			(669	)		2,605		1,779		4,384		(316	)	July, 2015	(4)
Sierra Vista	AZ	(3)		1,252		1,791		(243	)		(194	)		1,009		1,597		2,606		(640	)	July, 2015	(4)
Yuma	AZ	(3)		1,485		1,596		—			(401	)		1,485		1,195		2,680		(219	)	July, 2015	(4)
Big Bear Lake	CA	(3)		3,664		2,945		—			(436	)		3,664		2,509		6,173		(417	)	July, 2015	(4)
Chula Vista	CA	(3)		7,315		6,834		—			(900	)		7,315		5,934		13,249		(1,125	)	July, 2015	(4)
Citrus Hts-Sunrise	CA	(3)		3,778		2,088		—			(775	)		3,778		1,313		5,091		(241	)	July, 2015	(4)
El Cajon	CA	(3)		10,573		2,883		—			23,989			10,573		26,872		37,445		(674	)	July, 2015	(4)
El Centro	CA	(3)		3,877		3,977		(668	)		(1,429	)		3,209		2,548		5,757		(484	)	July, 2015	(4)
Fairfield	CA	(3)		3,679		1,366		(166	)		1,785			3,513		3,151		6,664		(237	)	July, 2015	(4)
Florin	CA	(3)		1,022		1,366		—			(191	)		1,022		1,175		2,197		(206	)	July, 2015	(4)
Fresno	CA	(3)		1,370		2,000		—			(920	)		1,370		1,080		2,450		(205	)	July, 2015	(4)
McKinleyville	CA	(3)		1,354		1,655		—			(562	)		1,354		1,093		2,447		(172	)	July, 2015	(4)
Merced	CA	(3)		2,534		1,604		—			3,159			2,534		4,763		7,297		(230	)	July, 2015	(4)
Montclair	CA	(3)		2,498		2,119		—			—			2,498		2,119		4,617		(513	)	July, 2015	(4)
Hollywood	CA	(3)		8,049		3,172		—			18,305			8,049		21,477		29,526		(2,319	)	July, 2015	(4)
Palm Desert	CA	(3)		5,473		1,705		(542	)		(679	)		4,931		1,026		5,957		(182	)	July, 2015	(4)
Ramona	CA	(3)		7,239		1,452		—			(318	)		7,239		1,134		8,373		(191	)	July, 2015	(4)
Riverside	CA	(3)		2,670		2,489		—			(767	)		2,670		1,722		4,392		(310	)	July, 2015	(4)
Riverside	CA	(3)		4,397		4,407		—			(1,136	)		4,397		3,271		7,668		(622	)	July, 2015	(4)
Roseville	CA	(3)		4,848		3,215		(1,909	)		8,181			2,939		11,396		14,335		(629	)	July, 2015	(4)
Salinas	CA	(3)		2,644		4,394		—			(765	)		2,644		3,629		6,273		(665	)	July, 2015	(4)
San Bernardino	CA	(3)		4,131		2,066		—			(780	)		4,131		1,286		5,417		(236	)	July, 2015	(4)
San Bruno	CA	(3)		7,854		4,642		—			(977	)		7,854		3,665		11,519		(672	)	July, 2015	(4)
San Jose-Eastridge	CA	(3)		1,531		2,356		—			(804	)		1,531		1,552		3,083		(284	)	July, 2015	(4)
Santa Maria	CA	(3)		3,967		2,635		(1,184	)		(1,024	)		2,783		1,611		4,394		(407	)	July, 2015	(4)
Temecula	CA	(3)		6,098		2,214		—			7,852			6,098		10,066		16,164		(693	)	July, 2015	(4)

F-39

							Costs Capitalized						Gross Amount at Which Carried
			Acquisition Costs				Subsequent to Acquisition (1)						at Close of Period (2)										Life Upon Which
					Buildings and					Buildings and					Buildings and				Accumulated			Date	Depreciation
City	State	Encumbrances	Land		Improvements		Land			Improvements			Land		Improvements		Total		Depreciation			Acquired	is Computed
Thousand Oaks	CA	(3)	$	9,853	$	14,785	$	—		$	7,507		$	9,853	$	22,292	$	32,145	$	(4,089	)	July, 2015	(4)
Ventura	CA	(3)		5,578		6,172		(949	)		(1,050	)		4,629		5,122		9,751		(1,028	)	July, 2015	(4)
West Covina	CA	(3)		5,972		2,053		—			(648	)		5,972		1,405		7,377		(266	)	July, 2015	(4)
Westminster	CA	(3)		6,845		5,651		—			(1,024	)		6,845		4,627		11,472		(848	)	July, 2015	(4)
Lakewood	CO	(3)		1,290		4,550		—			(417	)		1,290		4,133		5,423		(784	)	July, 2015	(4)
Thornton	CO	(3)		1,881		1,300		—			3,041			1,881		4,341		6,222		(608	)	July, 2015	(4)
Waterford	CT	(3)		1,371		2,534		—			(680	)		1,371		1,854		3,225		(329	)	July, 2015	(4)
Rehoboth Beach	DE	(3)		714		4,523		(134	)		6,262			580		10,785		11,365		(1,788	)	July, 2015	(4)
Boca Raton	FL	(3)		16,089		7,480		—			(515	)		16,089		6,965		23,054		(1,236	)	July, 2015	(4)
Bradenton	FL	(3)		1,420		1,479		—			(414	)		1,420		1,065		2,485		(189	)	July, 2015	(4)
Clearwater/Cntrysd	FL	(3)		5,852		17,777		—			182			5,852		17,959		23,811		(3,636	)	July, 2015	(4)
Doral(Miami)	FL	(3)		9,214		2,654		—			(600	)		9,214		2,054		11,268		(364	)	July, 2015	(4)
Ft Myers	FL	(3)		3,168		2,853		—			(418	)		3,168		2,435		5,603		(462	)	July, 2015	(4)
Hialeah	FL	(3)		5,492		2,344		—			13,518			5,492		15,862		21,354		(1,124	)	July, 2015	(4)
Hialeah/Westland	FL	(3)		9,683		3,472		—			224			9,683		3,696		13,379		(595	)	July, 2015	(4)
Lakeland	FL	(3)		1,503		1,045		—			(378	)		1,503		667		2,170		(111	)	July, 2015	(4)
Miami	FL	(3)		13,264		61,577		—			(61,520	)		13,264		57		13,321		(57	)	July, 2015	(4)
Miami/Cutler Rdg	FL	(3)		5,219		1,236		—			(206	)		5,219		1,030		6,249		(189	)	July, 2015	(4)
North Miami	FL	(3)		4,748		2,434		—			6,591			4,748		9,025		13,773		(505	)	July, 2015	(4)
Ocala	FL	(3)		2,468		1,150		—			(456	)		2,468		694		3,162		(123	)	July, 2015	(4)
Orlando Colonial	FL	(3)		4,403		3,626		(177	)		15,850			4,226		19,476		23,702		(1,036	)	July, 2015	(4)
Panama City	FL	(3)		3,227		1,614		—			(461	)		3,227		1,153		4,380		(204	)	July, 2015	(4)
Pensacola	FL	(3)		2,620		2,990		—			13,261			2,620		16,251		18,871		(431	)	July, 2015	(4)
Plantation	FL	(3)		6,933		2,509		(3,361	)		(1,641	)		3,572		868		4,440		(299	)	July, 2015	(4)
Sarasota	FL	(3)		3,920		2,200		—			(831	)		3,920		1,369		5,289		(243	)	July, 2015	(4)
St Petersburg	FL	(3)		2,381		2,420		(50	)		22,977			2,331		25,397		27,728		(3,302	)	July, 2015	(4)
St. Petersburg	FL	(3)		1,653		777		—			(279	)		1,653		498		2,151		(91	)	July, 2015	(4)
Savannah	GA	(3)		5,285		3,012		—			(344	)		5,285		2,668		7,953		(419	)	July, 2015	(4)
Honolulu	HI	(3)		6,824		2,195		—			21,279			6,824		23,474		30,298		(2,512	)	July, 2015	(4)
Cedar Rapids	IA	(3)		2,833		2,197		—			(457	)		2,833		1,740		4,573		(325	)	July, 2015	(4)
Charles City	IA	(3)		793		1,914		—			—			793		1,914		2,707		(933	)	July, 2015	(4)
Webster City	IA	(3)		392		896		—			—			392		896		1,288		(368	)	July, 2015	(4)

F-40

							Costs Capitalized						Gross Amount at Which Carried
			Acquisition Costs				Subsequent to Acquisition (1)						at Close of Period (2)										Life Upon Which
					Buildings and					Buildings and					Buildings and				Accumulated			Date	Depreciation
City	State	Encumbrances	Land		Improvements		Land			Improvements			Land		Improvements		Total		Depreciation			Acquired	is Computed
Boise	ID	(3)	$	1,828	$	1,848	$	—		$	—		$	1,828	$	1,848	$	3,676	$	(745	)	July, 2015	(4)
Chicago	IL	(3)		2,385		7,924		(807	)		(2,985	)		1,578		4,939		6,517		(1,415	)	July, 2015	(4)
Joliet	IL	(3)		2,557		3,108		—			—			2,557		3,108		5,665		(1,819	)	July, 2015	(4)
Lombard	IL	(3)		2,685		8,281		—			—			2,685		8,281		10,966		(1,686	)	July, 2015	(4)
N Riverside	IL	(3)		1,846		3,178		—			14,034			1,846		17,212		19,058		(2,350	)	July, 2015	(4)
Orland Park	IL	(3)		1,783		974		—			(380	)		1,783		594		2,377		(105	)	July, 2015	(4)
Springfield	IL	(3)		2,182		5,051		(213	)		14,870			1,969		19,921		21,890		(2,447	)	July, 2015	(4)
Steger	IL	(3)		589		2,846		—			—			589		2,846		3,435		(585	)	July, 2015	(4)
Elkhart	IN	(3)		1,349		869		—			(302	)		1,349		567		1,916		(102	)	July, 2015	(4)
Ft Wayne	IN	(3)		3,247		5,476		(796	)		(3,382	)		2,451		2,094		4,545		(57	)	July, 2015	(4)
Merrillville	IN	(3)		3,413		3,224		—			(724	)		3,413		2,500		5,913		(480	)	July, 2015	(4)
Hopkinsville	KY	(3)		553		2,815		(68	)		1,314			485		4,129		4,614		(650	)	July, 2015	(4)
Paducah	KY	(3)		1,022		2,868		—			9,254			1,022		12,122		13,144		(1,654	)	July, 2015	(4)
Lafayette	LA	(3)		1,406		5,094		—			(1,019	)		1,406		4,075		5,481		(723	)	July, 2015	(4)
New Iberia	LA	(3)		450		1,819		(446	)		(1,780	)		4		39		43		(10	)	July, 2015	(4)
Braintree	MA	(3)		6,585		5,614		—			11,319			6,585		16,933		23,518		(2,999	)	July, 2015	(4)
Saugus	MA	(3)		1,656		2,835		—			(1,087	)		1,656		1,748		3,404		(331	)	July, 2015	(4)
Bowie	MD	(3)		4,583		2,335		(504	)		356			4,079		2,691		6,770		(1,019	)	July, 2015	(4)
Edgewater	MD	(3)		5,534		2,116		(841	)		(856	)		4,693		1,260		5,953		(248	)	July, 2015	(4)
Madawaska	ME	(3)		140		942		—			—			140		942		1,082		(234	)	July, 2015	(4)
Lincoln Park	MI	(3)		1,106		3,198		—			(493	)		1,106		2,705		3,811		(513	)	July, 2015	(4)
Manistee	MI	(3)		508		3,045		—			(625	)		508		2,420		2,928		(403	)	July, 2015	(4)
Roseville	MI	(3)		3,286		4,778		—			10,671			3,286		15,449		18,735		(2,164	)	July, 2015	(4)
Sault Ste. Marie	MI	(3)		946		917		—			(478	)		946		439		1,385		(78	)	July, 2015	(4)
Troy	MI	(3)		7,954		2,651		(815	)		5,745			7,139		8,396		15,535		(1,844	)	July, 2015	(4)
Ypsilanti	MI	(3)		2,462		1,277		(402	)		(637	)		2,060		640		2,700		(123	)	July, 2015	(4)
Burnsville	MN	(3)		3,513		1,281		—			(505	)		3,513		776		4,289		(138	)	July, 2015	(4)
Maplewood	MN	(3)		3,605		1,162		—			(521	)		3,605		641		4,246		(117	)	July, 2015	(4)
St Paul	MN	(3)		1,866		1,028		—			(309	)		1,866		719		2,585		(134	)	July, 2015	(4)
Florissant	MO	(3)		2,430		1,607		(24	)		(224	)		2,406		1,383		3,789		(200	)	July, 2015	(4)
Jefferson City	MO	(3)		957		2,224		(150	)		(483	)		807		1,741		2,548		(329	)	July, 2015	(4)
Springfield	MO	(3)		922		2,050		—			(383	)		922		1,667		2,589		(275	)	July, 2015	(4)

F-41

							Costs Capitalized						Gross Amount at Which Carried
			Acquisition Costs				Subsequent to Acquisition (1)						at Close of Period (2)										Life Upon Which
					Buildings and					Buildings and					Buildings and				Accumulated			Date	Depreciation
City	State	Encumbrances	Land		Improvements		Land			Improvements			Land		Improvements		Total		Depreciation			Acquired	is Computed
Columbus	MS	(3)	$	2,940	$	2,547	$	—		$	1,187		$	2,940	$	3,734	$	6,674		(1,805	)	July, 2015	(4)
Asheville	NC	(3)		4,141		2,036		—			(750	)		4,141		1,286		5,427		(236	)	July, 2015	(4)
Greensboro	NC	(3)		3,869		4,387		—			510			3,869		4,897		8,766		(1,088	)	July, 2015	(4)
Kearney	NE	(3)		272		483		—			7,838			272		8,321		8,593		(1,042	)	July, 2015	(4)
Manchester	NH	(3)		1,458		4,160		—			13,605			1,458		17,765		19,223		(880	)	July, 2015	(4)
Nashua	NH	(3)		1,794		7,255		(229	)		(927	)		1,565		6,328		7,893		(1,322	)	July, 2015	(4)
Portsmouth	NH	(3)		3,934		3,375		—			(739	)		3,934		2,636		6,570		(468	)	July, 2015	(4)
Salem	NH	(3)		3,321		12,198		(639	)		8,066			2,682		20,264		22,946		(3,036	)	July, 2015	(4)
Henderson	NV	(3)		3,124		1,362		—			2,449			3,124		3,811		6,935		(355	)	July, 2015	(4)
Las Vegas(Meadows)	NV	(3)		3,354		1,879		—			6,702			3,354		8,581		11,935		(444	)	July, 2015	(4)
Reno	NV	(3)		2,135		5,748		(236	)		4,978			1,899		10,726		12,625		(1,089	)	July, 2015	(4)
Albany	NY	(3)		8,289		6,523		—			6,804			8,289		13,327		21,616		(1,845	)	July, 2015	(4)
Clay	NY	(3)		787		4,134		—			(677	)		787		3,457		4,244		(576	)	July, 2015	(4)
East Northport	NY	(3)		7,617		2,065		—			44,212			7,617		46,277		53,894		(1,382	)	July, 2015	(4)
Hicksville	NY	(3)		38,629		19,061		—			(888	)		38,628		18,176		56,804		(3,448	)	July, 2015	(4)
Olean	NY	(3)		249		2,124		—			4,476			249		6,600		6,849		(609	)	July, 2015	(4)
Rochester-Greece	NY	(3)		3,082		1,560		—			(380	)		3,082		1,180		4,262		(209	)	July, 2015	(4)
Sidney	NY	(3)		1,942		1,769		(338	)		(837	)		1,604		932		2,536		(188	)	July, 2015	(4)
Victor	NY	(3)		4,144		1,391		—			5,408			4,144		6,799		10,943		(282	)	July, 2015	(4)
Yorktown Hts	NY	(3)		3,584		1,569		(950	)		10,227			2,634		11,796		14,430		(428	)	July, 2015	(4)
Watchung	NY	(3)		6,704		4,110		—			31,069			6,704		35,179		41,883		(1,751	)	July, 2015	(4)
Canton	OH	(3)		1,650		5,854		—			20,335			1,650		26,189		27,839		(1,296	)	July, 2015	(4)
Dayton Mall	OH	(3)		2,650		1,223		—			2,398			2,650		3,621		6,271		(419	)	July, 2015	(4)
Kenton	OH	(3)		340		417		—			(233	)		340		184		524		(31	)	July, 2015	(4)
Mentor	OH	(3)		1,092		1,776		—			(726	)		1,092		1,050		2,142		(185	)	July, 2015	(4)
Middleburg Hts	OH	(3)		698		1,547		—			(322	)		698		1,225		1,923		(233	)	July, 2015	(4)
Toledo	OH	(3)		1,664		1,289		—			(612	)		1,664		677		2,341		(127	)	July, 2015	(4)
Okla City/Sequoyah	OK	(3)		1,542		2,210		—			4,911			1,542		7,121		8,663		(934	)	July, 2015	(4)
Happy Valley	OR	(3)		6,659		1,271		(619	)		8,807			6,040		10,078		16,118		(378	)	July, 2015	(4)
King of Prussia	PA	(3)		-		42,300		—			3,673			-		45,973		45,973		(8,821	)	July, 2015	(4)
Lebanon	PA	(3)		1,333		2,085		—			(952	)		1,333		1,133		2,466		(189	)	July, 2015	(4)
Walnutport	PA	(3)		885		3,452		—			(1,045	)		885		2,407		3,292		(401	)	July, 2015	(4)

F-42

							Costs Capitalized						Gross Amount at Which Carried
			Acquisition Costs				Subsequent to Acquisition (1)						at Close of Period (2)										Life Upon Which
					Buildings and					Buildings and					Buildings and				Accumulated			Date	Depreciation
City	State	Encumbrances	Land		Improvements		Land			Improvements			Land		Improvements		Total		Depreciation			Acquired	is Computed
Bayamon	PR	(3)	$	656	$	7,173	$	(139	)	$	(1,517	)	$	517	$	5,656	$	6,173	$	(1,611	)	July, 2015	(4)
Caguas	PR	(3)		431		9,362		(100	)		(2,184	)		331		7,178		7,509		(1,961	)	July, 2015	(4)
Carolina	PR	(3)		611		8,640		—			—			611		8,640		9,251		(2,110	)	July, 2015	(4)
Mayaguez	PR	(3)		564		4,555		—			—			564		4,555		5,119		(1,404	)	July, 2015	(4)
Ponce	PR	(3)		473		3,965		—			—			473		3,965		4,438		(1,165	)	July, 2015	(4)
Warwick	RI	(3)		9,166		3,388		(1,132	)		8,891			8,034		12,279		20,313		(1,080	)	July, 2015	(4)
Anderson	SC	(3)		1,297		638		(5	)		9,224			1,292		9,862		11,154		(2,263	)	July, 2015	(4)
Chrlstn/Northwoods	SC	(3)		3,576		1,497		(1,019	)		9,757			2,557		11,254		13,811		(922	)	July, 2015	(4)
Cordova	TN	(3)		2,581		4,279		—			—			2,581		4,279		6,860		(1,253	)	July, 2015	(4)
Memphis/Poplar	TN	(3)		2,827		2,475		—			24,877			2,827		27,352		30,179		(3,426	)	July, 2015	(4)
Austin	TX	(3)		3,164		2,858		(2,288	)		8,070			876		10,928		11,804		(2,208	)	July, 2015	(4)
Central Park	TX	(3)		5,468		1,457		(1,904	)		18,053			3,564		19,510		23,074		(731	)	July, 2015	(4)
El Paso	TX	(3)		2,008		1,778		—			6,157			2,008		7,935		9,943		(416	)	July, 2015	(4)
Friendswd/Baybrk	TX	(3)		6,124		2,038		—			(806	)		6,124		1,232		7,356		(218	)	July, 2015	(4)
Houston	TX	(3)		6,110		1,525		—			(525	)		6,110		1,000		7,110		(157	)	July, 2015	(4)
Ingram	TX	(3)		4,651		2,560		—			(683	)		4,651		1,877		6,528		(333	)	July, 2015	(4)
Irving	TX	(3)		4,493		5,743		—			(721	)		4,493		5,022		9,515		(921	)	July, 2015	(4)
Shepherd	TX	(3)		5,457		2,081		—			(510	)		5,457		1,571		7,028		(298	)	July, 2015	(4)
Valley View	TX	(3)		4,706		3,230		—			(3,230	)		4,706		-		4,706		-		July, 2015	(4)
Layton	UT	(3)		2,234		974		(824	)		3,265			1,410		4,239		5,649		(1,022	)	July, 2015	(4)
West Jordan	UT	(3)		3,190		2,305		—			7,147			3,190		9,452		12,642		(2,233	)	July, 2015	(4)
Alexandria	VA	(3)		3,728		3,294		—			(738	)		3,728		2,556		6,284		(469	)	July, 2015	(4)
Chspk/Greenbrier	VA	(3)		4,236		1,700		—			(482	)		4,236		1,218		5,454		(216	)	July, 2015	(4)
Fairfax	VA	(3)		10,873		1,491		—			25,342			10,873		26,833		37,706		(1,272	)	July, 2015	(4)
Virginia Beach	VA	(3)		10,413		4,760		(1,343	)		11,343			9,070		16,103		25,173		(2,863	)	July, 2015	(4)
Warrenton	VA	(3)		1,956		2,480		—			5,938			1,956		8,418		10,374		(432	)	July, 2015	(4)
Redmond Pk	WA	(3)		5,133		4,133		10,513			(1,243	)		15,646		2,890		18,536		(627	)	July, 2015	(4)
Greendale	WI	(3)		3,208		2,340		—			14,911			3,208		17,251		20,459		(1,251	)	July, 2015	(4)
Madison-West	WI	(3)		3,053		2,130		—			16,132			3,053		18,262		21,315		(1,571	)	July, 2015	(4)
Various		(3)		-		—		—			352,776			—		352,777		352,777		-		n/a	(4)
			$	610,693	$	606,997	$	(17,922	)	$	853,307		$	592,770	$	1,460,308	$	2,053,078	$	(142,206	)

(1)       Includes reductions related to partial site sales and impairment of long-lived assets.

(2) The aggregate cost of land, building and improvements (which includes construction in process) for U.S. federal income tax purposes is approximately $2.8 billion.

(3) The Term Loan Facility is secured on a first lien basis by individual mortgages and a pledge of the capital stock of the direct subsidiaries of the Company, including those that own each of the Company’s properties.  See Note 6.

(4) Depreciation is computed based on the following estimated useful lives:

Building:	25 – 40 years
Site improvements:	5 – 15 years
Tenant improvements:	shorter of the estimated useful life or non-cancelable term of lease

F-43

SERITAGE GROWTH PROPERTIES

NOTES TO SCHEDULE III

(Dollars in thousands)

Reconciliation of Real Estate

	2020			2019			2018
Balance at beginning of period	$	2,118,329		$	1,889,014		$	1,854,043
Additions		256,126			364,970			318,820
Impairments		(64,108	)		—			—
Dispositions		(226,889	)		(95,270	)		(244,815	)
Write-offs		(30,380	)		(40,385	)		(39,034	)
Balance at end of period	$	2,053,078		$	2,118,329		$	1,889,014

Reconciliation of Accumulated Depreciation

	2020			2019			2018
Balance at beginning of period	$	147,696		$	137,947		$	139,483
Depreciation expense		48,569			59,289			50,272
Dispositions		(23,679	)		(9,174	)		(12,772	)
Write-offs		(30,380	)		(40,366	)		(39,036	)
Balance at end of period	$	142,206		$	147,696		$	137,947

F-44