Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner and developer of retail, residential and mixed-use properties today reported financial and operating results for the three and six months ended June 30, 2024.

“In the second quarter we continued to execute on our Plan of Sale, building a pipeline of accepted offers totaling over $150 million of gross proceeds. We expect to continue to use sale proceeds to pay down our term loan while maintaining appropriate cash balances to fund ongoing operations. As we look ahead, despite the continued uncertainty surrounding the economy, the November elections, and the increasingly tenuous geopolitical climate, we remain focused on our plan of sale while continuing to position our portfolio and balance sheet for a potential strategic transaction.” said Andrea L. Olshan, Chief Executive Officer.

Sale Highlights:

• Generated $40.4 million of gross proceeds from sales including:
  • $28.0 million in gross proceeds from one income producing Multi-Tenant Retail asset reflecting a 5.3% capitalization rate;
  • $3.8 million in gross proceeds from one income producing Non-Core asset reflecting a 7.8% capitalization rate; and
  • $8.3 million in gross proceeds from two vacant/non-income producing Non-Core assets sold at $20.78 PSF eliminating $0.7 million of carry costs.
• As of August 14, 2024, the Company has five assets under contract for anticipated gross proceeds of $138.6 million. All assets for sale are subject to customary closing conditions. Of these five assets, two are for sale with no due diligence contingencies for total anticipated gross proceeds of $51.9 million and three assets are under contract for sale subject to customary due diligence for anticipated gross proceeds of $86.7 million at share including:
  • $53.3 million in gross proceeds from two income producing Multi-Tenant Retail assets reflecting a 8.4% blended capitalization rate;
  • $45.1 million in gross proceeds from two vacant/non- income producing Non-Core assets to be sold at $112.84 PSF eliminating $0.9 million of carry costs; and
  • $40.2 million in gross proceeds from monetizing an unconsolidated entity interest.
• The Company has accepted offers on and is currently negotiating definitive purchase and sale agreements on two assets for total gross proceeds approximately $13.8 million from monetizing two unconsolidated entity interests.
• The Company has one Non-Core asset in an active auction process with a reserve price of $5.0 million.

Financial Highlights:

For the three months ended June 30, 2024:

• As of June 30, 2024, the Company had cash on hand of $100.5 million, including $13.8 million of restricted cash. As of August 13, 2024, the Company had cash on hand of $87.2 million, including $13.6 million of restricted cash.
• Net loss attributable to common shareholders of ($102.5) million, or ($1.82) per share.
• Net Operating Income-cash basis at share (“NOI-cash basis at share”) of (0.1) thousand.
• During the quarter, the Company made $50.0 million in principal repayments on the Company’s term loan facility having a maturity date of July 31, 2025 (the “Term Loan Facility”), reducing the balance of the Term Loan Facility to $280.0 million at June 30, 2024.

Other Highlights

• Signed two leases covering 7.1 thousand square feet in the second quarter at a projected average annual net rent of $118.10 PSF.
• Opened four tenants in the second quarter totaling approximately 13.6 thousand square feet at an average net rent of $56.27 PSF.

Future Sales Projections

The data below provides additional information regarding current estimated gross sales proceeds per asset in the portfolio as of August 14, 2024, excluding assets under contract or in PSA negotiation, which are described above. The assets listed below are either being marketed or are to be marketed at the appropriate time based on market conditions and, as a result, any sales thereof are anticipated to occur in 2024 and beyond. Sales projections, including timing of sale, are based on the Company’s latest forecasts and assumptions, but the Company cautions that actual results may differ materially. In addition, see “Market Update” below and the “Risk Factors” section contained in the Company’s filings with the Securities and Exchange Commission for discussion of the risks associated with such estimated gross sale proceeds.

Gateway Markets

• One Multi-Tenant Asset $25 - $30 million
• Eight Premier Assets (Dallas & San Diego are each assumed to be sold in two transactions)
  • One Asset $15 - $20 million
  • Two Assets $30 - $35 million, each
  • One Assets $50 - $60 million
  • One Asset $60 - $70 million
  • One Asset $70 - $80 million
  • One Asset $100 - $150 million
  • One Asset $150 - $200 million

Primary Markets

• One Multi-Tenant Asset $25 - $30 million
• Three Joint Venture Assets $5 - $10 million, each
• One Joint Venture Asset under $5 million

Secondary Markets

• One Residential Asset with adjacent Retail asset $5 - $10 million
• One Non-Core Asset $5 - $10 million

Portfolio

The table below represents a summary of the Company’s properties by planned usage as of June 30, 2024 (in thousands except number of leases and acreage data):

(1) Square footage is presented at the Company’s proportional share.

(2) Based on signed leases at June 30, 2024.

(3) Square footage represents built ancillary retail space whereas acreage represents both retail and residential acreage.

(4) Represents assets the Company previously designated for sale.

Multi-Tenant Retail

During the three months ended June 30, 2024, the Company invested $0.4 million in its Multi-Tenant retail properties. Any future capital expenditures in the Multi-Tenant retail portfolio are primarily comprised of tenant improvements.

The table below provides a summary of all Multi-Tenant Retail signed and in negotiation leases as of June 30, 2024 (in thousands except for number of leases and PSF data):

During the three months ended June 30, 2024, the Company has a leasing pipeline of over 102 thousand square feet. The Company has 454 thousand leased square feet and approximately 8 thousand square feet signed but not opened. The Company has total occupancy of 72.9% for its Multi-Tenant retail properties. As of June 30, 2024, there is an additional approximately 70 thousand square feet available for lease.

Premier Mixed-Use

The Company has two premier mixed-use projects in the active leasing/tenant opening stage: Aventura, FL and Santa Monica, CA. As of June 30, 2024, the Company has 345 thousand in-place leased square feet (239 thousand square feet at share), 37 thousand square feet signed but not opened (37 thousand square feet at share), and 161 thousand square feet available for lease (110 thousand square feet at share).

The table below provides a summary of all signed leases at Premier assets as of June 30, 2024, including unconsolidated entities at the Company’s proportional share (in thousands except for number of leases and PSF data):

During the three months ended June 30, 2024, the Company invested $5.9 million in its consolidated premier development and operating properties and an additional $0.3 million into its unconsolidated premier entities.

Aventura

During the second quarter of 2024, the Company continued to advance 216.1 thousand square feet of office and retail leasing at the project in Aventura, FL. The Company is finalizing construction on the asset. As of June 30, 2024, 121.6 thousand square feet or 56.0% of the asset is opened and the Company will continue with rolling openings going forward.

With 73.1% leased through June 30, 2024, the Company has 58.1 thousand square feet or 26.9% available for lease, of which approximately 8 thousand square feet or 4.0% is in lease negotiation. See the "Impairment" section below for a discussion of the impairment the Company recognized for the three months ended June 30, 2024 on its development property in Aventura, FL.

Financial Summary

The table below provides a summary of the Company’s financial results for the three months ended June 30, 2024 (in thousands except for per share amounts):

For the quarter ended June 30, 2024:

• NOI-cash basis at share for the second quarter of 2024 reflects the impact of ($0.8) million NOI-cash basis at share relating to sold properties.

NOI-cash basis at share is comprised of:

As of June 30, 2024, the Company had cash on hand of $100.5 million, including $13.8 million of restricted cash. The Company expects to use these sources of liquidity, together with a combination of future sales and/or potential alternative financing arrangements, to pay its financing obligations and fund its operations and development activity. The availability of funding from sales of assets is subject to various conditions, and there can be no assurance that such transactions will be consummated. For more information on our liquidity position, including our going concern analysis, please see the notes to the consolidated financial statements included in Part I, Item 1 and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each in our Quarterly Report on Form 10-Q.

Impairment - Aventura

During the quarter ended June 30, 2024, due to ongoing negotiations for rent relief with existing tenants that began in the second quarter of 2024 which triggered the need for an impairment analysis pursuant to ASC 360, Property, Plant and Equipment, the Company recognized an $85.8 million impairment on its development property in Aventura, FL, primarily due to changes in discount rates and residual capitalization rates. In accordance with GAAP, the impairment was recognized as a result of the carrying value of the asset exceeding the undiscounted cash flows over the estimated holding period. The amount of the impairment is determined by applying a discount to the projected cash flows and writing down the carrying value to the estimated current fair value. The Company will continue to evaluate its portfolio, including its development plans and holding periods, which may result in additional impairments in future periods.

Litigation Matters

On July 1, 2024, a purported shareholder of the Company filed a class action lawsuit in the U.S. District Court for the Southern District of New York, captioned Zhengxu He, Trustee of the He & Fang 2005 Revocable Living Trust v. Seritage Growth Properties, Case No. 1:24:CV:05007, alleging that the Company, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer violated the federal securities laws. The complaint seeks to bring a class action on behalf of all persons and entities that purchased or otherwise acquired Company securities between July 7, 2022 and May 10, 2024. The complaint alleges that the defendants violated federal securities laws by issuing false, misleading, and/or omissive disclosures concerning the Company’s alleged lack of effective internal controls regarding the identification and review of impairment indicators for investments in real estate and the Company’s value and projected gross proceeds of certain real estate assets. The complaint seeks compensatory damages in an unspecified amount to be proven at trial, an award of reasonable costs and expenses to the plaintiff and class counsel, and such other and further relief as the court may deem just and proper. The Company intends to vigorously defend itself against the allegations.

Dividends

On February 29, 2024, the Company’s Board of Trustees declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend was paid on April 15, 2024 to holders of record on March 29, 2024.

On May 2, 2024, the Company’s Board of Trustees declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend was paid on July 15, 2024 to holders of record on June 28, 2024.

On July 31, 2024, the Company’s Board of Trustees declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend will be paid on October 15, 2024 to holders of record on September 30, 2024.

Strategic Review

At the 2022 Annual Meeting of Shareholders on October 24, 2022, Seritage shareholders approved the Company’s Plan of Sale. The strategic review process remains ongoing as the Company executes the Plan of Sale, and the Company remains open minded to pursuing value maximizing alternatives, including a potential sale of the Company. There can be no assurance regarding the success of the process.

Market Update

As the Company has previously disclosed, the Company, along with the commercial real estate market as a whole, has experienced and continues to experience challenging market conditions as a result of a variety of factors. These conditions have applied and continue to apply downward pricing pressure on all of our assets. In making decisions regarding whether and when to transact on each of the Company’s remaining assets, the Company has considered and will continue to consider various factors including, but not limited to, the breadth of the buyer universe, macroeconomic conditions, the availability and cost of financing, as well as corporate, operating and other capital expenses required to carry the asset. If these challenging market conditions persist, then we expect that they will impact the Plan of Sale proceeds from our assets and the amounts and timing of distributions to shareholders.

Non-GAAP Financial Measures

The Company makes references to NOI-cash basis and NOI-cash basis at share which are financial measures that include adjustments to accounting principles generally accepted in the United States (“GAAP”).

Neither of NOI-cash basis or NOI-cash basis at share 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 the Company deems most comparable have been provided in the tables accompanying this press release.

Net Operating Income (Loss)-cash basis ("NOI-cash basis”) and Net Operating Income (Loss)-cash basis at share ("NOI-cash basis at share")

NOI-cash basis is defined as income from property operations less property operating expenses, adjusted for variable items such as termination fee income, as well as non-cash items such as straight-line rent and amortization of lease intangibles. Other real estate companies may use different methodologies for calculating NOI-cash basis, and accordingly the Company’s depiction of NOI-cash basis may not be comparable to other real estate companies. The Company believes NOI-cash basis 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 NOI-cash basis at share, which includes its proportional share of Unconsolidated Properties. The Company does not control any of the joint ventures constituting such properties and NOI-cash basis at share does not reflect our legal claim with respect to the economic activity of such joint ventures. We have included this adjustment because the Company believes this form of presentation offers insights into the financial performance and condition of the Company as a whole given the Company’s ownership of Unconsolidated Properties that are accounted for under GAAP using the equity method. The operating agreements of the Unconsolidated Properties generally allow each investor to receive cash distributions to the extent there is available cash from operations. The amount of cash each investor receives is based upon specific provisions of each operating agreement and varies depending on certain factors including the amount of capital contributed by each investor and whether any investors are entitled to preferential distributions.

The Company also considers NOI-cash basis and NOI-cash basis at share 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-cash basis and NOI-cash basis at share should only be used as an alternative measure of the Company’s financial performance..

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” "will," "approximately," or "anticipates" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the Company’s control, which may cause actual results to differ significantly from those expressed in any forward-looking statement. Factors that could cause or contribute to such differences include, but are not limited to: declines in retail, real estate and general economic conditions; risks relating to redevelopment activities; contingencies to the commencement of rent under leases; the terms of the Company’s indebtedness and other legal requirements to which the Company is subject; failure to achieve expected occupancy and/or rent levels within the projected time frame or at all; the impact of ongoing negative operating cash flow on the Company’s ability to fund operations and ongoing development; the Company’s ability to access or obtain sufficient sources of financing to fund the Company’s liquidity needs; environmental, health, safety and land use laws and regulations; and possible acts of war, terrorist activity or other acts of violence or cybersecurity incidents. For additional discussion of these and other applicable risks, assumptions and uncertainties, see the “Risk Factors” and forward-looking statement disclosure contained in the Company’s filings with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K for the year ended December 31, 2023 and any subsequent Form 10-Qs. While the Company believes that its forecasts and assumptions are reasonable, the Company cautions that actual results may differ materially. The Company intends the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.

About Seritage Growth Properties

Prior to the adoption of the Company’s Plan of Sale (defined below), Seritage was principally engaged in the ownership, development, redevelopment, disposition, management and leasing of diversified retail and mixed-use properties throughout the United States. Seritage will continue to actively manage each remaining location until such time as each property is sold. As of June 30, 2024, the Company’s portfolio consisted of interests in 22 properties comprised of approximately 2.8 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, and 352 acres of land. The portfolio consists of approximately 1.6 million square feet of GLA and 218 acres held by 13 consolidated properties (such properties, the “Consolidated Properties”) and 1.2 million square feet of GLA and 134 acres held by nine unconsolidated properties (such properties, the “Unconsolidated Properties”).

Reconciliation of Net Loss to NOI and Total NOI (in thousands)

Properties sold during second quarter of 2024:

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