UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
or
For the transition period from _______to _______
Commission File Number
(Exact name of registrant as specified in its charter)
(State of Incorporation) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbols |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 9, 2022, the registrant had the following common shares outstanding:
Class |
Shares Outstanding |
Class A common shares of beneficial interest, par value $0.01 per share |
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Class B common shares of beneficial interest, par value $0.01 per share |
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Class C common shares of beneficial interest, par value $0.01 per share |
SERITAGE GROWTH PROPERTIES
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED March 31, 2022
TABLE OF CONTENTS
PART I. |
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 |
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Condensed Consolidated Statements of Equity for the three months ended March 31, 2022 and 2021 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
29 |
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Item 3. |
38 |
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Item 4. |
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PART II. |
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Item 1. |
39 |
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Item 1A. |
39 |
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Item 2. |
52 |
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Item 3. |
52 |
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Item 4. |
52 |
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Item 5. |
52 |
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Item 6. |
53 |
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54 |
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except share and per share amounts)
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March 31, 2022 |
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December 31, 2021 |
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ASSETS |
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Investment in real estate |
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Land |
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$ |
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$ |
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Buildings and improvements |
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Accumulated depreciation |
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Construction in progress |
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Net investment in real estate |
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Real estate held for sale |
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— |
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Investment in unconsolidated entities |
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Cash and cash equivalents |
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Restricted cash |
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Tenant and other receivables, net |
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Lease intangible assets, net |
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Prepaid expenses, deferred expenses and other assets, net |
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Total assets (1) |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Liabilities |
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Term loan facility, net |
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$ |
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$ |
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Sales-leaseback financing obligations |
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Accounts payable, accrued expenses and other liabilities |
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Total liabilities (1) |
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Shareholders' Equity |
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Class A common shares $ |
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Series A preferred shares $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total shareholders' equity |
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Non-controlling interests |
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Total equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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(1) The Company's condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The condensed consolidated balance sheets, as of March 31, 2022, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except per share amounts)
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Three Months Ended March 31, |
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2022 |
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2021 |
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REVENUE |
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Rental income |
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$ |
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$ |
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Total revenue |
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EXPENSES |
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Property operating |
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Real estate taxes |
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Depreciation and amortization |
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General and administrative |
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Total expenses |
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(Loss)/gain on sale of real estate, net |
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Impairment of real estate assets |
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( |
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Equity in loss of unconsolidated entities |
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Interest and other income |
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Interest expense |
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Loss before taxes |
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(Provision)/benefit from income taxes |
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Net loss |
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Net loss attributable to non-controlling interests |
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Net loss attributable to Seritage |
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$ |
( |
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$ |
( |
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Preferred dividends |
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( |
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Net loss attributable to Seritage common shareholders |
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$ |
( |
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$ |
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Net loss per share attributable to Seritage Class A |
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$ |
( |
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$ |
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Net loss per share attributable to Seritage Class A |
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$ |
( |
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$ |
( |
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Weighted average Class A common shares |
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Weighted average Class A common shares |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, amounts in thousands, except per share amounts)
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Class A |
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Class B |
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Series A |
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Additional |
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Accumulated |
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Non- |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Interests |
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Equity |
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Balance at January 1, 2021 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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Preferred dividends declared ($ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Vesting of restricted share units |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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OP Units exchanges ( |
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— |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2021 |
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$ |
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— |
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— |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Balance at January 1, 2022 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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Preferred dividends declared ($ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Vesting of restricted share units |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2022 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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CASH FLOW FROM OPERATING ACTIVITIES |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Equity in loss of unconsolidated entities |
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Distributions from unconsolidated entities |
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— |
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Loss/(gain) on sale of real estate, net |
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( |
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Impairment of real estate assets |
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Share-based compensation |
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Depreciation and amortization |
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Amortization of deferred financing costs |
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Amortization of above and below market leases, net |
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Straight-line rent adjustment |
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Interest on sale-leaseback financing obligations |
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— |
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Change in operating assets and liabilities |
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Tenants and other receivables |
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( |
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Prepaid expenses, deferred expenses and other assets |
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Accounts payable, accrued expenses and other liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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CASH FLOW FROM INVESTING ACTIVITIES |
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Investment in unconsolidated entities |
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( |
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Distributions from unconsolidated entities |
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— |
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Net proceeds from sale of real estate |
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Development of real estate |
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Net cash (used in) provided by investing activities |
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CASH FLOW FROM FINANCING ACTIVITIES |
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Proceeds from issuance of common stock and non-controlling interest |
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— |
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Proceeds from sale-leaseback financing obligations |
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— |
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Purchase of shares related to stock grant recipients' tax withholdings |
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— |
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( |
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Preferred dividends paid |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents, and restricted cash, beginning of period |
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Cash and cash equivalents, and restricted cash, end of period |
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$ |
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$ |
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- 6 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited, amounts in thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
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Cash and cash equivalents at beginning of period |
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$ |
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$ |
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Restricted cash at beginning of period |
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Cash and cash equivalents and restricted cash at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Restricted cash at end of period |
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Cash and cash equivalents and restricted cash at end of period |
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Three Months Ended March 31, |
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2022 |
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2021 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Cash payments for interest |
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$ |
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$ |
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Capitalized interest |
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Income taxes paid (refunded) |
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( |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING |
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Development of real estate financed with accounts payable |
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$ |
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$ |
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Preferred dividends declared and unpaid |
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Transfer to / (from) real estate assets held for sale |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
SERITAGE GROWTH PROPERTIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization
Seritage Growth Properties (“Seritage”) (NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, operated as 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”) from formation through December 31, 2021. On March 31, 2022, Seritage revoked its REIT election and became a taxable C Corporation effective January 1, 2022. 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 ownership, development, redevelopment, disposition, management and leasing of diversified retail and mixed-use properties throughout the United States. As of March 31, 2022, the Company’s portfolio consisted of interests in
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 $
As of March 15, 2021, the Company no longer had any remaining properties leased to Holdco or Sears Holdings after giving effect to the termination of the remaining
On March 1, 2022, the Company announced that its Board of Trustees had commenced a process to review a broad range of strategic alternatives. The Board of Trustees has created a Special Committee (the “Special Committee”) of the Company’s Board of Trustees to oversee the process. The Special Committee has retained Barclays as its financial advisor. The Company strategic review process remains ongoing. There can be no assurance that the review process will result in any transaction or any strategic change at this time.
On March 31, 2022, the Company announced that its Board of Trustees, with the recommendation of the Special Committee, approved a plan to terminate the Company’s REIT status and become a taxable C Corporation, effective for the year ended December 31, 2022. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least
As a result of the Company’s Board of Trustees announcing the change in corporate structure to a taxable C Corporation in fiscal year 2022, the Company incurred a one-time, non-cash deferred tax benefit of approximately $
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 certain development expenditures. Currently, debt service obligations comprise of interest expense and annual fees required by the Term Loan Facility (as defined in Note 6 below). Property rental income, which is the Company’s primary source of operating cash flow, did not fully fund Obligations incurred during the three months ended March 31, 2022 and the Company recorded net operating cash outflows of $
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Obligations are projected to continue to exceed property rental income and the Company expects to fund such costs with a combination of capital sources including, cash on hand, and sales of Consolidated and Unconsolidated Properties, subject to any approvals that may be required under the Company’s Term Loan Facility, as described in Note 6. As of May 9, 2022, the Company had
With regard to the period beyond one year after the financial statements are issued, the Company has identified additional properties which it intends to market for sale that are expected to generate sufficient proceeds to pay down the debt to a level that would allow the Company to extend the Term Loan Facility. The Company’s Term Loan Facility, which had an outstanding balance at March 31, 2022 of $
Going Concern
In accordance with ASC 205-40, for each annual and interim reporting period, the Company’s management evaluates whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. As part of this evaluation, the Company takes into consideration all obligations due within the subsequent 12 months, as well as cash on hand and expected cash receipts. As described above under Liquidity, 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 for the one-year period.
Starting in July 2022 and until the Company’s Term Loan Facility is extended or repaid, the full amount of the Company’s Term Loan Facility will be factored in this analysis as a current obligation. This may result in the Company not being able to assert that it will continue as a going concern until either the extension is executed or asset sales under contract are sufficient to increase the Company’s projected cash flows such that they exceed the outstanding balance on the Term Loan Facility and other obligations.
In addition to the $
COVID-19 Pandemic
The Coronavirus (“COVID-19”) pandemic has caused significant impacts on the real estate industry in the United States, including the Company’s properties.
As a result of the development, fluidity and uncertainty surrounding this situation, the Company expects that these conditions may change, potentially significantly, in future periods and results for the three months ended March 31, 2022 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.
As of March 31, 2022, the