10-Q 1 srg-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

or

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

For the transition period from _______to _______

Commission File Number 001-37420

SERITAGE GROWTH PROPERTIES

(Exact name of registrant as specified in its charter)

 

Maryland

38-3976287

(State of Incorporation)

(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:

 

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

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 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

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

43,677,418

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

 


SERITAGE GROWTH PROPERTIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED March 31, 2022

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

 

 

Page

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

3

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021

4

 

Condensed Consolidated Statements of Equity for the three months ended March 31, 2022 and 2021

5

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

6

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

 

 

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

38

 

 

 

Item 4.

Controls and Procedures

38

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

39

 

 

 

Item 1A.

Risk Factors

39

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

 

 

 

Item 3.

Defaults upon Senior Securities

52

 

 

 

Item 4.

Mine Safety Disclosures

52

 

 

 

Item 5.

Other Information

52

 

 

 

Item 6.

Exhibits

53

 

 

 

SIGNATURES

 

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)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Investment in real estate

 

 

 

 

 

 

Land

 

$

437,431

 

 

$

475,667

 

Buildings and improvements

 

 

927,214

 

 

 

994,221

 

Accumulated depreciation

 

 

(153,454

)

 

 

(154,971

)

 

 

 

1,211,191

 

 

 

1,314,917

 

Construction in progress

 

 

388,323

 

 

 

381,194

 

Net investment in real estate

 

 

1,599,514

 

 

 

1,696,111

 

Real estate held for sale

 

 

92,078

 

 

 

 

Investment in unconsolidated entities

 

 

471,271

 

 

 

498,563

 

Cash and cash equivalents

 

 

53,807

 

 

 

106,602

 

Restricted cash

 

 

7,152

 

 

 

7,151

 

Tenant and other receivables, net

 

 

38,172

 

 

 

29,111

 

Lease intangible assets, net

 

 

13,151

 

 

 

14,817

 

Prepaid expenses, deferred expenses and other assets, net

 

 

60,828

 

 

 

61,783

 

Total assets (1)

 

$

2,335,973

 

 

$

2,414,138

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Term loan facility, net

 

$

1,439,437

 

 

$

1,439,332

 

Sales-leaseback financing obligations

 

 

20,639

 

 

 

20,627

 

Accounts payable, accrued expenses and other liabilities

 

 

98,773

 

 

 

109,379

 

Total liabilities (1)

 

 

1,558,849

 

 

 

1,569,338

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Class A common shares $0.01 par value; 100,000,000 shares authorized;
43,675,446 and 43,632,364 shares issued and outstanding
   as of March 31, 2022 and December 31, 2021, respectively

 

 

437

 

 

 

436

 

Series A preferred shares $0.01 par value; 10,000,000 shares authorized;
   
2,800,000 shares issued and outstanding as of March 31, 2022
   December 31, 2021; liquidation preference of $
70,000

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

1,241,583

 

 

 

1,241,048

 

Accumulated deficit

 

 

(607,201

)

 

 

(553,771

)

Total shareholders' equity

 

 

634,847

 

 

 

687,741

 

Non-controlling interests

 

 

142,277

 

 

 

157,059

 

Total equity

 

 

777,124

 

 

 

844,800

 

Total liabilities and shareholders' equity

 

$

2,335,973

 

 

$

2,414,138

 

(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: $6.6 million of land, $3.9 million of building and improvements, $(0.9) million of accumulated depreciation and $4.0 million of other assets included in other line items. The Company's condensed consolidated balance sheets as of December 31, 2021, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(0.9) million of accumulated depreciation and $4.0 million of other assets included in other line items.

 

 

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

- 3 -


SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

REVENUE

 

 

 

 

 

 

 

Rental income

 

$

29,084

 

 

$

31,146

 

 

Management and other fee income

 

 

1,821

 

 

 

135

 

 

Total revenue

 

 

30,905

 

 

 

31,281

 

 

EXPENSES

 

 

 

 

 

 

 

Property operating

 

 

11,032

 

 

 

10,643

 

 

Real estate taxes

 

 

8,150

 

 

 

10,155

 

 

Depreciation and amortization

 

 

11,934

 

 

 

13,142

 

 

General and administrative

 

 

9,092

 

 

 

11,232

 

 

Total expenses

 

 

40,208

 

 

 

45,172

 

 

(Loss)/gain on sale of real estate, net

 

 

(1,015

)

 

 

24,208

 

 

Impairment of real estate assets

 

 

(991

)

 

 

(1,700

)

 

Equity in loss of unconsolidated entities

 

 

(33,076

)

 

 

(1,162

)

 

Interest and other income

 

 

11

 

 

 

7,624

 

 

Interest expense

 

 

(22,588

)

 

 

(26,150

)

 

Loss before taxes

 

 

(66,962

)

 

 

(11,071

)

 

(Provision)/benefit from income taxes

 

 

(25

)

 

 

138

 

 

Net loss

 

 

(66,987

)

 

 

(10,933

)

 

Net loss attributable to non-controlling interests

 

 

14,782

 

 

 

3,213

 

 

Net loss attributable to Seritage

 

$

(52,205

)

 

$

(7,720

)

 

Preferred dividends

 

 

(1,225

)

 

 

(1,225

)

 

Net loss attributable to Seritage common shareholders

 

$

(53,430

)

 

$

(8,945

)

 

 

 

 

 

 

 

 

 

Net loss per share attributable to Seritage Class A
   common shareholders - Basic

 

$

(1.22

)

 

$

(0.23

)

 

Net loss per share attributable to Seritage Class A
   common shareholders - Diluted

 

$

(1.22

)

 

$

(0.23

)

 

Weighted average Class A common shares
   outstanding - Basic

 

 

43,634

 

 

 

39,477

 

 

Weighted average Class A common shares
   outstanding - Diluted

 

 

43,634

 

 

 

39,477

 

 

 

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)

 

 

 

Class A
Common

 

 

Class B
Common

 

 

Series A
Preferred

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Non-
Controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interests

 

 

Equity

 

Balance at January 1, 2021

 

 

38,896

 

 

$

389

 

 

 

 

 

$

 

 

 

2,800

 

 

$

28

 

 

$

1,177,260

 

 

$

(528,637

)

 

$

233,687

 

 

$

882,727

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,720

)

 

 

(3,213

)

 

 

(10,933

)

Preferred dividends declared ($0.4375
   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,225

)

 

 

 

 

 

(1,225

)

Vesting of restricted share units

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

969

 

 

 

 

 

 

 

 

 

969

 

OP Units exchanges (1,658,855 units)

 

 

1,659

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,645

 

 

 

 

 

 

(22,800

)

 

 

(138

)

Balance at March 31, 2021

 

 

40,587

 

 

$

406

 

 

 

 

 

 

 

 

$

2,800

 

 

$

28

 

 

$

1,200,874

 

 

$

(537,582

)

 

$

207,674

 

 

$

871,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2022

 

 

43,632

 

 

$

436

 

 

 

 

 

$

 

 

 

2,800

 

 

$

28

 

 

$

1,241,048

 

 

$

(553,771

)

 

$

157,059

 

 

$

844,800

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52,205

)

 

 

(14,782

)

 

 

(66,987

)

Preferred dividends declared ($0.4375
   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,225

)

 

 

 

 

 

(1,225

)

Vesting of restricted share units

 

 

43

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

536

 

 

 

 

 

 

 

 

 

536

 

Balance at March 31, 2022

 

 

43,675

 

 

$

437

 

 

 

 

 

$

 

 

 

2,800

 

 

$

28

 

 

$

1,241,583

 

 

$

(607,201

)

 

$

142,277

 

 

$

777,124

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

CASH FLOW FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(66,987

)

 

$

(10,933

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Equity in loss of unconsolidated entities

 

 

33,076

 

 

 

1,162

 

Distributions from unconsolidated entities

 

 

 

 

 

1,042

 

Loss/(gain) on sale of real estate, net

 

 

1,015

 

 

 

(24,208

)

Impairment of real estate assets

 

 

991

 

 

 

1,700

 

Share-based compensation

 

 

425

 

 

 

911

 

Depreciation and amortization

 

 

11,934

 

 

 

13,142

 

Amortization of deferred financing costs

 

 

105

 

 

 

106

 

Amortization of above and below market leases, net

 

 

65

 

 

 

(39

)

Straight-line rent adjustment

 

 

(721

)

 

 

210

 

Interest on sale-leaseback financing obligations

 

 

12

 

 

 

 

Change in operating assets and liabilities

 

 

 

 

 

 

Tenants and other receivables

 

 

(8,340

)

 

 

294

 

Prepaid expenses, deferred expenses and other assets

 

 

868

 

 

 

1,151

 

Accounts payable, accrued expenses and other liabilities

 

 

(2,491

)

 

 

(7,635

)

Net cash used in operating activities

 

 

(30,048

)

 

 

(23,097

)

CASH FLOW FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Investment in unconsolidated entities

 

 

(7,613

)

 

 

(9,902

)

Distributions from unconsolidated entities

 

 

99

 

 

 

 

Net proceeds from sale of real estate

 

 

8,467

 

 

 

55,221

 

Development of real estate

 

 

(22,474

)

 

 

(26,804

)

Net cash (used in) provided by investing activities

 

 

(21,521

)

 

 

18,515

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from issuance of common stock and non-controlling interest

 

 

 

 

 

4

 

Proceeds from sale-leaseback financing obligations

 

 

 

 

 

153

 

Purchase of shares related to stock grant recipients' tax withholdings

 

 

 

 

 

(138

)

Preferred dividends paid

 

 

(1,225

)

 

 

(1,225

)

Net cash used in financing activities

 

 

(1,225

)

 

 

(1,206

)

Net decrease in cash and cash equivalents

 

 

(52,794

)

 

 

(5,788

)

Cash and cash equivalents, and restricted cash, beginning of period

 

 

113,753

 

 

 

150,254

 

Cash and cash equivalents, and restricted cash, end of period

 

$

60,959

 

 

$

144,466

 

 

- 6 -


SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited, amounts in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$

106,602

 

 

$

143,728

 

Restricted cash at beginning of period

 

 

7,151

 

 

 

6,526

 

Cash and cash equivalents and restricted cash at beginning of period

 

 

113,753

 

 

 

150,254

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

53,807

 

 

$

137,940

 

Restricted cash at end of period

 

 

7,152

 

 

 

6,526

 

Cash and cash equivalents and restricted cash at end of period

 

 

60,959

 

 

 

144,466

 

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash payments for interest

 

$

26,063

 

 

$

27,999

 

Capitalized interest

 

 

3,736

 

 

 

2,954

 

Income taxes paid (refunded)

 

 

25

 

 

 

(138

)

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
   ACTIVITIES

 

 

 

 

 

 

Development of real estate financed with accounts payable

 

$

19,968

 

 

$

8,079

 

Preferred dividends declared and unpaid

 

 

1,225

 

 

 

1,225

 

Transfer to / (from) real estate assets held for sale

 

 

92,078

 

 

 

22,577

 

 

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 161 properties comprised of approximately 19.0 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately 600 acres held for or under development and approximately 8.8 million square feet or approximately 740 acres to be disposed of. The portfolio consists of approximately 15.2 million square feet of GLA held by 136 wholly owned properties (such properties, the “Consolidated Properties”) and 3.8 million square feet of GLA held by 25 unconsolidated entities (such properties, the “Unconsolidated Properties”).

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).

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 five Consolidated Properties, as further described in Note 5.

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 90% of REIT taxable income to its stockholders, which provides the Company with greater flexibility to use its free cash flow. Effective January 1, 2022, the Company is subject to federal and state income taxes on its taxable income at applicable tax rates and is no longer entitled to a tax deduction for dividends paid. The Company operated as a REIT for the 2021 tax year, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place until December 31, 2021.

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 $160.3 million during the quarter ended March 31, 2022.

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 $30.0 million. Additionally, the Company generated investing cash outflows of $21.5 million during the three months ended March 31, 2022, which were driven by development expenditures and investments in joint ventures partially offset by asset sales.

 

- 8 -


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 nine assets under contract to sell for total anticipated proceeds of $85.0 million, subject to customary due diligence and closing conditions. In addition, the Company exercised the put rights that is has on two Unconsolidated Properties. Subsequent to March 31, 2022, the Company sold seven assets for gross proceeds of $74.7 million. 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.

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 $1.44 billion and matures in July of 2023, was amended in November 2021 whereby the maturity date may be extended for two years from July 31, 2023 to July 31, 2025, if its aggregate principal balance has been reduced to $800 million by July 31, 2023. If the principal balance is not reduced to $800 million by July 31, 2023, the loan will be due and payable on that date. The Company currently anticipates it will continue to use sales of Consolidated Properties as the primary source of capital to repay principal on the Term Loan, its obligations and certain development expenditures. This is not inclusive of sales and recapitalization contemplated as part of the strategic review.

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 $85.0 million of assets referenced above under contract, the Company is currently marketing or about to bring to market for sale, assets with an estimated fair value of $636.3 million, which would, if sold, allow the Company to meet the $640 million Term Loan Facility principal pay down required to extend the facility. While these assets are intended for sale, and the Company believes that they will close before the maturity, there is no assurance that these assets will be under contract within the one-year timeframe in which the outstanding balance from the Term Loan Facility will need to be factored into the Company’s going concern analysis.

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 Company had collected 96% of rental income for the three months ended March 31, 2022 and agreed to no additional deferrals. 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.