Seritage Growth Properties [SRG] Filings

10-Q 1 srg-20220930.htm 10-Q 10-Q

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 SEPTEMBER 30, 2022

☐ 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 November 4, 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	56,032,381
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 September 30, 2022

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION
		Page

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 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	28

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	39

Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3.	Defaults upon Senior Securities	49

Item 4.	Mine Safety Disclosures	49

Item 5.	Other Information	49

Item 6.	Exhibits	50

SIGNATURES		51

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	September 30, 2022			December 31, 2021
ASSETS
Investment in real estate
Land	$	282,917		$	475,667
Buildings and improvements		804,882			994,221
Accumulated depreciation		(127,043	)		(154,971	)
		960,756			1,314,917
Construction in progress		260,007			381,194
Net investment in real estate		1,220,763			1,696,111
Real estate held for sale		202,777			—
Investment in unconsolidated entities		383,061			498,563
Cash and cash equivalents		129,767			106,602
Restricted cash		10,821			7,151
Tenant and other receivables, net		39,943			29,111
Lease intangible assets, net		4,511			14,817
Prepaid expenses, deferred expenses and other assets, net		62,883			61,783
Total assets (1)	$	2,054,526		$	2,414,138

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Term loan facility, net	$	1,269,648		$	1,439,332
Sales-leaseback financing obligations		—			20,627
Litigation reserve		35,533			—
Accounts payable, accrued expenses and other liabilities		118,700			109,379
Total liabilities (1)		1,423,881			1,569,338

Commitments and contingencies (Note 9)

Shareholders' Equity
Class A common shares $0.01 par value; 100,000,000 shares authorized; 56,032,381 and 43,632,364 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		560			436
Series A preferred shares $0.01 par value; 10,000,000 shares authorized; 2,800,000 shares issued and outstanding as of September 30, 2022 December 31, 2021; liquidation preference of $70,000		28			28
Additional paid-in capital		1,359,686			1,241,048
Accumulated deficit		(731,759	)		(553,771	)
Total shareholders' equity		628,515			687,741
Non-controlling interests		2,130			157,059
Total equity		630,645			844,800
Total liabilities and shareholders' equity	$	2,054,526		$	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 September 30, 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, $(1.0) 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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
REVENUE
Rental income	$	23,253		$	28,819		$	81,755		$	87,560
Management and other fee income		248			184			2,355			598
Total revenue		23,501			29,003			84,110			88,158
EXPENSES
Property operating		9,700			11,585			31,535			33,514
Real estate taxes		6,483			8,542			21,056			27,758
Depreciation and amortization		9,169			13,159			31,772			39,629
General and administrative		10,811			8,780			30,996			32,002
Litigation reserve		533			—			35,533			—
Total expenses		36,696			42,066			150,892			132,903
Gain on sale of real estate, net		45,433			22,774			112,449			65,079
Loss on sale of interests in unconsolidated entities		(139	)		—			(139	)		—
Impairment of real estate assets		(10,275	)		(3,814	)		(120,609	)		(70,053	)
Equity in loss of unconsolidated entities		(2,275	)		(5,535	)		(69,071	)		(9,024	)
Interest and other (expense) income		(1,047	)		48			(937	)		8,202
Interest expense		(21,916	)		(26,721	)		(67,167	)		(81,847	)
Loss before income taxes		(3,414	)		(26,311	)		(212,256	)		(132,388	)
Provision for income taxes		(67	)		(38	)		(295	)		(198	)
Net loss		(3,481	)		(26,349	)		(212,551	)		(132,586	)
Net loss attributable to non-controlling interests		42			5,815			46,152			31,492
Net loss attributable to Seritage	$	(3,439	)	$	(20,534	)	$	(166,399	)	$	(101,094	)
Preferred dividends		(1,225	)		(1,225	)		(3,675	)		(3,675	)
Net loss attributable to Seritage common shareholders	$	(4,664	)	$	(21,759	)	$	(170,074	)	$	(104,769	)

Net loss per share attributable to Seritage Class A common shareholders - Basic	$	(0.08	)	$	(0.50	)	$	(3.57	)	$	(2.50	)
Net loss per share attributable to Seritage Class A common shareholders - Diluted	$	(0.08	)	$	(0.50	)	$	(3.57	)	$	(2.50	)
Weighted average Class A common shares outstanding - Basic		55,361			43,631			47,600			41,976
Weighted average Class A common shares outstanding - Diluted		55,361			43,631			47,600			41,976

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				Series A Preferred				Additional Paid-In			Accumulated			Non- Controlling			Total
	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		—		—		—		—		—			(101,094	)		(31,492	)		(132,586	)
Preferred dividends declared ($1.3125 per share)		—		—		—		—		—			(3,675	)		—			(3,675	)
Vesting of restricted share units		87		1		—		—		(1	)		—			—			—
Share-based compensation		—		—		—		—		1,263			—			—			1,263
OP Units exchanges (4,647,943 units)		4,648		46		—		—		61,789			—			(61,835	)		—
Contributions to consolidated variable interest entities		—		—		—		—		—			7,915			(3,955	)		3,960
Balance at September 30, 2021		43,631	$	436	$	2,800	$	28	$	1,240,311		$	(625,491	)	$	136,405		$	751,689

Balance at January 1, 2022		43,632	$	436		2,800	$	28	$	1,241,048		$	(553,771	)	$	157,059		$	844,800
Net loss		—		—		—		—		—			(166,399	)		(46,152	)		(212,551	)
Preferred dividends declared ($1.3125 per share)		—		—		—		—		—			(3,675	)		—			(3,675	)
Vesting of restricted share units		45		1		—		—		(1	)		—			—			—
Share-based compensation		—		—		—		—		2,071			—			—			2,071
OP Unit exchanges (12,354,963 units)		12,355		123		—		—		116,568			(7,914	)		(108,777	)		—
Balance at September 30, 2022		56,032	$	560		2,800	$	28	$	1,359,686		$	(731,759	)	$	2,130		$	630,645


	Class A Common				Series A Preferred				Additional Paid-In		Accumulated			Non- Controlling			Total
	Shares		Amount		Shares		Amount		Capital		Deficit			Interests			Equity
Balance at July 1, 2021		42,795	$	428		2,800	$	28	$	1,230,009	$	(611,647	)	$	156,071			774,889
Net loss		—		—		—		—		—		(20,534	)		(5,815	)		(26,349	)
Preferred dividends declared ($0.4375 per share)		—		—		—		—		—		(1,225	)		—			(1,225	)
Vesting of restricted share units		—		—		—		—		—		—			—			—
Share-based compensation

Seritage Growth Properties [SRG] Filings
Seritage Growth Properties [SRG-PA] Filings
10-Q	[2022-11-09]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-16]
10-Q	[2021-11-04]
10-Q	[2021-08-09]
10-Q	[2021-04-30]
10-K	[2021-03-15]
10-Q	[2020-11-09]
10-Q	[2020-08-07]
10-Q	[2020-05-11]
10-K	[2020-03-02]
10-Q	[2019-11-01]
10-Q	[2019-08-02]
10-Q	[2019-05-03]
10-K	[2019-03-01]
10-Q	[2018-11-02]
10-Q	[2018-08-03]
10-Q	[2018-05-04]
10-K	[2018-02-28]
10-Q	[2017-11-03]
10-Q	[2017-08-04]
10-Q	[2017-05-05]
10-K	[2017-03-01]
10-Q	[2016-11-04]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-03-11]
10-Q	[2015-11-13]
10-Q	[2015-08-14]

Seritage Growth Properties [SRG] Filings

Seritage Growth Properties [SRG-PA] Filings