Seritage Growth Properties Reports Fourth Quarter and Full Year 2020 Operating Results
Seritage Growth Properties (NYSE: SRG) reported significant financial results for the year and quarter ended December 31, 2020. The Company faced a net loss of $109.9 million for the year and $35.6 million for Q4, with Funds from Operations (FFO) declining to ($81.0) million annually. Despite challenges from the pandemic, Seritage resumed redevelopment projects and signed new leases totaling 445,000 square feet at an average rent of $18.12 PSF. Asset sales produced $417 million for the year, enhancing liquidity, while the appointment of Andrea Olshan as CEO aims to drive future value.
- Resumed redevelopment projects with $85 million expected to generate $19 million in annual base rent.
- Signed new leases totaling 445,000 square feet for the year, enhancing rental income potential.
- Generated $417 million from asset monetization in 2020, improving cash liquidity.
- Appointed new CEO Andrea Olshan, expected to bring fresh strategies for value enhancement.
- Net loss of $109.9 million for the year, indicating financial strain.
- Funds from Operations (FFO) decreased significantly to ($81.0) million annually.
- Rental income impacted by lease terminations and uncollectible rents due to the pandemic.
- Variable access to Incremental Funding Facility contingent on rental income not yet achieved.
Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 183 retail and mixed-use properties totaling approximately 26.5 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the quarter and year ended December 31, 2020.
Summary Financial Results
For the quarter ended December 31, 2020:
-
Net loss attributable to common shareholders of
$35.6 million , or$0.92 per share -
Total Net Operating Income (“Total NOI”) of
$8.7 million -
Funds from Operations (“FFO”) of (
$16.2) million , or ($0.29) per share -
Company FFO of (
$17.9) million , or ($0.32) per share
For the year ended December 31, 2020:
-
Net loss attributable to common shareholders of
$109.9 million , or$2.87 per share -
Total NOI of
$37.8 million -
FFO of (
$81.0) million , or ($1.45) per share -
Company FFO of (
$88.6) million , or ($1.59) per share
“During the fourth quarter of 2020, we continued to recommence redevelopment projects paused during the pandemic. Our active development spend on suburban projects of
“We are also very pleased to have appointed Andrea Olshan, an experienced real estate executive, as our new Chief Executive Officer and President who will join the Company on March 16th. We are looking forward to Andrea’s fresh perspective on how to maximize value across the Company and throughout the portfolio,” Mr. Lampert continued.
Operating Results
Leasing
During the quarter ended December 31, 2020, the Company signed new leases totaling 173,000 square feet at an average base rent of
The table below provides a summary of all signed leases as of December 31, 2020, including unconsolidated entities at the Company’s proportional share:
(in thousands except number of leases and PSF data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Leased |
|
|
% of Total |
|
|
Annual |
|
|
% of Total |
|
|
Annual |
|
||||||
Tenant |
|
|
|
Leases |
|
|
GLA |
|
|
Leased GLA |
|
|
Rent |
|
|
Annual Rent |
|
|
Rent PSF |
|
||||||
In-place diversified leases |
|
|
251 |
|
|
|
6,196 |
|
|
|
72.3 |
% |
|
$ |
96,065 |
|
|
|
63.8 |
% |
|
$ |
15.50 |
|
||
SNO diversified leases |
|
|
125 |
|
|
|
2,369 |
|
|
|
27.7 |
% |
|
|
54,538 |
|
|
|
36.2 |
% |
|
|
23.02 |
|
||
Total |
|
|
376 |
|
|
|
8,565 |
|
|
|
100.0 |
% |
|
$ |
150,603 |
|
|
|
100.0 |
% |
|
$ |
17.58 |
|
||
| _____________ | ||||
(1) |
SNO = signed not yet opened leases. |
|||
The table below provides a reconciliation of SNO leases from December 31, 2020 to December 31, 2019, including unconsolidated entities at the Company’s proportional share:
|
|
|
|
|
|
|
|
|
|
Total |
|
|||||
|
|
Number of |
|
|
|
|
|
|
Annual |
|
|
Annual |
|
|||
|
|
SNO Leases |
|
|
GLA |
|
|
Rent |
|
|
Rent PSF |
|
||||
As of December 31, 2019 |
|
|
174 |
|
|
|
4,204 |
|
|
$ |
84,348 |
|
|
$ |
20.07 |
|
Opened (1) |
|
|
(26 |
) |
|
|
(803 |
) |
|
|
(13,896 |
) |
|
|
17.31 |
|
Sold / contributed to JVs / terminated |
|
|
(53 |
) |
|
|
(1,454 |
) |
|
|
(23,459 |
) |
|
|
16.14 |
|
Signed (1) |
|
|
30 |
|
|
|
422 |
|
|
|
7,545 |
|
|
|
17.89 |
|
As of December 31, 2020 |
|
|
125 |
|
|
|
2,369 |
|
|
$ |
54,538 |
|
|
$ |
23.02 |
|
| _____________ | ||||
(1) |
Opened and signed excludes 3 leases that were both signed and opened in 2020 |
|||
During the year ended December 31, 2020, the majority of the
In addition, during the fourth quarter of 2020, Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., terminated the five remaining leases related to wholly owned properties effective in March 2021, and as a result, the Company has no remaining properties leased to Sears or Kmart.
Redevelopment
During the quarter ended December 31, 2020, the Company continued work on certain suburban retail redevelopment projects. The Company had previously resumed
The Company also continued to advance both its previously underway premier projects in Aventura (FL), Santa Monica (CA) and La Jolla (CA), and its pipeline of such projects, including its two previously announced multifamily projects, in Redmond (WA) and Dallas (TX), each of which represents the first phase of larger, mixed-use developments. A multifamily project in Lynwood (WA) in its joint venture with Brookfield Properties Retail and AvalonBay Communities (NYSE: AVB), is also underway and has been scheduled for opening in the fourth quarter of 2021. A previously announced multifamily project in Chicago (IL) was sold during the year ended December 31, 2020.
During the quarter ended December 31, 2020, the Company, together with Foulger-Pratt and The Howard Hughes Corporation (NYSE: HHC), announced that it had entered into an initial agreement with the City of Alexandria and Inova Health System to advance the development of a 4.0 million square-foot mixed-use community to include a new hospital campus at the site of the former Landmark Mall.
The remainder of the Company’s previously announced redevelopment projects remain on hold due to the COVID-19 pandemic. The Company deems this approach to capital deployment prudent given the uncertainty regarding tenants’ ability to construct and open new stores and the feasibility of sustaining labor levels with safe working conditions.
Transactions
Total monetization activity for the year ended December 31, 2020 consisted of 32 properties and 16 outparcels totaling 4.8 million square feet and
-
$62.6 million of the gross proceeds were from income-producing properties sold at a blended cap rate of7.5% , excluding Guaynabo (PR) the remaining income-producing assets sold at a blended cap rate of6.8% . -
An additional
$46.5 million of gross proceeds were from vacant assets sold at$59 PSF (including Newark (CA)). The sale of these vacant assets eliminates$1.6 million of annual carry costs. -
The remaining
$35.9 million of gross proceeds included the sale of the50% interest in three properties held in unconsolidated entities.
Subsequent to December 31, 2020, the Company sold three properties for aggregate gross proceeds of
Since it began its capital recycling program in July 2017, the Company has raised over
Balance Sheet and Liquidity
As of December 31, 2020, the Company had cash on hand of
The availability of funding from sales of assets, partnerships and credit or capital markets transactions is subject to various conditions, including the consent of the Company’s lender under its
The Term Loan Facility includes a
Dividends
On December 17, 2020, the Company’s Board of Trustees declared a preferred stock dividend of
On February 23, 2021, the Company’s Board of Trustees declared a preferred stock dividend of
The Company’s Board of Trustees does not expect to declare dividends on its common shares in 2021 unless required to do so to maintain REIT status.
Financial Results
The table below provides a summary of the Company’s financial results for the quarter and year ended December 31, 2020 and December 31, 2019:
(in thousands except per share amounts) |
|
Quarter Ended December 31, |
|
|
Year Ended December 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Net loss attributable to common shareholders |
|
$ |
(35,606 |
) |
|
$ |
(25,874 |
) |
|
$ |
(109,926 |
) |
|
$ |
(64,297 |
) |
Net loss per share attributable to common shareholders |
|
|
(0.92 |
) |
|
|
(0.70 |
) |
|
|
(2.87 |
) |
|
|
(1.77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NOI |
|
|
8,646 |
|
|
|
19,083 |
|
|
|
37,757 |
|
|
|
72,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO |
|
|
(16,156 |
) |
|
|
(20,059 |
) |
|
|
(80,998 |
) |
|
|
(33,793 |
) |
FFO per share |
|
|
(0.29 |
) |
|
|
(0.36 |
) |
|
|
(1.45 |
) |
|
|
(0.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company FFO |
|
|
(17,899 |
) |
|
|
(14,966 |
) |
|
|
(88,583 |
) |
|
|
(33,896 |
) |
Company FFO per share |
|
|
(0.32 |
) |
|
|
(0.27 |
) |
|
|
(1.59 |
) |
|
|
(0.61 |
) |
Net Loss
The following items contributed to the net loss for the quarter and year ended December 31, 2020:
- Reduced rental income as a result of recapture and termination activity under the Master Lease with Transform Holdco LLC, an affiliate of ESL Investments, Inc. (the “Holdco Master Lease”) and the recognition of rental income deemed to be uncollectible;
-
The impairment of certain assets including
$47.7 million recognized on vacant assets and several partially stabilized assets that are leased primarily to theater and fitness tenants which have been negatively impacted by COVID-19 during the quarter ended December 31, 2020; -
Gains on asset sales of
$28.6 million and$88.6 million during the quarter and year ended December 31, 2020, respectively; and, - Reduced general and administrative expenses, primarily due to reductions in share-based compensation and compensation costs related to the resignation of two executives in 2020.
Total NOI
- The decrease in Total NOI was driven primarily by (i) reduced rental income as a result of recapture and termination activity under the Holdco Master Lease and (ii) the recognition of rental income deemed uncollectible for the quarter and year ended December 31, 2020, respectively.
FFO and Company FFO
- The decrease in FFO was driven primarily by the same factors driving the decreases in Total NOI, partially offset by reduced general and administrative expenses related to reductions in compensation costs due to the resignation of certain executives.
COVID-19 Pandemic
The COVID-19 pandemic continues to have a significant impact on the real estate industry in the United States, including the Company’s properties. As of December 31, 2020, the Company had collected
The Company continues to maintain a cautious approach as it responds to the evolving COVID-19 pandemic with an emphasis on managing its cash resources and preserving the value of its assets and its platform. The Company expects to continue monetizing appropriate assets and selectively allocating capital to the assets with opportunistic risk-adjusted returns in the Company’s portfolio.
As a result of the fluidity and uncertainty surrounding the nation’s response to and limitations as a result of the pandemic, the Company expects that these conditions will change, potentially significantly, in future periods and results for the quarter and year ended December 31, 2020 may not be indicative of the impact of the COVID-19 pandemic on the Company’s business for future periods. As such, the Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operations or cash flows over the foreseeable future.
Supplemental Report
A Supplemental Report will be available in the Investors section of the Company’s website, www.seritage.com.
Non-GAAP Financial Measures
The Company makes reference to NOI, Total NOI, FFO and Company FFO which are financial measures that include adjustments to accounting principles generally accepted in the United States (“GAAP”).
None of NOI, Total NOI, FFO or Company FFO, are measures that (i) represent cash flow from operations as defined by GAAP; (ii) are indicative of cash available to fund all cash flow needs, including the ability to make distributions; (iii) are alternatives to cash flow as a measure of liquidity; or (iv) should be considered alternatives to net income (which is determined in accordance with GAAP) for purposes of evaluating the Company’s operating performance. Reconciliations of these measures to the respective GAAP measures the Company deems most comparable have been provided in the tables accompanying this press release.
Net Operating Income ("NOI”) and Total NOI
NOI is defined as income from property operations less property operating expenses. Other REITs may use different methodologies for calculating NOI, and accordingly the Company’s depiction of NOI may not be comparable to other REITs. The Company believes NOI provides useful information regarding Seritage, its financial condition, and results of operations because it reflects only those income and expense items that are incurred at the property level.
The Company also uses Total NOI, which includes its proportional share of unconsolidated properties. 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 Company also considers NOI and Total NOI to be a helpful supplemental measure of its operating performance because it excludes from NOI variable items such as termination fee income, as well as non-cash items such as straight-line rent and amortization of lease intangibles.
Funds from Operations ("FFO") and Company FFO
FFO is calculated in accordance with NAREIT which defines FFO as net income computed in accordance with GAAP, excluding gains (or losses) from property sales, real estate related depreciation and amortization, and impairment charges on depreciable real estate assets. The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry.
The Company makes certain adjustments to FFO, which it refers to as Company FFO, to account for certain non-cash and non-comparable items, such as termination fee income, unrealized loss on interest rate cap, litigation charges, acquisition-related expenses, amortization of deferred financing costs and certain up-front-hiring costs, that it does not believe are representative of ongoing operating results.
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,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” 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; the impact of the COVID-19 pandemic on the business of the Company’s tenants and business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service the Company’s debt obligations and ability to pay dividends and other distributions to shareholders, the Company’s historical exposure to Sears Holdings and the effects of its previously announced bankruptcy filing; the litigation filed against us and other defendants in the Sears Holdings adversarial proceeding pending in bankruptcy court; Holdco’s termination and other rights under its master lease with us; competition in the real estate and retail industries; risks relating to recapture and redevelopment activities; contingencies to the commencement of rent under leases; the terms of the Company’s indebtedness; restrictions with which the Company is required to comply in order to maintain REIT status 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; the Company’s relatively limited history as an operating company; and environmental, health, safety and land use laws and regulations. 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, 2020, and the risk factors relating to Sears Holdings and Holdco therein. 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
Seritage Growth Properties is a publicly-traded, self-administered and self-managed REIT with 158 wholly-owned properties and 25 unconsolidated properties totaling approximately 26.5 million square feet of space across 41 states and Puerto Rico. The Company was formed to unlock the underlying real estate value of a high-quality retail portfolio it acquired from Sears Holdings in July 2015. The Company’s mission is to create long-term value for shareholders by realizing the value of the Company’s portfolio through re-leasing, redevelopment, formation of strategic partnerships or other bespoke solutions.
SERITAGE GROWTH PROPERTIES |
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||||||
(In thousands, except share and per share amounts) |
||||||||
(Unaudited) |
||||||||
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
||
ASSETS |
|
|
|
|
|
|
{
"@context": "https://schema.org",
"@type": "FAQPage",
"name": "Seritage Growth Properties Reports Fourth Quarter and Full Year 2020 Operating Results FAQs",
"mainEntity": [
{
"@type": "Question",
"name": "What were Seritage Growth Properties' financial results for the quarter ended December 31, 2020?",
"acceptedAnswer": {
"@type": "Answer",
"text": "The Company reported a net loss of $35.6 million and FFO of ($16.2) million for the quarter."
}
},
{
"@type": "Question",
"name": "What is the total net operating income (NOI) for Seritage Growth Properties in 2020?",
"acceptedAnswer": {
"@type": "Answer",
"text": "The total NOI for the year ended December 31, 2020, was $37.8 million."
}
},
{
"@type": "Question",
"name": "How much did Seritage Growth Properties generate from asset sales in 2020?",
"acceptedAnswer": {
"@type": "Answer",
"text": "The Company generated $417 million from asset monetization during 2020."
}
},
{
"@type": "Question",
"name": "Who has been appointed as the new CEO of Seritage Growth Properties?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Andrea Olshan has been appointed as the new CEO, effective March 16, 2021."
}
},
{
"@type": "Question",
"name": "What challenges did Seritage Growth Properties face during the COVID-19 pandemic?",
"acceptedAnswer": {
"@type": "Answer",
"text": "The Company experienced reduced rental income and lease terminations, impacting financial performance."
}
}
]
}
FAQ
What were Seritage Growth Properties' financial results for the quarter ended December 31, 2020?
The Company reported a net loss of $35.6 million and FFO of ($16.2) million for the quarter.
What is the total net operating income (NOI) for Seritage Growth Properties in 2020?
The total NOI for the year ended December 31, 2020, was $37.8 million.
How much did Seritage Growth Properties generate from asset sales in 2020?
The Company generated $417 million from asset monetization during 2020.
Who has been appointed as the new CEO of Seritage Growth Properties?
Andrea Olshan has been appointed as the new CEO, effective March 16, 2021.
What challenges did Seritage Growth Properties face during the COVID-19 pandemic?
The Company experienced reduced rental income and lease terminations, impacting financial performance.
Seritage Growth Properties
NYSE:SRGSRG RankingsSRG Latest NewsSRG Stock Data
236.61M
32.99M
39.72%
49.36%
10.95%
Real Estate Services
Real Estate
United States of America
NEW YORK
| |