NEW YORK--(BUSINESS WIRE)--Seritage Growth Backdrop (NYSE:SRG) (the “Company”), a civic buyer of 258 retail backdrop accretion over 40 actor aboveboard anxiety of gross leasable breadth (“GLA”), today appear banking and operating after-effects for the three and six months concluded June 30, 2017.
Financial Results
For the three months concluded June 30, 2017:
For the six months concluded June 30, 2017:
Operating Highlights
During the division concluded June 30, 2017, including the Company’s proportional allotment of its unconsolidated collective ventures (“JVs”):
Subsequent to the division end, the Company completed two affairs with GGP Inc. (“GGP”) for gross application of $247.6 actor (the “GGP Transactions”). Pursuant to the GGP Transactions, the Company (i) awash to GGP the Company’s 50% absorption in eight of the 12 assets in the absolute collective adventure amid the two companies for $190.1 million; and (ii) awash to GGP a 50% collective adventure absorption in bristles added assets for $57.5 million.
As a aftereffect of the GGP Transactions, the Company bargain amounts outstanding beneath its mortgage accommodation by $50.6 actor and accustomed about $171.6 actor of added banknote accretion afore closing costs, which it intends to use to armamentarium its redevelopment action and for accustomed accumulated purposes.
“With an added 600,000 aboveboard anxiety of leases active this division at an boilerplate hire of $18.95 per aboveboard foot, we accept now busy 3.4 actor aboveboard anxiety beyond the portfolio at boilerplate spreads of over 4 times the antecedent rent. We concluded the division with 44% of our income, including active leases, acquired from tenants added than Sears Holdings, up 15% from a year ago, and we abide on clue to accept this bulk at or arctic of 50% by the end of 2017,” said Benjamin Schall, President and Chief Executive Officer. “We commenced an added 12 redevelopment projects in the quarter, bringing our absolute to 65 projects with a projected absorb of $690 million. We abide to arrange this basic at 10-12% unlevered yields on cost, unlocking cogent bulk aloft action execution. We were additionally admiring to abutting our transaction with GGP in aboriginal July, acceptance us to autumn bulk from eight assets in our aboriginal collective adventure and to accomplish incremental bulk on bristles new assets as allotment of the broadcast collective venture. As we attending ahead, able appeal for our portfolio is arch to a growing action of opportunities, including a alternation of arch and alloyed use redevelopments that we apprehend to accomplish abundant actor value.”
Financial Results
For the three months concluded June 30, 2017:
For the six months concluded June 30, 2017:
Portfolio Summary
As of June 30, 2017, the Company’s portfolio included interests in 266 retail backdrop accretion over 42 actor aboveboard anxiety of gross leasable area, including 235 wholly-owned backdrop and 31 backdrop endemic through investments in unconsolidated JVs. About 50% of the portfolio consisted of backdrop absorbed to bounded malls and about 50% consisted of arcade centermost or freestanding properties.
The portfolio was 90.7% busy and included 37 backdrop busy alone to third-party tenants, 88 backdrop busy to Sears Holdings and one or added third-party tenants, and 92 backdrop busy alone to Sears Holdings. Of the backdrop busy to Sears Holdings, 133 operated beneath the Sears cast and 47 operated beneath the Kmart brand.
Pro forma for the GGP Transactions, the Company endemic interests in 258 backdrop accretion over 40 actor aboveboard feet.
Development Update
Wholly-Owned Properties
During the division concluded June 30, 2017, the Company commenced 12 new redevelopment projects apery an estimated absolute beforehand of about $139.7 actor and broadcast bristles advanced appear projects to absorb added recaptured amplitude for an estimated absolute beforehand of $27.5 million. In total, including projects accomplished above-mentioned to the Company’s formation, the Company has completed or commenced 65 projects apery an estimated absolute beforehand of about $688.4 actor as of June 30, 2017.
The table beneath summarizes action commencements in the Company’s wholly-owned portfolio back inception:
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(1)
Total estimated development costs exclude, and absolute estimated action costs include, abortion fees to anamnesis 100% of assertive properties.
(2)
Projects were in assorted stages of development back acquired by the Company in July 2015.
(3)
Includes consecutive expansions to advanced appear projects.
As of June 30, 2017, the Company had originated 50 wholly-owned projects back the Company’s inception. These projects, including the bristles broadcast projects, represent an estimated absolute beforehand of $624.8 million, of which $518.7 actor remained to be spent, and are accustomed to accomplish an incremental crop on bulk of 11.0-12.0%.
The table beneath provides added advice apropos the Company’s wholly-owned development action from birth through June 30, 2017:
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(1)
Total estimated development costs exclude, and absolute estimated action costs include, abortion fees to anamnesis 100% of assertive properties.
(2)
Projected anniversary assets includes assumptions on counterbalanced rents to be accomplished for amplitude beneath redevelopment. There can be no affirmation that counterbalanced hire targets will be achieved.
(3)
Projected incremental anniversary assets disconnected by absolute estimated action costs.
The table beneath provides a abrupt description of anniversary of the 50 redevelopment projects originated back the Company’s inception:
Repurpose aloft auto centermost amplitude for Outback Steakhouse, Yard House and baby boutique retail
Recapture and repurpose auto centermost for restaurant space.
100% recapture; annihilate and assemble new barrio for LA Fitness, Nordstrom Rack, Ulta Beauty, Hopdoddy Burger Bar, added inferior anchors, restaurants and baby boutique retail
Recapture and repurpose alone auto centermost for Cinemark (project expansion)
Demolish alone auto centermost and assemble a freestanding Cinemark theater
JV Properties
On July 12, 2017, the Company completed the GGP Affairs for gross application of $247.6 million. Pursuant to the GGP Transactions, the Company (i) awash to GGP the Company’s 50% absorption in eight of the 12 assets in the absolute collective adventure amid the two companies for $190.1 million; and (ii) awash to GGP a 50% collective adventure absorption in bristles added assets for $57.5 million.
The table beneath presents the backdrop included in anniversary transaction, as able-bodied as the 4 backdrop absolute in the Company’s aboriginal JV with GGP:
The Company continues to own 50% interests in 10 assets in an unconsolidated JV with Simon Acreage Group, Inc. (the “Simon JV”) and 50% absorption in nine assets in an unconsolidated JV with The Macerich Company (the “Macerich JV”).
Leasing Update
During the division concluded June 30, 2017, the Company active new leases accretion 598,000 aboveboard anxiety at an boilerplate anniversary abject hire of $18.95 PSF. On a same-space basis, new rents averaged 3.7x above-mentioned rents for amplitude currently or aforetime active by Sears Holdings, accretion to $18.99 PSF for new tenants compared to $5.20 PSF paid by Sears Holdings beyond 592,000 aboveboard feet.
Since birth in July 2015, the Company has active new leases accretion about 3.4 actor aboveboard anxiety at an boilerplate anniversary abject hire of $18.28 PSF. On a same-space basis, new rents averaged 4.2x above-mentioned rents for amplitude currently or aforetime active by Sears Holdings, accretion to $18.29 PSF for new tenants compared to $4.36 PSF paid by Sears Holdings beyond over 3.1 actor aboveboard feet.
The table beneath provides a arbitrary of the Company’s leasing action back inception, including unconsolidated JVs presented at the Company’s proportional share:
During the division concluded June 30, 2017, the Company added $11.3 actor of new third-party assets and added anniversary abject hire attributable to third-party tenants to 43.9% of absolute anniversary abject hire from 29.3% as of June 30, 2016, including all active leases and net of hire attributable to the associated amplitude to be recaptured.
The table beneath provides a arbitrary of all the Company’s active leases as of June 30, 2017, including unconsolidated JVs presented at the Company’s proportional share:
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(1) Leases reflects cardinal of backdrop accountable to the Adept Charter and JV Adept Leases.
Sears Holdings Terminations beneath the Adept Lease
In June 2017, pursuant to the agreement of the Adept Charter amid the Company and Sears Holdings, Sears Holdings provided apprehension that it intends to exercise its appropriate to abolish the Adept Charter with anniversary to 20 food accretion 3.8 actor aboveboard anxiety of gross leasable area. The accumulated anniversary abject hire at these food is about $11.2 million, or 4.8% of the Company's absolute anniversary abject hire as of June 30, 2017, including all active leases. Sears Holdings will abide to pay Seritage hire until it vacates the stores, which is accustomed to action in October 2017. Pursuant to the Adept Lease, Sears Holdings will additionally pay Seritage a abortion fee according to one year of the accumulated anniversary abject hire and estimated operating costs for the 20 properties.
Balance Sheet and Liquidity
As of June 30, 2017, the Company’s absolute bazaar assets was $3.7 billion. Absolute bazaar assets is affected as the sum of absolute debt and the bazaar bulk of the Company's outstanding shares of accustomed stock, bold about-face of operating affiliation units.
Total debt to absolute bazaar assets was 36.5% and net debt to Adjusted EBITDA was 6.9x. The Company deducts both complete and belted banknote from absolute debt back artful net debt. Reconciliations of net accident attributable to accustomed shareholders to EBITDA, and EBITDA to Adjusted EBITDA, are provided in the tables accompanying this columnist release.
As of June 30, 2017, the Company had $9.9 actor of complete banknote and belted banknote of $172.6 million, the abundant majority of which was captivated in assets accounts for redevelopment, re-leasing and operating costs at the Company’s properties. Pursuant to the agreement its absolute mortgage loan, on June 30, 2017, the Company drew the absolute amounts accessible beneath its $100.0 actor approaching allotment adeptness and deposited the accretion into a redevelopment reserve. The Company additionally had $65.0 actor of borrowing accommodation (which bulk is accustomed to access to $115.0 actor on August 1, 2017) beneath its $200.0 actor apart appellation accommodation facility.
On July 12, 2017, as a aftereffect of the GGP Transactions, the Company bargain amounts outstanding beneath its mortgage accommodation by $50.6 actor and accustomed about $171.6 actor of complete banknote accretion afore closing costs.
Dividends
On July 25, 2017, the Company’s Board of Trustees declared a added division accustomed banal allotment of $0.25 per anniversary Class A and Class C accustomed share. The allotment will be paid on October 12, 2017 to shareholders of almanac on September 29, 2017. Holders of units in Seritage Growth Properties, L.P. (the “Operating Partnership”) are advantaged to an according administration per anniversary Operating Affiliation assemblage captivated as of September 30, 2017.
On April 25, 2017, the Company’s Board of Trustees declared a aboriginal division accustomed banal allotment of $0.25 per anniversary Class A and Class C accustomed share. The allotment was paid on July 13, 2017 to shareholders of almanac on June 30, 2017. Holders of units in Operating Affiliation were advantaged to an according administration per anniversary Operating Affiliation assemblage captivated as of June 30, 2017.
Supplemental Report
A Added Report will be accessible in the Investors area of the Company’s website, www.seritage.com.
Non-GAAP Banking Measures
The Company makes advertence to NOI, Absolute NOI, EBITDA, Adjusted EBITDA, FFO and Company FFO which are banking measures that accommodate adjustments to accounting attempt about accustomed in the United States (“GAAP”).
None of Absolute NOI, EBITDA, Adjusted EBITDA, FFO or Company FFO, are measures that (i) represent banknote breeze from operations as authentic by GAAP; (ii) are apocalyptic of banknote accessible to armamentarium all banknote breeze needs, including the adeptness to accomplish distributions; (iii) are alternatives to banknote breeze as a admeasurement of liquidity; or (iv) should be advised alternatives to net assets (which is bent in accordance with GAAP) for purposes of evaluating the Company’s operating performance. Reconciliations of these measures to the agnate GAAP measures we anniversary best commensurable accept been provided in the tables accompanying this columnist release.
Net Operating Assets ("NOI”), Absolute NOI and Annualized Absolute NOI
NOI is authentic as assets from acreage operations beneath acreage operating expenses. The Company believes NOI provides advantageous advice apropos Seritage, its banking condition, and after-effects of operations because it reflects alone those assets and amount items that are incurred at the acreage level.
The Company additionally uses Absolute NOI, which includes its proportional allotment of unconsolidated properties. This anatomy of presentation offers insights into the banking achievement and action of the Company as a accomplished accustomed the Company’s buying of unconsolidated backdrop that are accounted for beneath GAAP application the disinterestedness method. The Company additionally considers Absolute NOI to be a accessible added admeasurement of its operating achievement because it excludes from NOI capricious items such as abortion fee income, as able-bodied as non-cash items such as straight-line hire and acquittal of charter intangibles.
Annualized Absolute NOI is an estimate, as of the end of the advertisement period, of the anniversary Absolute NOI to be generated by the Company’s portfolio including all active leases and modifications to the Company’s adept charter with Sears Holdings with anniversary to recaptured space. We anniversary Annualized Absolute NOI by abacus or abacus accustomed aeon adjustments for leases that commenced or asleep during the aeon to Absolute NOI (as defined) for the aeon and annualizing, and again abacus estimated anniversary Absolute NOI attributable to SNO leases and abacus estimated anniversary Absolute NOI attributable to Sears Holdings’ amplitude to be recaptured.
Annualized Absolute NOI is a advanced non-GAAP admeasurement for which the Company does not accept it can accommodate reconciling advice to a agnate advanced GAAP admeasurement after absurd effort.
Earnings Afore Absorption Expense, Assets Tax, Depreciation, and Acquittal ("EBITDA") and Adjusted EBITDA
EBITDA is authentic as net assets beneath depreciation, amortization, absorption amount and accouterment for assets and added taxes. EBITDA is a frequently acclimated admeasurement of achievement in abounding industries, but may not be commensurable to measures affected by added companies. The Company believes EBITDA provides advantageous advice to investors apropos its after-effects of operations because it removes the appulse of the Company’s basic anatomy (primarily absorption expense) and its asset abject (primarily abrasion and amortization). Administration additionally believes the use of EBITDA facilitates comparisons amid the Company and added disinterestedness REITs, retail acreage owners who are not REITs, and added capital-intensive companies.
The Company makes assertive adjustments to EBITDA, which it refers to as Adjusted EBITDA, to anniversary for assertive non-cash and non-comparable items, such as abortion fee income, abeyant accident on absorption bulk cap, action charges, acquisition-related expenses, and assertive up-front-hiring and cadre costs, that it does not accept are adumbrative of advancing operating results.
Funds From Operations ("FFO") and Company FFO
FFO is affected in accordance with the Civic Association of Absolute Acreage Beforehand Trusts ("NAREIT"), which defines FFO as net assets computed in accordance with GAAP, excluding assets (or losses) from acreage sales, absolute acreage accompanying abrasion and amortization, and crime accuse on depreciable absolute acreage assets. The Company considers FFO a accessible added admeasurement of the operating achievement for disinterestedness REITs and a accompaniment to GAAP measures because it is a accustomed admeasurement of achievement by the absolute acreage industry.
The Company makes assertive adjustments to FFO, which it refers to as Company FFO, to anniversary for assertive non-cash and non-comparable items, such as abortion fee income, abeyant accident on absorption bulk cap, action charges, acquisition-related expenses, acquittal of deferred costs costs and assertive up-front-hiring and cadre costs, that it does not accept are adumbrative of advancing operating results. The Company advanced referred to this metric as Normalized FFO; the analogue and adding abide the same.
Forward-Looking Statements
This certificate contains advanced statements, which are based on the accustomed behavior and expectations of administration and are accountable to cogent risks, assumptions and uncertainties that may annual our absolute results, achievement or achievements to be materially altered from any approaching results, achievement or achievements bidding or adumbrated by these advanced statements. Factors that could annual or accord to such differences include, but are not bound to: antagonism in the absolute acreage and retail industries; our abundant assurance on Sears Holdings; Sears Holdings’ abortion and added rights beneath its adept charter with us; risks apropos to our anamnesis and redevelopment activities; contingencies to the admission of hire beneath leases; the agreement of our indebtedness; restrictions with which we are appropriate to accede in acclimation to advance REIT cachet and added acknowledged requirements to which we are subject; and our bound operating history. For added altercation of these and added applicative risks, assumptions and uncertainties, see the “Risk Factors” and advanced annual acknowledgment independent in filings with the Securities and Exchange Commission. While we accept that our forecasts and assumptions are reasonable, we attention that absolute after-effects may alter materially. We intend the advanced statements to allege alone as of the time fabricated and do not undertake to amend or alter them as added advice becomes available, except as appropriate by law.
About Seritage Growth Properties
Seritage Growth Backdrop is a publicly-traded, self-administered and self-managed retail REIT with 230 wholly-owned backdrop and 28 JV backdrop accretion over 40 actor aboveboard anxiety of amplitude beyond 49 states and Puerto Rico. Pursuant to a adept lease, 175 of the Company’s wholly-owned backdrop are busy to Sears Holdings and are operated beneath either the Sears or Kmart brand. The adept charter provides the Company with the appropriate to anamnesis assertive amplitude from Sears Holdings at anniversary acreage for retenanting or redevelopment purposes. At 83 properties, third-party tenants beneath absolute leases absorb a allocation of leasable amplitude alongside Sears and Kmart, and 37 backdrop are busy alone to third parties. The Company additionally owns 50% interests in 28 backdrop through JV investments with GGP Inc., Simon Acreage Group, Inc., and The Macerich Company. A abundant majority of the amplitude at the Company’s JV backdrop is additionally busy to Sears Holdings beneath adept charter agreements that accommodate for agnate anamnesis rights as the adept charter administering the Company’s wholly-owned properties.
SERITAGE GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except allotment and per allotment amounts)
(Unaudited)
Class A shares $0.01 par value; 100,000,000 shares authorized; 27,924,378 and 25,843,251 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
Class B shares $0.01 par value; 5,000,000 shares authorized; 1,434,922 and 1,589,020 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
Class C shares $0.01 par value; 50,000,000 shares authorized; 6,021,985 and 5,754,685 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
SERITAGE GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per allotment amounts)
(Unaudited)
Equity in (loss) assets of unconsolidated collective ventures
Net accident per allotment attributable to Class A and Class C accustomed shareholders - Basic and diluted
Weighted boilerplate Class A and Class C accustomed shares outstanding - Basic and diluted
Reconciliation of Net Accident to NOI and Absolute NOI (in thousands)
Equity in accident (income) of unconsolidated collective ventures
___________________
(1) Includes adjustments for unconsolidated collective ventures.
Computation of Annualized Absolute NOI (in thousands)
Plus: estimated anniversary Absolute NOI from SNO leases
Less: estimated anniversary Absolute NOI from associated amplitude to be recaptured from Sears
__________________
(1) Includes adjustments primarily to anniversary for leases not in abode for the abounding period.
Reconciliation of Net Accident to EBITDA and Adjusted EBITDA (in thousands)
Depreciation and acquittal (unconsolidated collective ventures)
Reconciliation of Net Accident to FFO and Company FFO (in thousands)
Real acreage abrasion and acquittal (consolidated properties)
Real acreage abrasion and acquittal (unconsolidated collective ventures)
FFO attributable to accustomed shareholders and unitholders
Funds from Operations attributable to Seritage Growth Properties
Company FFO attributable to accustomed shareholders and unitholders
Weighted boilerplate accustomed shares and units outstanding
