Seritage Growth Properties

Previous wording

Prior to the adoption of the Company’s Plan of Sale (defined below), Seritage was principally engaged in the ownership, development, redevelopment, disposition, management and leasing of diversified retail and mixed-use properties throughout the United States. Seritage will continue to actively manage each remaining location until such time as each property is sold. As of March 31, 2024, the Company’s portfolio consisted of interests in 27 properties comprised of approximately 3.5 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, and 410 acres of land. The portfolio consists of approximately 2.3 million square feet of GLA and 276 acres held by 18 consolidated properties (such properties, the “Consolidated Properties”) and 1.2 million square feet of GLA and 134 acres held by nine unconsolidated properties (such properties, the “Unconsolidated Properties”).

Current wording

Prior to the adoption of the Company’s Plan of Sale (defined below), Seritage was principally engaged in the ownership, development, redevelopment, disposition, management and leasing of diversified retail and mixed-use properties throughout the United States. Seritage will continue to actively manage each remaining location until such time as each property is sold. As of June 30, 2024, the Company’s portfolio consisted of interests in 22 properties comprised of approximately 2.8 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, and 352 acres of land. The portfolio consists of approximately 1.6 million square feet of GLA and 218 acres held by 13 consolidated properties (such properties, the “Consolidated Properties”) and 1.2 million square feet of GLA and 134 acres held by nine unconsolidated properties (such properties, the “Unconsolidated Properties”).

Previous wording

In the first quarter of 2022, we announced a Review of Strategic Alternatives and during the second quarter determined that the best plan for all assets is to pursue sales. As a result of the foregoing, the Company’s anticipated holding periods with respect to certain assets changed. During the three months ended March 31, 2024, we agreed to sell two assets below book value resulting in the recognition of impairment losses of $1.1 million, which is included in impairment of real estate assets within the consolidated statements of operations. We did not recognize any other-than-temporary impairment losses on our investments in unconsolidated entities during the three months ended March 31, 2024. We continue to evaluate our portfolio, including our development plans and offers received, which may result in additional impairments in future periods on our consolidated properties and investments in unconsolidated entities.

Current wording

During the three months ended June 30, 2024, we agreed to sell one asset that was below book value resulting in the recognition of impairment losses of $0.6 million, which is included in impairment of real estate assets within the consolidated statements of operations. Additionally, during the three months ended June 30, 2024, the Company recognized an impairment charge of $85.8 million on its development property in Aventura, FL due to negotiations for rent relief with existing tenants that began during the second quarter of 2024 which triggered the need for an impairment analysis pursuant to ASC 360, Property, Plant and Equipment. During the six months ended June 30, 2024, we recorded impairment losses of $87.5 million primarily due to changes in discount rates and residual capitalization rates between June 2023 and June 2024. We did not recognize any other-than-temporary impairment losses on our investments in unconsolidated entities during the three months and six months ended June 30, 2024. We continue to evaluate our portfolio, including our development plans, hold periods and, if applicable, offers received, which may result in additional impairments in future periods on our consolidated properties and investments in unconsolidated entities.

Previous wording

Multi-tenant Retail: Our portfolio of five multitenant retail assets provides positive cash flow and are primarily leased to a variety of national credit tenants. As of March 31, 2024, this portfolio was 68.8% leased. A majority of our leases provide for the collection of recoveries from tenants based on the structure of our leases, providing an important inflation hedge. We are working to maximize value of these assets and position them for sale.

Current wording

Multi-tenant Retail: Our portfolio of four multitenant retail assets provides positive cash flow and are primarily leased to a variety of national credit tenants. As of June 30, 2024, this portfolio was 72.9% leased. A majority of our leases provide for the collection of recoveries from tenants based on the structure of our leases, providing an important inflation hedge. We are working to maximize value of these assets and position them for sale. Subsequent to June 30, 2024, one multitenant retail asset is in PSA negotiations.

Previous wording

Densification and Redevelopment Opportunities: In particular, we have identified various sites that we believe have the demand and demographic profile to support other uses such as residential, biotechnology, office and others. Given our fee ownership of these properties and control over parking lots and outparcels, we believe that these sites are well positioned for such value creation opportunities through entitlements, leasing and development. As of March 31, 2024, our full portfolio included approximately 410 acres of land, or an average of 17.9 acres per site, and our most significant geographic concentrations were in higher growth markets in California, Florida, Texas, and the Northeast. We have developed a number of properties to completion or near completion and have achieved leasing of 100% at UTC and 70% at Aventura.

Current wording

Densification and Redevelopment Opportunities: In particular, we have identified various sites that we believe have the demand and demographic profile to support other uses such as residential, biotechnology, office and others. Given our fee ownership of these properties and control over parking lots and outparcels, we believe that these sites are well positioned for such value creation opportunities through entitlements, leasing and development. As of June 30, 2024, our full portfolio included approximately 352 acres of land, or an average of 15.3 acres per site, and our most significant geographic concentrations were in higher growth markets in California, Florida, Texas, and the Northeast. We have developed a number of properties to completion or near completion and have achieved leasing of 100% at UTC and 73% at Aventura.

Previous wording

The decrease of $5.5 million in in-place retail lease rental income during 2024 is primarily due to property sales.

Current wording

The decrease of $4.9 million in in-place retail lease rental income during 2024 is primarily due to property sales.

Previous wording

The decrease of $10.8 million in straight-line rental expense was primarily due to write off of deferred rents related to property sales during the quarter ended March 31, 2023.

Current wording

The decrease of $3.6 million in straight-line rental expense for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to write off of deferred rents related to property sales during the three months ended June 30, 2023.

Previous wording

The decrease of $3.0 million in general and administrative expenses for the three months ended March 31, 2024 was driven by a decrease in employee compensation due to reduced headcount and a reduction in consulting services.

Current wording

The decrease of $3.2 million in general and administrative expenses for the three months ended June 30, 2024 was driven by a decrease in employee compensation due to reduced headcount and a reduction in consulting services.

Previous wording

During the three months ended March 31, 2024, the Company sold five properties for aggregate consideration of $48.8 million and recorded a gain totaling $1.1 million, which is included in gain on sale of real estate, net within the condensed consolidated statements of operations.

Current wording

During the three months ended June 30, 2024, the Company sold four properties for aggregate consideration of $40.4 million and recorded a gain totaling $2.0 million, which is included in gain on sale of real estate, net within the condensed consolidated statements of operations.

Previous wording

The increase of $36.8 million in income (loss) of unconsolidated entities for the three months ended March 31, 2024 was driven by a $70.8 million impairment charge recorded by one unconsolidated entity during the three months ended March 31, 2023. The Company's share of the impairment was $35.4 million and was included in the equity in loss of consolidated entities on the consolidated statements of operations.

Current wording

The decrease of $13.1 million in loss of unconsolidated entities for the three months ended June 30, 2024 was driven by a $12.7 million other-than-temporary impairment charge recorded by one unconsolidated entity during the three months ended June 30, 2023 and was included in the equity in loss of consolidated entities on the consolidated statements of operations.

Previous wording

The decrease of $4.2 million of interest and other income is driven by the recognition of $3.8 million of income related to the settlement with the D&O insurers for the three months ended March 31, 2023.

Current wording

The decrease of $9.1 million of interest and other income for the three months ended June 30, 2024 is driven by the recognition of $7.8 million of income related to the settlement with the D&O insurers for the three months ended June 30, 2023.

Previous wording

The decrease of $8.2 million in interest expense for the three months ended March 31, 2024 was driven by partial Term Loan Facility pay downs between April 1, 2023 and March 31, 2024.

Current wording

The decrease of $6.2 million in interest expense for the three months ended June 30, 2024 was driven by partial Term Loan Facility pay downs between July 1, 2023 and June 30, 2024.

Previous wording

The decrease of $4.5 million in property operating expense for the three months ended March 31, 2024 was due primarily to asset sales and insurance refunds for sold properties that were less than the estimated receivables.

Current wording

The decrease of $5.5 million in property operating expense for the six months ended June 30, 2024 was due primarily to asset sales offset by insurance refunds for sold properties that were less than the estimated receivables.

Previous wording

During the three months ended March 31, 2024, the Company recognized $1.1 million impairment of real estate assets as a result of the Company accepting offers below book value on two properties. During the three months ended March 31, 2023, the Company recognized $2.6 million of impairment losses as a result of the Company's plan to pursue the Plan of Sale, which is included within the condensed consolidated statements of operations.

Current wording

During the six months ended June 30, 2024, the Company recognized $1.7 million impairment of real estate assets as a result of the Company accepting offers below book value on three properties and an $85.8 million impairment of real estate assets on the Company's development property in Aventura, FL due to negotiations for rent relief with existing tenants that began during the second quarter of 2024 which triggered the need for an impairment analysis pursuant to ASC 360, Property, Plant and Equipment. The Company determined the fair value of this property by applying a discount to projected cash flows over the estimated hold period. During the six months ended June 30, 2023, the Company recognized $107.0 million of impairment losses as a result of recognizing an impairment on the Company's development property in Aventura, FL, which is included within the condensed consolidated statements of operations.

Previous wording

Our 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. 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, 2024 and the Company recorded net operating cash outflows of $16.7 million. Additionally, the Company generated investing cash inflows of $28.9 million during the three months ended March 31, 2024, which were driven by asset sales and partially offset by development expenditures.

Current wording

Our 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. Property rental income, which is the Company’s primary source of operating cash flow, did not fully fund obligations incurred during the six months ended June 30, 2024 and the Company recorded net operating cash outflows of $24.2 million. Additionally, the Company generated investing cash inflows of $57.4 million during the six months ended June 30, 2024, which were driven by asset sales and partially offset by development expenditures.

Previous wording

Obligations are projected to continue to exceed property rental income and we expect to fund such obligations and any development expenditures with cash on hand and a combination of capital sources including, but not limited to the following, subject to any approvals that may be required under the Term Loan Agreement:

Current wording

Obligations are projected to continue to exceed property rental income and we expect to fund such obligations and any development expenditures with cash on hand and a combination of capital sources including, but not limited to, sales of Consolidated Properties, sale of interests in Unconsolidated Properties and alternative financing transactions, subject to any approvals that may be required under the Term Loan Agreement. Below is our sales activity since we began our capital recycling program:

Previous wording

From the approval of the Plan of Sale on October 24, 2022 through March 31, 2024, we sold 81 Consolidated Properties, and additional outparcels at certain properties, and generated approximately $905.3 million of gross proceeds.

Current wording

From the approval of the Plan of Sale on October 24, 2022 through June 30, 2024, we sold 85 Consolidated Properties, and additional outparcels at certain properties, and generated approximately $945.7 million of gross proceeds.

Previous wording

-30 - two assets under contract for sale subject to customary due diligence for total anticipated proceeds of $21.8 million. All four assets are subject to closing conditions.

Current wording

As of August 14, 2024, we had two assets under contract for sale with no due diligence contingencies for total anticipated proceeds of $51.9 million and three assets under contract for sale subject to customary due diligence for total anticipated proceeds of $86.7 million. All five assets are subject to closing conditions.

Previous wording

During the three months ended March 31, 2024, we have repaid $30.0 million against the principal of the Term Loan Facility. Our outstanding balance as of March 31, 2024, is $330.0 million. Subsequent to March 31, 2024, the Company made additional principal payments totaling $50.0 million reducing the balance of the Term Loan Facility to $280.0 million as of May 1, 2024.

Current wording

During the six months ended June 30, 2024, we have repaid $80.0 million against the principal of the Term Loan Facility. Our outstanding balance as of June 30, 2024, is $280.0 million.

Previous wording

See Note 1 – Organization of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of liquidity and going concern.

Current wording

See Note 1 – Organization of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of liquidity and the substantial doubt about the Company's ability to continue as a going concern.

Previous wording

The following table summarizes the Company’s cash flow activities for the three months ended March 31, 2024 and 2023, respectively (in thousands):

Current wording

The following table summarizes the Company’s cash flow activities for the six months ended June 30, 2024 and 2023, respectively (in thousands):

Previous wording

In 2024, a decrease in rental income and a decrease to accounts payable, accrued expenses and other liabilities, partially offset by a decrease to tenant and other receivables.

Current wording

In 2024, a decrease in rental income and a decrease to accounts payable, accrued expenses and other liabilities, partially offset by a decrease to tenant and other receivables and receipt of distributions from and unconsolidated entity.

Previous wording

In 2024, $44.3 million of net proceeds from the sale of real estate, offset by development of real estate of ($12.5) million and investments in unconsolidated entities of ($2.9) million; and

Current wording

In 2024, $83.0 million of net proceeds from the sale of real estate, offset by development of real estate of ($22.4) million and investments in unconsolidated entities of ($3.2) million; and

Previous wording

In 2023, $280.0 million of net proceeds from the sale of real estate offset by development of real estate of ($32.0) million and investments in unconsolidated entities of ($7.7) million.

Current wording

In 2023, $518.4 million of net proceeds from the sale of real estate and net proceeds for the disposition of interests in unconsolidated entities of $ $49.4 million offset by development of real estate of ($49.9) million and investments in unconsolidated entities of ($11.1) million.

Previous wording

In 2024, ($30.0) million cash repayment of Term Loan Facility principal and cash payments of preferred dividends, ($1.2) million; and

Current wording

In 2024, ($80.0) million cash repayment of Term Loan Facility principal and cash payments of preferred dividends, ($2.5) million; and

Previous wording

In 2023, ($230.0) million cash repayment of Term Loan Facility principal and cash payments of preferred dividends, ($1.2) million.

Current wording

In 2023, ($480.0) million cash repayment of Term Loan Facility principal and cash payments of preferred dividends, ($2.5) million.

Previous wording

The Company’s Board of Trustees did not declare dividends on the Company’s Class A common shares during the three months ended March 31, 2024 and 2023, respectively.

Current wording

The Company’s Board of Trustees did not declare dividends on the Company’s Class A common shares during the six months ended June 30, 2024 and 2023, respectively.

Previous wording

During the three months ended March 31, 2024, the Company invested $12.5 million in our consolidated development and operating properties and an additional $2.9 million into our unconsolidated joint ventures, as we continue to advance our business plans, including our previously announced projects.

Current wording

During the three and six months ended June 30, 2024, the Company invested $9.9 million and $22.4 million, respectively in our consolidated development and operating properties and an additional $0.3 million and $3.2 million, respectively into our unconsolidated joint ventures, as we continue to advance our business plans, including our previously announced projects.

Previous wording

During the three ended March 31, 2023, the Company invested $32.0 million in our consolidated development and operating properties and an additional $7.7 million into our unconsolidated joint ventures.

Current wording

During the three and six months ended June 30, 2023, the Company invested $17.9 million and $49.9 million, respectively in our consolidated development and operating properties and an additional $3.5 million and $11.1 million, respectively into our unconsolidated joint ventures.

Previous wording

On March 2, 2021, we brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O insurance providers of the Company (the “D&O Insurers”). Our lawsuit sought, among other things, declaratory relief and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the litigation related to the bankruptcy of Sears Holdings (the "Litigation"). The Litigation was settled in 2022 and the Litigation was dismissed. Any amounts received from the insurers will offset the Seritage Defendants’ contribution. We reached settlement agreements with two of the D&O Insurers for gross proceeds of $12.7 million which is recorded in interest and other income in the consolidated statements of operations during the year ended December 31, 2022. In 2023, we reached settlement agreements with the other two D&O Insurers for gross proceeds of $11.6 million. We received $3.8 million during the three months ended March 31, 2023, which is recorded in interest and other income in the consolidated statements of operations.

Current wording

On March 2, 2021, we brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O insurance providers of the Company (the “D&O Insurers”). Our lawsuit sought, among other things, declaratory relief and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the litigation related to the bankruptcy of Sears Holdings (the "Litigation"). The Litigation was settled in 2022 and the Litigation was dismissed. Any amounts received from the insurers will offset the Seritage Defendants’ contribution. We reached settlement agreements with two of the D&O Insurers for gross proceeds of $12.7 million which is recorded in interest and other income in the consolidated statements of operations during the year ended December 31, 2022. In 2023, we reached settlement agreements with the other two D&O Insurers for gross proceeds of $11.6 million. We received $11.6 million during the six months ended June 30, 2023, which is recorded in interest and other income in the consolidated statements of operations.

Previous wording

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2023 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. For the three months ended March 31, 2024, there were no material changes to these policies.

Current wording

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2023 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. For the six months ended June 30, 2024, there were no material changes to these policies.

Previous wording

The Company makes reference to NOI and Total NOI which are financial measures that include adjustments to GAAP.

Current wording

The Company makes reference to NOI-cash basis and NOI-cash basis at share which are financial measures that include adjustments to GAAP.

Previous wording

NOI is defined as income from property operations less property operating expenses. Other real estate companies may use different methodologies for calculating NOI, and accordingly the Company’s depiction of NOI may not be comparable to other real estate companies. 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.

Current wording

NOI - cash basis is defined as income from property operations less property operating expenses, adjusted for variable items such as termination fee income, as well as non-cash items such as straight-line rent and amortization of lease intangibles. Other real estate companies may use different methodologies for calculating NOI-cash basis, and accordingly the Company’s depiction of NOI-cash basis may not be comparable to other real estate companies. The Company believes NOI-cash basis 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.

Previous wording

The Company also uses Total NOI, which includes its proportional share of unconsolidated properties. The Company believes this form of presentation offers insights into the financial performance and condition of the Company as a whole given our ownership of unconsolidated properties that are accounted for under GAAP using the equity method.

Current wording

The Company also uses NOI-cash basis at share, which includes its proportional share of Unconsolidated Properties. The Company does not control any of the joint ventures constituting such properties and NOI-cash basis at share does not reflect our legal claim with respect to the economic activity of such joint ventures. We have included this adjustment because the Company believes this form of presentation offers insights into the financial performance and condition of the Company as a whole given our ownership of

Previous wording

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.

Current wording

The Company also considers NOI-cash basis and NOI-cash basis at share 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.

Previous wording

Due to the adjustments noted, NOI and Total NOI should only be used as an alternative measure of the Company’s financial performance.

Current wording

Due to the adjustments noted, NOI-cash basis and NOI-cash basis at share should only be used as an alternative measure of the Company’s financial performance.

Previous wording

Neither NOI nor Total NOI 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 we deem most comparable are presented below on a comparative basis for all periods.

Current wording

Neither NOI-cash basis nor NOI-cash basis at share 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 we deem most comparable are presented below on a comparative basis for all periods.

Previous wording

The following table reconciles NOI and Total NOI to GAAP net loss for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table reconciles NOI-cash basis and NOI-cash basis at share to GAAP net loss for the three and six months ended June 30, 2024 and 2023 (in thousands):