Seritage Growth Properties — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 15, 2021. This is an annual report, not a standalone fourth-quarter filing, and the supplied text does not provide a clear Q4-only financial results set.
Business context and portfolio
Seritage is a REIT focused on owning, leasing, and redeveloping retail and mixed-use real estate, much of it acquired from Sears. At year-end, it reported interests in 183 properties across 41 states and Puerto Rico, with approximately 26.5 million square feet of GLA on a proportional-share basis. Its strategy is to re-lease and redevelop former Sears/Kmart space, pursue mixed-use densification and joint ventures, and sell assets to fund operations and investment.
The Sears/Holdco transition continued: the final five properties under the Holdco Master Lease were scheduled to terminate in March 2021. Signed leases, including leases not yet open, covered 8.6 million square feet on a proportional-share basis; the filing reported 17.9 million square feet available for lease and/or redevelopment.
Financial and operating metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $116.5 million | $168.6 million |
| Rental income | $116.2 million | $167.0 million |
| Net loss | $153.0 million | $90.6 million |
| Net loss attributable to common shareholders | $109.9 million | $64.3 million |
| Net loss per common share | $2.87 | $1.77 |
| NOI | $33.9 million | $64.7 million |
| Total NOI, including proportional share of unconsolidated entities | $37.8 million | $72.7 million |
| Company FFO attributable to common shareholders and OP unitholders | $(88.6) million | $(33.9) million |
| Net cash used in operating activities | $47.3 million | $57.7 million |
| Cash and cash equivalents at year-end | $143.7 million | $139.3 million |
Rental income fell 30%, primarily as Sears/Kmart lease revenue declined by $36.5 million following lease terminations; diversified-tenant rental income rose $4.9 million. Net loss included $64.1 million of real estate impairment charges and was partly offset by $88.6 million of reported gains on real estate sales. The company sold 27 properties and additional outparcels for $333.4 million gross proceeds. FY2020 development of real estate and property improvements used $246.8 million of cash.
At December 31, 2020, the balance sheet showed total assets of $2.65 billion, total liabilities of $1.77 billion, and total equity of $882.7 million. Term-loan principal outstanding was $1.6 billion; the loan carries a fixed 7.0% rate and matures July 31, 2023. A $20.4 million sale-leaseback financing obligation was also recorded. The filing reports no off-balance-sheet financing arrangements.
Cash flow remained negative from operations, while property sales supported investing cash inflows of $42.9 million and financing cash inflows of $15.4 million. Management said rental income did not cover obligations and expected this shortfall to continue until more tenants commenced rent. The company reported $150.3 million of cash and restricted cash combined at year-end.
Material changes and management commentary
- Rental income decreased $50.8 million year over year; consolidated net loss widened by $62.4 million. Total NOI fell by $34.9 million.
- The company recorded $64.1 million of impairment losses in 2020, versus none in 2019: $53.8 million related to vacant or partially stabilized assets, including properties exposed to theater and fitness tenant weakness, and $10.3 million related to properties sold.
- Management reported collecting 93% of fourth-quarter 2020 rent and deferring an additional 4%. By March 5, 2021, it had collected 95% of January and February rent and deferred another 2%.
- Redevelopment was selective: some suburban retail work resumed, while many projects remained on hold because of pandemic-related uncertainty. Management emphasized preserving cash, monetizing appropriate assets, and allocating capital selectively.
- After year-end, four wholly owned properties were sold for $46.9 million gross proceeds; additional assets with anticipated proceeds of $66.0 million were under contract as of March 9, 2021, subject to diligence and closing conditions.
- Common dividends were not declared in 2020; the last common dividend was declared in February 2019. The company continued quarterly dividends on its 7.00% Series A preferred shares. Future distributions remain at the board’s discretion and subject to cash, debt covenants, and REIT requirements.
Guidance, risks, contingencies, and unusual items
No quantified earnings, occupancy, or development guidance is provided. Management said it could not reasonably estimate the pandemic’s foreseeable impact on financial condition, results, or cash flows, and cautioned that 2020 results may not indicate future performance.
- Liquidity and financing: Management said available liquid funds were not sufficient to cover obligations and planned development expenditures without additional funding. It expects to rely on cash on hand and asset sales, among other possible sources. The lender’s consent is required for asset sales and joint ventures while specified financial metrics are not met; the lender had approved submitted transactions through year-end, but future consent is not assured. The $400 million incremental facility requires non-Sears rental income of at least $200 million on an annualized and projected basis; the company had not met that threshold at year-end.
- Debt constraints: The company was out of compliance with certain financial metrics under its term-loan agreement, triggering asset-disposition consent and collateral requirements, though the filing says this alone was not an event of default. The lender had requested mortgages on portfolio assets. A 2020 amendment allowed interest deferral under specified cash conditions; the company said it had paid all interest and deferred none.
- Sears litigation: A bankruptcy-court lawsuit alleges fraudulent transfers and other claims concerning Sears transactions, including Seritage’s 2015 formation and property acquisition. The complaint alleges the acquired real estate was worth $649–$749 million more than the purchase price and seeks remedies including rescission or damages. Seritage disputes the claims; a partial motion to dismiss was awaiting decision. No litigation liability was recorded at year-end, and the company said it could not predict the outcome or potential loss.
- Insurance dispute: On March 2, 2021, Seritage sued D&O insurers seeking relief over their refusal to pay certain defense costs related to the Sears litigation.
- Other risks: COVID-19 impacts on tenants and collections, vacancy and re-leasing costs, redevelopment execution and returns, further impairments, asset-sale execution, environmental liabilities, REIT qualification, and conflicts associated with ESL’s influence. The environmental reserve was $9.5 million at year-end.
- Leadership: The former CEO and president departed in January 2021; Andrea Olshan was appointed to succeed him, effective March 16, 2021.
Most important facts for investors to verify
- Actual cash collections, rent deferrals, tenant defaults, and commencement timing for signed-but-not-open leases.
- Asset-sale proceeds, lender approvals, remaining unencumbered collateral, and the company’s ability to fund operating and development needs through the 2023 loan maturity.
- Progress toward the $200 million non-Sears rental-income threshold for access to the incremental facility, and compliance with loan covenants and collateral requirements.
- Redevelopment spending, lease-up, occupancy, realized rents, and whether projects generate returns sufficient to offset lost legacy rent.
- Further impairment charges and the assumptions supporting property valuations and expected sale proceeds.
- Developments and potential financial exposure in the Sears litigation and the related D&O insurance dispute.
- Common-dividend policy, preferred-dividend coverage, and the company’s capacity to meet REIT distribution requirements while managing liquidity.