Seritage Growth Properties — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Seritage is executing a shareholder-approved plan to sell its assets and dissolve the company; its strategic review remains ongoing. At quarter-end, the portfolio comprised interests in 72 properties, including 17 held through unconsolidated entities.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $0.7 million | $30.9 million |
| Net loss | $62.0 million | $67.0 million |
| Net loss per Class A share | $1.13 | $1.22 |
| Net cash used in operating activities | $22.0 million | $30.0 million |
| Net cash provided by / (used in) investing activities | $240.3 million | ($21.5 million) |
- Revenue and operating measures: The income statement reports rental income of $0.4 million and management and other fees of $0.3 million. The filing’s lease-revenue detail reports $11.3 million of in-place rental income, offset by a $10.8 million straight-line rent reduction, producing the reported rental income. Non-GAAP NOI was $1.6 million, down from $9.0 million; Total NOI, including the company’s share of unconsolidated properties, was $3.1 million versus $10.5 million.
- Loss drivers: Equity in losses of unconsolidated entities was $36.4 million, largely reflecting Seritage’s share of impairment recorded by a joint venture. The company recorded $2.6 million of real-estate impairment and a $12.4 million gain on real-estate sales. Interest expense was $15.2 million, down from $22.6 million.
- Cash and liquidity: Cash and cash equivalents were $120.5 million at March 31, plus $11.6 million of restricted cash. Operating cash flow remained negative. Investing cash inflows primarily reflected property sales, partly offset by $32.0 million of consolidated development spending and $7.7 million invested in unconsolidated entities.
- Debt: The term loan principal was $800 million, bearing 7% annual interest. A $230 million principal prepayment in February reduced the balance to $800 million and extended maturity to July 31, 2025. The balance-sheet carrying amount, net of financing costs, was $799.9 million.
Material changes and management commentary
- Seritage sold 24 assets for gross proceeds of $290.8 million, recognizing a $12.4 million net gain. Rental income, property costs, real-estate taxes, and depreciation declined versus Q1 2022, primarily because of asset sales. General and administrative expense increased $3.1 million, mainly from legal and consulting costs related to the strategic review.
- The company’s rental income did not cover its obligations and certain development costs; management expects obligations to continue exceeding property rental income. It expects to fund the shortfall through cash on hand and additional asset sales, among other potential sources.
- Management concluded that its plans alleviate substantial doubt about the company’s ability to continue as a going concern. Its assessment cited $333.5 million of assets under contract, expected minimum proceeds of $106.5 million from put rights, and existing cash. These proceeds and sale closings are not assured.
- Of the 13 multi-tenant retail assets, 76% were leased, with a 0.1 million-square-foot leasing pipeline. The company continues to evaluate sales, leasing, development, and densification opportunities; no specific financial guidance was provided.
Risks, contingencies, and unusual items
- The company was not in compliance with certain term-loan financial metrics. The filing says this triggers springing collateral requirements, but not an event of default; an amendment permits asset sales without lender consent, subject to loan terms.
- Access to the loan’s $400 million incremental facility remains unavailable because Seritage has not met the required rental-income thresholds.
- Seritage recorded a full valuation allowance against $168.3 million of deferred tax assets, citing cumulative losses and uncertainty about future taxable income and asset-sale timing.
- Q1 included $3.8 million of proceeds from settlements with D&O insurers; a further $7.8 million was received after quarter-end. The previously disclosed Sears litigation was settled and dismissed in 2022, with no admission of wrongdoing.
- The company is a taxable C corporation effective January 1, 2022. It declared no common-share dividends; the Series A preferred dividend was $0.4375 per share for the quarter.
Most important facts for investors to verify
- Whether assets under contract and exercised put rights close on schedule and generate the amounts management expects.
- Remaining debt terms, covenant and collateral status, interest payments, and the feasibility of refinancing or repaying the $800 million term loan by its extended maturity.
- Whether asset-sale proceeds and cash on hand are sufficient to cover ongoing operating outflows and development commitments.
- The valuation and potential recovery of the deferred tax assets, and any further impairments to properties or unconsolidated investments.
- The sale pace, portfolio leasing and cash generation, and the board’s decisions on distributions and the ultimate liquidation plan.