[January 23, 2019] |
|
Seritage Growth Properties Reports Increased Leasing, Development and Transaction Activity in 2018
Seritage Growth Properties (NYSE: SRG) (the "Company"), a national owner
of 232 retail and mixed-use properties totaling approximately 36.3
million square feet, today provided an update on the Company's leasing,
development, transaction and capital activities as of December 31, 2018.
"We are pleased with our strong finish to 2018, including 878,000 square
feet of new leasing at an average rent of approximately $21.00 PSF on
retail leases during the fourth quarter. Since inception, we have leased
nearly 8.0 million square feet at an average rent of approximately
$17.65 PSF on retail leases and a 4.1x multiple of prior rents. We have
completed or commenced 97 redevelopment projects totaling $1.5 billion
of projected capital investment at targeted incremental returns of
approximately 11.0% on an unlevered basis. The diversified, non-Sears
tenants we have under signed leases, plus the remaining lease-up of
these announced projects, is expected to generate over $225 million of
rental income before any further activation of our portfolio. We also
ended the year with access to nearly $1.0 billion of liquidity,
including $537 million of cash on hand, which provides sufficient
capital to complete our current projects and mitigate potential
reductions in income from Sears Holdings," said Benjamin Schall,
President and Chief Executive Officer. "As we start 2019, we remain well
positioned to continue executing on our strategies to unlock substantial
value through intensive redevelopment. We are excited by our pipeline of
opportunities, including our next wave of suburban retail redevelopments
and three dozen premier and larger scale redevelopments. We look forward
to utilizing our platform and expanding our preferred partnerships with
growing retailers, best-in-class mixed-use developers and leading
capital allocators to generate substantial value for shareholders."
Diversified Income
-
Leasing Activity: since inception, the Company has signed
approximately 7.9 million square feet of new leases at an average rent
of $16.63 PSF. Retail re-leasing multiples have averaged 4.1x for
space occupied by Sears Holdings Corporation ("Sears Holdings" or
"Sears"), with new retail rents averaging $17.72 PSF compared to $4.36
PSF paid by Sears Holdings.
The 7.9 million square feet of
new leases includes 287 leases with 139 unique tenants and
demonstrates the breadth of the Company's tenant relationships and
leasing activity.
In 2018, the Company signed new leases
totaling 3.1 million square feet, representing a 17% increase over
2017 leasing activity, including approximately 878,000 square feet
signed in the fourth quarter at an average rent of $18.03 PSF (retail
leases represented 664,000 square feet at an average rent of $20.98
PSF).
Below is a summary of the Company's leasing activity,
including its proportional share of unconsolidated joint ventures, as
of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands, except PSF amounts)
|
|
|
Q4 2018
|
|
|
|
FY2018
|
|
|
|
Since Inception
|
|
Leases
|
|
|
31
|
|
|
|
119
|
|
|
|
287
|
|
Square Feet
|
|
|
878,000
|
|
|
|
3,055,000
|
|
|
|
7,885,000
|
|
Annual Base Rent
|
|
$
|
15,830
|
|
|
$
|
45,197
|
|
|
$
|
131,164
|
|
Annual Base Rent PSF (1)
|
|
$
|
20.98
|
|
|
$
|
17.30
|
|
|
$
|
17.64
|
|
Re-leasing Multiple (1)(2)
|
|
|
4.0
|
x
|
|
|
3.9
|
x
|
|
|
4.1
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reflects retail leases only; excludes certain self storage, auto
dealership, medical office and ground leases.
|
(2)
|
|
Excludes densification square footage (e.g. new outparcel
developments) and backfill of vacant space not previously occupied
by Sears Holdings.
|
|
|
|
-
Rental Income: since inception, the Company has increased
annual base rent from diversified, non-Sears tenants by over 235% to
$147 million, including all signed leases and the impact of all asset
monetization activity. Including the remaining lease up of announced
projects, the Company expects diversified, non-Sears income of over
$225 million before any further activation of the portfolio.
As
of December 31, 2018, annual base rent from diversified, non-Sears
tenants accounted for approximately 72% of total annual base rent,
including all signed leases and the effect of all previously exercised
recapture and termination notices, as well as properties under
contract for sale. Sears Holdings comprised 28% of total annual base
rent, surpassing the Company's previously stated goal of reducing
exposure to Sears Holdings below 35% by the end of 2018.
Below
is a summary of the Company's leased square footage and rental income,
including its proportional share of unconsolidated joint ventures, as
of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except number of leases and PSF data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Leases
|
|
|
Leased GLA
|
|
|
% of Total Leased GLA
|
|
|
Annual Rent
|
|
|
% of Total Annual Rent
|
|
|
Annual Rent PSF
|
Tenant
|
|
Sears Holdings (1)
|
|
|
96
|
|
|
|
11,545
|
|
|
|
54
|
%
|
|
$
|
56,467
|
|
|
|
28
|
%
|
|
$
|
4.89
|
In-place diversified, non-Sears leases
|
|
|
234
|
|
|
|
5,009
|
|
|
|
24
|
%
|
|
|
65,777
|
|
|
|
32
|
%
|
|
|
13.13
|
SNO diversified, non-Sears leases (2)
|
|
|
167
|
|
|
|
4,703
|
|
|
|
22
|
%
|
|
|
81,282
|
|
|
|
40
|
%
|
|
|
17.30
|
Total diversified, non-Sears leases
|
|
|
401
|
|
|
|
9,712
|
|
|
|
46
|
%
|
|
|
147,059
|
|
|
|
72
|
%
|
|
|
15.15
|
Total
|
|
|
497
|
|
|
|
21,257
|
|
|
|
100
|
%
|
|
$
|
203,526
|
|
|
|
100
|
%
|
|
$
|
9.58
|
(1)
|
|
Number of leases reflects number of properties subject to the Master
Lease and JV Master Leases. Metrics include the effect of four
properties subject to previously exercised recapture or termination
notices, and five properties under contract for sale, for which
Sears was still making rental payments as of December 31, 2018.
|
(2)
|
|
SNO = signed but not yet open leases.
|
|
|
|
Stability and Growth
-
Announced Projects: since inception, the Company has
substantially completed 47 new redevelopments and has an additional 50
projects currently under development. These 97 projects, which upon
completion will provide stable cash flow from a diverse set of
retailers under long-term leases, represent $1.5 billion of projected
capital investment at targeted incremental returns of approximately
11.0% on an unlevered basis.
In 2018, the Company commenced
projects totaling $382 million, including 19 new redevelopments and
the expansion of seven previously announced projects. This activity
included three new projects representing $65.0 million of capital
investment in the fourth quarter.
Below is a summary of the
Company's announced development activity as of December 31, 2018,
presented at 100% share and including certain assets that have been
monetized through sale or joint venture:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except number of projects and percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Projects
|
|
|
Project Square Feet
|
|
|
Estimated
Development Costs (1)
|
|
|
Estimated Project Costs (1)
|
|
|
Projected Annual Income (2)
|
|
|
Estimated Incremental Yield (3)
|
Estimated Project Costs (1)
|
|
Total
|
|
|
Existing
|
|
|
Incremental
|
< $10,000
|
|
|
28
|
|
|
|
2,182
|
|
|
$
|
125,600
|
|
|
$
|
127,900
|
|
|
$
|
23,400
|
|
|
$
|
5,700
|
|
|
$
|
17,700
|
|
|
|
$10,001 - $20,000 (4)
|
|
|
32
|
|
|
|
3,721
|
|
|
|
439,000
|
|
|
|
458,900
|
|
|
|
63,200
|
|
|
|
15,300
|
|
|
|
47,900
|
|
|
|
> $20,001
|
|
|
22
|
|
|
|
3,738
|
|
|
|
803,100
|
|
|
|
861,900
|
|
|
|
115,000
|
|
|
|
23,100
|
|
|
|
91,900
|
|
|
|
Announced projects
|
|
|
82
|
|
|
|
9,641
|
|
|
$
|
1,367,700
|
|
|
$
|
1,448,700
|
|
|
$
|
201,600
|
|
|
$
|
44,100
|
|
|
$
|
157,500
|
|
|
10.5-11.5
|
%
|
Acquired projects
|
|
|
15
|
|
|
|
|
|
|
|
63,600
|
|
|
|
63,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total projects
|
|
|
97
|
|
|
|
|
|
|
$
|
1,431,300
|
|
|
$
|
1,512,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Total estimated development costs exclude, and total estimated
project costs include, termination fees to recapture 100% of certain
properties.
|
(2)
|
|
Projected annual income includes assumptions on stabilized rents to
be achieved for space under redevelopment. There can be no assurance
that stabilized rent targets will be achieved.
|
(3)
|
|
Projected incremental annual income divided by total estimated
project costs.
|
(4)
|
|
Includes Saugus, MA project which has been temporarily postponed
while the Company identifies a new lead tenant.
|
|
|
|
-
Development Pipeline: the Company believes it is
well-positioned to continue its value creation activities with a
robust pipeline of redevelopment projects, including significant
mixed-use and densification opportunities.
-
Premier and Larger Scale: the Company
has identified 36 assets totaling 7.4 million square feet of
existing space that it believes can be expanded and densified by
integrating retail, residential, office and other uses. As of
December 31, 2018, the Company had announced select phases of
projects at nine of these 36 properties.
In 2018, the
Company solidified a portion of its mixed-used and densification
pipeline by receiving entitlements for 1,750 residential units,
1.4 million square feet of office space and 500 hotel keys across
four projects, including the previously announced approvals at the
Company's projects in Redmond (WA) and Dallas (TX).
-
Suburban Retail: the Company has
identified 162 assets totaling 25.4 million square feet of
existing space that it expects to redevelop into first-class,
multi-tenant retail centers. As of December 31, 2018, the Company
had completed or commenced projects at 83 of these 162 properties,
and expects to continue activating these assets as the Company
builds on its preferred relationships with growing retailers and
other users around the country.
Value Realization and Capital Recycling
-
Capital Activities: the Company has raised approximately $550
million of gross proceeds from the sale or joint venture of interests
in 42 properties over the last 18 months. Proceeds have primarily been
reinvested into redevelopment projects, as well as used to repay debt
under the Company's original mortgage facility which was repaid in
full in July 2018.
-
Strategic Equity Joint Ventures: in 2018, the Company
contributed its assets in Santa Monica (CA (News - Alert)), La Jolla (CA) and West
Hartford (CT) into three joint ventures with institutional capital
partners representing a total transaction value of $362 million, or
$744 PSF, and generated $117.0 million of gross proceeds.
-
Development Joint Ventures: in 2018, the Company announced two
agreements to form joint ventures with institutional-quality
residential developers to lead the multifamily components of mixed-use
projects in Redmond (WA) and Newark (CA), at values of $16.0 million
for 2.5 acres and $20.0 million for 4.5 acres, respectively.
-
Opportunistic and Smaller Market Dispositions: in 2018, the
Company sold 21 properties totaling 2.1 million square feet that
generated gross proceeds of $114.3 million, or $54 PSF. The Company
monetized these assets, which were generally located in smaller
markets, in order to focus its human and capital resources on larger
value creation opportunities. These transactions included five
dispositions in the fourth quarter that generated gross proceeds of
$47.3 million, or $78 PSF.
Strong Liquidity Position
-
New Term Loan Facility: in July 2018, the Company entered into
a new $2.0 billion term loan facility with Berkshire Hathaway Life
Insurance Company (the "Term Loan Facility"). The Term Loan Facility,
which matures on July 31, 2023, provided for an initial funding of
$1.6 billion at closing and includes a committed $400 million
incremental funding facility, subject to certain conditions.
There
is no direct impact of Sears Holdings' bankruptcy filing, or a
potential rejection of the Master Lease, on the Company's Term Loan
Facility. The Term Loan Facility includes certain financial metrics,
including fixed charge coverage ratios, leverage ratios and a minimum
net worth, that could be negatively impacted by a loss of revenue from
Sears Holdings. A failure to satisfy any of these financial metrics
will require the Company to seek lender approval to monetize assets
via sale or joint venture and also provide the lender the right to
request mortgages on its real estate collateral, but will not result
in an event of default, mandatory amortization, cash flow sweep or any
similar provision.
-
Liquidity Position: as of December 31, 2018, the Company was
positioned with nearly $1.0 billion of liquidity, including:
-
$537 million of cash on hand to fund on-going development
activities, as well as to mitigate possible adverse impacts to
operating cash flow that may result from potential reductions of
rental income under the Master Lease with Sears Holdings.
-
Committed $400 million incremental funding facility under the Term
Loan Facility that is also available, subject to certain
conditions, to fund announced and future redevelopment activities.
-
13 smaller market assets under contract for sale for anticipated
gross proceeds of $59.8 million. Assets under contract for sale
are subject to customary closing conditions and there can be no
assurance that such transactions will be consummated.
Sears Holdings Bankruptcy Filing
As of December 31, 2018, including all signed leases and the effect of
previously exercised recapture and termination notices and properties
under contract for sale, Sears Holdings was a tenant in 77 properties
under the Master Lease and 19 properties under the JV Master Leases
representing an aggregate of 11.5 million square feet and $56 million of
annual base rent, or 28% of all base rent under signed leases.
The 3.5x to 4.5x rental uplift that the Company has historically
achieved upon re-leasing space formerly occupied by Sears Holdings
allows it to recover all the rental income generated from Sears Holdings
by re-leasing only 25-35% of the formerly occupied space and deploying
the capital required to bring the rental income online.
The Company is monitoring, and will continue to monitor, Sears Holdings'
bankruptcy proceedings, including the culmination of Sears Holdings'
auction process, and the impact on the Company's business. For more
information regarding the same, refer to the risk factors relating to
Sears Holdings in the Company's periodic filings with the Securities and
Exchange Commission.
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: our significant
exposure to Sears Holdings and the effects of its recently announced
bankruptcy filing; Sears Holdings' termination and other rights under
its master lease with us; competition in the real estate and retail
industries; risks relating to our recapture and redevelopment
activities; contingencies to the commencement of rent under leases; the
terms of our indebtedness; restrictions with which we are required to
comply in order to maintain REIT status and other legal requirements to
which we are subject; failure to achieve expected occupancy and/or rent
levels within the projected time frame or at all; and our relatively
limited history as an operating company. For additional discussion of
these and other applicable risks, assumptions and uncertainties, see the
"Risk Factors" and forward-looking statement disclosure contained in our
filings with the Securities and Exchange Commission, including the risk
factors relating to Sears Holdings. While we believe that our forecasts
and assumptions are reasonable, we caution that actual results may
differ materially. We intend 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 206 wholly-owned properties and 26 joint venture
properties totaling approximately 36.3 million square feet of space
across 48 states and Puerto Rico. The Company was formed and listed on
the New York Stock Exchange (NYSE: SRG) in July 2015 in conjunction with
the acquisition of a portfolio of real estate from Sears Holdings. Our
mission is to create and own revitalized shopping, dining, entertainment
and mixed-use destinations that provide enriched experiences for
consumers and local communities, and that generate long-term value for
our shareholders. The Company is headquartered in New York, NY.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190123005239/en/
[ Back To TMCnet.com's Homepage ]
|