Seritage Growth Properties Reports First Quarter 2019 Operating Results

– Signed new leases totaling $11.0 million of base rent at an average
of over $30 PSF –

– Increased diversified, non-Sears base rent to $159 million and 83%
of total base rent, including signed leases –

– Ended quarter with over $875 million of liquidity, including cash
on hand and committed capital –

NEW YORK–(BUSINESS WIRE)–Seritage Growth Properties (NYSE:SRG) (the “Company”), a national owner
of 225 retail and mixed-use properties totaling approximately 35.6
million square feet of gross leasable area (“GLA”), today reported
financial and operating results for the quarter ended March 31, 2019.

Summary Financial Results

For the quarter ended March 31, 2019:

• Net loss attributable to common shareholders of $8.2 million, or $0.23
  per share
• Total Net Operating Income (“Total NOI”) of $24.3 million
• Funds from Operations (“FFO”) of ($5.2) million, or ($0.09) per share
• Company FFO of ($5.1) million, or ($0.09) per share

Operating Highlights

During the quarter ended March 31, 2019:

• Signed new leases totaling 440,000 square feet (365,000 square feet at
  share) at an average base rent of $30.37 PSF ($30.06 PSF at share).
  Since the Company’s inception in July 2015, the Company’s share of new
  leasing activity has totaled nearly 8.3 million square feet at an
  average rent of $17.23 PSF, including new retail leases totaling 7.5
  million square feet at an average rent of $18.24 PSF.
• Achieved an average releasing multiple of 4.1x for space currently or
  formerly occupied by Sears or Kmart, with new retail rents averaging
  $30.96 PSF compared to $7.51 PSF paid by Sears or Kmart. Since
  inception, releasing multiples have averaged 4.1x, with new retail
  rents at $18.35 PSF compared to $4.52 PSF paid by Sears or Kmart.
• Increased the Company’s share of annual base rent from diversified,
  non-Sears tenants to 83.3% of total annual base rent from 54.3% in the
  prior year period, including all signed leases and net of rent
  attributable to associated space to be recaptured. Diversified,
  non-Sears rental income has increased by over 260% since inception to
  $158.7 million, including all signed leases.
• Announced new redevelopment activity totaling approximately $65.0
  million, including two new projects and the expansion of two
  previously announced projects. Total redevelopment program to date
  includes 99 projects completed or commenced representing approximately
  $1.6 billion of estimated capital investment.
• Formed a 50% joint venture partnership with the owner of the adjacent
  shopping center to redevelop the Company’s asset in Cockeysville,
  Maryland. The transaction valued the property at approximately $18.7
  million and generated $9.3 million of gross cash proceeds. The venture
  plans to complete the retail redevelopment of the full-line store and
  auto center and may also pursue multi-family development on a portion
  of the 14-acre site.
• Sold seven properties totaling 639,000 feet for gross cash proceeds of
  $29.5 million. These properties were generally located in smaller
  markets and all seven properties were vacant at the time of sale.

“We are pleased with our start to the year with 440,000 square feet of
total new leasing at a strong average rate of $30 per square foot and an
average multiple of 4.1x for space previously occupied by Sears. Our
leasing since inception now stands at 8.3 million square feet and an
average re-leasing multiple of 4.1x. We continue to make significant
progress on our redevelopment program, with two new projects and two
expanded projects this quarter. Our total program currently consists of
99 projects completed or commenced with a total of approximately $1.6
billion of capital investment,” said Benjamin Schall, President and
Chief Executive Officer. “With a strong balance sheet and over $875
million of liquidity, we will continue to utilize our specialized
platform and high-quality portfolio to create first-class retail centers
and larger mixed-use projects that generate long-term value for our
shareholders.”

Financial Results

Below is a summary of the Company’s financial results for the quarters
ended March 31, 2019 and March 31, 2018:

Total NOI

The decrease in Total NOI was driven primarily by reduced rental income
under the Company’s original master lease (the “Original Master Lease”)
with Sears Holdings Corporation (“Sears Holdings”) as a result of
previous recapture and termination activity at our properties, as well
as the rejection of the Original Master Lease during the three months
ended March 31, 2019. In addition, the Company has sold 24 wholly-owned
properties and 50% interests in three wholly-owned properties over the
past 12 months which contributed to the decrease in Total NOI.

Since inception, over 25 million square feet of leased space,
representing over $100 million of annual base rent, has been taken
offline through recapture and termination activity, or as a result of
the rejection of the Original Master Lease. To date, the Company has
signed new leases with diversified, non-Sears tenants for an aggregate
annual base rent of $142.1 million across 8.3 million square feet of
space. A majority of these newly signed leases are categorized as signed
not yet opened (“SNO”) leases and are expected to begin paying rent
throughout the next 24 months.

FFO and Company FFO

The decrease in FFO was driven by the same factors driving the decrease
in Total NOI, as well as (i) higher interest expense resulting from the
Company’s debt refinancing in the third quarter of 2018, and (ii )
higher G&A expenses, including increased personnel costs and certain
legal and advisory costs related to Sears Holdings’ bankruptcy filing.

Portfolio Summary

Below is a summary of the Company’s portfolio as March 31, 2019:

The unleased space as of March 31, 2019 included approximately 2.6
million SF of remaining lease-up at announced redevelopment projects,
and approximately 12.4 million SF of additional leasing opportunity at
properties throughout the Company’s portfolio.

Leasing

New Activity

During the quarter ended March 31, 2019, the Company signed new leases
totaling 440,000 square feet (365,000 square feet at share) at an
average base rent of $30.37 PSF ($30.06 PSF at share). On a same-space
basis, new rents averaged 4.1x prior rents for space formerly occupied
by Sears or Kmart, increasing to $30.96 PSF for new tenants compared to
$7.51 PSF paid by Sears or Kmart across 341,000 square feet.

Below is a summary of the Company’s leasing activity, including its
proportional share of unconsolidated joint ventures, for the quarter
ended March 31, 2019 and since the Company’s inception in July 2015:

On February 28, 2019, the Company entered into a master lease (the
“Holdco Master Lease”) with affiliates of Transform Holdco LLC
(“Holdco”), an affiliate of ESL Investments, Inc. and the successor to
Sears Holdings, comprising 51 of the Company’s wholly-owned properties.
The Holdco Master Lease became effective on March 12, 2019 when the
bankruptcy court issued an order approving the rejection of the Original
Master Lease with Sears Holdings.

The Holdco Master Lease contains terms that are similar to the Original
Master Lease with the addition of certain enhanced landlord recapture
and tenant termination rights. Additional information regarding the
Holdco Master Lease can be found in the Form 8-K filed with the
Securities and Exchange Commission on February 28, 2019.

Rental Income Composition

During the quarter ended March 31, 2019, the Company added $11.0 million
of new diversified, non-Sears income and increased annual base rent
attributable to diversified, non-Sears tenants to 83.3% of total annual
base rent from 54.3% as of March 31, 2018, based on signed leases.

The table below provides a summary of all the Company’s signed leases as
of March 31, 2019, including unconsolidated joint ventures presented at
the Company’s proportional share:

Development

Program Summary

During the quarter ended March 31, 2019, the Company commenced projects
totaling approximately $65.0 million, including two new redevelopments
and the expansion of two previously announced projects.

Below is a summary of the Company’s announced development activity from
inception through March 31, 2019, presented at 100% share and including
certain assets that have been monetized through sale or joint venture:

Announced Development Projects

As of March 31, 2019, the Company had originated 84 redevelopment
projects since the Company’s inception. These projects represent an
estimated total investment of $1.5-1.6 billion ($1.4-1.5 billion at
share), of which an estimated $890-965 million ($825-900 million at
share) remains to be spent, and are expected to generate an incremental
yield on cost of approximately 10.3-11.3%.

The tables below provide brief descriptions of each of the redevelopment
projects originated on the Company’s platform since its inception,
including certain assets that have been monetized through sale or joint
venture:

Contacts

Seritage Growth Properties
646-277-1268
[email protected]

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