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1 https://wordpress.org/?v=6.9.4Subs: Seritage
https://www.valueplays.net/2019/05/05/subs-seritage-5/
Sun, 05 May 2019 14:05:57 +0000http://www.valueplays.net/?p=40596Every single quarter the company continues to put Sears behind it. It is stunning how wrong all the articles out there claiming Sears problems were going to pull down Seritage. The truth is it was the best thing that could have happened to them.
83% of based rents are now non-Sears and they currently have 99 projects underway. They are also re-leasing Sears properties at a rate 4.1X higher than Sears was paying.
This is going to pay off well for a very long time
The Release:
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, NY – May 2, 2019 – 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.
1
“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:
(in thousands except per share amounts)
Quarter Ended March 31,
2019
2018
Net (loss) income attributable to Seritage common shareholders
$
(8,192
)
$
9,100
Net (loss) income per diluted share attributable to Seritage common shareholders
(0.23
)
0.26
Total NOI
24,278
36,879
FFO
(5,178
)
11,048
FFO per diluted share
(0.09
)
0.20
Company FFO
(5,060
)
12,429
Company FFO per diluted share
(0.09
)
0.22
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:
Wholly Owned
Unconsolidated
Portfolio
Joint Ventures
Total
Properties
198
27
225
Malls
93
24
117
Strip centers and freestanding
105
3
108
GLA (at share) (000s)
30,791
2,419
33,210
% leased
53.2
%
78.3
%
55.0
%
2
The unleased space as of March 31, 2019 included approximately 2.6 million SF of remaining lease-up at announced redevelopment projects, and approximately 12.4million 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:
Since
Q1 2019
Inception
Leases
29
$
316
Square feet
365,000
8,250,000
Annual base rent ($000s)
$
10,972
$
142,136
Annual base rent PSF (1)
$
30.06
$
18.24
Re-leasing multiple (1)(2)
4.1
x
4.1
x
(1)
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 or Kmart.
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:
(in thousands except number of leases and PSF data)
Number of
Leased
% of Total
Annual Base
% of
Tenant
Leases
GLA
Leased GLA
Rent (“ABR”)
Total ABR
ABR PSF
Sears/Kmart (1)
70
8,152
44.6
%
$
31,746
16.7
%
$
3.89
In-place diversified, non-Sears leases
251
5,502
30.1
%
74,692
39.2
%
13.58
SNO diversified, non-Sears leases
174
4,623
25.3
%
84,032
44.1
%
18.18
Sub-total diversified, non-Sears leases
425
10,125
55.4
%
158,724
83.3
%
15.68
Total
495
18,277
100.0
%
$
190,470
100.0
%
$
10.42
(1)
Number of leases reflects number of properties subject to the Holdco Master Lease and Original JV Master Leases.
3
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:
(in millions)
Total
Estimated
Number
Project
Percentage
Estimated
Spent
Projected Annual Income (2)
Incremental
Project Status
of Projects
Square Feet
Leased
Project Costs (1)
To Date
Total
Incremental
Yield (3)
Complete
17
1.6
95
%
$ 135 – 140
$
124
Substantially Complete /
Delivered to Tenant(s)
25
2.8
78
%
345 – 370
244
Underway
30
4.3
56
%
820 – 850
229
Announced
9
1.2
57
%
200 – 215
16
Current Projects
81
9.9
69
%
$ 1,500 – 1,575
$
613
$ 204 – 212
$ 162 – 169
10.3 – 11.3%
Acquired
15
64
Sold
3
16
Total Projects
99
$ 1,580 – 1,655
(1)
Total estimated project costs include aggregate termination fees of approximately $81.0 million to recapture 100% of certain properties.
(2)
Projected annual income is based on assumptions for stabilized rents to be achieved at 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.
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:
Total Project Costs under $10 Million
Total
Estimated
Estimated
Project
Construction
Substantial
Property
Description
Square Feet
Start
Completion
King of Prussia, PA
Repurpose former auto center space for Outback Steakhouse, Yard House and Escape Room
29,100
Complete
Merrillville, IN
Termination property; redevelop existing store for At Home and small shop retail
132,000
Complete
Elkhart, IN
Termination property; existing store has been released to Big R Stores
86,500
Complete
Bowie, MD
Recapture and repurpose auto center space for BJ’s Brewhouse
8,200
Complete
Troy, MI
Partial recapture; redevelop existing store for At Home
100,000
Complete
Rehoboth Beach, DE
Partial recapture; redevelop existing store for andThat! and PetSmart
56,700
Complete
Henderson, NV
Termination property; redevelop existing store for At Home, Seafood City, Blink Fitness and additional retail
144,400
Complete
Cullman, AL
Termination property; redevelop existing store for Bargain Hunt, Tractor Supply and Planet Fitness
99,000
Complete
Jefferson City, MO
Termination property; redevelop existing store for Orscheln Farm and Home
96,000
Complete
Guaynabo, PR
Partial recapture; redevelop existing store for Planet Fitness, Capri and additional retail and restaurants
56,100
Complete
Westwood, TX
Termination property; site has been leased to Sonic Automotive and will be repurposed as an auto dealership
213,600
Complete
Florissant, MO
Site densification; new outparcel for Chick-fil-A
5,000
Complete
Albany, NY
Recapture and repurpose auto center space for BJ’s Brewhouse, Ethan Allen and additional small shop retail
28,000
Substantially Complete
Kearney, NE
Termination property; redevelop existing store for Marshall’s, PetSmart, Ross Dress for Less and Five Below
92,500
Substantially Complete
4
Total Project Costs under $10 Million
Total
Estimated
Estimated
Project
Construction
Substantial
Property
Description
Square Feet
Start
Completion
Dayton, OH
Recapture and repurpose auto center space for Outback Steakhouse and additional restaurants
14,100
Substantially Complete
St. Clair Shores, MI
100% recapture; demolish existing store and develop site for new Kroger grocery store
107,200
Delivered to Tenant(s)
New Iberia, LA
Termination property; redevelop existing store for Ross Dress for Less, Rouses Supermarkets, Hobby Lobby and small shop retail
93,100
Delivered to Tenant(s)
Hopkinsville, KY
Termination property; redevelop existing store for Bargain Hunt, Farmer’s Furniture, Harbor Freight Tools and small shop retail
87,900
Delivered to Tenant(s)
Mt. Pleasant, PA
Termination property; redevelop existing store for Aldi, Big Lots and additional retail
86,300
Delivered to Tenant(s)
Gainesville, FL
Termination property; repurpose existing store as office space for Florida Clinical Practice Association / University of Florida College of Medicine
139,100
Delivered to Tenant(s)
Layton, UT
Termination property; a portion of the space has been leased to Extra Space Storage and will be repurposed as self storage; existing tenants include Vasa Fitness and small shop retail
172,100
Delivered to Tenant(s)
North Little Rock, AR
Recapture and repurpose auto center space for LongHorn Steakhouse and additional small shop retail
17,300
Underway
Q2 2019
Houston, TX
100% recapture; entered into ground lease with adjacent mall with potential to participate in future redevelopment
214,400
Underway
Q2 2019
Oklahoma City, OK
Site densification; new fitness center for Vasa Fitness
59,500
Underway
Q3 2019
Ft. Wayne, IN
Site densification (project expansion); new outparcels for BJ’s Brewhouse, Chick-fil-A and Portillo’s
20,100
Underway
Q4 2019
Hagerstown, MD
Recapture and repurpose auto center space for BJ’s Brewhouse, Verizon and additional retail
15,400
Sold
Hampton, VA
Site densification; new outparcel for Chick-fil-A
2,200
Sold
Total Project Costs $10 – $20 Million
Total
Estimated
Estimated
Project
Construction
Substantial
Property
Description
Square Feet
Start
Completion
Braintree, MA
100% recapture; redevelop existing store for Nordstrom Rack, Saks OFF 5th and 5.11 Tactical to join existing tenant, Ulta Beauty
90,000
Complete
Honolulu, HI
100% recapture; redevelop existing store for Longs Drugs (CVS), PetSmart and Ross Dress for Less
79,000
Complete
Anderson, SC
100% recapture (project expansion); redevelop existing store for Burlington Stores, Gold’s Gym, Sportsman’s Warehouse, additional retail and restaurants
111,300
Complete
Madison, WI
Partial recapture; redevelop existing store for Dave & Busters, Total Wine & More, additional retail and restaurants
75,300
Substantially Complete
Orlando, FL
100% recapture; demolish and construct new buildings for Floor & Decor, Orchard Supply Hardware, LongHorn Steakhouse, Mission BBQ, Olive Garden and additional small shop retail and restaurants
139,200
Substantially Complete
Paducah, KY
Termination property; redevelop existing store for Burlington Stores, Ross Dress for Less and additional retail
102,300
Substantially Complete
Springfield, IL
Termination property; redevelop existing store for Burlington Stores, Binny’s Beverage Depot, Marshall’s, Orangetheory Fitness, Outback Steakhouse, Core Life Eatery and additional small shop retail
133,400
Substantially Complete
Thornton, CO
Termination property; redevelop existing store for Vasa Fitness and additional junior anchors
191,600
Substantially Complete
Cockeysville, MD
Partial recapture; redevelop existing store for HomeGoods, Michael’s Stores, additional junior anchors and restaurants (note: contributed to Cockeysville JV in Q1 2019)
83,500
Substantially Complete
Warwick, RI
Termination property (project expansion); redevelop existing store and detached auto center for At Home, BJ’s Brewhouse, Raymour & Flanigan, additional retail and restaurants
190,700
Substantially Complete
Salem, NH
Densify site with new theatre for Cinemark and recapture and repurpose auto center for restaurant space to join existing tenant Dick’s Sporting Goods
71,200
Delivered to Tenant(s)
5
Total Project Costs $10 – $20 Million
Total
Estimated
Estimated
Project
Construction
Substantial
Property
Description
Square Feet
Start
Completion
Fairfax, VA
Partial recapture; redevelop existing store and attached auto center for Dave & Busters, Lazy Dog Restaurant & Bar additional junior anchors and restaurants
110,300
Delivered to Tenant(s)
Temecula, CA
Partial recapture; redevelop existing store and detached auto center for Round One, small shop retail and restaurants
65,100
Delivered to Tenant(s)
Hialeah, FL
100% recapture; redevelop existing store for Bed, Bath & Beyond, Ross Dress for Less and dd’s Discounts to join existing tenant, Aldi
88,400
Delivered to Tenant(s)
North Hollywood, CA
Partial recapture; redevelop existing store for Burlington Stores and Ross Dress for Less
79,800
Delivered to Tenant(s)
North Miami, FL
100% recapture; redevelop existing store for Burlington Stores, Michael’s and Ross Dress for Less
124,300
Underway
Q2 2019
Canton, OH
Partial recapture; redevelop existing store for Dave & Busters and restaurants
83,900
Underway
Q2 2019
North Riverside, IL
Partial recapture; redevelop existing store and detached auto center for Blink Fitness, Round One, additional junior anchors, small shop retail and restaurants
103,900
Underway
Q2 2019
Olean, NY
Termination property (project expansion); redevelop existing store for Marshall’s, Ollie’s Bargain Basement and additional retail
125,700
Underway
Q2 2019
West Jordan, UT
Termination property (project expansion); redevelop existing store and attached auto center for At Home, Burlington Stores and additional retail
190,300
Underway
Q2 2019
Las Vegas, NV
Partial recapture; redevelop existing store for Round One and additional retail
78,800
Underway
Q3 2019
Roseville, MI
Termination property (project expansion); redevelop existing store for At Home, Hobby Lobby, Chick-fil-A and additional retail
369,800
Underway
Q3 2019
Warrenton, VA
Termination property; redevelop existing store for HomeGoods and retail uses
97,300
Underway
Q3 2019
Yorktown Heights, NY
Partial recapture; redevelop existing store for 24 Hour Fitness and retail uses
85,200
Underway
Q4 2019
Charleston, SC
100% recapture (project expansion); redevelop existing store and detached auto center for Burlington Stores and additional retail
126,700
Underway
Q4 2019
Chicago, IL (Kedzie)
Termination property; redevelop existing store for Ross Dress for Less, dd’s Discounts, Five Below, Blink Fitness and additional retail
123,300
Underway
Q4 2019
El Paso, TX
Termination property; redevelop existing store for Ross Dress for Less, dd’s Discounts and additional retail
114,700
Underway
Q4 2019
Pensacola, FL
Termination property; redevelop existing store for BJ’s Wholesale, additional retail and restaurants
134,700
Underway
Q1 2020
Fresno, CA
Partial recapture, redevelop existing store and detached auto center for Ross Dress for Less, dd’s Discounts and additional retail
78,300
Q2 2019
Q1 2020
Vancouver, WA
Partial recapture; redevelop existing store for Round One, Hobby Lobby and additional retail and restaurants
72,400
Q2 2019
Q2 2020
Manchester, NH
Termination property; redevelop existing store for Dick’s Sporting Goods, Dave & Busters, additional retail and restaurants
117,700
Q3 2019
Q3 2020
Merced, CA
Termination property; redevelop existing store for Burlington Stores and additional retail
92,600
Q3 2019
Q1 2021
Santa Cruz, CA
Partial recapture; redevelop existing store for TJ Maxx, HomeGoods and additional junior anchors
62,200
Sold
Saugus, MA
Partial recapture; redevelop existing store and detached auto center (note: temporarily postponed while the Company identifies a new lead tenant)
99,000
To be determined
Total Project Costs over $20 Million
Total
Estimated
Estimated
Project
Construction
Substantial
Property
Description
Square Feet
Start
Completion
Memphis, TN
100% recapture; demolish and construct new buildings for LA Fitness, Nordstrom Rack, Ulta Beauty, Hopdoddy Burger Bar and additional junior anchors, restaurants and small shop retail
135,200
Complete
St. Petersburg, FL
100% recapture; demolish and construct new buildings for Dick’s Sporting Goods, Lucky’s Market, PetSmart, Five Below, Chili’s Grill & Bar, Pollo Tropical, LongHorn Steakhouse, Verizon and additional small shop retail and restaurants
142,400
Complete
6
Total Project Costs over $20 Million
Total
Estimated
Estimated
Project
Construction
Substantial
Property
Description
Square Feet
Start
Completion
West Hartford, CT
100% recapture; redevelop existing store and detached auto center for buybuyBaby, Cost Plus World Market, REI, Saks OFF Fifth, other junior anchors, Shake Shack and additional small shop retail (note: contributed to West Hartford JV in Q2 2018)
147,600
Substantially Complete
Wayne, NJ
Partial recapture (project expansion); redevelop existing store and detached auto center for Cinemark, Dave & Busters and additional junior anchors and restaurants (note: contributed to GGP II JV in Q3 2017)
156,700
Delivered to Tenant(s)
Carson, CA
100% recapture (project expansion); redevelop existing store for Burlington Stores, Ross Dress for Less, Gold’s Gym and additional retail
163,800
Delivered to Tenant(s)
Greendale, WI
Termination property; redevelop existing store and attached auto center for Dick’s Sporting Goods, Golf Galaxy, Round One, TJ Maxx, additional retail and restaurants
223,800
Delivered to Tenant(s)
Watchung, NJ
100% recapture; demolish full-line store and detached auto center and construct new buildings for Cinemark, HomeSense, Sierra Trading Post, Ulta Beauty, Chick-fil-A, small shop retail and additional restaurants
126,700
Underway
Q2 2019
Austin, TX
100% recapture (project expansion); redevelop existing store for AMC Theatres, additional junior anchors and restaurants
177,400
Underway
Q3 2019
El Cajon, CA
100% recapture; redevelop existing store and auto center for Ashley Furniture, Bob’s Discount Furniture, Burlington Stores and additional retail and restaurants; a portion of the space has been leased to Extra Space Storage and will be repurposed as self storage
242,700
Underway
Q3 2019
Anchorage, AK
100% recapture; redevelop existing store for Guitar Center, Safeway, Planet Fitness and additional retail to join current tenant, Nordstrom Rack
142,500
Underway
Q4 2019
Aventura, FL
100% recapture; demolish existing store and construct new, multi-level open air retail destination featuring a leading collection of experiential shopping, dining and entertainment concepts alongside a treelined esplanade and activated plazas
216,600
Underway
Q4 2019
East Northport, NY
Termination property; redevelop existing store and attached auto center for AMC Theatres, 24 Hour Fitness, additional junior anchors and small shop retail
179,700
Underway
Q4 2019
Reno, NV
100% recapture; redevelop existing store and auto center for Round One and additional retail
169,800
Underway
Q4 2019
San Diego, CA
100% recapture; redevelop existing store into two highly-visible, multi-level buildings with exterior facing retail space leased to Equinox Fitness and a premier mix of experiential shopping, dining, and entertainment concepts (note: contributed to UTC JV in Q2 2018)
206,000
Underway
Q4 2019
Santa Monica, CA
100% recapture; redevelop existing building into premier, mixed-use asset featuring unique, small-shop retail and creative office space (note: contributed to Mark 302 JV in Q1 2018)
96,500
Underway
Q4 2019
Tucson, AZ
100% recapture; redevelop existing store and auto center for Round One and additional retail
224,300
Underway
Q4 2019
Fairfield, CA
100% recapture (project expansion); redevelop existing store and auto center for Dave & Busters, AAA Auto Repair Center and additional retail
146,500
Underway
Q1 2020
Plantation, FL
100% recapture (project expansion); redevelop existing store and auto center for GameTime, Powerhouse Gym, Lazy Dog Restaurant & Bar, additional retail and restaurants
184,400
Underway
Q1 2020
Roseville, CA
Termination property (project expansion): redevelop existing store and auto center for Cinemark, Round One, AAA Auto Repair Center, additional retail and restaurants
147,400
Underway
Q2 2020
San Antonio, TX
Termination property (project expansion); redevelop existing store for Bed Bath & Beyond, buybuyBaby, Tru Fit, additional retail and health & wellness to complement repurposed auto center occupied by Orvis, Jared’s Jeweler and Shake Shack
215,900
Q2 2019
Q2 2020
Hialeah, FL
100% recapture (project expansion); redevelop existing store and auto center for Paragon Theaters, Ulta Beauty, Five Below, Panera Bread and additional retail and restaurants
158,100
Q2 2019
Q2 2021
Orland Park, IL
100% recapture; redevelop existing store for AMC Theatres, 24 Hour Fitness, additional retail and restaurants
181,900
Q3 2019
Q4 2020
Asheville, NC
100% recapture; redevelop existing store and auto center for Alamo Drafthouse, restaurants and small shop retail
110,600
Q4 2019
Q2 2021
7
Asset Monetization
During the quarter ended March 31, 2019, the Company contributed its asset in Cockeysville, MD into a 50% joint venture with the owner of the adjacent shopping center at a gross value of $18.7 million and generated $9.3 million of gross cash proceeds. The Company substantially completed the partial redevelopment of the former full-line Sears store with the recent openings of Michael’s and HomeGoods, and the venture plans to further redevelop the full-line store and auto center for additional retail and restaurants. The venture may also pursue multi-family development on a portion of the 14-acre site as part of a broader transformation of the mall.
During the quarter ended March 31, 2019, the Company sold seven properties totaling 639,000 feet for gross cash proceeds of $29.5 million, or $46 PSF. These properties were generally located in smaller markets and all seven properties were vacant at the time of sale.
Liquidity
As of March 31, 2019, the Company had over $875 million of identified liquidity, including $442.6 million of cash on the balance sheet, the $400 million incremental funding facility under the Company’s senior secured term loan (subject to certain conditions) and assets under contract for sale for anticipated gross cash proceeds of $34.3 million (assets under contract for sale are subject to customary closing conditions and there can be no assurance that such transactions will be consummated).
Dividends
On April 30, 2019, the Company’s Board of Trustees declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend will be paid on July 15, 2019 to holders of record on June 28, 2019.
On February 25, 2019, the Company’s Board of Trustees declared a first quarter common stock dividend of $0.25 per each Class A and Class C common share. The common dividend was paid on April 11, 2019 to shareholders of record on March 29, 2019. Holders of units in Seritage Growth Properties, L.P. (the “Operating Partnership”) were entitled to an equal distribution per each Operating Partnership unit held on March 29, 2019. On February 25, 2019, the Company’s Board of Trustees also declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend was paid on April 15, 2019 to holders of record on March 29, 2019.
As previously announced, the Company’s Board of Trustees does not currently expect to declare additional common dividends for the remainder of 2019, based on its assessment of the Company’s investment opportunities and its expectations of taxable income for the year. The Board of Trustees will reevaluate this position at the end of 2019, if necessary, to ensure that the Company meets its distribution requirements as a REIT. The Company’s Board of Trustees expects that cash dividends for the Company’s preferred shares will continue to be paid each quarter.
]]>Subs: More Redevelopment
https://www.valueplays.net/2019/04/11/subs-more-redevelopment/
Thu, 11 Apr 2019 18:43:18 +0000http://www.valueplays.net/?p=40416
Remember the slew of articles in 2018 that told us a Chapter 11 by Sears would lead to immense problems at Seritage? They told us SRG would not be able to handle both the loss of Sears revenues and the mass of properties that would be dumped in their lap. It was as if the company’s deep-pocketed investors would not step up and provide the needed capital to redevelop closed Sears locations or that banks would shut their doors on them. The error in the thinking was and always has been that all Sears stores were in crap locations. They were in great locations, they were just abysmally run.
SRG is proving them all wrong. There is tremendous demand for JV partners (see below) to redevelop these locations. SRG is seeing rents at the new locations 3x-4x what Sears was paying and they are going full bore with activity.
No, far from being an “anchor” around the neck of SRG this has been the opportunity of a lifetime.
Baltimore Sun:
The former Sears department store at Hunt Valley Towne Centre will be redeveloped with more new stores and entertainment tenants under a plan announced Thursday.
The center’s landlord, Greenberg Gibbons, said it has formed a joint venture partnership with Seritage Growth Properties to remake a nearly 14-acre parcel at the open-air shopping center, including the former two-story Sears and a former auto center located behind anchor Wegmans.
The former Sears, already home to Michaels and HomeGoods on the first floor, will get additional retail on the second floor while the partnership will look into other development options.
The project represents the first phase of Greenberg Gibbons’ planned $150 million transformation of the center featuring new retail, office and hotel space and upscale apartments.
“We look forward to the continued evolution of Hunt Valley Towne Centre and creating a vibrant destination for our community,” Eric Walter, executive vice president of development, acquisitions and finance for Greenberg Gibbons, said in an announcement.
The retail center on Shawan Road in Hunt Valley, a redevelopment of the former enclosed Hunt Valley Mall, is surrounded by apartments and offices and anchored by Wegmans, Regal Cinamas, Marshalls and Dick’s Sporting Goods. Other tenants include restaurants, DSW, Ulta Beauty, Bassett Furniture, Eileen Fisher and Ann Taylor Loft.
Seritage, which owns the former Sears building, has been working with local developers elsewhere to redevelop its former department store properties. Sears had sold 235 stores and its stake in joint ventures involving 31 more to Seritage, a real estate investment trust spinoff, in 2015, raising about $2.7 billion.
Sears Holdings Corp., the parent of the struggling Sears and Kmart retail chains, filed for bankruptcy protection in October in a last ditch effort to save the retailer.
]]>Subs: Seritage
https://www.valueplays.net/2019/03/04/subs-seritage-4/
Mon, 04 Mar 2019 17:49:42 +0000http://www.valueplays.net/?p=40099
Sears lease payments are now down to 30% of the total for the company (this % was 80% at SRG’s inception). They are still converting Sears space to new leases at a 4X multiple. Now, after Q1 they are not going to pay a dividend for the remainder of 2019. I’m 100% fine with this as they have a stunning amount of development opportunities in front of them and that cash can create far more value than the $.25/share we would be paid out.
It wasn’t long ago people were saying a Sears Chapter 11 would both drain cash from SRG and flood it with properties it would not be able to develop, thus causing its demise. We of course have been saying all along that this was simply not true. Far from being a death sentence, it is now increasingly looking as though SRG will be the primary beneficiary of Sears going under.
The Release:
Seritage Growth Properties Reports Fourth Quarter and Full Year 2018 Operating Results
– Signed new leases totaling 3.1 million square feet at an average re-leasing multiple of 3.9x –
– Ended year with nearly $1.0 billion of cash on hand and committed capital –
– Subsequent to year end, signed a master lease with successor to Sears Holdings for 51 locations –
New York, NY – February 28, 2019 – Seritage Growth Properties (NYSE: SRG) (the “Company”), a national owner of 232 retail and mixed-use properties totaling approximately 36.3 million square feet of gross leasable area (“GLA”), today reported financial and operating results for the quarter and year ended December 31, 2018.
Summary Financial Results
For the quarter ended December 31, 2018:
•
Net loss attributable to common shareholders of $56.0 million, or $1.57 per share
•
Total Net Operating Income (“Total NOI”) of $34.1 million
•
Funds from Operations (“FFO”) of $7.0 million, or $0.13 per share
•
Company FFO of ($4.4) million, or ($0.08) per share
For the year ended December 31, 2018:
•
Net loss attributable to common shareholders of $78.4 million, or $2.20 per share
•
Total NOI of $143.1 million
•
FFO of $24.1 million, or $0.43 per share
•
Company FFO of $15.7 million, or $0.28 per share
“We are very pleased with our fourth quarter performance, which included 878,000 square feet of new leasing at an average re-leasing multiple of 4.0x for space previously occupied by Sears. Since inception, we have leased nearly 8.0 million square feet at an average re-leasing multiple of 4.1x, and completed or commenced 97 redevelopment projects totaling approximately $1.5 billion of total capital investment with targeted incremental yields of approximately 11% on an unlevered basis,” said Benjamin Schall, President and Chief Executive Officer. “To fund this transformative redevelopment program, we have maintained access to multiple sources of liquidity and currently have $533 million of cash on hand and a committed $400 million incremental funding facility. Further, having generated over $230 million in 2018 through the formation of joint ventures and divestiture of smaller market assets, we continue to recycle capital into the highest value creation opportunities in our portfolio.”
Mr. Schall continued, “We have rapidly diversified our tenant base, with over 70% of our annual base rent under lease now derived from diversified, non-Sears tenants (up from 20% at inception). In February, we signed a new master lease with the successor to Sears Holdings that maintains 51 locations leased to Sears or Kmart, which will become effective following the rejection of the existing Master Lease with Sears Holdings. The new lease provides Seritage with expanded rights to execute on our redevelopment initiatives. As we look forward, we expect to continue to utilize our platform and expand our relationships with growing retailers, mixed-use developers and institutional capital allocators to further unlock embedded value through our retail redevelopments and larger mixed-use pipeline.”
Operating Highlights
Rental Income
During the year ended December 31, 2018, the Company added $45.2 million of new diversified, non-Sears income and increased annual base rent attributable to diversified, non-Sears tenants to 70.9% of total annual base rent from 52.2% as of December 31, 2017, including all signed leases and net of rent attributable to the associated space to be recaptured.
The table below provides a summary of all the Company’s signed leases as of December 31, 2018, including unconsolidated joint ventures presented at the Company’s proportional share:
(in thousands except number of leases and PSF data)
Number of
Leased
% of Total
Annual
% of Total
Annual
Tenant
Leases
GLA
Leased GLA
Rent
Annual Rent
Rent PSF
Sears Holdings (1)(2)
105
12,619
56.0
%
$
61,341
29.1
%
$
4.86
In-place diversified, non-Sears leases (2)
236
5,043
22.4
%
66,200
31.4
%
13.13
SNO diversified, non-Sears leases (2)(3)
170
4,852
21.6
%
83,297
39.5
%
17.17
Sub-total diversified, non-Sears leases
406
9,895
44.0
%
149,497
70.9
%
15.11
Total
511
22,514
100.0
%
$
210,838
100.0
%
$
9.36
(1)
Number of leases reflects number of properties subject to the 2015 Sears Holdings Master Lease and JV Master Leases.
(2)
Metrics include four properties subject to previously exercised recapture notices and five properties under contract for sale.
(3)
SNO = signed but not yet opened leases.
Leasing
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 base rent of $18.03 PSF (retail leases represented 664,000 square feet at an average base 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)
Since
Q4 2018
FY2018
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.
Development
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 from inception through December 31, 2018, presented at 100% share and including certain assets that have been monetized through sale or joint venture:
(in thousands)
Estimated
Estimated
Estimated
Number
Project
Development
Project
Projected Annual Income (2)
Incremental
Estimated Project Costs (1)
of Projects
Square Feet
Costs (1)
Costs (1)
Total
Existing
Incremental
Yield (3)
< $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
63,100
15,300
47,900
> $20,001
22
3,738
803,100
861,900
115,100
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.
Transactions
In 2018, the Company contributed its assets in Santa Monica (CA), 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.
In 2018, the Company also sold 21 properties, primarily those in smaller markets, totaling 2.1 million square feet that generated gross proceeds of $114.3 million, or $54 PSF. These transactions included five dispositions in the fourth quarter that generated gross proceeds of $47.3 million, or $78 PSF.
Balance Sheet
On July 31, 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).
The Company used a portion of the proceeds from the initial funding to fully repay its outstanding mortgage loan and unsecured term loan. The Company expects the remaining proceeds from the initial funding, as well as borrowings under the incremental funding facility, will be used to fund the Company’s redevelopment pipeline and to pay operating expenses of the Company and its subsidiaries.
As of December 31, 2018, the Company had nearly $1.0 billion of identified liquidity, including $532.9 million of cash on the balance sheet, the $400 million incremental funding facility (subject to certain conditions) and 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).
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, including if the 2015 Sears Holdings Master Lease is rejected and the Holdco Master Lease becomes effective. 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. The failure to satisfy any of these financial metrics will not result in an event of default, mandatory amortization, cash flow sweep or any similar provision.
Dividends
On October 23, 2018, the Company’s Board of Trustees declared a fourth quarter common stock dividend of $0.25 per each Class A and Class C common share. The common dividend was paid on January 10, 2019 to shareholders of record on December 31, 2018. Holders of units in Seritage Growth Properties, L.P. (the “Operating Partnership”) were entitled to an equal distribution per each Operating Partnership unit held on December 31, 2018. On October 23, 2018, the Company’s Board of Trustees also declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend was paid on January 14, 2019 to holders of record on December 31, 2018.
On February 20, 2019, the Company’s Board of Trustees declared a first quarter common stock dividend of $0.25 per each Class A and Class C common share. The common dividend will be paid on April 11, 2019 to shareholders of record on March 29, 2019. Holders of units in the Operating Partnership are entitled to an equal distribution per each Operating Partnership unit held on March 29, 2019. On February 20, 2019, the Company’s Board of Trustees also declared a preferred stock dividend of $0.4375 per each Series A Preferred Share. The preferred dividend will be paid on April 15, 2019 to holders of record on March 29, 2019.
The Company has announced that the Board of Trustees does not currently expect to declare additional common dividends for the remainder of 2019, based on its assessment of the Company’s investment opportunities and its expectations of taxable income for the year. The Board of Trustees will reevaluate this position at the end of 2019, if necessary, to ensure that the Company meets its distribution requirements as a REIT. The Company has also announced that the Board of Trustees expects that cash dividends for the Company’s preferred shares will continue to be paid each quarter.
Sears Holdings Bankruptcy and Holdco Master Lease
On October 15, 2018, Sears Holdings and certain of its affiliates filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On February 11, 2019, Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., completed the acquisition of an approximately 425-store retail footprint and other assets and component businesses of Sears Holdings on a going-concern basis.
On February 28, 2019, the Company entered into a master lease with affiliates of Holdco (the “Holdco Master Lease”) comprising 51 of the Company’s wholly-owned properties that remained subject to the master lease with Sears Holdings (the “2015 Sears Holdings Master Lease”) at the time Sears Holdings filed for bankruptcy protection.
A condition to the performance and obligations provided for in the Holdco Master Lease is the rejection of the 2015 Sears Holdings Master Lease. The 2015 Sears Holdings Master Lease will be rejected if either (i) the Bankruptcy Court issues an order approving the rejection of the 2015 Sears Holdings Master Lease or (ii) the 2015 Sears Holdings Master Lease is deemed to be rejected pursuant to the operation of the Bankruptcy Code. As a result of this condition, there can be no assurance as to the commencement of our and Holdco’s performance and obligations provided for in the Holdco Master Lease and/or the timing thereof.
The Holdco Master Lease, as executed, contains terms that are similar to the 2015 Sears Holdings 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
]]>Subs: Thursday’s Links
https://www.valueplays.net/2019/01/31/subs-mondays-links-46/
Thu, 31 Jan 2019 15:24:46 +0000http://www.valueplays.net/?p=39810
1- “Demand for oil and commodities is solid. It’s the same boring demand growth we have been seeing since 2016, 2017, 2018 and now 2019 in that a lot of that was sentiment going up and down around that relatively benign demand outlook,” Currie told Bloomberg News in an interview posted Thursday
]]>Subs: Finally Some Movement
https://www.valueplays.net/2019/01/28/subs-finally-some-movement/
Tue, 29 Jan 2019 00:16:39 +0000http://www.valueplays.net/?p=39824
This has been a frustratingly slow process although I can’t blame HHC for it. Both Sears and Macy’s held out until the bitter end on jettison these properties to HHC. I’m guessing they were trying to get the best deal because HHC could not alter the mall without their approval. So, in this way, kudos to the company for not folding and overpaying for the parcels.
None of that changes the frustration watching a dead mall with so much potential for redevelopment sits essentially vacant for two years but that’s over.
Now we can move on with the building and money making part…
Washington Biz Journal:
There are several years until any major construction activity occurs at Landmark Mall, but Alexandria and the mall’s owner are homing in now on the parameters that will guide the nearly 6 million-square-foot redevelopment.
The Landmark Mall replanning process was the subject of a third community workshop held Saturday, during which a series of draft recommendations were released and discussed over four hours. There is one more workshop planned for February before the scheduled Alexandria Planning Commission and City Council public hearings in April.
The 51-acre mall property, including the Sears — the only retailer that remains open on the campus — is now fully under the control of Howard Hughes Corp. Howard Hughes (NYSE: HHC) bought the Macy’s in early 2017, shortly before shuttering the mall.
The draft recommendations — some that date back to the start of the replanning process, others that were released Saturday — provide for a maximum 5.6 million square feet of development across the Landmark property. A minimum 20 percent of the uses are required to be commercial, to include office, hotel, retail, entertainment and institutional.
Buildings could rise as high as 250 feet, per one recommendation, and feature “distinctive design and materials to denote gateway locations and prominent vistas and provide a variety of height across the site.” The Washington Business Journal previously reported that Inova Health System is in talks to open a 25-story medical tower at Landmark.
The recommendations call for 3.5 acres of publicly accessible open space across the entire site and an urban transit hub onsite to serve as a stop and transfer point for multiple transit options. Streets are to be designed to support all users — pedestrians, cyclists, transit and automobiles — while the fly-over ramp from Duke Street into the mall property would be removed. Duke and North Van Dorn streets would be reconfigured.
Van Dorn Street by Landmark Mall would be reconfigured as well under the Landmark replanning.
COURTESY CITY OF ALEXANDRIA
As for residential, Howard Hughes and its partners would be provided bonus density to deliver affordable units in market-rate buildings, while the development process would set a target percentage of new onsite affordable units.
The Landmark redevelopment process is four steps. This first one, replanning, sets the general rules for the development. The concept plan and rezoning comes next with additional detail, followed by development special use permits by building or block, and then building permits. On Jan. 18, a concept plan was filed with Alexandria for the Landmark Mall.
In the meantime, Alexandrians can check out the mall in its former — very former — glory when “Wonder Woman 1984” opens on June 5, 2020.
SRG has been sold off hard on the constant pounding of the potential disastrous effects of the Sears chapter 11. This refrain is wrong, I’ve said so since the beginning and the company all but says so below.
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.
Further, given the rent spreads from what Sears is currently paying to what the company is able to re-lease that space at, only 25%-35% of the current Sears properties have to be re-leased for SRG to completely make up any lost rental income from Sears.
But, hey, for those who’ve been waiting to get into this stock, the misinformation out there is giving you a great entry price!!
The Release:
Seritage Growth Properties Reports Increased Leasing, Development and Transaction Activity in 2018
– Signed new leases totaling 3.1 million square feet, up 17% over 2017, at an average re-leasing multiple of 3.9x –
– Maintains $1.0 billion of liquidity, including $537 million of cash and $400 million incremental funding facility –
New York, NY – January 23, 2019 – 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
Leased
% of Total
Annual
% of Total
Annual
Tenant
Leases
GLA
Leased GLA
Rent
Annual Rent
Rent PSF
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)
Estimated
Estimated
Estimated
Number
Project
Development
Project
Projected Annual Income (2)
Incremental
Estimated Project Costs (1)
of Projects
Square Feet
Costs (1)
Costs (1)
Total
Existing
Incremental
Yield (3)
< $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), 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.
]]>Subs: Crystal City?
https://www.valueplays.net/2018/11/05/subs-crystal-city/
Tue, 06 Nov 2018 00:58:56 +0000http://www.valueplays.net/?p=39411
This is interesting as the added employees working the area, only 7 miles from the Landmark Mall site will add more demand for housing in the area that is already short of it. Perhaps it will incentivize the town to press on at a faster pace with the redevelopment of the mall. Now that it seems Sears is no longer an issue, things should accelerate.
Amazon.com has held advanced discussions about the possibility of opening its highly sought-after second headquarters in Crystal City, including how quickly it would move employees there, which buildings it would occupy and how an announcement about the move would be made to the public, according to people close to the process.
The discussions were more detailed than those the company has had regarding other locations in Northern Virginia and some other cities nationally, adding to speculation that the site in Arlington County is a front-runner to land the online retail giant’s second North American headquarters and its 50,000 jobs.
The company is so close to making its choice that Crystal City’s top real estate developer, JBG Smith, has pulled some of its buildings off the leasing market and officials in the area have discussed how to make an announcement to the public this month, following the midterm elections, according to public and private-sector officials who spoke on the condition of anonymity because Amazon has asked that the selection process remain confidential. The company may be having similar discussions with other finalists.
