8-K: Seritage Growth Properties Reports Q4 and Full Year 2024 Results Amid Strategic Asset Sales

Seritage Growth Properties reports progress on its Plan of Sale with asset sales and leasing activities, while navigating challenging market conditions and leadership changes.

Summary

• Seritage Growth Properties reported its financial and operating results for the year ended December 31, 2024.
• The company generated $50.8 million in gross proceeds from the sale of three vacant assets in Q4 2024, and $11.0 million from monetizing two unconsolidated entity interests.
• Subsequent to December 31, 2024, the company generated $29.9 million in gross proceeds from an income-producing asset sale at a 7.7% capitalization rate.
• As of March 28, 2025, the company had $107.0 million in cash on hand, including $12.5 million of restricted cash.
• The net loss attributable to common shareholders for the year ended December 31, 2024, was $(158.4) million, or ($2.82) per share.
• Net Operating Income-cash basis at share (NOI-cash basis at share) was $2.6 million for the year.
• The company made $120.0 million in principal repayments on its Term Loan Facility, reducing the balance to $240.0 million at December 31, 2024.
• Seritage secured an extension right on the Term Loan Facility, which, if exercised, will extend the maturity date to July 31, 2026.
• The company anticipates a majority of its assets will be in the market in 2025, including large development sites, smaller leased properties, and vacant assets.
• The company is negotiating a definitive purchase and sale agreement on one premier development asset for anticipated gross proceeds of approximately $70.0 million.
• Andrea Olshan will step down as CEO and President effective April 11, 2025, and Adam Metz will serve as Interim CEO.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the net loss, declining NOI, and ongoing lawsuits. However, the company is actively managing its assets and debt, and there are positive developments in leasing and asset sales.

Positives

• The company is actively executing its Plan of Sale, with a majority of assets expected to be marketed in 2025.
• Seritage has made progress in readying assets for sale, including signing critical leases and securing zoning approvals.
• The company has reduced its debt by $120.0 million through principal repayments on the Term Loan Facility.
• Seritage secured an extension right on its Term Loan Facility, providing potential flexibility in managing its debt obligations.
• The company is actively leasing space at its Aventura project, with 78.7% leased as of December 31, 2024.

Negatives

• The company reported a net loss attributable to common shareholders of $(158.4) million for the year ended December 31, 2024.
• NOI-cash basis at share was $2.6 million for the year ended December 31, 2024, down from $8.6 million in the previous year.
• The company is facing challenging market conditions that are applying downward pressure on asset pricing.
• Seritage is involved in multiple lawsuits, including a securities class action and derivative lawsuits.
• The company's ability to fund operations and development activity is dependent on future asset sales and/or potential alternative financing arrangements.

Risks

• Declines in retail, real estate, and general economic conditions could negatively impact the company's performance.
• Redevelopment activities carry inherent risks that could affect the company's ability to achieve expected occupancy and rent levels.
• The company's indebtedness and other legal requirements could limit its flexibility.
• Ongoing negative operating cash flow could impact the company's ability to fund operations and development.
• The company's ability to access or obtain sufficient sources of financing is uncertain.
• Environmental, health, safety, and land use laws and regulations could pose challenges.
• Possible acts of war, terrorist activity, or cybersecurity incidents could disrupt the company's operations.
• Challenging market conditions may impact the Plan of Sale proceeds from assets and the amounts and timing of distributions to shareholders.

Future Outlook

The company anticipates that a majority of its assets will be in the market in 2025 and beyond, and sales projections are based on the company's latest forecasts and assumptions, but actual results may differ materially.

Management Comments

• Andrea Olshan, CEO & President, stated that the company has made significant progress towards the completion of its Plan of Sale, with assets being readied for sale through leasing, partnership approvals, and zoning achievements.

Industry Context

Seritage's strategic shift towards asset sales reflects a broader trend in the retail real estate industry, where companies are adapting to changing consumer preferences and market conditions by monetizing assets and focusing on core properties. The challenging market conditions mentioned by the company align with the difficulties faced by many real estate companies in the current economic environment.

Comparison to Industry Standards

• A 7.7% capitalization rate on the income-producing asset sale is within the typical range for commercial real estate transactions, but the specific attractiveness depends on the asset type, location, and market conditions.
• Companies like Simon Property Group and Macerich, which are also involved in retail and mixed-use properties, are facing similar challenges related to occupancy rates and rental income, but their scale and diversification may provide them with greater resilience.
• The strategic review and Plan of Sale are similar to actions taken by other REITs seeking to unlock value for shareholders through asset dispositions or potential company sales.

Management Changes

Legal Proceedings

• A shareholder class action lawsuit alleges violations of federal securities laws related to disclosures concerning internal controls and real estate asset valuations.
• Two shareholder derivative lawsuits allege breach of fiduciary duty and other claims against the company's officers and directors.

Stakeholder Impact

• Shareholders are impacted by the net loss and the ongoing strategic review process.
• Employees are affected by the leadership change and the potential impact of asset sales on the company's operations.
• Tenants are impacted by the company's leasing activities and redevelopment plans.
• Creditors are affected by the company's debt management and ability to generate cash flow.

Next Steps

• The company will continue to execute its Plan of Sale, marketing assets and pursuing potential sales transactions.
• Seritage will continue to advance leasing efforts at its Aventura project and other properties.
• The company will defend itself against the allegations in the ongoing lawsuits.
• Seritage will consider exercising the extension right on its Term Loan Facility.
• The Board of Trustees will appoint a successor to Andrea Olshan as CEO and President.

Key Dates

Keywords

Seritage Growth Properties, Plan of Sale, Asset Sales, Real Estate, Retail, Mixed-Use, Leasing, Financial Results, NOI, Term Loan Facility