10-Q: Seritage Q3 2025: Asset Sales Continue, Going Concern Doubt

Seritage Growth Properties reports a net loss of $12.4 million for Q3 2025 and faces substantial doubt about its ability to continue as a going concern amidst ongoing asset monetization.

Summary

• The company reported a net loss of $12.4 million for the three months ended September 30, 2025, a significant improvement from a $22.0 million net loss in the same period of 2024.
• For the nine months ended September 30, 2025, the net loss was $63.1 million, substantially lower than the $142.2 million net loss for the corresponding period in 2024.
• Rental income increased to $4.6 million in Q3 2025 from $2.9 million in Q3 2024, primarily driven by the Aventura, FL property.
• Total expenses decreased to $10.9 million in Q3 2025 from $22.5 million in Q3 2024, and to $44.6 million for the nine months ended September 30, 2025, from $55.5 million in 2024.
• Net cash used in operating activities for the nine months ended September 30, 2025, improved to $33.7 million from $39.6 million in 2024.
• Net cash provided by investing activities was $43.6 million for the nine months ended September 30, 2025, down from $71.7 million in 2024.
• The Term Loan Facility balance was reduced to $200.0 million as of September 30, 2025, and its maturity date was extended to July 31, 2026, with a $4.0 million extension fee paid.
• The company sold two Consolidated Properties and two Unconsolidated Properties for gross proceeds of $60.7 million during the nine months ended September 30, 2025.
• As of November 13, 2025, four Consolidated Properties are under contract for aggregate gross proceeds of $240.8 million, with $70.8 million subject to contingencies.
• Management has concluded that there is substantial doubt about the company's ability to continue as a going concern due to obligations exceeding property rental income and the uncertainty of asset sale timing and proceeds.
• Impairment of real estate assets was $0.8 million in Q3 2025 and $18.8 million for the nine months ended September 30, 2025.
• Equity in loss of unconsolidated entities increased to $6.5 million for the nine months ended September 30, 2025, primarily due to $8.5 million in other-than-temporary impairment losses.

Sentiment

Score: 3

Explanation: While the company has reduced its net loss and operating cash outflows year-over-year and is actively executing its Plan of Sale, the explicit 'going concern' warning, continued impairment charges, and inability to fully fund operations from rental income indicate a precarious financial position. The numerous ongoing legal challenges and challenging market conditions further contribute to a negative sentiment.

Positives

• Net loss significantly reduced for both the three-month ($12.4M vs $22.0M) and nine-month ($63.1M vs $142.2M) periods year-over-year.
• Rental income increased by $1.7 million for Q3 2025 compared to Q3 2024, primarily due to the Aventura, FL property.
• Total expenses decreased substantially in Q3 2025 ($10.9M vs $22.5M in Q3 2024) and for the nine months ($44.6M vs $55.5M in 2024).
• General and administrative expenses decreased by $2.3 million in Q3 2025 due to reduced staffing, bonuses, share-based compensation, and consulting.
• Interest expense decreased by $0.8 million in Q3 2025 and $3.7 million for the nine months due to Term Loan Facility pay downs.
• Net cash used in operating activities improved for the nine months ended September 30, 2025 ($33.7M vs $39.6M in 2024).
• Term Loan Facility principal balance reduced to $200.0 million, and maturity extended to July 31, 2026.
• Shareholder approval of the Plan of Sale provides a clear strategic direction for asset monetization and dissolution.
• Revocation of REIT status provides greater flexibility for cash flow utilization.
• Four Consolidated Properties are under contract for $240.8 million, with additional sales under negotiation ($11.0M for one consolidated, $38.5M for two unconsolidated).

Negatives

• The company recorded a net loss of $12.4 million for Q3 2025 and $63.1 million for the nine months ended September 30, 2025.
• Property rental income did not fully fund obligations during the nine months ended September 30, 2025, resulting in net operating cash outflows of $33.7 million.
• Management explicitly stated 'substantial doubt about the Company's ability to continue as a going concern' due to the Term Loan Facility being a current obligation and uncertainty in asset sale timing and proceeds.
• Impairment losses of $0.8 million in Q3 2025 and $18.8 million for the nine months ended September 30, 2025, indicate assets are being sold below carrying value or revalued downwards.
• Loss on sale of interests in unconsolidated entities of $1.4 million for the nine months ended September 30, 2025.
• Equity in loss of unconsolidated entities increased significantly to $6.5 million for the nine months ended September 30, 2025, from $0.07 million in 2024, primarily due to $8.5 million in other-than-temporary impairment losses.
• General and administrative expenses increased for the nine months ended September 30, 2025, by $3.5 million, primarily due to $6.5 million in severance expense.
• Challenging market conditions persist, including elevated interest rates and limited debt/equity capital availability, which could apply downward pricing pressures on remaining assets.
• The company is not in compliance with certain financial metrics of the Term Loan Facility, limiting its ability to dispose of assets without lender consent (though this was amended for unaffiliated third-party sales).
• The company has not yet achieved the requirements to access the $400.0 million Incremental Funding Facility.
• No dividends were declared on Class A common shares during 2025 or 2024.
• Multiple ongoing legal proceedings (class action and derivative lawsuits) alleging federal securities law violations and breach of fiduciary duty.

Risks

• Substantial doubt about the company's ability to continue as a going concern within one year due to obligations exceeding property rental income and uncertainty in asset sale timing/proceeds.
• Challenging market conditions, including elevated interest rates and limited debt/equity capital, could apply downward pricing pressures on remaining assets and adversely impact Plan of Sale proceeds and distributions.
• No assurance that the strategic review process will result in any transaction or that the company will be successful in fully executing the Plan of Sale.
• Non-compliance with certain financial metrics of the Term Loan Facility could trigger springing collateral requirements and limit asset dispositions.
• Inability to access the $400.0 million Incremental Funding Facility due to not meeting rental income requirements.
• Continued evaluation of the portfolio, development plans, and holding periods may result in additional real estate impairments in future periods.
• Ongoing class action and derivative lawsuits alleging federal securities law violations and breach of fiduciary duty, with potential for significant compensatory and punitive damages, and demands for corporate governance reform.
• Potential liability for costs related to removal, remediation, government fines, and injuries from hazardous or toxic substances under various environmental laws.
• Responsibility for deductibles and losses in excess of insurance coverage, which could be material, and uncertainty about future terrorism insurance availability on commercially reasonable terms.
• Risk of tenants defaulting on leases, as evidenced by past abandoned project costs due to tenant default and current tenant defaults mentioned in the Aventura property sale agreement.
• Litigation related to a mechanics lien and arbitration award (VCC, LLC vs. Seritage SRC Finance LLC) indicates potential disputes with contractors.
• The Aventura property operates under temporary certificates of occupancy, and obtaining final COs is a responsibility transferred to the buyer post-closing, with a holdback amount, indicating potential ongoing issues or costs.

Future Outlook

The company projects that its obligations will continue to exceed property rental income and expects to fund these costs through a combination of cash on hand, sales of Consolidated and Unconsolidated Properties, and potential financing transactions. The strategic review process, including a potential sale of the company, remains ongoing, but there is no assurance of a successful transaction or full execution of the Plan of Sale. Challenging market conditions, such as elevated interest rates and limited capital availability, are expected to continue to negatively impact asset sale proceeds and the timing of distributions to shareholders. The Board of Trustees will determine future distributions after the Term Loan Facility is paid down.

Management Comments

• "The Company currently anticipates that it will continue to use sales of Consolidated and Unconsolidated Properties as the primary source of capital to fund its Obligations, including the principal payments on the Term Loan Facility, while at the same time pursuing alternative financing arrangements."
• "The Company continues to monetize its assets, however, the timing of sales and the amount of proceeds from future sales are not under the Companys control and therefore cannot be deemed probable."
• "The Company has concluded that management's plans do not alleviate substantial doubt about the Company's ability to continue as a going concern until assets under contract are sufficient to increase the Companys projected cash flows such that they exceed the Companys Obligations, or until alternative financing arrangements have been made."
• "The Companys primary objective is to create value for its shareholders through the monetization of the Company's assets through the Plan of Sale, which can be suspended by the Board of Trustees."
• "We look to enhance sale value through leasing our built footprint, densification of our sites, achievement of entitlements and modification of agreements that govern our properties."
• "We continue to position all remaining assets for sale."
• "We continue to evaluate our portfolio, including our development plans, hold periods and, if applicable, offers received, which may result in additional impairments in future periods on our consolidated properties and investments in unconsolidated entities."
• "While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material effect on the consolidated financial position, results of operations, cash flows or liquidity of the Company."

Industry Context

Seritage Growth Properties operates in the U.S. retail and mixed-use real estate sector, which has been significantly impacted by the decline of traditional anchor tenants and evolving consumer behaviors. The company's strategy of asset monetization and potential dissolution reflects a broader industry trend of real estate firms divesting non-core or underperforming assets, particularly in a challenging economic climate. Elevated interest rates and limited access to debt and equity capital, as noted in the filing, are common headwinds for real estate development and transactions across the industry. The company's focus on enhancing sale value through leasing, densification, and entitlements aligns with common real estate development practices aimed at maximizing disposition value. The shift from a REIT to a C Corporation provides greater capital management flexibility, a strategic move that could be a response to specific operational needs or market conditions making REIT status less advantageous for its current liquidation-focused strategy.

Corporate Governance

Legal Proceedings

• **Zhengxu He, Trustee of the He & Fang 2005 Revocable Living Trust v. Seritage Growth Properties (Class Action):** Filed July 1, 2024, in U.S. District Court for the Southern District of New York. Alleges federal securities law violations, false/misleading disclosures regarding internal controls for impairment indicators, property value, and projected gross proceeds. Seeks compensatory damages.
• **Paul Sidhu v. Seritage Growth Properties (Derivative Action):** Filed January 15, 2025, in U.S. District Court for the District of Maryland. Alleges breach of fiduciary duty and other claims against CEO, CFO, and current/former Board members. Seeks compensatory damages, corporate governance reform, restitution, costs, and fees. Consolidated with Wallen Derivative Action on November 5, 2025, and stayed on November 12, 2025.
• **James Wallen v. Seritage Growth Properties (Derivative Action):** Filed January 20, 2025, in U.S. District Court for the District of Maryland. Similar allegations and demands as Sidhu. Consolidated with Sidhu Derivative Action on November 5, 2025, and stayed on November 12, 2025.
• **Derrick Cheroti v. Seritage Growth Properties (Derivative Action):** Filed May 8, 2025, in U.S. District Court for the Southern District of New York. Similar allegations and demands as other derivative actions, additionally seeking punitive damages, accounting for profits/benefits, and constructive trust. Stayed on September 2, 2025, pending resolution of the Securities Action motion to dismiss.
• **VCC, LLC v. Seritage SRC Finance LLC (Mechanics Lien & Arbitration):** Case No. 2025-007641-CA-01, in Circuit Court of Eleventh Judicial Circuit, Florida. General contractor VCC has a mechanics lien of $612,210.23 and filed a Notice of Lis Pendens. Relates to a disputed change order and an arbitration award (Hub Steel Award of $3,384,189.61 paid by VCC). Arbitration is ongoing.
• **Danielle Sessa v. Seritage Growth Properties, L.P., et. al (Personal Injury):** Case No. 2023-05446-CA-01, in Circuit Court of Eleventh Judicial Circuit, Miami-Dade County, Florida. Involves a plaintiff tripping on asphalt located on the other side of the construction fence from the company's property within a portion of the parking lot owned by Aventura Mall Venture (AMV).
• **Peter Hanna v. TBBM Capital, LLC and Seritage SRC Finance LLC (Personal Injury):** Case No. 2025-016113-CA-01, in Circuit Court of Eleventh Judicial Circuit, Miami-Dade County, Florida. Plaintiff alleges falling near property line with AMV. AMV expects indemnification from Seller.
• **Medal Baca, Alfredo Raul (Personal Injury Claim):** Employee alleged to have tripped on stairs. No lawsuit filed, no activity on this claim in 18 months.
• **Maria Eltit (Personal Injury Claim):** Claimant alleged to have scraped leg on metal casing. No lawsuit filed.

Related Party Transactions

• **Edward S. Lampert:** Former Chairman of Seritage, owns approximately 23.8% of outstanding Class A common shares as of September 30, 2025. Converted all Operating Partnership Units to Class A common shares on July 6, 2022.
• **Winthrop Capital Advisors LLC:** Provides additional staffing, including interim CFO John Garilli. The company paid Winthrop $0.6 million during Q3 2025 and $2.3 million during the nine months ended September 30, 2025.
• **Unconsolidated Entities:** The company provides management, leasing, construction supervision, and development services to certain unconsolidated entities (Mark 302 JV, UTC JV, Tech Ridge JV). Receivables from unconsolidated entities for reimbursable costs totaled $1.7 million as of September 30, 2025. The company advanced $1.7 million to one of its joint venture partners during the nine months ended September 30, 2025. Payables to unconsolidated entities totaled $52.9 thousand as of September 30, 2025.
• **Put Rights:** The company has put rights for one asset in a joint venture, but the 50% occupancy threshold to exercise this right had not been met as of September 30, 2025.

Stakeholder Impact

• **Shareholders:** Face uncertainty regarding the timing and amount of distributions from the Plan of Sale. Impacted by ongoing net losses, 'going concern' doubt, and the potential for significant costs from class action and derivative lawsuits. No common dividends have been declared since 2019.
• **Preferred Shareholders:** Continue to receive preferred dividends ($0.4375 per share quarterly).
• **Employees:** Workforce reductions are indicated by decreased staffing and severance expenses, impacting job security.
• **Creditors (Berkshire Hathaway):** The Term Loan Facility is a significant liability. While repayments are being made and maturity was extended, non-compliance with financial metrics and the 'going concern' doubt pose risks to full and timely repayment.
• **Tenants:** Some tenants are in default, and the sale of properties like Aventura involves the transfer of lease obligations and security deposits, potentially affecting tenant relationships and operations.
• **Contractors/Suppliers:** Litigation with VCC, LLC highlights potential disputes and payment issues, which could affect future relationships and project costs.

Next Steps

• Continue executing the Plan of Sale to monetize remaining assets.
• Pursue value-maximizing alternatives, including a potential sale of the company.
• Fund obligations and development expenditures through cash on hand, asset sales, and potential financing transactions.
• Vigorously defend against ongoing class action and derivative lawsuits.
• Evaluate the deferred tax asset valuation allowance position quarterly as verifiable positive evidence becomes available.
• Board of Trustees to assess investment opportunities and taxable income for future distribution determinations.
• Evaluate the impact of new accounting standards ASU 2023-09 (Income Tax Disclosures) and ASU 2025-01 (Disaggregation of Income Statement Expenses).

Key Dates

Recommendation

The filing presents a highly concerning financial picture. The explicit 'substantial doubt about the Company's ability to continue as a going concern' is a critical red flag for investors. While asset sales are ongoing, their timing and proceeds are uncertain, and they are not sufficient to cover obligations, including the Term Loan Facility which is now a current obligation. The company continues to incur net losses and significant impairment charges. The inability to access the Incremental Funding Facility and non-compliance with debt covenants further highlight liquidity constraints. The numerous ongoing legal proceedings add significant uncertainty and potential financial burden. Given these severe challenges and the stated intention to liquidate assets and dissolve, the investment thesis is primarily one of liquidation value, which is highly uncertain and subject to significant downside risk in a challenging market. A seasoned investor would likely seek to exit this position due to the high risk and fundamental uncertainty.

Keywords

Real Estate, Asset Monetization, Going Concern, Property Sales, Liquidity, SEC Filing, 10-Q, Commercial Real Estate, Development, Impairment, Debt, Term Loan, Litigation, Corporate Governance, Shareholder Value, Florida Real Estate, Aventura