SERITAGE GROWTH PROPERTIES (Exact name of registrant as specified in its charter) or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to _______ Commission File Number 001-37420 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021 Maryland 38-3976287 (State of Incorp ...

Part I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) The company is a REIT focused on redeveloping and leasing a diversified portfolio of retail and mixed-use properties Portfolio Overview as of December 31, 2020 | Portfolio Type | Number of Properties | Total GLA (million sq ft) | |---|---|---| | Wholly Owned Properties | 158 | 24.5 | | Unconsolidated Properties | 25 | 1.9 | | **Total** | **183** | **26.5** | - The company's primary business strategies include maximizing the value of its **~2,400 acres of land** through densification, converting single-tenant buildings into multi-tenant properties at higher rents, and leveraging joint venture relationships[24](index=24&type=chunk)[29](index=29&type=chunk) - Following the Sears Holdings bankruptcy, Seritage executed a new master lease with Transform Holdco LLC (Holdco), and as of March 2021, **no properties remained leased to Holdco or Sears**[18](index=18&type=chunk)[19](index=19&type=chunk) - The COVID-19 pandemic had a significant impact, though the company collected **93% of rental income for Q4 2020** and is cautiously managing cash to preserve asset value[20](index=20&type=chunk)[21](index=21&type=chunk) - As of December 31, 2020, the company had 61 full-time employees, with an organization comprised of **33% women and 23% people of color**[38](index=38&type=chunk)[40](index=40&type=chunk) [Item 1A. Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, Sears bankruptcy litigation, and ongoing capital needs - The **COVID-19 pandemic** is expected to materially and adversely impact tenants' businesses, affecting the company's income, cash flow, and liquidity[52](index=52&type=chunk) - The company is a defendant in litigation from the Sears Holdings bankruptcy, which alleges the 2015 spin-off was a **fraudulent conveyance** seeking recovery of property or damages[71](index=71&type=chunk)[74](index=74&type=chunk) - The company has ongoing capital needs and must obtain lender consent for asset sales due to **non-compliance with certain financial metrics** in its Term Loan Facility[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - **ESL Investments, Inc.** exerts substantial influence, beneficially owning approximately 30.4% of Operating Partnership units and 6.5% of Class A common shares[142](index=142&type=chunk)[144](index=144&type=chunk) - Failure to maintain REIT qualification would subject the company to U.S. federal income tax, which could result in a **substantial tax liability** and reduce cash available for distribution[146](index=146&type=chunk) [Item 1B. Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from the staff of the SEC as of the date of this Annual Report - There are **no unresolved comments** from the staff of the SEC[178](index=178&type=chunk) [Item 2. Properties](index=33&type=section&id=Item%202.%20Properties) The portfolio consists of 183 properties with a 32.4% lease rate, concentrated in Florida and California Portfolio Summary (at share) as of Dec 31, 2020 | Metric | Value | |---|---| | Total Properties | 183 | | Total GLA (million sq ft) | 26.5 | | Leased GLA (million sq ft) | 8.6 | | Leased Percentage | 32.4% | Top 5 States by Annual Rent | State | % of Total Annual Rent | |---|---| | Florida | 19.5% | | California | 16.2% | | New York | 7.0% | | New Jersey | 5.2% | | Texas | 4.7% | Top 5 Tenants by Annual Rent | Tenant | % of Total Annual Rent | |---|---| | Dick's Sporting Goods | 8.3% | | Dave & Buster's | 6.1% | | Round One Entertainment | 4.8% | | Burlington Stores | 4.5% | | At Home | 4.5% | - Signed-but-not-yet-open (SNO) leases represent a significant portion of future income, accounting for **36.2% of total annualized rent** from signed leases[194](index=194&type=chunk) [Item 3. Legal Proceedings](index=40&type=section&id=Item%203.%20Legal%20Proceedings) The company is defending a significant lawsuit from Sears Holdings alleging fraudulent transfer of real estate assets - The primary legal proceeding is a lawsuit from Sears Holdings alleging the 2015 spin-off transaction was an **actual and/or constructive fraudulent transfer**[195](index=195&type=chunk) - The lawsuit alleges the real estate was undervalued by **$649 to $749 million** and seeks remedies including rescission or compensatory damages[195](index=195&type=chunk)[197](index=197&type=chunk) - Seritage filed a partial motion to dismiss certain claims in February 2020 and believes the claims against it are **without merit**[198](index=198&type=chunk) - In March 2021, Seritage sued its D&O insurance providers for **refusing to pay defense costs** related to the Sears litigation[199](index=199&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[202](index=202&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=42&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock significantly underperformed in 2020, and common share dividends have been suspended since Q1 2019 Cumulative Total Shareholder Return (2015-2020) | Index | 12/31/2015 | 12/31/2020 | % Return in 2020 | |---|---|---|---| | Seritage Growth Properties | $100 | $39 | -61% | | S&P 500 | $100 | $203 | +18.4% (calculated) | | SNL US REIT Equity | $100 | $137 | -5.5% (calculated) | - The company has **not declared dividends** on its Class A and Class C common shares since Q1 2019, but may satisfy REIT requirements via preferred share dividends[214](index=214&type=chunk) [Item 6. Selected Financial Data](index=44&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable as per the report - None[217](index=217&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Declining rental income from Sears lease terminations drove a wider net loss in 2020, with liquidity dependent on asset sales Comparison of Operations (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | |---|---|---| | Rental Income | $116,202 | $167,035 | | Gain on sale of real estate | $88,555 | $71,104 | | Impairment on real estate assets | $(64,108) | $0 | | Net Loss | $(152,964) | $(90,603) | - The **$50.8 million decrease in rental income** was driven by a $36.5 million reduction in rent from Sears/Kmart due to lease terminations[237](index=237&type=chunk)[238](index=238&type=chunk) - The company's primary source of liquidity is asset sales, generating **gross proceeds of $333.4 million** in 2020[229](index=229&type=chunk)[230](index=230&type=chunk) Cash Flow Summary (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | |---|---|---| | Net cash used in operating activities | $(47,314) | $(57,660) | | Net cash provided by (used in) investing activities | $42,868 | $(299,490) | | Net cash provided by (used in) financing activities | $15,440 | $(36,447) | Non-GAAP Performance Measures (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | |---|---|---| | Total NOI | $37,757 | $72,667 | | Company FFO | $(88,583) | $(33,896) | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk is minimal as its entire $1.6 billion of consolidated debt is at a fixed interest rate - The company's **$1.6 billion of consolidated debt is fixed-rate**, therefore it is not subject to interest rate fluctuations[333](index=333&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=60&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the detailed consolidated financial statements and schedules beginning on page F-1 of the report [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=60&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None[336](index=336&type=chunk) [Item 9A. Controls and Procedures](index=60&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, and the auditor issued an unqualified opinion - Management concluded that **disclosure controls and procedures were effective** as of December 31, 2020[338](index=338&type=chunk) - The independent registered public accounting firm, Deloitte & Touche LLP, issued an **unqualified opinion** on the company's internal control over financial reporting[340](index=340&type=chunk) [Item 9B. Other Information](index=61&type=section&id=Item%209B.%20Other%20Information) The company reported no other information for this item - None[342](index=342&type=chunk) Part III [Item 10. Directors, Executive Officers, and Corporate Governance](index=61&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Required information is incorporated by reference from the company's 2021 Annual Meeting proxy statement [Item 11. Executive Compensation](index=61&type=section&id=Item%2011.%20Executive%20Compensation) Required information is incorporated by reference from the company's 2021 Annual Meeting proxy statement [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=61&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Required information is incorporated by reference from the company's 2021 Annual Meeting proxy statement [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=61&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Required information is incorporated by reference from the company's 2021 Annual Meeting proxy statement [Item 14. Principal Accounting Fees and Services](index=61&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Required information is incorporated by reference from the company's 2021 Annual Meeting proxy statement Part IV [Item 15. Exhibits and Financial Statement Schedule](index=62&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedule) This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K Financial Statements and Supplementary Data [Consolidated Financial Statements](index=72&type=section&id=Consolidated%20Financial%20Statements) The company's net loss widened to $153.0 million in 2020, with total assets declining to $2.65 billion Consolidated Balance Sheet Data (as of Dec 31) | (in thousands) | 2020 | 2019 | |---|---|---| | Net investment in real estate | $1,910,872 | $1,970,633 | | Total Assets | $2,648,943 | $2,750,612 | | Term loan facility, net | $1,598,909 | $1,598,487 | | Total Liabilities | $1,766,216 | $1,707,242 | | Total Equity | $882,727 | $1,043,370 | Consolidated Statement of Operations Data (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | |---|---|---| | Total Revenue | $116,495 | $168,633 | | Total Expenses | $202,778 | $224,455 | | Gain on sale of real estate | $88,555 | $71,104 | | Impairment of real estate assets | $(64,108) | $0 | | Net Loss | $(152,964) | $(90,603) | [Notes to Consolidated Financial Statements](index=79&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail liquidity challenges, reliance on asset sales, debt covenants, and significant litigation and impairments - Management has determined it is probable that its plans to fund obligations through **cash on hand and asset sales** will be effectively implemented[418](index=418&type=chunk) - A real estate **impairment loss of $64.1 million** was recognized in 2020, primarily related to vacant properties and assets leased to struggling theater and fitness tenants[428](index=428&type=chunk)[429](index=429&type=chunk) Sears/Holdco Master Lease Termination Activity Summary | Year of Notice | Number of Properties Terminated | |---|---| | 2020 | 17 | | 2019 | 29 | | 2018 | 22 | | 2017 | 39 | | 2016 | 17 | | **Total** | **124** (excluding 9 rejected in bankruptcy) | - The company's **$1.6 billion Term Loan Facility** with Berkshire Hathaway has a fixed 7.0% interest rate, but access to an additional $400 million is contingent on a performance threshold not yet met[507](index=507&type=chunk)[509](index=509&type=chunk)[512](index=512&type=chunk)

Company Overview and Strategy - Seritage owns 199 properties encompassing 316 million square feet across 44 states[2] - The company aims to revitalize shopping, dining, entertainment, and mixed-use destinations[2] - The company focuses on re-leasing existing space, densifying sites with mixed-use development, and transforming retail real estate[3] - The company has raised over $860 million from the sale or joint venture of interests in 78 properties and several outparcels[3] Portfolio and Demographics - The portfolio includes 111 properties attached to regional malls and 88 freestanding or shopping center properties[7] - The average population density within a 10-mile radius of the properties is 653000, with an average household income of $88000[7] - Top states for investment include California (228%), Florida (171%), and New York (61%)[9] COVID-19 Impact and Response - As of August 4, 2020, 93% of tenants were open or partially open[12] - The company collected 66% of cash rents in Q2 2020 and executed deferral agreements for 21%[12] - Year-to-date asset sales totaled $1663 million, including $986 million in Q2 2020[12] Tenant Activity and Rent Collection - 93% of in-place tenants are open and/or operating, representing 92% of leased GLA and 86% of annual ABR[16] - In Q2 2020, the company collected 66% of rental income and deferred an additional 21%[18] - In July 2020, the company collected 74% of rental income and deferred an additional 7%[18] Capital Resources and Allocation - Year-to-date, the company sold 13 assets and five outparcels, generating $166 million in cash proceeds[21] - Since July 2017, the company has monetized 78 assets and several outparcels, generating $860 million in cash proceeds[21] - The company has $915 million of assets under contract for sale as of August 4, 2020[22]

| --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|--------------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | GE | | | | | | | | | | | | | | | | | | | | | SERITAC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | WTH PROPERTI | | | | SUPPLEMENTAL INFORMATION INTRODUCTION Overview Seritage Growth Properties (NYSE: SRG) ("Seritage" or the "Company") is a fully-integrated, self-administered and self-managed REIT that is ...

Company Overview - As of December 31, 2019, Seritage Growth Properties had interests in 212 properties totaling approximately 334 million square feet of gross leasable area (GLA)[3] - The company's primary objective is to re-lease and redevelop its Wholly Owned Properties and JV Properties to grow net operating income and diversify its tenant base[4] Financial Performance - Net loss attributable to Seritage common shareholders for the year ended December 31, 2019 was $64297 thousand, compared to a net loss of $78375 thousand in 2018[15] - Total Net Operating Income (NOI) for the year ended December 31, 2019 was $72667 thousand, a decrease from $143107 thousand in 2018[15] - Company Funds From Operations (FFO) for the year ended December 31, 2019 was $(33896) thousand, compared to $15746 thousand in 2018[15] - Total debt to total market capitalization was 410% as of December 31, 2019, compared to 461% as of December 31, 2018[13] Portfolio Composition - As of December 31, 2019, the portfolio included 113 properties attached to regional malls and 99 shopping center or freestanding properties[38] - The percentage leased (total / at share) was 426% / 429% as of December 31, 2019, compared to 670% / 663% as of December 31, 2018[13] - In-place diversified leases accounted for $97109 thousand or 506% of total annual rent, with an annual rent per square foot (PSF) of $1379[17] - Signed not yet opened (SNO) diversified leases accounted for $84348 thousand or 439% of total annual rent, with an annual rent PSF of $2006[17] - Sears/Kmart leases accounted for $10577 thousand or 55% of total annual rent, with an annual rent PSF of $510[17] Redevelopment Activity - As of December 31, 2019, the company had originated 91 retail redevelopment projects since inception, representing an estimated total investment of $1580-1660 million[51]

SERITAGE WTH PROPERTI SUPPLEMENTAL INFORMATION INTRODUCTION Overview Seritage Growth Properties (NYSE: SRG) ("Seritage" or the "Company") is a fully-integrated, self-administered and self-managed REIT that is principally engaged in the acquisition, ownership, development, redevelopment, management, and leasing of diversified retail and mixed-use real estate throughout the United States. As of June 30, 2019, the Company's portfolio consisted of interests in 221 properties totaling approximately 35.1 million ...

CORPORATE PROFILE MAY 2019 | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-----------------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | ( L | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | OWTH PROPERTIES | | | | | F O R W A R D - L O O K I N G S T A T E M E N T S This document contains forward-looking statements within the me ...

| --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|--------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ( | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | H | PROPER | | | | SUPPLEMENTAL INFORMATION INTRODUCTION Background Seritage Growth Properties (NYSE: SRG) ("Seritage" or the "Company") is a fully-integrated, self-administered and self-managed retail REIT with interests in ...