Before and after, evidence page

Seritage, 2015 then 2018: how far did Sears rent concentration fall?

A dated comparison of annual signed base rent at share. It measures concentration at two year ends; it does not assign the change to any one cause.

Timing. The baseline is as of December 31, 2015 and frozen at first public availability on March 10, 2016 (SR0, SR1). The October 2018 notice (SR3) and the 2018 year end report (SR4) came later and were unknown at that snapshot. They are cited separately below. Mechanical analysis only; not investment or legal advice.

Sears Holdings share of total signed annual base rent 76.01% As of December 31, 2015, from the FY2015 supplement (SR1 p.4), published March 10, 2016. What was known at the snapshot. Later documents not yet opened.

Baseline: what the snapshot showed

Sears share of total signed76.01%$154,255,000 of $202,938,000
Sears share of rent in place81.19%$154,255,000 of $190,002,000
Signed, not yet open (not yet cash)$12,936,000Signed rent minus rent in place
Annual base rent at share by status, December 31, 2015 (US dollars per year)
ComponentAnnual base rentStatusSource
Sears Holdings$154,255,000In placeSR1 p.4
Non-Sears, in place$35,747,000In placeSR1 p.4
In place subtotal$190,002,000Derived sumSR1 p.4
Non-Sears, signed, not yet open$12,936,000Not yet cashSR1 p.4
Total signed$202,938,000Ties to reported total; difference $0SR1 p.4
Dated numerators and denominators, December 31, 2015
MeasureNumeratorDenominatorResultSource
Sears share of total signed$154,255,000
Sears, Dec 31, 2015		$202,938,000
Total signed, Dec 31, 2015		76.01%SR1 p.4
Sears share of in place$154,255,000
Sears, Dec 31, 2015		$190,002,000
In place subtotal, Dec 31, 2015		81.19%SR1 p.4
Non-Sears share of total signed$48,683,000
Non-Sears signed, Dec 31, 2015		$202,938,000
Total signed, Dec 31, 2015		23.99%SR1 p.4
Not yet open share of total signed$12,936,000
Signed, not yet open, Dec 31, 2015		$202,938,000
Total signed, Dec 31, 2015		6.37%SR1 p.4

Portfolio context (SR1 p.4): 266 properties including JV interests; total gross leasable area 42,468,000 square feet, at share 39,743,000 square feet; total leased 99.5%. Master lease terms (SR2 Section 1.7) already allowed recapture of about half of a store, with Sears rent adjusting down; the parcel schedule is not in this packet. All rent figures are annualized signed base rent, not cash received.

Revealed: later documents

October 2018 notice (SR3)

On Sears Holdings filed for Chapter 11. The issuer said non-Sears tenants represented approximately 70% of signed lease income, up from approximately 20% at inception, and described nearly $1.0B cash on hand plus committed capital.

Issuer approximations on a signed lease income basis at a different date than the year end report. They are quoted, not recomputed, and are not compared directly with the computed shares.

2018 year end report (SR4)

Sears share of total signed29.09%$61,341,000 of $210,838,000
Sears share of rent in place48.10%$61,341,000 of $127,541,000
Signed, not yet open (not yet cash)$83,297,000Signed rent minus rent in place
Annual base rent at share by status, December 31, 2018 (US dollars per year)
ComponentAnnual base rentStatusSource
Sears Holdings$61,341,000In placeSR4 p.4
Non-Sears, in place$66,200,000In placeSR4 p.4
In place subtotal$127,541,000Derived sumSR4 p.4
Non-Sears, signed, not yet open$83,297,000Not yet cashSR4 p.4
Total signed$210,838,000Ties to reported total; difference $0SR4 p.4
Dated numerators and denominators, December 31, 2018
MeasureNumeratorDenominatorResultSource
Sears share of total signed$61,341,000
Sears, Dec 31, 2018		$210,838,000
Total signed, Dec 31, 2018		29.09%SR4 p.4
Sears share of in place$61,341,000
Sears, Dec 31, 2018		$127,541,000
In place subtotal, Dec 31, 2018		48.10%SR4 p.4
Non-Sears share of total signed$149,497,000
Non-Sears signed, Dec 31, 2018		$210,838,000
Total signed, Dec 31, 2018		70.91%SR4 p.4
Not yet open share of total signed$83,297,000
Signed, not yet open, Dec 31, 2018		$210,838,000
Total signed, Dec 31, 2018		39.51%SR4 p.4

Portfolio context (SR4 pp.2 and 4): 232 properties; total gross leasable area 36,299,000 square feet; total leased 67.0%; 31 wholly owned properties vacant. Agreements reached in 2019 are left out because they were not known at the end of 2018.

Side by side: signed rent versus rent in place

Sears concentration fell by -46.92 points on the total signed basis and by -33.09 points on the in place basis. The gap between signed rent and rent in place widened from $12,936,000 to $83,297,000, so a larger share of 2018 signed rent was not yet cash.

Year end values and change (dollars per year at share, unless stated)
MeasureDecember 31, 2015December 31, 2018ChangeComparable?
Sears annual base rent$154,255,000$61,341,000-$92,914,000Units only Not same store.
Non-Sears, in place$35,747,000$66,200,000+$30,453,000Units only Net of openings, sales and expiries.
In place subtotal$190,002,000$127,541,000-$62,461,000Units only Annualized, not cash received.
Signed, not yet open$12,936,000$83,297,000+$70,361,000Units only Signed rent, not yet cash.
Total signed$202,938,000$210,838,000+$7,900,000Units only Different property set.
Sears share of total signed76.01%29.09%-46.92 pointsWith caveats Same measure; denominator changed.
Sears share of in place81.19%48.10%-33.09 pointsWith caveats Excludes rent not yet open.
Not yet open share of total signed6.37%39.51%+33.14 pointsWith caveats Same status bucket.
Properties266232-34Units only JV basis for 2018 not stated.
Gross leasable area, total42,468,000 square feet36,299,000 square feet-6,169,000 square feetUnits only Includes JV area at 100%.
Total leased99.5%67.0%-32.50 pointsWith caveats Headline area measure.

Which measures compare across years

  • Sears share of total signed annual base rent. Comparable with caveats Same measure, same at-share basis, both year-end supplements; the property set and denominator differ.
  • Sears share of in-place annual base rent. Comparable with caveats Same construction in both years; denominator excludes signed, not yet open rent, which grew sharply.
  • Signed-not-open share of total signed rent. Comparable with caveats Same status bucket; shows how much signed rent was not yet in place.
  • Total leased percent. Comparable with caveats Headline area measure in both years; property count and GLA differ (266 versus 232 properties).
  • Absolute annual base rent by bucket. Same units, not same store Same units and basis, but not a same-store comparison; sales, recapture and development change the set.
  • Rent per square foot. Not computed Rent is at share while total GLA includes JV area at 100%; 2018 at-share GLA is not in the packet.
  • SR3 approximately 70% non-Sears versus SR4 70.91%. Not comparable Different dates (October 15 versus December 31, 2018) and an approximate signed lease income basis.
  • SR3 approximately 20% at inception versus 23.99% at December 31, 2015. Not comparable Inception (July 2015) and year-end 2015 are different dates; the issuer figure is rounded.
  • Partial-period 2015 NOI. Not comparable July 7 to December 31, 2015 only; no 2018 NOI in this packet.

Five overlapping drivers, no single cause

The packet gives balances at two dates, not a walk between them. Each of these moved rent or the denominator, and none can be separated from the others with these records.

Change in portfolio composition

Properties 266 to 232; total GLA 42,468,000 to 36,299,000 square feet.

Rent effect: Not quantified SR1 SR4

Recapture

Master lease Section 1.7 lets the landlord recapture about half of a store, with Sears rent adjusting down under Side Letter Schedule 2, which is not supplied.

Rent effect: Not quantified SR2

Store closings

SR4 reports 31 wholly owned properties vacant at December 31, 2018; a status count, not a count of closings or their rent.

Rent effect: Not quantified SR4

Lease openings

In place non-Sears rent rose by $30,453,000 and signed, not yet open rent rose by $70,361,000; net balances, not gross openings.

Rent effect: Not quantified SR1 SR4

Sears Holdings Chapter 11

Filed October 15, 2018 (SR3); its effect on the December 31, 2018 balances is not isolated in the packet.

Rent effect: Not quantified SR3 SR4

Source timeline

  1. Master lease with Sears filed. SR2
  2. Acquisition of $2.7B completed. SR1
  3. Baseline rent buckets measured. SR1
  4. FY2015 release and supplement published. Snapshot frozen here. SR0 SR1
  5. Snapshot boundary: everything below was unknown on March 10, 2016.
  6. Sears Holdings files for Chapter 11; issuer update. SR3 (revealed)
  7. Outcome rent buckets measured. SR4 (revealed)
  8. FY2018 supplement published. SR4 (revealed)
Annual signed base rent at share, by bucket. Static bars from a zero baseline in US dollars per year. Same units and basis in both years, but not a same store set.

December 31, 2015 (SR1 p.4)December 31, 2018 (SR4 p.4)

Annual signed base rent at share by bucket, December 31, 2015 and December 31, 2018Paired horizontal bars from zero. Sears Holdings: 2015 $154,255,000, 2018 $61,341,000; Non-Sears, in place: 2015 $35,747,000, 2018 $66,200,000; Non-Sears, signed, not yet open: 2015 $12,936,000, 2018 $83,297,000; Total signed: 2015 $202,938,000, 2018 $210,838,000. Sources SR1 page 4 and SR4 page 4.$0$50M$100M$150M$200M$250MSears Holdings2015 $154,255,0002018 $61,341,000Non-Sears, in place2015 $35,747,0002018 $66,200,000Non-Sears, signed, not yet open2015 $12,936,0002018 $83,297,000Total signed2015 $202,938,0002018 $210,838,000US dollars per year, at share; axis starts at $0

Still unknown from this packet

  1. Side Letter Schedule 2 parcel rent adjustments after recapture (SR2 Section 1.7(h)).
  2. Number of recaptured properties and rent removed by recapture between the two dates.
  3. Number of Sears store closings and the rent attached to them.
  4. Gross rent added by lease openings versus new signings; only net bucket balances are given.
  5. Effect of the October 15, 2018 filing on the December 31, 2018 balances.
  6. Property sales between the dates and their rent.
  7. 2018 at-share GLA and at-share leased percent.
  8. Whether the 232 properties use the same JV basis as the 266 properties in 2015.
  9. Cash actually collected in either year; all rent figures are annualized signed base rent.
  10. Later 2019 agreements described in SR4 are excluded; they were not known in 2018.