Deal room | Frozen year-end 2015 snapshot

Seritage at share: what the disclosed records support

Signed annual base rent of $202,938,000 at share as of December 31, 2015, of which 76.01% is owed by Sears Holdings. This underwrites the disclosed portfolio records, not a single imaginary strip center.

Reporting date December 31, 2015. The year-end supplement was first publicly available on March 10, 2016 SR0 SR1; the analysis is frozen at that first availability, not at the reporting date.

Rent-status bridge, as reported

Annual base rent at share in US dollars per year as of December 31, 2015 SR1 p.4. These are annualized signed contract measures. They are not a ledger of 2015 collections, and not even the in-place amount is shown to equal receipts.

  1. Start

    Sears Holdings, in place

    $154,255,000
    In place, annualized SR1 p.4

  2. Plus

    Third-party, in place

    $35,747,000
    In place, annualized SR1 p.4

  3. Equals

    In-place annual base rent

    $190,002,000
    Derived sum SR1 p.4

  4. Plus

    Third-party, signed but not yet open

    $12,936,000
    Not yet cash SR1 p.4

  5. Equals

    Total signed annual base rent

    $202,938,000
    Printed total; difference $0 SR1 p.4
Annual base rent at share by status, December 31, 2015, US dollars (SR1)Sorted bars from zero: Sears Holdings in place $154,255,000; third-party in place $35,747,000; third-party signed but not open $12,936,000, not yet cash.US dollars per year, at share. Source: SR1 p.4$0$40M$80M$120M$160MSears Holdings, in place$154,255,000Sears Holdings, in place: $154,255,000 per year at share, SR1 page 4Third-party, in place$35,747,000Third-party, in place: $35,747,000 per year at share, SR1 page 4Third-party, signed, not open$12,936,000Third-party, signed, not open: $12,936,000 per year at share, SR1 page 4
Three comparable groups of annual base rent at share, in US dollars only, sorted largest first on a scale starting at $0. Hatched bar: signed but not yet open, not yet cash. Source SR1 p.4.

Anchor concentration

Sears share of signed annual base rent at share

76.01%

Sears $154,255,000 divided by total signed $202,938,000 SR1 p.4.

Contracted base rent remaining under a hypothetical complete Sears-rent loss

$48,683,000

23.99% of signed rent. Hypothetical arithmetic, not a prediction.

Of which in place
$35,747,000
Of which signed but not yet open, not yet cash
$12,936,000

No replacement tenant or replacement rent is added. Recaptured space never carries both old Sears rent and new rent in this model.

Two-factor stress switch

Bounded mechanical exposures on annualized contract rent. Only removing Sears anchor base rent changes the signed total. Delaying the opening of signed-not-open space never cancels its signed rent; it only keeps the modeled in-place amount at the reported level. No probability is assigned.

Sears anchor base rent
Signed-not-open third-party space

Reported 2015 status (default)

Annual contracted signed base rent
$202,938,000
Change in signed rent
$0 change vs reported status
Modeled in-place base rent, annualized
$190,002,000
Change in modeled in-place rent
$0 change vs reported status
Signed rent outside the in-place amount, not yet cash
$12,936,000

Bars show each amount as a share of the reported signed total. Neither amount is a receipts figure.

Mechanical stress, not an actual NOI or cash-flow forecast

Every scenario, annual base rent at share in US dollars per year SR1 p.4. Delayed rows keep signed rent intact. Hypothetical rows are not the reported baseline.
ScenarioSears anchor rentSigned-not-open spaceAnnual contracted signedModeled in-place, annualizedSigned outside in-place, not yet cash
Reported 2015 status (default)PresentNot open (reported)$202,938,000$190,002,000$12,936,000
Sears anchor base rent removedRemovedNot open (reported)$48,683,000$35,747,000$12,936,000
Signed-not-open opening delayedPresentDelayed$202,938,000$190,002,000$12,936,000
Both: anchor removed and opening delayedRemovedDelayed$48,683,000$35,747,000$12,936,000
Hypothetical: signed-not-open space opensPresentOpens (hypothetical)$202,938,000$202,938,000$0
Hypothetical: anchor removed and signed-not-open space opensRemovedOpens (hypothetical)$48,683,000$48,683,000$0

Missing parcel and lender inputs

Each item is UNKNOWN. Contract language does not establish a parcel's rent reduction, reimbursement dollars, property NOI, LIBOR fixing, debt coverage, capital expenditures or tax bill. Nothing below is estimated.

Parcel inputs

  • UNKNOWN Parcel rent reduction after recapture

    Section 1.7(h) and (j)(vi) reduce Sears base rent under Side Letter Schedule 2 from the actual recapture date; the schedule is not in the packet.

    Would close it: Side Letter Schedule 2; Executed recapture notices and any dispute outcomes.

  • UNKNOWN Tax and CAM reimbursement dollars

    Sections 4.1, 4.5 and 10.2 set shares and estimates, not amounts actually billed or recovered.

    Would close it: Annual tenant reconciliation statements; Property operating and CAM ledgers; Reimbursement clauses of executed third-party leases.

  • UNKNOWN Parcel tax bill

    The 105% estimate in Section 4.5 is an installment method, not a bill. No tax reset is modeled.

    Would close it: County tax bills and assessment notices for each parcel.

  • UNKNOWN Property NOI by parcel

    SR1 reports only a portfolio total for a partial period; no parcel operating statement is supplied.

    Would close it: Parcel operating statements; Parcel rent rolls; JV property financial statements.

  • UNKNOWN Capital expenditures

    Recapture and re-leasing usually require landlord work; no budget is supplied.

    Would close it: Redevelopment budgets; Construction contracts; Lender reserve and holdback schedules.

  • UNKNOWN Rent commencement of signed-not-open leases

    Opening dates, abatements and conditions determine when signed rent may start; none are supplied.

    Would close it: Executed third-party leases; Tenant delivery and opening schedules.

  • UNKNOWN Actual cash collections

    Annualized signed and in-place rent are contract measures, not receipts.

    Would close it: Tenant receivables ledger; Bank receipts; Cash basis rent roll.

Lender inputs

  • UNKNOWN LIBOR fixing and interest cost

    SR1 gives a floating spread only; no fixing or hedge is supplied, so no interest cost is computed.

    Would close it: Loan agreement; Rate cap or hedge confirmations; Lender interest notices.

  • UNKNOWN Debt service coverage

    Needs a defined coverage test, NOI on the lender's basis and interest cost; none are supplied.

    Would close it: Loan agreement covenant definitions; Lender compliance certificates.

  • UNKNOWN Loan reserves and cash management

    Reserves and sweeps can trap cash regardless of contract rent.

    Would close it: Loan agreement; Cash management agreement; Reserve account statements.

Scope and valuation

  • UNKNOWN JV lease terms

    At-share rent includes JV interests whose leases are similar but distinct from the public master lease.

    Would close it: JV master leases; JV operating agreements.

  • UNKNOWN Valuation or price ceiling

    Not computed. No parcel NOI, capitalization rate or debt terms sufficient for valuation are supplied.

    Would close it: All items above plus an independent market evidence source.

Reconciliation without a collections ledger

Sum of rent groups

$154,255,000 plus $35,747,000 plus $12,936,000 equals $202,938,000, the printed total, with a difference of $0 SR1 p.4. All are annualized contract measures at the reporting date.

Leased area headline

Gross leasable area 42,468,000 square feet; at share 39,743,000 square feet SR1 p.4. Leased 99.4% at share implies about 39,504,542 square feet (derived; the percentage is rounded to 0.1 point).

An area headline only. It does not establish rent paid or open status, and the excerpt does not say whether signed-not-open space counts as leased (UNKNOWN). No rent per square foot is computed because area is not split by tenant group.

Partial-year reported NOI

Total NOI $89,493,000 after specified noncash adjustments, $99,343,000 before SR1 p.8. Period: July 7, 2015 to December 31, 2015, 178 days, including unconsolidated JVs.

Not annualized and not compared with signed rent as a collections test.

Debt as reported

Mortgage notes payable $1,161,000,000 at LIBOR plus 465 basis points, maturing July 2019 SR1 p.11.

LIBOR fixing UNKNOWN; no interest cost or coverage is computed.

Master lease treatment, qualitative

How the public master lease SR2 frames recapture, rent reduction, impositions and CAM. These are portfolio contract terms, not parcel results.

Evidence: original clause excerpts

Section 1.7(a): Landlord recapture: separation into retained and recapture space

landlord may elect to separate the store into tenant-retained and recapture space. Recapture space generally approximately 50% of the store's gross leasable square footage (after stated exclusions), subject to a minimum 40,000 square feet of tenant-retained space at a property and other physical and contractual conditions. This is a contractual framework, NOT an assertion that every property can immediately recapture half its floor area.

Packet excerpt, condensed from the executed lease; verify the full words in SR2, the SEC exhibit.

Section 1.7(d): Landlord recapture: notice and annual limits

recapture notice generally requires at least 180 days, with tenant election and limits; landlord cannot recapture all or substantially all recapture space at more than 50 properties in a lease year.

Packet excerpt, condensed from the executed lease; verify the full words in SR2, the SEC exhibit.

Section 1.7(h) and (j)(vi): Rent reduction after recapture

from actual recapture date, base rent adjusts DOWN under Side Letter Schedule 2; tenant pays only its proportionate share of property charges. Recapture Notice specifies new rent, share and expenses, with dispute procedure. Side Letter Schedule 2 parcel adjustments are not supplied in this packet. The old and new tenants' rent cannot overlap on the same recaptured square footage in a cash-flow scenario.

Packet excerpt, condensed from the executed lease; verify the full words in SR2, the SEC exhibit.

Section 3.4: Triple-net intent and its limits

parties intend a triple-net lease, expressly subject to its specific adjustment/abatement provisions. NNN does not mean no landlord expense in every situation.

Packet excerpt, condensed from the executed lease; verify the full words in SR2, the SEC exhibit.

Section 4.1(a): Tax impositions

tenant pays either 100% or its proportionate share of impositions as applicable, subject to other provisions.

Packet excerpt, condensed from the executed lease; verify the full words in SR2, the SEC exhibit.

Section 4.5(a)-(b): Monthly estimates for impositions, operating expenses and CAM

tenant pays estimated monthly installments for impositions, operating expenses, CAM, other property charges in light of its proportionate share; initial imposition installment may be estimated from 105% of prior calendar year's tax bill, then reconciled. An estimate is not a verified final property recovery.

Packet excerpt, condensed from the executed lease; verify the full words in SR2, the SEC exhibit.

Section 10.2(a): CAM before and after multi-tenant occupancy

before multi-tenant occupancy tenant maintains and pays CAM for common areas; after multi-tenant occupancy landlord operates common areas, tenant retains a nonexclusive right of use, and its share is allocated under the lease. Individual parcel bills, side-letter rent adjustment and third-party reimbursement clauses are unavailable in these extracts.

Packet excerpt, condensed from the executed lease; verify the full words in SR2, the SEC exhibit.

Scope and timing

Scope difference

The rent figures are at share and include JV interests across 266 properties SR1 p.4. The public master lease covers 223 wholly-owned properties; JV properties run under similar but distinct leases that are not in this packet SR1 p.2.

Timeline

  1. June 11, 2015Master lease exhibit filed SR2
  2. July 7, 2015Acquisition of $2.7 billion completed; NOI period begins SR1 p.2
  3. December 31, 2015Reporting date of the snapshot; not a publication date
  4. March 10, 2016Supplement and results release first publicly available SR0 SR1

Sources