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, ~~2022~~2023

☐ 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

SERITAGE GROWTH PROPERTIES

(Exact name of registrant as specified in its charter)


Maryland	38-3976287
(State of Incorporation)	(I.R.S. Employer Identification No.)


500 Fifth Avenue, Suite 1530, New York, New York	10110
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 355-7800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbols	Name of each exchange on which registered
Class A common shares of beneficial interest, par value $0.01 per share	SRG	New York Stock Exchange
7.00% Series A cumulative redeemable preferred shares of beneficial interest, par value $0.01 per share	SRG-PA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May ~~9, 2022,~~3, 2023, the registrant had the following common shares outstanding:


Class	Shares Outstanding
Class A common shares of beneficial interest, par value $0.01 per share	~~43,677,418~~56,171,569
Class B common shares of beneficial interest, par value $0.01 per share	0
Class C common shares of beneficial interest, par value $0.01 per share	0

SERITAGE GROWTH PROPERTIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED March 31, ~~2022~~2023

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION
		Page

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022	3
	Condensed Consolidated Statements of Operations for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	4
	Condensed Consolidated Statements of Equity for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	6
	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2926

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	3834

Item 4.	Controls and Procedures	3834

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3935

Item 1A.	Risk Factors	3935

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5235

Item 3.	Defaults upon Senior Securities	5235

Item 4.	Mine Safety Disclosures	5235

Item 5.	Other Information	5235

Item 6.	Exhibits	5336

SIGNATURES		5437

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands, except share and per share amounts)


	March 31, 2022			December 31, 2021				March 31, 2023			December 31, 2022
ASSETS
Investment in real estate
Land	$	437,431		$	475,667			$	154,807		$	172,813
Buildings and improvements		927,214			994,221				464,586			463,616
Accumulated depreciation		(153,454	)		(154,971	)			(55,347	)		(57,330	)
		1,211,191			1,314,917				564,046			579,099
Construction in progress		388,323			381,194				157,824			185,324
Net investment in real estate		1,599,514			1,696,111				721,870			764,423
Real estate held for sale		92,078			—				245,894			455,617
Investment in unconsolidated entities		471,271			498,563				353,919			382,597
Cash and cash equivalents		53,807			106,602				120,476			133,480
Restricted cash		7,152			7,151				11,576			11,459
Tenant and other receivables, net		38,172			29,111				25,982			41,495
Lease intangible assets, net		13,151			14,817				1,615			1,791
Prepaid expenses, deferred expenses and other assets, net		60,828			61,783				35,041			50,859
Total assets (1)	$	2,335,973		$	2,414,138			$	1,516,373		$	1,841,721

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Term loan facility, net	$	1,439,437		$	1,439,332			$	799,859		$	1,029,754
Sales-leaseback financing obligations		20,639			20,627
Accounts payable, accrued expenses and other liabilities		98,773			109,379				58,559			89,368
Total liabilities (1)		1,558,849			1,569,338				858,418			1,119,122

Commitments and contingencies (Note 9)

Shareholders' Equity
Class A common shares $0.01 par value; 100,000,000 shares authorized; 43,675,446 and 43,632,364 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		437			436
Series A preferred shares $0.01 par value; 10,000,000 shares authorized; 2,800,000 shares issued and outstanding as of March 31, 2022 December 31, 2021; liquidation preference of $70,000		28			28
Class A common shares $0.01 par value; 100,000,000 shares authorized; 56,059,530 and 56,052,546 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively									561			561
Series A preferred shares $0.01 par value; 10,000,000 shares authorized; 2,800,000 shares issued and outstanding as of March 31, 2023 and December 31, 2022; liquidation preference of $70,000									28			28
Additional paid-in capital		1,241,583			1,241,048				1,360,060			1,360,411
Accumulated deficit		(607,201	)		(553,771	)			(703,742	)		(640,531	)
Total shareholders' equity		634,847			687,741				656,907			720,469
Non-controlling interests		142,277			157,059				1,048			2,130
Total equity		777,124			844,800				657,955			722,599
Total liabilities and shareholders' equity	$	2,335,973		$	2,414,138			$	1,516,373		$	1,841,721
(1) The Company's condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The condensed consolidated balance sheets, as of March 31, 2022, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(0.9) million of accumulated depreciation and $4.0 million of other assets included in other line items. The Company's condensed consolidated balance sheets as of December 31, 2021, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(0.9) million of accumulated depreciation and $4.0 million of other assets included in other line items.
(1) The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets, as of March 31, 2023, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $3.3 million of land, $2.8 million of building and improvements, $(0.7) million of accumulated depreciation and $3.4 million of other assets included in other line items. The Company's consolidated balance sheets as of December 31, 2022, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(1.0) million of accumulated depreciation and $4.0 million of other assets included in other line items.							(1) The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets, as of March 31, 2023, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $3.3 million of land, $2.8 million of building and improvements, $(0.7) million of accumulated depreciation and $3.4 million of other assets included in other line items. The Company's consolidated balance sheets as of December 31, 2022, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(1.0) million of accumulated depreciation and $4.0 million of other assets included in other line items.

The accompanying notes are an integral part of these condensed consolidated financial statements.

- 3 -

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except per share amounts)


	Three Months Ended March 31,						Three Months Ended March 31,
	2022			2021			2023			2022
REVENUE
Rental income	$	29,084		$	31,146		$	418		$	29,084
Management and other fee income		1,821			135			262			1,821
Total revenue		30,905			31,281			680			30,905
EXPENSES
Property operating		11,032			10,643			8,185			11,032
Real estate taxes		8,150			10,155			1,537			8,150
Depreciation and amortization		11,934			13,142			4,564			11,934
General and administrative		9,092			11,232			12,220			9,092
Total expenses		40,208			45,172			26,506			40,208
(Loss)/gain on sale of real estate, net		(1,015	)		24,208
Gain (loss) on sale of real estate, net								12,392			(1,015	)
Impairment of real estate assets		(991	)		(1,700	)		(2,576	)		(991	)
Equity in loss of unconsolidated entities		(33,076	)		(1,162	)		(36,372	)		(33,076	)
Interest and other income		11			7,624			5,585			11
Interest expense		(22,588	)		(26,150	)		(15,202	)		(22,588	)
Loss before taxes		(66,962	)		(11,071	)
(Provision)/benefit from income taxes		(25	)		138
Loss before income taxes								(61,999	)		(66,962	)
Benefit (provision) for income taxes								13			(25	)
Net loss		(66,987	)		(10,933	)		(61,986	)		(66,987	)
Net loss attributable to non-controlling interests		14,782			3,213			—			14,782
Net loss attributable to Seritage	$	(52,205	)	$	(7,720	)	$	(61,986	)	$	(52,205	)
Preferred dividends		(1,225	)		(1,225	)		(1,225	)		(1,225	)
Net loss attributable to Seritage common shareholders	$	(53,430	)	$	(8,945	)	$	(63,211	)	$	(53,430	)

Net loss per share attributable to Seritage Class A common shareholders - Basic	$	(1.22	)	$	(0.23	)	$	(1.13	)	$	(1.22	)
Net loss per share attributable to Seritage Class A common shareholders - Diluted	$	(1.22	)	$	(0.23	)	$	(1.13	)	$	(1.22	)
Weighted average Class A common shares outstanding - Basic		43,634			39,477			56,059			43,634
Weighted average Class A common shares outstanding - Diluted		43,634			39,477			56,059			43,634

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, amounts in thousands, except per share amounts)


	Class A Common				Class B Common				Series A Preferred				Additional Paid-In			Accumulated			Non- Controlling			Total			Class A Common				Series A Preferred				Additional Paid-In			Accumulated			Non- Controlling			Total
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Interests			Equity
Balance at January 1, 2021		38,896	$	389		—	$	—		2,800	$	28	$	1,177,260		$	(528,637	)	$	233,687		$	882,727
Net loss		—		—		—		—		—		—		—			(7,720	)		(3,213	)		(10,933	)
Preferred dividends declared ($0.4375 per share)		—		—		—		—		—		—		—			(1,225	)		—			(1,225	)
Vesting of restricted share units		32		—		—		—		—		—		—			—			—			—
Share-based compensation		—		—		—		—		—		—		969			—			—			969
OP Units exchanges (1,658,855 units)		1,659		17		—		—		—		—		22,645			—			(22,800	)		(138	)
Balance at March 31, 2021		40,587	$	406		—		—	$	2,800	$	28	$	1,200,874		$	(537,582	)	$	207,674		$	871,400
																									Shares		Amount		Shares		Amount		Capital			Deficit			Interests			Equity
Balance at January 1, 2022		43,632	$	436		—	$	—		2,800	$	28	$	1,241,048		$	(553,771	)	$	157,059		$	844,800			43,632	$	436		2,800	$	28	$	1,241,048		$	(553,771	)	$	157,059		$	844,800
Net loss		—		—		—		—		—		—		—			(52,205	)		(14,782	)		(66,987	)		—		—		—		—		—			(52,205	)		(14,782	)		(66,987	)
Preferred dividends declared ($0.4375 per share)		—		—		—		—		—		—		—			(1,225	)		—			(1,225	)		—		—		—		—		—			(1,225	)		—			(1,225	)
Vesting of restricted share units		43		1		—		—		—		—		(1	)		—			—			—			43		1		—		—		(1	)		—			—			—
Share-based compensation		—		—		—		—		—		—		536			—			—			536			—		—		—		—		536			—			—			536
Balance at March 31, 2022		43,675	$	437		—	$	—		2,800	$	28	$	1,241,583		$	(607,201	)	$	142,277		$	777,124			43,675	$	437	$	2,800	$	28	$	1,241,583		$	(607,201	)	$	142,277		$	777,124

Balance at January 1, 2023																										56,053	$	561		2,800	$	28	$	1,360,411		$	(640,531	)	$	2,130		$	722,599
Net loss																										—		—		—		—		—			(61,986	)		—			(61,986	)
Preferred dividends declared ($0.4375 per share)																										—		—		—		—		—			(1,225	)		—			(1,225	)
Vesting of restricted share units																										7		—		—		—		—			—			—			—
Share-based compensation																										—		—		—		—		784			—			—			784
Sale of consolidated joint venture																										—		—		—		—		(1,135	)		—			(1,082	)		(2,217	)
Balance at March 31, 2023																										56,060	$	561		2,800	$	28	$	1,360,060		$	(703,742	)	$	1,048		$	657,955

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)


	Three Months Ended March 31,						Three Months Ended March 31,
	2022			2021			2023			2022
CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(66,987	)	$	(10,933	)	$	(61,986	)	$	(66,987	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in loss of unconsolidated entities		33,076			1,162			36,372			33,076
Distributions from unconsolidated entities		—			1,042
Loss/(gain) on sale of real estate, net		1,015			(24,208	)
(Gain) loss on sale of real estate, net								(12,392	)		1,015
Impairment of real estate assets		991			1,700			2,576			991
Share-based compensation		425			911			774			425
Depreciation and amortization		11,934			13,142			4,564			11,934
Amortization of deferred financing costs		105			106			105			105
Amortization of above and below market leases, net		65			(39	)		48			65
Straight-line rent adjustment		(721	)		210			10,842			(721	)
Interest on sale-leaseback financing obligations		12			—			—			12
Change in operating assets and liabilities
Tenants and other receivables		(8,340	)		294			4,668			(8,340	)
Prepaid expenses, deferred expenses and other assets		868			1,151			5,034			868
Accounts payable, accrued expenses and other liabilities		(2,491	)		(7,635	)		(12,557	)		(2,491	)
Net cash used in operating activities		(30,048	)		(23,097	)		(21,952	)		(30,048	)
CASH FLOW FROM INVESTING ACTIVITIES
Investment in unconsolidated entities		(7,613	)		(9,902	)		(7,665	)		(7,613	)
Distributions from unconsolidated entities		99			—			—			99
Net proceeds from sale of real estate		8,467			55,221			279,985			8,467
Development of real estate		(22,474	)		(26,804	)		(32,030	)		(22,474	)
Net cash (used in) provided by investing activities		(21,521	)		18,515
Net cash provided by investing activities								240,290			(21,521	)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and non-controlling interest		—			4
Proceeds from sale-leaseback financing obligations		—			153
Purchase of shares related to stock grant recipients' tax withholdings		—			(138	)
Repayment of term loan								(230,000	)		—
Preferred dividends paid		(1,225	)		(1,225	)		(1,225	)		(1,225	)
Net cash used in financing activities		(1,225	)		(1,206	)
Net cash (used in) provided by financing activities								(231,225	)		(1,225	)
Net decrease in cash and cash equivalents		(52,794	)		(5,788	)		(12,887	)		(52,794	)
Cash and cash equivalents, and restricted cash, beginning of period		113,753			150,254			144,939			113,753
Cash and cash equivalents, and restricted cash, end of period	$	60,959		$	144,466		$	132,052		$	60,959

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SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited, amounts in thousands)


	Three Months Ended March 31,				Three Months Ended March 31,
	2022		2021		2023		2022
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents at beginning of period	$	106,602	$	143,728	$	133,480	$	106,602
Restricted cash at beginning of period		7,151		6,526		11,459		7,151
Cash and cash equivalents and restricted cash at beginning of period		113,753		150,254	$	144,939	$	113,753

Cash and cash equivalents at end of period	$	53,807	$	137,940	$	120,476	$	53,807
Restricted cash at end of period		7,152		6,526		11,576		7,152
Cash and cash equivalents and restricted cash at end of period		60,959		144,466	$	132,052	$	60,959


	Three Months Ended March 31,					Three Months Ended March 31,
	2022		2021			2023			2022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest	$	26,063	$	27,999		$	16,273		$	26,063
Capitalized interest		3,736		2,954			1,409			3,736
Income taxes paid (refunded)		25		(138	)
Income taxes (refunded) paid							(13	)		25
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Development of real estate financed with accounts payable	$	19,968	$	8,079		$	22,196		$	19,968
Preferred dividends declared and unpaid		1,225		1,225			1,225			1,225
Transfer to / (from) real estate assets held for sale		92,078		22,577			(209,723	)		92,078

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SERITAGE GROWTH PROPERTIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Organization

Seritage Growth Properties (“Seritage”) (NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, operated as a fully integrated, self-administered and self-managed real estate investment trust (“REIT”) as defined under Section ~~856(c)~~856(a) of the Internal Revenue Code (the “Code”) from formation through December 31, 2021. On March 31, 2022, Seritage revoked its REIT election and became a taxable C Corporation effective January 1, 2022. Seritage’s assets are held by and its operations are primarily conducted, directly or indirectly, through Seritage Growth Properties, L.P., a Delaware limited partnership (the “Operating Partnership”). Under the partnership agreement of the Operating Partnership, Seritage, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership. Unless otherwise expressly stated or the context otherwise requires, the “Company” and “Seritage” refer to Seritage, the Operating Partnership and its owned and controlled subsidiaries.

Prior to the adoption of the Company’s Plan of Sale (defined below), Seritage iswas principally engaged in the ownership, development, redevelopment, disposition, management and leasing of diversified retail and mixed-use properties throughout the United States. Seritage will continue to actively manage each remaining location until such time as each property is sold. As of March 31, ~~2022,~~2023, the Company’s portfolio consisted of interests in ~~161~~72 properties comprised of approximately ~~19.0~~10.2 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately ~~600~~157 acres held for or under development until time of sale and approximately ~~8.8~~5.3 million square feet or approximately ~~740~~428 acres to be disposed ~~of.~~of in its current state. The portfolio consists of approximately ~~15.2~~7.6 million square feet of GLA held by ~~136~~55 ~~wholly owned~~consolidated properties (such properties, the “Consolidated Properties”) and ~~3.8~~2.6 million square feet of GLA held by 2517 unconsolidated ~~entities~~properties (such properties, the “Unconsolidated Properties”).

The Company commenced operations on July 7, 2015, following a rights offering to the shareholders of Sears Holdings Corporation (“Sears Holdings” or “Sears”) to purchase common shares of Seritage in order to fund, in part, the $2.7 billion acquisition of certain of Sears Holdings’ owned properties and its 50% interests in 3three joint ventures which were simultaneously leased back to Sears Holdings under a master lease agreement (the “Original Master Lease” and the “Original JV Master ~~Leases”,~~Leases,” respectively).

As of March 15, 2021, the Company no longer had any remaining properties leased to Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc. or Sears ~~Holdings after giving effect to the termination of the remaining~~ 5 ~~Consolidated Properties, as further described in Note 5.~~Holdings.

On March 1, 2022, the Company announced that its Board of Trustees had commenced a process to review a broad range of strategic alternatives. The Board of Trustees has created a Special Committee (the “Special Committee”) of the Company’s Board of Trustees to oversee the process. The Special Committee has retained Barclays as its financial advisor. The ~~Company~~Company’s strategic review process remains ~~ongoing.~~ongoing as the Company executes sales pursuant to the Plan of Sale. There can be no assurance that the review process will result in any transaction or ~~any strategic change at this time.~~that the Company will be successful in fully executing the Plan of Sale.

On March 31, 2022, the Company announced that its Board of Trustees, with the recommendation of the Special Committee, approved a plan to terminate the Company’s REIT status and become a taxable C Corporation, effective for the year ended December 31, 2022. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least 90% of REIT taxable income to its stockholders, which provides the Company with greater flexibility to use its free cash flow. Effective January 1, 2022, the Company is subject to federal and state income taxes on its taxable income at applicable tax rates and is no longer entitled to a tax deduction for dividends paid. The Company operated as a REIT ~~for~~since inception and through the 2021 tax year, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place until December 31, 2021.

As a result of the Company’s ~~Board of Trustees announcing the~~ change in corporate structure to a taxable C Corporation in fiscal year 2022, the Company incurred a one-time, non-cash deferred tax benefit of approximately $~~160.3~~161.3 million during the ~~quarter~~three months ended March 31, 2022. The Company also recorded a full valuation allowance against the deferred tax asset pursuant to ASC 740, Income Taxes, as discussed in more detail below.

The Company sought a shareholder vote to approve a proposed plan of sale of the Company’s assets and dissolution (the “Plan of Sale”) that would allow the Board to sell all of the Company’s assets, distribute the net proceeds to shareholders and dissolve the Company. The Plan of Sale is expected to increase the universe of potential buyers by allowing Seritage and potential buyers to enter into and complete value maximizing transactions without subjecting any such transaction to the delay and conditionality associated with having to seek and obtain shareholder approval. On July 6, 2022, Edward Lampert, the Company’s former Chairman, entered into a Voting and Support Agreement under which he exchanged his equity interest in the Operating Partnership for Class A common shares and agreed to vote his shares in favor of the Plan of Sale. As of March 31, 2023, after giving effect to the exchange of his Operating Partnership interests, Mr. Lampert owns approximately 26.9% of the Company’s outstanding Class A common shares, and Seritage, including its consolidated subsidiaries, is the sole owner of all outstanding Operating Partnership interests.

- 8 -

The affirmative vote of at least two-thirds of all outstanding common shares of the Company was required to approve the Plan of Sale. The 2022 Annual Meeting of Shareholders occurred on October 24, 2022, following the Company filing of a final proxy statement with the SEC on September 14, 2022. During the meeting, the Plan of Sale was approved by the shareholders. The strategic review process remains ongoing as the Company executes the Plan of Sale. There can be no assurance that the review process will result in any transaction or that the Company will be successful in fully executing on the Plan of Sale.

Liquidity

The Company’s primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service (collectively, “Obligations”), and certain development expenditures. ~~Currently, debt service obligations comprise of interest expense and annual fees required by the Term Loan Facility (as defined in Note 6 below).~~ Property rental income, which is the Company’s primary source of operating cash flow, did not fully fund Obligations and certain development expenditures incurred during the three months ended March 31, ~~2022~~2023 and the Company ~~recorded~~incurred net operating cash outflows of $~~30.0~~22.0 million. Additionally, the Company generated investing cash ~~outflows~~inflows of $~~21.5~~240.3 million during the three months ended March 31, ~~2022,~~2023, which were driven by asset sales partially offset by development expenditures and investments in ~~joint ventures partially offset by asset sales.~~unconsolidated entities.

~~- 8 -~~

Obligations are projected to continue to exceed property rental income and the Company expects to fund such costs with a combination of capital sources including, cash on hand, and sales of Consolidated and Unconsolidated ~~Properties, subject to any approvals that may be required under~~Properties. During the ~~Company’s Term Loan Facility, as described in Note 6. As of May 9, 2022, the Company had~~ 9 ~~assets under contract to sell for total anticipated proceeds of $85.0~~ ~~million, subject to customary due diligence and closing conditions. In addition, the Company exercised the put rights that is has on two Unconsolidated Properties. Subsequent to~~three months ended March 31, ~~2022,~~2023, the Company sold 724 assets for gross proceeds of $~~74.7~~290.8 ~~million. Management has determined that it is probable its plans will be effectively implemented within one year after the date the financial statements are issued~~million and ~~that these actions will provide the necessary cash flows to fund the Company’s obligations and development expenditures for the one year period.~~

With regard to the period beyond one year after the financial statements are issued, the Company has identified additional properties which it intends to market for sale that are expected to generate sufficient proceeds to pay down the debt tomade a ~~level that would allow the Company to extend~~$230.0 million principal prepayment on the Term Loan ~~Facility. The Company’s~~Facility, reducing the outstanding Term Loan Facility ~~which had an~~balance to $800.0 million. Pursuant to the terms of the Term Loan Facility, by reducing the outstanding principal balance ~~at March 31, 2022 of~~to $~~1.44~~800 ~~billion and matures in July of 2023, was amended in November 2021 whereby~~million, the maturity date ~~may be~~for the Term Loan Facility was extended for two years ~~from~~ ~~July 31, 2023~~ to July 31, 2025~~, if its aggregate principal balance has been reduced to $~~.~~800~~ ~~million by~~ ~~July 31, 2023. If the principal balance is not reduced to $800~~ million by July 31, 2023, the loan will be due and payable on that date. The Company currently anticipates it will continue to use sales of Consolidated Properties as the primary source of capital to repay principal on the Term Loan, its obligations and certain development expenditures. This is not inclusive of sales and recapitalization contemplated as part of the strategic review.

Going Concern

In accordance with ASC 205-40, Presentation of Financial Statements - Going Concern, for each annual and interim reporting period, ~~the Company’s~~ management evaluates whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. As part of this evaluation, the Company takes into consideration all obligations due within the subsequent 12 months, as well as cash on hand and expected cash receipts. ~~As described above under Liquidity, management~~Management has determined that it is probable its plans, as described under Liquidity, will be effectively implemented within one year after the date the financial statements are issued and that these actions will provide the necessary cash flows to fund the Company’s obligations and development expenditures for the one-year period.

~~Starting in July 2022 and until~~As the outstanding balance of the Term Loan Facility is not due within the 12 month period subsequent to the date that the financial statements are issued, the Company’s Term Loan Facility is ~~extended or repaid,~~not factored into the ~~full amount of the~~ Company’s ~~Term Loan Facility will be factored in this~~ analysis as a current obligation. ~~This may result in~~

The anticipated proceeds from the sales of $333.5 million of assets under contract, combined with the expected minimum proceeds from the exercise of its put options of $106.5 million and existing cash on hand, would allow the Company ~~not being able~~ to ~~assert~~fund its Obligations and certain development expenditures. As a result, the Company has concluded that ~~it will~~management’s plans do alleviate substantial doubt about the Company’s ability to continue as a going concern until either the extension is executed or asset sales under contract are sufficient to increase the Company’s projected cash flows such that they exceed the outstanding balance on the Term Loan Facility and other obligations.

~~In addition to the $85.0~~ ~~million of assets referenced above under contract, the Company is currently marketing or about to bring to market for sale, assets with an estimated fair value of $636.3~~ ~~million, which would, if sold, allow the Company to meet the $640~~ million Term Loan Facility principal pay down required to extend the facility. While these assets are intended for sale, and the Company believes that they will close before the maturity, there is no assurance that these assets will be under contract within the one-year timeframe in which the outstanding balance from the Term Loan Facility will need to be factored into the Company’s going concern analysis.

~~COVID-19 Pandemic~~

~~The Coronavirus (“COVID-19”) pandemic has caused significant impacts on the real estate industry in the United States, including the Company’s properties.~~

As a result of the development, fluidity and uncertainty surrounding this situation, the Company expects that these conditions may change, potentially significantly, in future periods and results for the three months ended March 31, 2022 may not be indicative of the impact of the COVID-19 pandemic on the Company’s business for future periods. As such, the Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operations or cash flows over the foreseeable future.

~~As of March 31, 2022, the~~ ~~Company had collected~~ 96~~% of~~ rental income for the three months ended March 31, 2022 and agreed to no additional deferrals. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.
concern.

~~- 9 -~~

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, (the “Annual Report”), for the year ended December 31, ~~2021.~~2022. Certain footnote disclosures which would substantially duplicate those contained in our Annual Report have been condensed or omitted from this quarterly report. In the opinion of management, all adjustments necessary for a fair presentation (which include only normal recurring adjustments) have been included in this quarterly report. Operating results for the three months ended March 31, ~~2022~~2023 may not be indicative of the results that may be expected for any other interim period or for the year ending December 31, ~~2021.~~2023. Capitalized terms used, but not defined in this quarterly report, have the same meanings as set forth in our Annual ~~Report, as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on May 2, 2022.~~Report.

The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, each of their consolidated properties, and all other entities in which the Company has a controlling financial interest. For entities that meet the definition of a variable interest entity (“VIE”), the Company consolidates those entities when the Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it possesses both the unilateral power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company continually evaluates whether it qualifies as the primary beneficiary and reconsiders its determination of whether an entity is a VIE upon reconsideration events. As of March 31, ~~2022,~~2023, the Company consolidates 2one ~~VIEs~~VIE in which we are considered the primary beneficiary, as the Company has the power to direct the activities of the ~~entities,~~entity, specifically surrounding the development plan. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company has several investments in unconsolidated VIEs and does not consolidate these entities because the Company is not the primary beneficiary. All intercompany accounts and transactions have been eliminated.

- 9 -

To the extent such variable interests are in entities that are not evaluated under the VIE model, the Company evaluates its interests using the voting interest entity model.

As of March 31, ~~2022,~~2023, the Company, and its wholly owned subsidiaries, holds a ~~77.9~~100% interest in the Operating Partnership and is the sole general partner which gives the Company exclusive and complete responsibility for the day-to-day management, authority to make decisions, and control of the Operating Partnership. The Company has determined that the Operating Partnership is a VIE as the limited partners in the Operating Partnership, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. The Company consolidates its interest in the Operating Partnership. The assets and liabilities of the Operating Partnership are the same as those of the Company and are presented in the condensed consolidated balance sheets.

~~To the extent such variable interests are in entities that are not evaluated under the VIE model, the Company evaluates its interests using the voting interest entity model.~~

Certain prior period amounts, if any, have been reclassified to conform to the current ~~period's~~period’s presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant assumptions and estimates relate to real estate impairment assessments and assessing the recoverability of accounts receivable. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from these estimates.

Segment Reporting

The Company currently operates in a single reportable segment which includes the ownership, development, redevelopment, management, sale and leasing of real estate properties. The Company’s chief operating decision maker, its principal executive officer, assesses and measures the operating and financial results for each property on an individual basis and does not distinguish or group properties based on geography, size, or type. The Company, therefore, aggregates all properties into 1one reportable segment due to their similarities with regard to the nature and economics of the properties, tenants, and operational process.

~~- 10 -~~

Real Estate Investments

Real estate assets are recorded at cost, less accumulated depreciation and amortization.

Expenditures for ordinary repairs and maintenance will be expensed as incurred. Significant renovations which improve the property or extend the useful life of the assets are capitalized. As real estate is undergoing redevelopment activities, all amounts directly associated with and attributable to the project, including planning, development and construction costs, interest costs, personnel costs of employees directly involved, and other miscellaneous costs incurred during the period of redevelopment, are capitalized. The capitalization period begins when redevelopment activities are underway and ends when the project is substantially complete.

Depreciation of real estate assets, excluding land, is recognized on a straight-line basis over their estimated useful lives which generally range between:


Buildings:	25 – 40 years
Site improvements:	5 – 15 years
Tenant improvements:	shorter of the estimated useful life or non-cancelable term of lease

The Company amortizes identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired, generally the remaining non-cancelable term of a related lease.

The Company, on a periodic basis, assesses whether there are indicators, including macroeconomic conditions, that the value of the real estate assets may be impaired. If an indicator is identified, management will estimate the real estate asset recoverability based on projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated holding period and capitalization rates, to determine if the undiscounted cash flows are less than a real estate asset’s carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the estimated fair value of the real estate asset. In estimating the fair value of an asset, various factors are considered, including expected future operating income, trends and leasing prospects and the effects of demand, competition, and other economic factors such as discount rates and market comparables. Changes in any estimates and/or assumptions, including the anticipated holding period, could have a material impact on the projected operating cash flows. If management determines that the carrying value of a real estate asset is impaired, a loss will be recorded for the excess of its carrying amount over its estimated fair value. The Company recognized impairment charges of $~~1.0~~2.6 million and $~~1.7~~1.0 million during the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Real Estate Dispositions

When the Company disposes of all or a portion of a real estate asset, it recognizes a gain or loss on sale of real estate as the difference between the carrying value and consideration received. Consideration consists of cash proceeds received and in certain circumstances, non-cash consideration which is typically in the form of equity and is reported in equity in loss of unconsolidated entities on the Company’s condensed consolidated statements of operations. Refer to Note 4 for more information on the Company’s unconsolidated entity transactions.

- 10 -

The following table summarizes our gain ~~(loss)~~ on sale of real estate, net during the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in millions):

Three Months Ended March 31,

2022

2021

Dispositions to third parties

Gross proceeds

$
9.0

$
46.9

Gain (loss) on sale of real estate, net

(1.0
)

24.2

Total gains (losses) on dispositions, net

$
(1.0
)

$
24.2

~~- 11 -~~


	Three Months Ended March 31,
	2023		2022
Dispositions to third parties
Gross proceeds	$	290.8	$	9.0
Gain (loss) on sale of real estate, net		12.4		(1.0	)

Real Estate Held for Sale

When a real estate asset is identified by management as held for sale, the Company ceases depreciation of the asset and estimates its fair value, net of estimated costs to sell. If the estimated fair value, net of estimated costs to sell, of an asset is less than its net carrying value, an adjustment is recorded to reflect the estimated fair value. Properties classified as real estate held for sale generally represent properties that are either under contract for sale or have been identified for sale and all requirements to sell have been satisfied and are probable to close within a year.

In evaluating whether a property meets the held for sale criteria, the Company makes a determination as to the point in time that it is probable that a sale will be consummated. Given the nature of all real estate sales contracts, it is not unusual for such contracts to allow potential buyers a period of time to evaluate the property prior to formal acceptance of the contract. In addition, certain other matters critical to the final sale, such as financing arrangements, often remain pending even upon contract acceptance. As a result, properties under contract may not close within the expected time period or at all.

As of March 31, ~~2022,~~2023, 1119 properties, including four partial sites and pad sites, were classified as held for sale with assets of $~~92.1~~245.9 million and 0no liabilities, and, as of December 31, ~~2021,~~2022, 034 properties, including three partial sites and pad sites, were classified as held for ~~sale.~~sale with assets of $455.6 million and no liabilities.

Investments in Unconsolidated Entities

The Company accounts for its investments in unconsolidated entities using the equity method of accounting as the Company exercises significant influence but does not have a controlling financial interest. These investments are initially recorded at cost and are subsequently adjusted for cash contributions, cash distributions, and earnings which are recognized in accordance with the terms of the applicable agreement.

On a periodic basis, management assesses whether there are indicators, including the operating performance of the underlying real estate and general market conditions which include macroeconomic conditions, that the value of the Company’s investments in unconsolidated entities may be impaired. An investment’s value is impaired if management’s estimate of the fair value of the Company’s investment is less than its carrying value and such difference is deemed to be other-than-temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over its estimated fair value.

~~NaN~~No such impairment losses were recognized for the three months ended March 31, 2023 and 2022, ~~and 2021.~~respectively.

Restricted Cash

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, restricted cash represents cash collateral for a letter of credit.

Rental Revenue Recognition and Tenant Receivables

Rental income is comprised of base rent and reimbursements of property operating expenses. The Company commences rental revenue recognition when the lessee takes control of the physical use of the leased asset based on evaluation of several factors. Base rent is recognized on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable base rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded as straight-line rent receivable and included as a component of tenant and other receivables on the condensed consolidated balance sheets. Reimbursement of property operating expenses arises from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective property. This revenue is accrued in the same periods as the expenses are incurred.

The Company periodically reviews its receivables for collectability, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area where the property is located. Tenant receivables, including receivables arising from the straight-lining of rents, are written-off directly when management deems that the collectability of substantially all future lease payments from a specified lease is not probable of collection, at which point, the Company will begin recognizing revenue on a cash basis, based on actual amounts received. Any receivables that are deemed to be uncollectible are recognized as a reduction to rental income in the Company’s condensed consolidated statements of operations. If future circumstances change such that the Company believes that it is reasonably certain that the Company will collect all rental income remaining on such leases, the Company will resume accruing rental income and recognize a cumulative catch up for previously written-off receivables.

- 1211 -

The Company recorded a reduction to rental income of $0.9 million and an increase to rental income of $~~0.2~~ ~~million and~~ $0.2 million during the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, as a result of the Company’s evaluation of collectability. In addition, the Company ~~also~~ recorded ~~a reversal~~an increase of income of previously recorded straight-line rent of $0.1 million for the three months ended March 31, 2023 and a reduction of income of $~~1.0~~0.1 million for the three months ended March 31, ~~2022 and March 31, 2021, respectively.~~2022. During the three months ended March 31, ~~2022 and~~2023 there was no impact on income related to deferral agreements. During the three months ended March 31, ~~2021,~~2022, the Company recorded an increase to rental income of $0.1 million ~~and $0.1~~ ~~million~~ related to the allowance for deferral ~~agreements, respectively.~~

Due to the COVID-19 pandemic, the Company has entered into amendments to existing leases with certain tenants (the “Rent Deferral Agreements”), that provide for the deferral of all or some portion of rental payments due during the period which such tenant was affected by the COVID-19 pandemic (“Deferred Rent”). The Rent Deferral Agreements typically provide for repayment of the Deferred Rent within six to 12 months following the end of the rent deferral period and, in many instances, waive certain other conditions in favor of the Company while Deferred Rent is outstanding. Deferred Rent generally becomes immediately due and payable under the Rent Deferral Agreements if the tenant does not make the minimum contractual payments or otherwise defaults on the lease. We recognize lease concessions related to the COVID-19 pandemic such as rent deferrals and abatements in accordance with the Lease Modification Q&A issued by the Financial Standards Accounting Board, (“FASB”), in April 2020, which provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. As a result, the Company has not adjusted accrued rental revenues or the portion of accrued rental revenues related to the straight-line method for the portion which has been deferred. When the Deferred Rents are repaid, the Company will relieve the accrual in tenant and other receivables.agreements.

In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company will determine whether the allowance represents funding for the construction of leasehold improvements and evaluate the ownership of such improvements. If the Company is considered the owner of the improvements for accounting purposes, the Company will capitalize the amount of the tenant allowance and depreciate it over the shorter of the useful life of the improvements or the related lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered a lease incentive and is recognized over the lease term as a reduction of rental revenue on a straight-line basis.

Tenant and Other Receivables

Tenant and other receivables includes unpaid amounts billed to tenants, accrued revenues for future billings to tenants for property expenses, and amounts arising from the straight-lining of rent, as discussed above. Tenant and other receivables also includes management fees receivable for services performed for the benefit of certain unconsolidated entities. In the event that the collectability of a management fee receivable is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made.

Management and Other Fee Income

Management and other fee income represents property management, construction, leasing and development fees for services performed for the benefit of certain unconsolidated entities.

Property management fee income is reported at 100% of the revenue earned from such unconsolidated properties in management and other fee income on the condensed consolidated statements of operations. The Company’s share of management expenses incurred by the unconsolidated entities is reported in equity in loss of unconsolidated entities on the condensed consolidated statements of operations and in other expenses in the combined financial data in Note 4.

Leasing and development fees are initially reported at the portion of revenue earned attributable to outside ownership of the related unconsolidated entities. The Company’s share in leasing and development fee income is recognized over the useful life of the associated development project, in the case of development fees, or lease term, in the case of leasing fees, as the associated asset is depreciated over the same term and included in equity in loss of unconsolidated entities on the condensed consolidated statements of operations and in other expenses in the combined financial data in Note 4.

Management determined that property and asset management and construction and development management services each represent a series of stand-ready performance obligations satisfied over time with each day of service being a distinct performance obligation. For property and asset management services, the Company is typically compensated for its services through a monthly management fee earned based on a specified percentage of monthly rental income or rental receipts generated from the property under management. For construction and development services, the Company is typically compensated for planning, administering and monitoring the design and construction of projects within our unconsolidated entities based on a percentage of project costs or a fixed fee. Revenues from such management contracts are recognized over the life of the applicable contract.

~~- 13 -~~

Conversely, leasing services are considered to be performance obligations, satisfied as of a point in time. The Company’s leasing fee is typically paid upon the occurrence of certain contractual event(s) that may be contingent and the pattern of revenue recognition may differ from the timing of payment. For these services, the obligations are typically satisfied at lease execution and tenant opening date, and revenue is recognized in accordance with the related agreement at the point in time when the obligation has been satisfied.

Share-Based Compensation

The Company generally recognizes equity awards to employees as compensation expense and includes such expense within general and administrative expenses in the condensed consolidated statements of operations. Compensation expense for equity awards is based on the grant date fair value of the awards. Compensation expense is recognized ratably over the vesting period for awards with time-based vesting and awards with market-based vesting conditions (e.g. total shareholder return). For awards with performance-based vesting determined by Company operating criteria, the Company recognizes compensation expense at the date the achievement of performance criteria is deemed probable for the amount which would have been recognized ratably from the date of the grant through the date the achievement of performance criteria is deemed probable, and then ratably from the date the achievement of performance criteria is deemed probable through the remainder of the vesting period. The Company ~~utilizes~~utilized a third-party valuation firm to measure the grant date fair value of restricted stock unit awards with market-based criteria using the Monte Carlo model. Forfeitures are recorded on an actual basis.

- 12 -

Concentration of Credit Risk

Concentrations of credit risk arise when a number of operators, tenants, or obligors related to the Company’s investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. Management believes the Company’s portfolio is reasonably diversified and does not contain any significant concentrations of credit risk. As of March 31, ~~2022,~~2023, the Company has 1one tenant that comprises ~~13.2~~20.1% of annualized based rent, with no other tenants exceeding 10.0% of annualized based rent. The Company’s portfolio of ~~136~~55 Consolidated Properties and 2517 Unconsolidated Properties was diversified by location across 3823 ~~states and Puerto Rico.~~states.

Earnings/(Loss) per Share

The Company has three classes of common stock. The rights, including the liquidation and dividend rights, of the holders of the Company’s Class A common shares and Class C non-voting common shares are identical, except with respect to voting. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. The net earnings (loss) per share amounts are the same for Class A and Class C common shares because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. Since August 29, 2018, all outstanding Class C common shares had been exchanged for Class A common shares and there are currently 0no Class C common shares outstanding.

Class B non-economic common shares are excluded from ~~earnings~~earnings/(loss) per share computations as they do not have economic rights. Since December 31, 2020, all outstanding Class B common shares have been surrendered and there are currently 0no Class B common shares outstanding.

All outstanding non-vested shares that contain non-forfeitable rights to dividends are considered participating securities and are included in computing earnings per share pursuant to the two-class method which specifies that all outstanding non-vested share-based payment awards that contain non-forfeitable rights to distributions are considered participating securities and should be included in the computation of ~~earnings~~earnings/(loss) per share.

Income Taxes

The condensed consolidated financial statements reflect provisions for federal, state and local income taxes. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as operating loss and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities as a result of a change in tax rates is recognized as income in the period that includes the enactment date. For years prior to 2022, the Company was taxed as a REIT and did not expect to pay federal, state or local income taxes at the REIT level (including its qualified REIT subsidiaries). While a REIT, the Company was required to distribute at least 90% of its REIT level taxable income to shareholders, and the resulting dividends paid deduction offset its REIT taxable income. Consequently, while a REIT, since the Company did not expect to pay taxes on its REIT taxable income, it ~~was~~did not ~~able to~~ recognize deferred tax assets ~~and~~or liabilities.

~~- 14 -~~

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Significant judgments are required to determine the consolidated provision (benefit) for income taxes. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. Realization of the Company’s deferred tax assets is dependent upon many factors such as tax regulations applicable to the jurisdictions in which the Company operates, estimates of future taxable income and the character of such taxable income.

The Inflation Reduction Act of 2022 was enacted on August 16, 2022 and is effective January 1, 2023. The Inflation Reduction Act includes a 15% corporate alternative minimum tax (the “CAMT”) based on the adjusted financial statement income (“book income”) of applicable corporations. The CAMT generally applies to corporations with average annual book income over a 3-year period exceeding $1 billion. The Company does not expect this legislation to have a material effect on the condensed consolidated financial statements.

Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is recorded to adjust net deferred tax assets to the amount which management believes will more likely than not be recoverable. In making such determination, management considers available positive and negative evidence, including future reversals of existing taxable temporary differences, future taxable income, and the implementation of prudent tax planning strategies. In the event that the Company is able to utilize its deferred tax assets in excess of their recorded amount, the valuation allowance will be reduced with a corresponding reduction to income tax expense.

- 13 -

Recently Issued Accounting Pronouncements

The Company has not adopted any Accounting Standards Updates (“ASUs”) issued by the FASB during the three months ended March 31, ~~2022.~~2023. Any other recently issued accounting standards or pronouncements not disclosed have been excluded as they either are not applicable to the Company, or they are not expected to have a material effect on the condensed consolidated financial statements of the Company.

Note 3 – Lease Intangible Assets and Liabilities

The following tables summarize the Company’s lease intangible assets (acquired in-place leases and above-market leases) and liabilities (acquired below-market leases, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets), net of accumulated amortization, as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


March 31, 2022
March 31, 2023
	Gross		Accumulated					Gross		Accumulated
Lease Intangible Assets	Asset		Amortization			Balance		Asset		Amortization			Balance
In-place leases, net	$	27,807	$	(15,873	)	$	11,934	$	8,614	$	(7,133	)	$	1,481
Above-market leases, net		3,398		(2,181	)		1,217		908		(774	)		134
Total	$	31,205	$	(18,054	)	$	13,151	$	9,522	$	(7,907	)	$	1,615


	Gross		Accumulated					Gross		Accumulated
Lease Intangible Liabilities	Liability		Amortization			Balance		Liability		Amortization			Balance
Below-market leases, net	$	5,457	$	(2,089	)	$	3,368	$	1,826	$	(871	)	$	955
Total	$	5,457	$	(2,089	)	$	3,368	$	1,826	$	(871	)	$	955


December 31, 2021
December 31, 2022
	Gross		Accumulated					Gross		Accumulated
Lease Intangible Assets	Asset		Amortization			Balance		Asset		Amortization			Balance
In-place leases, net	$	30,071	$	(16,670	)	$	13,401	$	8,614	$	(6,978	)	$	1,636
Above-market leases, net		3,925		(2,509	)		1,416		908		(753	)		155
Total	$	33,996	$	(19,179	)	$	14,817	$	9,522	$	(7,731	)	$	1,791

Gross

Accumulated

Lease Intangible Liabilities

Liability

Amortization

Balance

Below-market leases, net

$
5,802

$
(2,146
)

$
3,656

Total

$
5,802

$
(2,146
)

$
3,656

~~- 15 -~~


	Gross		Accumulated
Lease Intangible Liabilities	Liability		Amortization			Balance
Below-market leases, net	$	1,826	$	(848	)	$	978
Total	$	1,826	$	(848	)	$	978

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of $0.1 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Amortization of an acquired below-market ground lease resulted in additional property expense of $0.1 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Amortization of acquired in-place leases resulted in additional depreciation and amortization expense of $~~0.7~~0.2 million and $~~0.8~~0.7 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Future amortization of these leases intangibles is set forth below (in thousands):


	(Above) / below market leases, net			Below market ground lease		In-place leases		(Above) / below market leases, net		Below market ground lease		In-place leases
Remainder of 2022	$	(9	)	$	152	$	1,917
2023		(2	)		203		1,726
Remainder of 2023								$	19	$	152	$	232
2024		19			203		1,190		26		203		309
2025		83			203		936		35		203		203
2026		164			203		689		54		203		82
2027		140			203		671		54		203		77
2028									54		203		77
Thereafter		1,756			9,230		4,805		579		9,027		501

Note 4 – Investments in Unconsolidated Entities

The Company conducts a portion of its property rental activities through investments in unconsolidated entities. The Company’s partners in these unconsolidated entities are unrelated real estate entities or commercial enterprises. The Company and its partners in these unconsolidated entities make initial and/or ongoing capital contributions to these unconsolidated entities. The obligations to make capital contributions are governed by each unconsolidated entity’s respective operating agreement and related governing documents.

- 14 -

As of March 31, ~~2022,~~2023, the Company had investments in 11eight unconsolidated entities as follows:


		Seritage %	# of	Total			Seritage %	# of	Total
Unconsolidated Entities	Entity Partner(s)	Ownership	Properties	GLA		Entity Partner(s)	Ownership	Properties	GLA
GS Portfolio Holdings II LLC ("GGP I JV")	Brookfield Properties Retail (formerly GGP Inc.)	50.0%	3		402,900	Brookfield Properties Retail (formerly GGP Inc.)	50.0%	2		113,400
GS Portfolio Holdings (2017) LLC ("GGP II JV")	Brookfield Properties Retail (formerly GGP Inc.)	50.0%	3		474,100	Brookfield Properties Retail (formerly GGP Inc.)	50.0%	3		262,500
MS Portfolio LLC ("Macerich JV")	The Macerich Company	50.0%	7		1,266,600	The Macerich Company	50.0%	5		480,200
SPS Portfolio Holdings II LLC ("Simon JV")	Simon Property Group, Inc.	50.0%	5		872,200	Simon Property Group, Inc.	50.0%	3		275,700
Mark 302 JV LLC ("Mark 302 JV")	An investment fund managed by Invesco Real Estate	50.0%	1		103,000	An investment fund managed by Invesco Real Estate	50.0%	1		103,000
SI UTC LLC ("UTC JV")	A separate account advised by Invesco Real Estate	50.0%	1		226,200	A separate account advised by Invesco Real Estate	50.0%	1		226,200
SF WH Joint Venture LLC ("West Hartford JV")	An affiliate of First Washington Realty	50.0%	1		163,700
GGCAL SRG HV LLC ("Cockeysville JV")	An affiliate of Greenberg Gibbons	50.0%	1		160,200
Tech Ridge JV Holding LLC ("Tech Ridge JV")	An affiliate of RD Management	50.0%	1		—	An affiliate of RD Management	50.0%	1		—
J&J Baldwin Park LLC ("Carson Investment")	An affiliate of NewMark Merrilll Companies and other entities	20.0%	1		182,200
Landmark Land Holdings, LLC ("Landmark JV")	Landmark Holdings, LLC	31.3%	1		—	Landmark Holdings, LLC	31.3%	1		—
			25		3,851,100			17		1,461,000

~~- 16 -~~

The Company has contributed certain properties to unconsolidated entities in exchange for equity interests in those unconsolidated entities. The contribution of property to unconsolidated entities is accounted for as a sale of real estate and the Company recognizes the gain or loss on the sale (the “Gain (Loss)”) based upon the transaction price attributed to the property at the closing of the unconsolidated entities transaction (the “Contribution Value”). The Gain or (Loss) is included in gain on sale of real estate on the condensed consolidated statements of operations.

In certain circumstances, the Contribution Value is subject to revaluation as defined in the respective unconsolidated entity agreements, which may result in an adjustment to the gain or loss recognized. If the Contribution Value is subject to revaluation, the Company initially recognizes the gain or loss at the value that is the expected amount within the range of possible outcomes and will re-evaluate the expected amount on a quarterly basis through the final determination date.

Upon revaluation, the primary inputs in determining the Contribution Value will be updated for actual results and may result in a cash settlement or capital account adjustment between the unconsolidated entity partners, as well as an adjustment to the initial gain or loss.

Each reporting period, the Company re-analyzes the primary inputs that determine the Contribution Value and the gain or loss for those unconsolidated entities subject to a revaluation. The following table summarizes the properties contributed to the Company’s unconsolidated entities (in millions):

March 31, 2022

Unconsolidated Entities

Contribution Date

Contribution Value

Gain (Loss)

2018

Mark 302 JV (1)

March 20, 2018

$
60.0

$
8.8

2019

Cockeysville JV (2)

March 29, 2019

$
14.6

$
5.9

Tech Ridge JV (3)

September 27, 2019

3.0

0.1


		March 31, 2023
Unconsolidated Entities	Contribution Date	Contribution Value		Gain (Loss)
2019
Tech Ridge JV (1)	September 27, 2019	$	3.0	$	0.1

(1)

~~The Mark 302 JV was subject to a revaluation which resulted in the Company adjusting the Contribution Value down to $60.0~~ ~~million and reduced the Gain (Loss) by $30.0~~ ~~million. As of September 30, 2021, the amended determination date, there has been no change to the adjusted Contribution Value and the final Contribution Value is $60.0~~ ~~million.~~

~~(2)~~

The Cockeysville JV is subject to revaluation upon our partner contributing an adjacent parcel of land (the “Additional Land Parcel”) to the joint venture which was conditioned on certain milestones being met with respect to entitling the Additional Land Parcel for residential use. As of December 31, 2021, the parcel has been entitled and, with our consent, the partner entered a sales contract with a third party for the land. As a result, the Company will receive its share of the proceeds from the sale in lieu of the parcel being contributed to the venture and recorded an additional gain of $~~2.1~~ ~~million during the year ended December 31, 2021. The Company has determined that the final contribution value is $14.6~~ ~~million.~~

~~(3)~~

The Tech Ridge JV is subject to a revaluation primarily based upon the number of residential units constructed by the Tech Ridge JV. The Contribution Value cannot be less than $2.75 million.

- 1715 -

The following tables present combined condensed financial data for the Company’s unconsolidated entities (in thousands):


	March 31, 2023			December 31, 2022
ASSETS
Investment in real estate
Land	$	239,358		$	263,169
Buildings and improvements		383,817			419,920
Accumulated depreciation		(73,577	)		(68,482	)
		549,598			614,607
Construction in progress		204,830			219,870
Net investment in real estate		754,428			834,477
Cash and cash equivalents		45,191			29,072
Investment in unconsolidated entities		54,393			55,247
Tenant and other receivables, net		6,574			5,041
Other assets, net		12,600			14,245
Total assets	$	873,186		$	938,082

LIABILITIES AND MEMBERS' INTERESTS
Liabilities
Accounts payable, accrued expenses and other liabilities		50,608			52,808
Total liabilities		50,608			52,808

Members' Interest
Additional paid in capital		895,455			957,154
Retained earnings (accumulated deficit)		(72,877	)		(71,880	)
Total members' interest		822,578			885,274
Total liabilities and members' interest	$	873,186		$	938,082

March 31, 2022

December 31, 2021

ASSETS

Investment in real estate

Land

$
392,391

$
410,323

Buildings and improvements

559,797

528,854

Accumulated depreciation

(103,785
)

(96,856
)

848,403

842,321

Construction in progress

147,261

206,109

Net investment in real estate

995,664

1,048,430

Cash and cash equivalents

47,756

50,279

Investment in unconsolidated entities

54,676

53,215

Tenant and other receivables, net

7,218

7,914

Other assets, net

28,772

33,812

Total assets

$
1,134,086

$
1,193,650

LIABILITIES AND MEMBERS' INTERESTS

Liabilities

Mortgage loans payable, net

$
56,075

$
56,075

Accounts payable, accrued expenses and other liabilities

54,855

56,398

Total liabilities

110,930

112,473

Members' Interest

Additional paid in capital

1,089,322

1,097,842

Retained earnings (accumulated deficit)

(66,166
)

(16,665
)
Total members' interest

1,023,156

1,081,177

Total liabilities and members' interest

$
1,134,086

$
1,193,650


	Three Months Ended March 31,						Three Months Ended March 31,
	2022			2021			2023			2022
Total revenue	$	7,840		$	7,729		$	6,304		$	7,840
Property operating expenses		(3,926	)		(2,579	)		(2,993	)		(3,926	)
Depreciation and amortization		(7,508	)		(6,481	)		(4,975	)		(7,508	)
Operating income / (loss)		(3,594	)		(1,331	)
Operating loss								(1,664	)		(3,594	)
Other expenses		(1,434	)		(1,043	)		(276	)		(1,434	)
Gains, losses and impairments		(61,140	)		-
Gains (losses) and (impairments)								(70,806	)		(61,140	)
Net loss	$	(66,168	)	$	(2,374	)	$	(72,746	)	$	(66,168	)
Equity in loss of unconsolidated entities (1)	$	(33,076	)	$	(1,162	)	$	(36,372	)	$	(33,076	)

(1)

Equity in loss of unconsolidated entities on the condensed consolidated statements of operations includes basis difference adjustments.

The Company shares in the profits and losses of these unconsolidated entities generally in accordance with the Company’s respective equity interests. In some instances, the Company may recognize profits and losses related to investment in an unconsolidated entity that differ from the Company’s equity interest in the unconsolidated entity. This may arise from impairments that the Company recognizes related to its investment that differ from the impairments the unconsolidated entity recognizes with respect to its assets, differences between the Company’s basis in assets it has transferred to the unconsolidated entity and the unconsolidated entity’s basis in those assets or other items. ~~During~~In conjunction with the ~~quarter~~Plan of Sale, the Company recognized a change in plan to reduce the holding periods of all its investments in unconsolidated entities, which triggered the need for a quarterly impairment analysis pursuant to ASC 323, Equity Method and Joint Ventures. The Company utilizes appraisals and third-party prepared fair value estimates as well as negotiated offers to sell the investments for the impairment analysis. No other than temporary impairment was recorded for the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023, the Company exercised the put rights that isit has on 2one of its Unconsolidated Properties. The Company has exercised its put rights on seven Unconsolidated Properties since the beginning of 2022. The Company did not close on the sale of any exercised put rights during the three months ended March 31, 2023. Through December 31, 2022, the Company closed on the sale of three of the previously exercised put rights. The Company’s ~~partner considered this to be a triggering event to~~partners assess impairment on its underlying assets pursuant to ASC 360, Property, Plant and Equipment, and recorded impairment on ~~the two Unconsolidated Properties~~unconsolidated properties of $~~61.1~~70.8 million and $61.1 million for the ~~quarter~~three months ended March 31, ~~2022.~~2023 and 2022, respectively.

- 16 -

Unconsolidated Entity Management and Related Fees

The Company acts as the operating partner and day-to-day manager for the Mark 302 ~~JV, the West Hartford~~ JV, the UTC JV, and Tech Ridge JV. The Company is entitled to receive certain fees for providing management, leasing, and construction supervision services to certain of its unconsolidated entities. During the three months ended March 31, 2023 and 2022, the Company recorded management and related fees of $0.3 million and $1.8 million, respectively. Refer to Note 2 for the Company’s accounting policies.

~~- 18 -~~

Note 5 – Leases

Lessor Disclosures

Future minimum rental receipts, excluding variable payments and tenant reimbursements of expenses, under non-cancelable operating leases executed as of March 31, ~~2022~~2023 are approximately as follows:


(in thousands)	March 31, 2022		March 31, 2023
Remainder of 2022	$	99,127
2023		92,163
Remainder of 2023			$	26,341
2024		89,293		35,085
2025		88,887		35,169
2026		84,197		33,143
2027		79,968		31,583
2028				30,627
Thereafter		372,094		104,871
Total	$	905,729	$	296,819

The components of lease revenues for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were as follows:


(in thousands)	Three Months Ended March 31,				Three Months Ended March 31,
	2022		2021		2023			2022
Fixed rental income	$	24,107	$	22,271	$	12,154		$	24,107
Variable rental income		4,271		9,046		(895	)		4,271
Total rental income	$	28,378	$	31,317	$	11,259		$	28,378

Lessee Disclosures

The Company has 1one ground lease and 1one corporate office lease which are classified as operating leases. As of March 31, ~~2022,~~2023, and December 31, ~~2021,~~2022, the outstanding amount of right-of-use, or ROU, assets were $~~16.8~~15.9 million and $~~17.0~~16.2 million, ~~respectively.~~respectively, which is included in prepaid expenses, deferred expenses and other assets, net on the condensed consolidated balance sheets.

The Company recorded rent expense related to leased corporate office space of $0.3 million ~~and $0.4~~ ~~million~~ for the three months ended March 31, ~~2022~~2023 and ~~2021, respectively.~~2022. Such rent expense is classified within general and administrative expenses onin the condensed consolidated ~~statement~~statements of operations.

In addition, the Company recorded ground rent expense of approximately $0.1 million for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. Such ground rent expense is classified within property operating expenses onin the condensed consolidated statements of operations. The ground lease requires the Company to make fixed annual rental payments and expires in 2073 assuming all extension options are exercised.

The Company expects to make cash payments on operating leases of $0.8 million in ~~2022, $1.1~~ ~~million in~~ 2023, $1.2 million in 2024, $1.2 million in 2025, $1.2 million in 2026, $1.2 million in 2027 and $2.9 million for the periods thereafter. The present value discount is ($~~3.1~~2.7) million.

The following table sets forth information related to the measurement of our lease liabilities as of March 31, ~~2022:~~2023:


	March 31, 2022			March 31, 2023
Weighted average remaining lease term (in years)		9.90			10.2
Weighted average discount rate		6.98	%		6.99	%
Cash paid for operating leases (in thousands)	$	414		$	625

~~Sale-leaseback Financing Obligations~~

~~During the year ended December 31, 2020, the Company completed a sale-leaseback transaction of a property in Hialeah, Florida for $21.0~~ million which is included in sales-leaseback financing obligations on the condensed consolidated balance sheets. As part of the sale-leaseback transaction, the Company agreed to lease all land and improvements on the land for a fixed term of ~~25 years~~ ~~at an initial base rent of $1.5~~ ~~million per annum which will increase by~~ ~~1.5~~% per year thereafter. For the initial periods of the sale-leaseback, cash payments are less than the interest expense recognized, which causes the obligation to increase during the initial years of the lease term. The implied interest rate is approximately ~~7.00~~%. ~~The Company has a purchase option during years four, five or seven of the 25-year term to reacquire, solely at the Company’s option, the Hialeah property at a predetermined price. The Hialeah property continues to be reflected as a long-lived asset and depreciated over its remaining useful life.~~

- 1917 -

~~Future sale-leaseback financing obligations as of March 31, 2022 are approximately as follows:~~

(in thousands)

March 31, 2022

Remainder of 2022

$
1,099

2023

1,486

2024

1,508

2025

1,531

2026

1,554

2027

1,577

Thereafter

32,448

Interest

(20,564
)
Total

$
20,639

~~Original Master Lease and Holdco Master Lease~~

On February 28, 2019, the Company and certain affiliates of Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., executed the Holdco Master Lease (the “Holdco Master Lease”) which ~~became effective on March 12, 2019 when the~~ United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) issued an order approving the rejection of the Original Master Lease. The Company analyzed this transaction under applicable accounting guidance and determined that the termination of the Original Master Lease and entering into the Holdco Master Lease should be accounted for as a modification. The Holdco Master Lease provided the Company with the right to recapture the space occupied by the tenant at all properties (other than five specified properties) and the right to recapture any automotive care centers which are free-standing or attached as “appendages” to the properties, all outparcels or outlots and certain portions of parking areas and common areas. Under the terms of the Holdco Master Lease, Holdco had the right, at any time, to terminate the Holdco Master Lease with respect to any property upon the payment of a termination fee equal to one year of base rent plus annual taxes and other operating expenses. Sears Holdings exercised termination rights with respect to 87 properties under the Original Master Lease prior to its rejection on March 12, 2019 and Holdco exercised termination rights with respect to all remaining properties under the Holdco Master Lease during the year ended December 31, 2020, with the remaining five properties effective in March 2021.

Revenues from the Holdco Master Lease as amended by the Amendment, and the Original Master Lease for the three months ended March 31, 2022 and 2021 are as follows (in thousands). No straight line rental income was recorded during these periods.

(in thousands)

Three Months Ended March 31,

2022

2021

Fixed rental income

$
—

$
—

Variable rental income

—

4,510

Total rental income

$
—

$
4,510

Note 6 – Debt

Term Loan Facility

On July 31, 2018, the Operating Partnership, as borrower, and the Company, as guarantor, entered into a Senior Secured Term Loan Agreement (the “Term Loan Agreement”) providing for a $2.0 billion term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire Hathaway”) as lender and ~~Berkshire Hathaway as~~ administrative agent. The Term Loan Facility provided for an initial funding of $1.6 billion at closing and includes a $400.0 million incremental funding facility (the “Incremental Funding Facility”) subject to certain conditions described below. ~~The Term Loan Facility matures on~~On February 2, 2023, the Company made a $230 million voluntary prepayment, reducing the unpaid principal balance to $800 million, and the debt maturity was extended for two years to July 31, ~~2023~~2025~~, with the ability to extend based on meeting certain criteria.~~.

Funded amounts under the Term Loan Facility bear interest at an annual rate of 7.0% and unfunded amounts under the Incremental Funding Facility are subject to an annual fee of 1.0% until drawn. The Company prepays the annual fee and amortizes the expense to interest expense on the condensed consolidated statements of operations.

~~On December 31, 2021, the Company paid down $160~~ ~~million towards the Term Loan's unpaid principal balance. As of March 31, 2022, the aggregate principal amount outstanding under the Term Loan Facility was $1.44~~ ~~billion.~~

~~- 20 -~~

The Company’s ability to access the Incremental Funding Facility is subject to (i) the Company achieving rental income from non-Sears Holdings tenants, on an annualized basis (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $200 million, (ii) the Company’s good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under the amendment to the Term Loan Amendment as further described below. As of March 31, ~~2022,~~2023, the Company has not yet achieved the requirements to access the Incremental Funding Facility.

The Term Loan Facility is guaranteed by the Company and, subject to certain exceptions, is required to be guaranteed by all existing and future subsidiaries of the Operating Partnership. The Term Loan Facility is secured on a first lien basis by a pledge of the capital stock of the direct subsidiaries of the Operating Partnership and the guarantors, including its joint venture interests, except as prohibited by the organizational documents of such entities or any joint venture agreements applicable to such entities, and contains a requirement to provide mortgages and other customary collateral upon the breach of certain financial metrics described below, the occurrence and continuation of an event of default and certain other conditions set forth in the Term Loan Agreement. During 2019, mortgages were recorded on a majority of the Company’s portfolio and during the year ended December 31, 2021, mortgages ~~mortgages~~ were recorded on the remaining unmortgaged properties in all but three locations.

The Term Loan Facility includes certain financial metrics to govern springing collateral requirements and certain covenant exceptions set forth in the Term Loan Agreement, including: (i) a total fixed charge coverage ratio of not less than 1.00 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending March 31, ~~2022,~~2023, and not less than 1.20 to 1.00 for each fiscal quarter thereafter; (ii) an unencumbered fixed charge coverage ratio of not less than 1.05 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending March 31, ~~2022,~~2023, and not less than 1.30 to 1.00 for each fiscal quarter thereafter; (iii) a total leverage ratio of not more than 65%; (iv) an unencumbered ratio of not more than 60%; and (v) a minimum net worth of at least $1.2 billion. Any failure to satisfy any of these financial metrics ~~limits the Company’s ability to dispose of assets via sale or joint venture and~~ triggers the springing mortgage and collateral requirements but will not result in an event of default. The Term Loan Facility also includes certain limitations relating to, among other activities, the Company’s ability to: sell assets or merge, consolidate or transfer all or substantially all of its assets; incur additional debt; incur certain liens; enter into, terminate or modify certain material leases and/or the material agreements for the Company’s properties; make certain investments (including limitations on joint ventures) and other restricted payments; pay distributions on or repurchase the Company’s capital stock; and enter into certain transactions with affiliates.

The Term Loan Facility contains customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, material inaccuracy of representations or warranties, and bankruptcy or insolvency proceedings. If there is an event of default, the lenders may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights they might have under any of the Term Loan Facility documents, and require the Company to pay a default interest rate on overdue amounts equal to 2.0% in excess of the then applicable interest rate.

As of March 31, ~~2022,~~2023, the Company was not in compliance with certain of the financial metrics described above. As a result, the Company ~~must~~was previously required to receive the consent of Berkshire Hathaway to dispose of assets via sale or joint venture and, as of March 31, 2022, Berkshire Hathaway had provided such consent for all such transactions submitted for approval. There can be no assurance that the lender will consent to future dispositions of assets.venture. The ~~Company believes it is in compliance with all other terms and conditions of the~~Third Term Loan ~~Agreement.~~Amendment (defined below) executed on June 16, 2022 eliminates this requirement and allows the Company to dispose of assets without Berkshire Hathaway's consent. There are no other impacts from non-compliance with financial metrics.

The Company incurred $2.1 million of debt issuance costs related to the Term Loan Facility which are recorded as a direct deduction from the carrying amount of the Term Loan Facility and amortized over the term of the Term Loan Agreement. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the unamortized balance of the Company’s debt issuance costs were $~~0.6~~0.1 million and $~~0.7~~0.2 million, respectively.

- 2118 -

On May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment (the “Term Loan Amendment”) to the Term Loan Agreement by and among the Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the Term Loan Agreement if, as of the first day of each applicable month, (x) the amount of unrestricted and unencumbered (other than liens created under the Term Loan Agreement) cash on hand of the Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or less than $30.0 million. In such instances, for each interest period, the Operating Partnership is obligated to make payments of interest in an amount equal to the difference between (i) Available Cash and (ii) $20.0 million (provided that such payment shall not exceed the amount of current interest otherwise due under the Term Loan Agreement). Any deferred interest shall accrue interest at 2.0% in excess of the then applicable interest rate and shall be due and payable on July 31, 2023; provided, that the Operating Partnership is required to pay any deferred interest from Available Cash in excess of $30.0 million (unless otherwise agreed to by the administrative agent under the Term Loan Agreement in its sole discretion). In addition, repayment of any outstanding deferred interest is a condition to any borrowings under the $400.0 million Incremental Funding Facility under the Term Loan Agreement. The Company has paid all interest due under the Term Loan Agreement and has not deferred any interest as permitted under the amendment to the Term Loan Amendment.

Additionally, the ~~amendment to the~~First Term Loan ~~Agreement~~Amendment provides that the administrative agent and the lenders express their continued support for asset dispositions, subject to the administrative agent’s right to approve the terms of individual transactions due to the occurrence of a Financial Metric Trigger Event, as such term is defined under the Term Loan Agreement.

On November 24, 2021, the Operating Partnership, the Company and Berkshire Hathaway entered into an amendment (the “Second Term Loan Amendment”) to the Term Loan Agreement by and among the Operating Partnership, the Company and Berkshire Hathaway to which the Operating Partnership, the Company and Berkshire Hathaway mutually agreed that (i) the “make whole” provision in the Senior Secured Term Loan Agreement shall not be applicable to prepayments of principal ; and (ii) the Senior Secured Term Loan Agreement, as amended for (i) above, may at the Operating Partnership's election be extended for two years from July 31, 2023 to July 31, 2025 (the “Maturity Date”) if its principal has been reduced to $800 million by the July 31, 2023. ~~If it has not been~~The outstanding principal balance was reduced to ~~this limit by~~$800 million on February 2, 2023, and the Maturity Date has been extended to July 31, 2025.

On June 16, 2022, the ~~loan will be due~~Operating Partnership, the Company and ~~payable on that date. In all other respects,~~Berkshire Hathaway entered into an amendment (the “Third Term Loan Amendment”) to the ~~Senior Secured~~ Term Loan Agreement ~~remains unchanged.~~by and among the Operating Partnership, the Company and Berkshire Hathaway to which the Operating Partnership, the Company and Berkshire Hathaway mutually agreed that notwithstanding anything to the contrary in the asset sale covenant, the parent, borrower, and their respective subsidiaries will be permitted without the consent of the administrative agent to sell, transfer, or otherwise dispose of properties (including but not limited to properties or equity interests of any subsidiary) to unaffiliated third parties for no less than fair market value, provided that the borrower deposits all net proceeds received into a controlled account and the use of such net proceeds will be subject to the terms and conditions of the Term Loan Agreement, including but not limited to the restricted payments and investments/loans covenants.

As of March 31, 2023, the Company paid down $800 million towards the Term Loan’s unpaid principal balance. The aggregate principal amount outstanding under the Term Loan Facility as of March 31, 2023 was $800 million.

Note 7 – Income Taxes

The Company had previously elected to be taxed as a REIT as defined under Section ~~856(c)~~856(a) of the Code for federal income tax purposes upon formation and through December 31, 2021. On March 31, 2022, the Company announced that its Board of Trustees unanimously approved a plan to terminate the Company’s REIT status and become a taxable C Corporation, effective for the year ~~ending~~ended December 31, 2022. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least 90% of REIT taxable income to its stockholders, which provides the Company with greater flexibility to use its free cash flow. Effective January 1, 2022, the Company is subject to federal, state and local income taxes on its taxable income at applicable tax rates and is no longer entitled to a tax deduction for dividends paid. The Company operated as a REIT ~~for~~since inception and through the 2021 tax year, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place until December 31, 2021.

As a result of the Company’s revocation of its REIT status in fiscal year 2022, the Company incurred a one-time, non-cash deferred tax benefit of approximately $~~160.3~~161.3 million during the three months ended March 31, 2022 and had a deferred tax benefit balance of $162.8 million as of December 31, 2022. ~~The~~As a result of ongoing operations and sales activity, the Company ~~also~~recognized a deferred tax benefit of $5.5 million during the three months ended March 31, 2023. As of March 31, 2023, the Company has recorded a full valuation allowance of $~~174.9~~168.3 million against the deferred tax asset pursuant to ASC 740, as discussed in more detail below. While the Company has recorded a full valuation allowance against its DTAs due to the uncertainty that it will be able to utilize them, if the Company is able to sell assets at prices above its tax basis, the DTAs will be utilized to offset any taxes due on those gains to the extent of the DTAs.

- 19 -

The ~~Company's~~Company’s effective tax rate of 0% differs from the U.S. statutory rate of 21% in ~~2022~~2023 primarily due to the placement of a valuation allowance on its deferred tax assets.

The significant components of the Company’s deferred tax assets of $~~174.9~~168.3 million as of March 31, ~~2022~~2023 consist of book to tax basis differences, ~~in its investment in the Operating Partnership~~net operating losses, and carryover net operating losses. As discussed below, the Company has recorded a full valuation allowance on the deferred tax assets as of March 31, ~~2022. As the Company was a REIT as of December 31, 2021, it reported~~ 2023 and 2022, respectively.0 ~~deferred tax assets.~~

~~- 22 -~~

Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. ASC 740 states that deferred tax assets shall be reduced by a valuation allowance if there is insufficient objectively verifiable evidence to support that it is more likely than not that they will be realized. This evaluation requires significant judgment which should be weighted commensurate with the extent to which the evidence can be objectively verified. Additionally, under ASC 740, forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Given the Company’s history of cumulative losses combined with the fact that the Company’s utilization of deferred tax assets is highly dependent on the outcome of the review of a broad range of strategic alternatives announced by its Board of Trustees and the uncertainty in timing and volume of future property sales, we have deemed that their realization, at this time, cannot be objectively verified. The Company has therefore recorded a full valuation allowance against the Company’s deferred tax assets as of March 31, ~~2022.~~2023. The Company will evaluate this position each quarter as verifiable positive evidence becomes available, such as the execution of asset sales, to support the future utilization of the deferred tax assets.

Note 8 – Fair Value Measurements

ASC 820, Fair Value Measurement, defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:

Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities

Level 2 - observable prices based on inputs not quoted in active markets, but corroborated by market data

Level 3 - unobservable inputs used when little or no market data is available

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value.

Assets Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis on our condensed consolidated balance sheets consist of real estate assets that have been written down to estimated fair value and are classified as Level 3 within the fair value hierarchy.

During the three months ended March 31, 2023 and 2022, ~~and 2021,~~respectively, in accordance with ASC 360-10, Property, Plant and Equipment, the Company recorded impairment losses of $~~1.0~~2.6 million and $~~1.7~~1.0 million, respectively, on real estate assets which are included in impairment on real estate assets within the condensed consolidated statements of operations. During the three months ended March 31, 2023 and 2022, respectively, in accordance with ASC 323, Equity Method and Joint Ventures, the Company recorded no other-than-temporary impairment losses on investments in unconsolidated entities. The $~~1.0~~2.6 million of impairment ~~losses~~ recorded during the three months ended March 31, ~~2022 relate to~~ 4 ~~properties, which are under contract~~2023 is the result of the Company agreeing to sell ~~or are being marketed~~a property for ~~sale.~~less than its carrying value. We continue to evaluate our portfolio, including our development plans and holding periods, which may result in additional impairments in future periods on our consolidated ~~properties and investments in unconsolidated entities.~~

properties.

The fair value estimates used to determine the impairment charges were determined primarily by discounted cash flow analyses, market comparable data, third-party appraisals/valuations and/or ~~third-party appraisals,~~offers received, as applicable. The cash flows utilized in such analyses are comprised of unobservable inputs which include, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates based upon market conditions and future expectations. ~~The capitalization rates and discount rates used in the analysis ranged from~~ ~~6.0% and~~ ~~12.0~~%. Comparable data utilizes comparable sales, listings, sales contracts and letters of intent which are subject to judgment as to comparability to the valued property. Because of these inputs, we have determined that the fair values of these properties are classified within Level 3 of the fair value hierarchy.

- 20 -

Financial Assets and Liabilities not Measured at Fair Value

Financial assets and liabilities that are not measured at fair value on the condensed consolidated balance sheets include cash equivalents, restricted cash and the term loan facility. The fair value of cash equivalents and restricted cash are classified as Level 1 and the fair value of term loan facility is classified as Level 2. Cash equivalents and restricted cash are carried at cost, which approximates fair value. The fair value of debt obligations is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, the estimated fair values of the Company’s debt obligations were $~~1.5~~0.8 billion and $~~1.5~~1.0 billion, respectively, which approximated the carrying value at such dates as the current risk-adjusted rate approximates the stated rates on the Company’s debt obligations.

~~- 23 -~~

Note 9 – Commitments and Contingencies

Insurance

The Company maintains general liability insurance and all-risk property and rental value, with sub-limits for certain perils such as floods and earthquakes on each of the Company’s properties. The Company also maintains coverage for terrorism acts as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2027.

Insurance premiums are charged directly to each of the properties. The Company will be responsible for deductibles and losses in excess of insurance coverage, which could be material. The Company continues to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, the Company cannot anticipate what coverage will be available on commercially reasonable terms in the future.

Environmental Matters

Under various federal, state and local laws, ordinances and regulations, the Company may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances. As a result, the Company may be liable for certain costs including removal, remediation, government fines and injuries to persons and property.

Under the Original Master Lease and the Holdco Master Lease, Holdco is required to indemnify the Company from certain environmental liabilities at the Consolidated Properties before or during the period in which each Consolidated Property was leased to Holdco, including removal and remediation of all affected facilities and equipment constituting the automotive care center. In addition, an environmental reserve was funded at the closing of the transactions in connection with the Company commencing operations in the amount of approximately $~~12.0~~ ~~million. As of March 31, 2022 and December 31, 2021, the balance of the environmental reserve was approximately $9.5~~ ~~million, respectively, and is included in accounts payable, accrued expenses and other liabilities in the condensed consolidated balance sheets.~~

Litigation and Other Matters

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued or discloses the fact that such a range of loss cannot be estimated. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, plaintiffs Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, and the Company, the Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD). The Litigation ~~alleges,~~alleged, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation ~~alleges,~~alleged, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $649 to $749 million more than the purchase price paid. The Litigation ~~seeks~~sought as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, in the alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.

On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter 11 Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Official Committee of Unsecured Creditors’ ~~Committee~~ (the ~~“UCC”~~“Creditors’ Committee”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.

- 2421 -

On February 21, 2020, the Seritage ~~defendants~~Defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions have been completed, and the parties are awaiting a decision. The Company believes that the claims against the Seritage Defendants in the Litigation are without merit and intends to defend against them vigorously.

On March 15, 2021, the Court consolidated the Litigation with a case captioned Sears Holding Corp. et al. v. Andrew H. ~~Tish,~~Tisch, et al., Case No. 20-07007 (RDD) (the “Shareholder Litigation,” and, together with the Litigation, the “Consolidated Litigation”). The Shareholder Litigation was brought by the UCC, Sears Holdings Corporation, and Sears, Roebuck and Co., against certain shareholders of Sears Holdings or its related companies. Seritage was not named as a defendant in the Shareholder Litigation, which alleges, among other things, that certain transactions undertaken by Sears Holdings since 2014 (including the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends. The Company believes that the claims against the Seritage Defendants in the Consolidated Litigation are without merit.

On April 6, 2022, the Court entered an order in the Consolidated Litigation, upon the agreement of the parties thereto, providing for a mediation of the ~~litigation, which~~litigation. The parties and the Court extended the mediation ~~shall conclude by May 23,~~several times, through August, and up until the settlement described below was reached.

On August 9, 2022, ~~unless extended by further order~~following the mediation, all of the ~~Court. There can be no assurance that the mediation will be successful or otherwise lead~~parties to the ~~consensual resolution~~Litigation and certain of the ~~Litigation.~~parties to the Shareholder Litigation (to which Seritage is not a defendant) entered into a settlement agreement pursuant to which the defendants paid to the Sears estate $175 million (of which the Seritage Defendants contributed approximately $35 million) in exchange for dismissal of the Consolidated Litigation and for the full and final satisfaction and release of all claims in the Consolidated Litigation (including, in the case of the Seritage Defendants, any and all claims between the Seritage Defendants and the Sears estate in the Sears bankruptcy proceeding).

On September 2, 2022, the United States Bankruptcy Court for the Southern District of New York entered an order approving the settlement and, on October 18, 2022, the Litigation was dismissed. While the Company believes that the claims against the Seritage Defendants in the ~~Consolidated~~ Litigation ~~are~~were without merit, the Company entered into the settlement, without admitting any fault or wrongdoing, in order to avoid the continued imposition of legal defense costs, distraction, and the uncertainty and risk inherent in any litigation.

The Company made a settlement payment of $35.5 million based on the Company’s contributions to the settlement of the Litigation. This payment is ~~participating~~recorded as litigation settlement in the ~~nonbinding mediation~~consolidated statements of operations during the year ended December 31, 2022.

On March 2, 2021, the company brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American Insurance Company, Allianz Global Risks US Insurance Company and ~~will evaluate whether~~Continental Casualty Company, each of which are D&O insurance providers of the ~~Consolidated Litigation can be resolved on reasonable terms. If~~Company (the “D&O Insurers”). The Company’s lawsuit sought, among other things, declaratory relief and money damages as a result of certain of the ~~mediation is not successful or does not otherwise lead~~D&O Insurers refusal to pay certain costs and expenses related to the ~~consensual resolution~~defense of the ~~Consolidated Litigation,~~Sears Bankruptcy. During the quarter ended December 31, 2022, the Company ~~intends to defend against~~reached settlement agreements with two of the ~~claims~~D&O Insurers and received gross proceeds of $12.7 million, which was recorded in interest and other income in the ~~Consolidated Litigation vigorously.~~consolidated statements of operations during the year ended December 31, 2022. During the three months ended March 31, 2023, the Company reached settlement agreements with the other two D&O Insurers for gross proceeds of $11.6 million. The Company received $3.8 million during the three months ended March 31, 2023, which is recorded in interest and other income in the consolidated statements of operations. The Company received $7.8 million subsequent to March 31, 2023.

In addition to the litigation described above, the Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business and due to the current environment. 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 ~~condensed~~ consolidated financial position, results of operations, cash flows or liquidity of the Company. ~~As of March 31, 2022, and December 31, 2021, the Company did not record any amounts for litigation or other matters.~~

Note 10 – Related Party Disclosure

Edward S. Lampert

Edward S. Lampert is the Chairman and Chief Executive Officer of ESL, which owns Holdco, and was Chairman of Sears Holdings. Mr. Lampert was also the Chairman of Seritage prior to his retirement effective March 1, 2022.

~~As of March 31,~~On July 6, 2022, Mr. Lampert ~~beneficially owned a~~ ~~22.1% interest in the~~converted all Operating Partnership ~~and approximately~~Units (“OP Units”) to Class A common shares. As a result, he owns ~~9.3~~26.9% of the outstanding Class A ~~common shares.~~shares as of March 31, 2023.

Subsidiaries of Holdco, as lessees, and subsidiaries of the Company, as lessors, were parties to the Holdco Master Lease and subsidiaries of Sears Holdings, as lessees, and subsidiaries of the Company, as lessors, were parties to the Original Master ~~Lease (see Note 5).~~Lease.

- 22 -

Winthrop Capital Advisors

On December 29, 2021, the Company entered into a Services Agreement with Winthrop Capital Advisors LLC to provide additional staffing to the Company. On January 7, 2022, the Company announced that John Garilli, an employee of Winthrop, has been appointed interim chief financial officer on a full-time basis, effective January 14, 2022. The Company paid Winthrop $0.7 million as payment of a monthly fee and reimbursement for certain employee expenses during the three months ended March 31, 2023.

Unconsolidated Entities

Certain unconsolidated entities have engaged the Company to provide management, leasing, construction supervision and development services at the properties owned by the unconsolidated entities. Refer to Note 2 for the Company’s significant accounting policies.

~~- 25 -~~

In addition, as of March 31, 2023 and December 31, 2022, respectively, the Company had incurred 0no development expenditures at properties owned by certain unconsolidated entities for which the Company will be repaid by the respective unconsolidated entities. ~~As of December 31, 2021, the Company had incurred $0.2~~ ~~million of such development expenditures. These amounts are included in tenant and other receivables, net on the Company’s condensed consolidated balance sheets.~~

The Company has certain put rights on properties held by the Unconsolidated Entities, which may require the Company’s partner to buy out the Company’s investment in such properties. During the ~~quarter~~three months ended March 31, ~~2022,~~2023, the Company exercised its put rights on 2one ~~properties to one of their partners.~~property.

Note 11 – Non-Controlling Interests

Partnership Agreement

On July 7, 2015, Seritage and ESL entered into the agreement of limited partnership of the Operating Partnership which was amended and restated on December 14, ~~2017.~~2017 and further amended and restated on January 4, 2023. Pursuant to this partnership agreement, as the sole general partner of the Operating Partnership, Seritage exercises exclusive and complete responsibility and discretion in its day-to-day management, authority to make decisions, and control of the Operating Partnership, and may not be removed as general partner by the limited partners.

On July 6, 2022, ESL converted all Operating Partnership Units to Class A common shares. As ~~of March 31, 2022,~~a result, the Company, ~~held~~and its wholly owned subsidiaries, holds a ~~77.9~~100% interest in the Operating Partnership ~~and ESL held a~~ ~~22.1% interest. The portions of consolidated entities not owned by the Company are presented as non-controlling interest~~ as of ~~and during the periods presented.~~March 31, 2023.

Note 12 – Shareholders’ Equity

Class A Common Shares

As of March 31, ~~2022,~~2023, ~~43,675,446~~56,059,530 Class A common shares were issued and outstanding. Class A shares have a par value of $0.01 per share. ~~During the three months ended March 31, 2022,~~ 0 ~~Operating Partnership Units (“OP Units”) were issued and exchanged for an equal number of Class A shares.~~

Class B Non-Economic Common Shares

As of March 31, ~~2022,~~2023, there were 0no Class B non-economic common shares issued and outstanding.

Series A Preferred Shares

In December 2017, the Company issued 2,800,000 7.00% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”) in a public offering at $25.00 per share. The Company received net proceeds from the offering of approximately $66.4 million, after deducting payment of the underwriting discount and offering expenses.

~~The Company may not redeem the Series A Preferred Shares before December 14, 2022, or upon the occurrence~~As of ~~a Change of Control, as defined in the trust agreement addendum designating the Series A Preferred Shares. On and after~~ December 14, 2022, the Company may redeem any or all of the Series A Preferred Shares at $25.00 ~~per share plus any accrued and unpaid dividends. In addition, upon the occurrence of a Change of Control, the Company may redeem any or all of the Series A Preferred Shares for cash within~~ ~~120~~ ~~days after the first date on which such Change of Control occurred at $25.00~~ per share plus any accrued and unpaid dividends. The Series A Preferred Shares have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company redeems or otherwise repurchases them or they are converted.

~~- 26 -~~

Dividends and Distributions

The Company’s Board of Trustees has not declared dividends on the Company’s Class A common shares during ~~2022, 2021~~2023 or ~~2020.~~2022. The last dividend on the Company’s Class A and C common shares that the Board of Trustees declared was on February 25, 2019, which was paid on April 11, 2019 to shareholders of record on March 29, 2019.

The Board of Trustees will ~~continue to assess the Company’s investment opportunities and its expectations of taxable income in its determination of~~determine future distributions ~~if any.~~following the pay down of the Term Loan Facility.

- 23 -

The Company’s Board of Trustees declared the following dividends on preferred shares during ~~2022~~2023 and ~~2021:~~2022:

Series A

Declaration Date

Record Date

Payment Date

Preferred Share

Record Date

Payment Date

Preferred Share

2023

April 27

June 30

July 14

0.43750

February 15

March 31

April 17

0.43750

2022

November 1

December 30

January 16, 2023

0.43750

July 26

September 30

October 17

0.43750

April 26

June 30

July 15

0.43750

June 30

July 15

0.43750

February 16

March 31

April 15

0.43750

March 31

April 15

0.43750

2021

October 26

December 31

January 14, 2022

0.43750

July 27

September 30

October 15

0.43750

April 27

June 30

July 15

0.43750

February 23

March 31

April 15

0.43750

Note 13 – Earnings per Share

The table below provides a reconciliation of net ~~income/(loss)~~loss and the number of common shares used in the computations of “basic” earnings per share (“EPS”), which utilizes the weighted-average number of common shares outstanding without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares. Potentially dilutive securities consist of shares of non-vested restricted stock and the redeemable non-controlling interests in the Operating Partnership.

All outstanding non-vested shares that contain non-forfeitable rights to dividends are considered participating securities and are included in computing EPS pursuant to the two-class method which specifies that all outstanding non-vested share-based payment awards that contain non-forfeitable rights to distributions are considered participating securities and should be included in the computation of EPS.

~~Earnings per share has not been presented for Class B shareholders, as they do not have economic rights.~~


(in thousands except per share amounts)	Three Months Ended March 31,						Three Months Ended March 31,
	2022			2021			2023			2022
Numerator - Basic and Diluted
Net loss		(66,987	)		(10,933	)	$	(61,986	)	$	(66,987	)
Net loss attributable to non-controlling interests		14,782			3,213			—			14,782
Preferred dividends		(1,225	)		(1,225	)		(1,225	)		(1,225	)
Net loss attributable to common shareholders - Basic	$	(53,430	)	$	(8,945	)	$	(63,211	)	$	(53,430	)

Denominator - Basic and Diluted
Weighted average Class A common shares outstanding		43,634			39,477			56,059			43,634
Weighted average Class A common shares outstanding - Basic		43,634			39,477			56,059			43,634
Weighted average Class A common shares outstanding - Diluted		43,634			39,477			56,059			43,634

Loss per share attributable to Class A common shareholders - Basic	$	(1.22	)	$	(0.23	)	$	(1.13	)	$	(1.22	)
Loss per share attributable to Class A common shareholders - Diluted	$	(1.22	)	$	(0.23	)	$	(1.13	)	$	(1.22	)

No adjustments were made to the numerator for the three months ended March 31, 2023 and 2022, ~~and 2021~~respectively, because the Company generated a net loss. During periods of net loss, undistributed losses are not allocated to the participating securities as they are not required to absorb losses.

~~- 27 -~~

No adjustments were made to the denominator for the three months ended March 31, 2023 and 2022, ~~and 2021~~respectively, because (i) the inclusion of outstanding non-vested restricted shares would have had an anti-dilutive effect and (ii) including the non-controlling interest in the Operating Partnership would also require that the share of the Operating Partnership loss attributable to such interests be added back to net loss, therefore, resulting in no effect on earnings per share.

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, there were ~~432,167~~380,308 and ~~288,068~~535,650 shares, respectively, of non-vested restricted shares outstanding.

- 24 -

Note 14 – Share-Based Compensation

On July 7, 2015, the Company adopted the Seritage Growth Properties 2015 Share Plan (the “Plan”). The number of shares of common stock reserved for issuance under the Plan is 3,250,000. The Plan provides for grants of restricted shares, share units, other share-based awards, options, and share appreciation rights, each as defined in the Plan (collectively, the “Awards”). Directors, officers, other employees, and consultants of the Company and its subsidiaries and affiliates are eligible for Awards.

Restricted Shares and Share Units

Pursuant to the Plan, the Company has periodically made grants of restricted shares or share units. The vesting terms of these grants are specific to the individual grant and vary in that a portion of the restricted shares and share units vest in equal annual amounts over the subsequent three years (time-based vesting) and a portion of the restricted shares and share units vest on the third ~~and in some instances, the fourth~~ anniversary of the grants subject to the achievement of certain performance criteria (performance-based and market-based vesting).

In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). Restricted shares and share units that do not vest are forfeited. Dividends on restricted shares and share units with time-based vesting are paid to holders of such shares and share units and are not returnable, even if the underlying shares or share units do not ultimately vest. Dividends on restricted shares and share units with performance-based vesting are accrued when declared and paid to holders of such shares on the third, and in some instances, the fourth anniversary of the initial grant subject to the vesting of the underlying shares. See Note 2 for valuation information related to the grants of the awards that are subject to market-based vesting conditions.

The following table summarizes restricted share activity for the three months ended March 31, ~~2022:~~2023:



	Three Months Ended March 31,					Three Months Ended March 31, 2023
				Weighted-					Weighted-
				Average Grant					Average Grant
	Shares			Date Fair Value		Shares			Date Fair Value
Unvested restricted shares at beginning of period		157,465		$	38.73		535,650		$	14.31
Share units granted		335,033			11.31
Restricted shares vested		(38,607	)		15.28		(143,583	)		13.82
Restricted shares forfeited		(21,724	)		40.10		(11,759	)		24.52
Unvested restricted shares at end of period		432,167			19.50		380,308		$	14.18

The Company recognized $~~0.4~~0.8 million and $~~0.9~~0.4 million in compensation expense related to the restricted shares for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Compensation expenses related to the restricted shares are included in general and administrative expenses on the Company’s condensed consolidated statements of operations.

As of March 31, ~~2022,~~2023, there were approximately $~~7.3~~3.7 million of total unrecognized compensation costs related to the outstanding restricted shares which are expected to be recognized over a weighted-average period of approximately ~~2.5~~1.6 years. As of March 31, ~~2021,~~2022, there were approximately $~~4.3~~7.3 million of total unrecognized compensation costs related to the outstanding restricted shares which were expected to be recognized over a weighted-average period of approximately 2.5 years.

- 2825 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.~~2022. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part 1 of this Quarterly Report.

Overview

~~We are~~Prior to our adoption of the Plan for Sale, we were principally engaged in the ownership, development, redevelopment, disposition, management and leasing of diversified retail and mixed-use properties throughout the United States. We will continue to actively manage each remaining location until such time as each property is sold. As of March 31, ~~2022,~~2023, our portfolio consisted of interests in ~~161~~72 properties comprised of approximately ~~19.0~~10.2 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately ~~3.8~~2.6 million square feet of which is held by unconsolidated entities (the “Unconsolidated Properties”), approximately ~~600~~157 acres held for or under development and approximately ~~8.8~~5.3 million square feet or approximately ~~740~~428 acres to be disposed of.

In the second quarter of 2021, we announced an organizational restructuring and in conjunction commenced a portfolio review resulting in the modification of the plan for certain assets. We continue to evaluate our strategy and at this time, we expect to reposition our portfolio into three business lines: residential developments, premier mixed-use assets, and multi-tenant retail destinations.

~~Board of Trustees Matters~~

On March 1, 2022, the Company announced that Mr. Lampert retired as its Chairman and resigned from its board of trustees (the “Board of Trustees,”) effective as of March 1, 2022, and that each of Messrs. David S. Fawer and Thomas M. Steinberg, members of the Board of Trustees, notified the Board of Trustees that he would not stand for reelection as a trustee.

On March 30, 2022, the Company announced that the Board of Trustees elected Adam S. Metz as a trustee of the Company and as a member of Class I of the Board of Trustees, effective as of March 30, 2022.

On April 28, 2022, the Company announced that the Board of Trustees elected Mitchell Sabshon, Talya Nevo-Hacohen and Mark Wilsmann as trustees of the Company and as members of Class I, II and III of the Board of Trustees, respectively, effective as of April 26, 2022. On April 28, 2022, the Company also announced that Messrs. Fawer and Steinberg resigned from the Board, effective upon Mr. Sabshon’s, Ms. Nevo-Hacohen’s and Mr. Wilsmann’s appointments.

Review of Strategic Alternatives

On March 1, 2022, the Company announced that its Board of Trustees has commenced a process to review a broad range of strategic alternatives to enhance shareholder value. The Board of Trustees created a special committee of the Board of Trustees (the “Special Committee”) to oversee the process. The Special Committee has retained a financial advisor. The Company sought a shareholder vote to approve a proposed plan of sale of our assets and dissolution (the “Plan of Sale”) that would allow our board to sell all of our assets, distribute the net proceeds to shareholders and dissolve the Company.

The 2022 Annual Meeting of Shareholders occurred on October 24, 2022, at which time the Plan of Sale was approved by the shareholders, following our filing of a final proxy statement with the SEC on September 14, 2022. See Note 1 – Organization of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information about the Plan of Sale. The strategic review process remains ~~ongoing.~~ongoing as the Company executes the Plan of Sale. There can be no assurance that the review process will result in any transaction or that the Company will be successful in fully executing on the Plan of Sale.

Impairment of Real Estate Assets and Investments in Unconsolidated Entities

In the first quarter of 2022, we announced a Review of Strategic Alternatives and during the second quarter determined that the best plan for all assets is to pursue sales. As a result of the foregoing, the Company’s anticipated holding periods with respect to certain assets has changed. This affected our view of recoverability of the carrying value of those assets over their respective holding periods and during the year ended December 31, 2022, $126.9 million of impairment was recorded. Due to agreeing to sell an asset below its carrying value, we have recognized $2.6 million of impairment losses during the three months ended March 31, 2023, which are included in impairment on real estate assets within the condensed consolidated statements of operations. We did not recognize any ~~strategic change at this time. See “Item 1A. Risk Factors—Risks Related~~other-than-temporary impairment losses to ~~Our Business~~our investments in unconsolidated entities during the three months ended March 31, 2023. We continue to evaluate our portfolio, including our development plans and ~~Operations—There can be no assurance that our review of strategic alternatives will~~offers received, which may result in ~~any transaction or any strategic change at this time.”~~additional impairments in future periods on our consolidated properties and investments in unconsolidated entities.

- 2926 -

REIT Election

On March 31, 2022, the Company announced that its Board of Trustees, with the recommendation of the Special Committee, approved a plan to terminate the Company's REIT status and become a taxable C Corporation, effective for the year ~~ending~~ended December 31, 2022. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least 90% of REIT taxable income to its stockholders, which provides the Company with greater flexibility to use its free cash flow. Effective January 1, 2022, the Company is subject to federal and state income taxes on its taxable income at applicable tax rates and is no longer entitled to a tax deduction for dividends paid. The Company operated as a REIT ~~for~~since inception and through the 2021 tax year, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place until December 31, 2021. Refer to Note 7 – Income Taxes of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Business Strategies

The Company’s primary objective is to create value for its shareholders through the ~~re-leasing and redevelopment~~monetization of ~~its core Consolidated Properties and Unconsolidated Properties, except for certain~~the Company's assets through the Plan of ~~its non-core assets~~Sale, which ~~have been identified for near term disposition. In particular,~~can be suspended by the Board of Trustees. Additionally, we have identified various sites that we believe have the demand and demographic profile to support other uses such as residential, biotechnology, office and others. Given our fee ownership of these properties and control over parking lots and outparcels, we believe that these sites are well positioned for such value creation opportunities. We additionally look to further lease our built retail footprint and densify any excess parking land through the addition of triple net (“NNN”) pad sites, which are standalone sites upon which a customized space can be built or leased for a ~~tenant.~~tenant, to the extent that we believe these actions would be accretive to shareholder value.

In order to achieve its objective, the Company intends to execute the following strategies:

•

Multi-tenant Retail: Our portfolio of 4013 multitenant retail assets ~~provide~~provides positive cash flow and are primarily leased to a variety of national credit tenants. As of March 31, ~~2022,~~2023, this portfolio was ~~82.7%~~76.0% leased with a pipeline of ~~0.2~~0.1 million square feet. A majority of our leases are effectively NNN based on the structure of our leases, providing an important inflation hedge. This portfolio also affords numerous further densification opportunities through the addition of pads on excess parking areas. We are working to maximize value of these assets and position them for sale.

•

Densification and Redevelopment Opportunities: In particular, we have identified various sites that we believe have the demand and demographic profile to support other uses such as residential, biotechnology, office and others. Given our fee ownership of these properties and control over parking lots and outparcels, we believe that these sites are well positioned for such value creation opportunities. ~~We additionally~~To the extent that we believe it will be accretive to shareholder value, we will look to further densification by converting vacant land to pad sites.

•

Premier/Master Planned Mixed Use and Residential: As of March 31, ~~2022,~~2023, our full portfolio included approximately ~~2,150~~997 acres of land, or an average of 1313.8 acres per site, and our most significant geographic concentrations were in higher growth markets in California, Florida, Texas, and the Northeast. We believe these land holdings will provide meaningful opportunities to create value through ~~relevant investments~~entitlements, leasing and developments. 33 sites have been identified as potential residential developments. The average acreage per site is 14. We are in the process of hiring a development services firm to augment our own internal development team in an effort to accelerate the entitlements of the properties.

•

Non-core Assets for Monetization: We continue to assess the best use for all sites within our portfolio, including residential, retail, and converting excess land area to pad ~~sites, and will strategically dispose of~~sites. The non-core assets ~~in order to fund development and deploy capital more strategically.~~

On March 1, 2022, the Company announced that its Board of Trustees has commenced a process to review a broad range of strategic alternatives to enhance shareholder value. The Company will continue to evaluate its portfolio strategy and corporate structure to optimize the outcome of such review. See “—Review of Strategic Alternatives.”

~~COVID-19 Pandemic~~

~~The Coronavirus (“COVID-19”) pandemic has caused and continues to cause significant impacts on the real estate industry in the United States, including the Company’s properties.~~

~~As of March 31, 2022, we had collected 96% o~~f ~~rental income for the three months ended March 31, 2022,~~ and agreed to no additional deferrals. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.

~~- 30 -~~

~~Impairment of real estate assets and investments in unconsolidated entities~~

In the second quarter of 2021, we announced an organizational restructuring and in conjunction commenced a portfolio review resulting in the modification of the plan for certain assets. As a result of the foregoing, our intent, anticipated holding periods and/or projected cash flows with respect to certain assets evolved. This affected our view of recoverability of the carrying value ofare those assets over their respective holding periods. We have recognized $95.8 million of impairment losses during the year ended December 31, 2021 and $1.0 million during the three months ended March 31, 2022, which are includedwhere we believe we will maximize value by selling in impairment on real estate assets within the condensed consolidated statements of operations. We continue to evaluate our portfolio, including our development plans and holding periods, which may result in additional impairments in future periods on our consolidated properties and investments in unconsolidated entities.its current state.

Results of Operations

We derive substantially all of our revenue from rents received from tenants under existing leases at each of our properties. This revenue generally includes fixed base rents and recoveries of expenses that we have incurred and that we pass through to the individual tenants, in each case as provided in the respective leases.

Our primary cash expenses consist of our property operating expenses, general and administrative expenses, interest expense, and construction and development related costs. Property operating expenses include real estate taxes, repairs and maintenance, management fees, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is on our term loan facility. In addition, we incur substantial non-cash charges for depreciation of our properties and amortization of intangible assets and liabilities.

- 27 -

Comparison of the Three Months Ended March 31, ~~2022~~2023 to the Three Months Ended March 31, ~~2021~~2022

The following table presents selected data on comparative results from the Company’s condensed consolidated statements of operations for the three months ended March 31, ~~2022,~~2023, as compared to the three months ended March 31, ~~2021~~2022 (in thousands):


	Three Months Ended March 31,								Three Months Ended March 31,
	2022			2021		$ Change			2023			2022			$ Change
Revenue
Rental income	$	29,084		$	31,146	$	(2,062	)	$	418		$	29,084		$	(28,666	)
Expenses
Property operating		11,032			10,643		389			8,185			11,032			(2,847	)
Real estate taxes		8,150			10,155		(2,005	)		1,537			8,150			(6,613	)
Depreciation and amortization		11,934			13,142		(1,208	)		4,564			11,934			(7,370	)
General and administrative		9,092			11,232		(2,140	)		12,220			9,092			3,128
Gain / (loss) on sale of real estate, net		(1,015	)		24,208		(25,223	)
(Gain) loss on sale of real estate, net										(12,392	)		1,015			(13,407	)
Impairment of real estate assets		991			1,700		(709	)		2,576			991			1,585
Equity in loss of unconsolidated entities		33,076			1,162		31,914			36,372			33,076			3,296
Interest and other income										(5,585	)		(11	)		(5,574	)
Interest expense		22,588			26,150		(3,562	)		15,202			22,588			(7,386	)

Rental Income

The following table presents the results for rental income for the three months ended March 31, ~~2022,~~2023, as compared to the corresponding period in ~~2021~~2022 (in thousands):

Three Months Ended March 31,

Three Months Ended March 31,

2022

2021

Rental Income

% of Total
Rental Income

Rental Income

% of Total
Rental Income

$ Change

Sears/Kmart

$
—

0.0
%

$
4,510

14.5
%

$
(4,510
)
In-place diversified, non-Sears leases

28,378

97.6
%

26,807

86.1
%

1,571

Straight-line rent

721

2.5
%

(210
)

-0.7
%

931

Amortization of the above/below market leases

(15
)

-0.1
%

39

0.1
%

(54
)
Total rental income

$
29,084

100.0
%

$
31,146

100.0
%

$
(2,062
)

~~- 31 -~~


	Three Months Ended March 31,						Three Months Ended March 31,
	2023						2022
	Rental Income			% of Total Rental Income			Rental Income			% of Total Rental Income			$ Change
In-place retail leases	$	11,259			2693.5	%	$	28,378			97.6	%		(17,119	)
Straight-line rent (expense)		(10,843	)		-2594.0	%		721			2.5	%		(11,564	)
Amortization of the above/below market leases		2			0.5	%		(15	)		-0.1	%		17
Total rental income	$	418			100.0	%	$	29,084			100.0	%	$	(28,666	)

The decrease of ~~$4.5~~$17.1 million in Sears or Kmart rental income is due to a reduction in the number of properties leased to Sears or Kmart under the Holdco Master Lease, as a result of terminations. As of March 15, 2021, Sears no longer occupied any space in the portfolio.

~~The increase of $1.6 million in diversified tenants~~in-place retail lease rental income during ~~2022~~2023 is primarily due to ~~newly commenced lease at locations formerly occupied by Sears or Kmart.~~property sales.

The ~~increase~~decrease of ~~$0.9~~$11.6 million in straight-line rental income was primarily due to ~~increase in new leasing.~~a reversal of $10.8 million of straight-line rent due to property sales.

Property Operating Expenses and Real Estate Taxes

The ~~increase~~decrease of ~~$0.4~~$2.8 million in property operating expense for the three months ended March 31, ~~2022~~2023 was due primarily to ~~an increase in utility~~asset sales and ~~certain common area maintenance expenses at properties for which Sears or Kmart paid such expenses directly,~~ partially offset by ~~asset sales, and prior period refunds.~~

a decrease in amounts capitalized.

The decrease of ~~$2.0~~$6.6 million in real estate taxes for the three months ended March 31, ~~2022~~2023 was due primarily to asset sales and ~~was partially offset by a decrease in amounts capitalized.~~refunds received during the three months ended March 31, 2023.

Depreciation and Amortization Expenses

The decrease of ~~$1.2~~$7.4 million in depreciation and amortization expenses for the three months ended March 31, ~~2022~~2023 was primarily due to a decrease of $7.2 million in net scheduled depreciation due to property sales.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, including share-based compensation, professional fees, office expenses and overhead expenses.

The ~~decrease~~increase of ~~$2.1~~$3.1 million in general and administrative expenses for the three months ended March 31, ~~2022~~2023 was driven ~~by a decrease in compensation expenses and share based compensation resulting from a decrease in employee head count. This was partially offset~~ by an increase in legal ~~fees~~and consulting related expenses resulting from the comprehensive review of strategic alternatives. This was partially offset by a decrease in compensation expense, resulting from a decrease in head count.

- 28 -

Gain ~~/ (loss)~~ on Sale of Real Estate, Net

During the three months ended March 31, ~~2022,~~2023, the Company sold ~~one property~~24 properties for aggregate consideration of ~~$9.0~~$290.8 million and recorded a ~~loss~~gain totaling ~~$1.0~~$12.4 million, which is included in gain ~~(loss)~~ on sale of real estate, net within the condensed consolidated statements of operations.

Impairment of Real Estate Assets

During the three months ended March 31, ~~2022,~~2023, the Company recognized ~~$1.0~~$2.6 million in impairment on ~~four~~one real estate ~~assets,~~asset, which is included within the condensed consolidated statements of operations. ~~These impairments~~This impairment arose from the Company’s plan to sell ~~these four properties.~~this property for sale below carrying value, which triggered the need for an impairment analysis pursuant to ASC 360, Property, Plant and Equipment.

Equity in Loss of Unconsolidated Entities

The increase of ~~$31.9~~$3.3 million in loss ofin the unconsolidated entities for the three months ended March 31, ~~2022~~2023 was driven by ~~$61.1~~$70.8 million impairment charge recorded in one investment during the three months ended March 31, 2023, resulting in the Company picking up their share of this impairment at $35.4 million. During the three months ended March 31, 2022, one investment recorded impairment of $61.1 million, resulting in the Company picking up their share of this impairment at $30.6 million.

Interest and other income

The increase of $5.6 million of interest and other income is primarily due to the receipt of $3.8 million relating to the settlement with the D&O Insurers.

Interest Expense

The decrease of ~~$3.6~~$7.4 million in interest expense for the three months ended March 31, ~~2022~~2023 was driven by ~~a decrease in interest expense incurred resulting from~~ the ~~term loan~~partial Term Loan Facility pay down ~~in December 2021, and an increase in amounts capitalized due to an increase in project development activity.~~totaling $800 million as of March 31, 2023.

~~- 32 -~~

Liquidity and Capital Resources

Our primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service (collectively, “Obligations”), and certain development expenditures. Property rental income, which is the Company’s primary source of operating cash flow, did not fully fund obligations incurred during the three months ended March 31, ~~2022~~2023 and the Company recorded net operating cash outflows of ~~$30.0~~$22.0 million. Additionally, the Company’s ~~utilized $21.5 million for~~generated investing cash ~~outflows~~inflows of $240.3 million during the three months ended March 31, ~~2022,~~2023, which were ~~primarily used for development activity~~driven by asset sales and ~~investment in unconsolidated entities~~ partially offset by ~~asset sales.~~development expenditures.

Obligations are projected to continue to exceed property rental income and we expect to fund such obligations and any development expenditures with cash on hand and a combination of capital sources including, but not limited to the following, subject to any approvals that may be required under the Term Loan Agreement:

•

Sales of Consolidated Properties. As of March 31, ~~2022,~~2023, we had sold 91172 Consolidated Properties, and additional outparcels at certain properties, and generated approximately ~~$995.8 million~~$1.9 billion of gross proceeds since we began our capital recycling program in July 2017.

•

Sales of interests in Unconsolidated Properties. As of March 31, ~~2022,~~2023, we had sold our interests in 1523 Unconsolidated Properties and generated approximately ~~$278.1~~$362.9 million of gross proceeds since July 2017. Certain of our unconsolidated entity agreements also include rights that allow us to sell our interests in select Unconsolidated Properties to our partners at fair market ~~value. During the three months ended March 31, 2022, the Company exercised such rights to put two properties to one of our partners;~~value;

•

Unconsolidated Properties. As of March 31, ~~2022,~~2023, we had contributed interests in 12 properties to unconsolidated entities, which generated approximately $242.4 million of gross proceeds since July 2017. In addition to generating liquidity upon closing, these entities also reduce our development expenditures by the amount of our partners’ interests in the unconsolidated entities;

•

Unconsolidated entities debt. We may incur property-level debt in new or existing unconsolidated entities, including construction financing for properties under development and longer-term mortgage debt for stabilized properties; and

•

Other credit and capital markets transactions. We may raise additional capital through the public or private issuance of debt securities, common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity.

As of May 9, 2022, we had nine assets under contract for sale for total anticipated proceeds of $85.0 million, subject to customary due diligence and closing conditions. In addition, we exercised the put rights that we have on two Unconsolidated Properties. Subsequent to March 31, 2022, we sold seven assets for gross proceeds of $74.7 million.

- 29 -

As previously disclosed, on May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment (the “Term Loan Amendment”) to the Term Loan Agreement by and among the Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the Term Loan Agreement if, as of the first day of each applicable month, (x) the amount of unrestricted and unencumbered (other than liens created under the Term Loan Agreement) cash on hand of the Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or less than $30.0 million. In such instances, for each interest period, the Operating Partnership is obligated to make payments of interest in an amount equal to the difference between (i) Available Cash and (ii) $20.0 million (provided that such payment shall not exceed the amount of current interest otherwise due under the Term Loan Agreement). Any deferred interest shall accrue interest at 2.0% in excess of the then applicable interest rate and shall be due and payable on July 31, 2023; provided, that the Operating Partnership is required to pay any deferred interest from Available Cash in excess of $30.0 million (unless otherwise agreed to by the administrative agent under the Term Loan Agreement in its sole discretion). In addition, repayment of any outstanding deferred interest is a condition to any borrowings under the $400.0 million incremental funding facility under the Term Loan Agreement (the “Incremental Funding Facility”).

Additionally, the Term Loan Amendment provides that the administrative agent and the lenders express their continued support for asset dispositions, subject to the administrative agent’s right to approve the terms of individual transactions due to the occurrence of a Financial Metric Trigger Event, as such term is defined under the Term Loan Agreement. The Third Term Loan Amendment (as defined in Note 6 – Debt of the Notes to the condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q) executed on June 16, 2022 eliminated this right.

Our Term Loan Facility includes a $400.0 million Incremental Funding Facility, access to which is subject to rental income from non-Sears Holdings tenants of at least $200.0 million, on an annualized basis and after giving effect to SNO leases expected to commence rent payment within 12 months, which we have not yet achieved, as disclosed in Note 6. There is no assurance of the Company’s ability to access the Incremental Funding Facility.

~~- 33 -~~

~~On November 24, 2021,~~During the Operating Partnership, the Company and Berkshire Hathaway entered into an amendment (the “Second Term Loan Amendment”) to the Term Loan Agreement by and among the Operating Partnership, the Company and Berkshire Hathaway to which the Operating Partnership, the Company and Berkshire Hathaway mutually agreed that (i) the “make whole” provision in the Senior Secured Term Loan Agreement shall not be applicable to prepayments of principal; and (ii) the Senior Secured Term Loan Agreement, as amended for (i) above, may at the Operating Partnership's election be extended for two years from Julythree months ended March 31, 2023, to July 31, 2025 (the “Maturity Date”) if its principal has been reduced to $800 million by the Maturity Date. If it has not been reduced to this limit by the Maturity Date, the loan will be due and payable on that date. In all other respects, the Senior Secured Term Loan Agreement remains unchanged.

~~During the year ended December 31, 2021,~~ we have repaid ~~$160.0~~$230.0 million against the principal of the Term Loan Facility. Our outstanding balance as of March 31, ~~2022,~~2023, is ~~$1.44 billion.~~$800 million.

In addition to the $85.0 million of assets referenced above under contract, the Company is currently marketing or about to bring to market for sale, assets with an estimated fair value of $636.3 million, which would, if sold, allow the Company to meet the $640 million Term Loan Facility principal pay down required to extend the facility. While these assets are intended for sale, and the Company believes that they will close before the maturity, there is no assurance that these assets will be under contract within the one year timeframe in which the Term Loan Facility principal will need to be factored into the going concern analysis. See Note 1 – ~~Going Concern~~Organization of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of ~~the~~liquidity and going concern.

Cash Flows for the ~~three months ended~~Three Months Ended March 31, ~~2022~~2023 Compared to the ~~three months ended~~Three Months Ended March 31, ~~2021~~2022

The following table summarizes the Company’s cash flow activities for the three months ended March 31, 2023 and 2022, ~~and 2021~~respectively (in thousands):

Three Months Ended March 31,

2022

2021

$ Change

Net cash used in operating activities

$
(30,048
)

$
(23,097
)

$
(6,951
)
Net cash (used in) provided by investing activities

(21,521
)

18,515

(40,036
)
Net cash used in financing activities

(1,225
)

(1,206
)

(19
)


	Three Months Ended March 31,
	2023			2022			$ Change
Net cash used in operating activities	$	(21,952	)	$	(30,048	)	$	8,096
Net cash provided by investing activities		240,290			(21,521	)		261,811
Net cash (used in) provided by financing activities		(231,225	)		(1,225	)		(230,000	)

Cash Flows from Operating Activities

Significant components of net cash used in operating activities include:

In ~~2022,~~2023, a decrease in rental income and a decrease into accounts payable, accrued expenses and other liabilities, partially offset by a decrease into tenant and other receivables.

Cash Flows from Investing Activities

Significant components of net cash provided by ~~(used in)~~ investing activities include:

−

In ~~2022, development of real estate of ($22.5) million and investments in unconsolidated entities of ($7.6) million offset by $8.5 million of net proceeds from the sale of real estate; and~~

−

~~In 2021, $55.2~~2023, $280.0 million of net proceeds from the sale of real estate offset by development of real estate of ~~$(26.8)~~($32.0) million and investments in unconsolidated entities of ($~~9.9)~~7.7) million; and

−

In 2022, $8.5 million of net proceeds from the sale of real estate offset by development of real estate of ($22.5) million and investments in unconsolidated entities of ($7.6) million.

Cash Flows from Financing Activities

Significant components of net cash used in financing activities include:

−

In ~~2022,~~2023, ($230.0) million cash repayment of Term Loan Facility principal and cash payments of preferred dividends, ($1.2) million; and

−

In ~~2021,~~2022, cash payments of preferred dividends, ($1.2) million.

- 30 -

Dividends and Distributions

The Company’s Board of Trustees did not declared dividends on the Company’s Class A common shares during the three months ended March 31, 2023 and 2022, ~~and 2021.~~respectively.

~~- 34 -~~

The Company’s Board of Trustees declared the following dividends on preferred shares during ~~2022~~2023 and ~~2021:~~2022:


			Series A
Declaration Date	Record Date	Payment Date	Preferred Share
2023
April 27	June 30	July 14	$	0.43750
February 15	March 31	April 17		0.43750
2022
November 1	December 30	January 16, 2023	$	0.43750
July 26	September 30	October 17		0.43750
April 26	June 30	July 15		0.43750
February 16	March 31	April 15		0.43750

Series A

Declaration Date

Record Date

Payment Date

Preferred Share

2022

April 26

June 30

July 15

$
0.43750

February 16

March 31

April 15

0.43750

2021

October 26

December 31

January 14, 2022

$
0.43750

July 27

September 30

October 15

0.43750

April 27

June 30

July 15

0.43750

February 23

March 31

April 15

0.43750

~~Our~~The Board of Trustees will ~~continue to assess the Company’s investment opportunities and its expectations of taxable income in its determination of~~determine future distributions ~~if any.~~following the pay down of the Term Loan Facility.

Off-Balance Sheet Arrangements

The Company accounts for its investments in entities that it does not have a controlling interest in or is not the primary beneficiary using the equity method of accounting and those investments are reflected on the condensed consolidated balance sheets of the Company as investments in unconsolidated entities. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, we did not have any off-balance sheet financing arrangements.

Contractual Obligations

There have been no significant changes in the contractual obligations disclosed in our Form 10-K for the year ended December 31, ~~2021.~~2022.

Capital Expenditures

During the three months ended March 31, ~~2022~~2023, the Company invested ~~$22.5~~$32.0 million in our consolidated development and operating properties and an additional ~~$7.6~~$7.7 million into our unconsolidated joint ventures, as we continue to advance our business plans, including our previously announced projects.

During the three months ended March 31, 2023 and 2022, respectively, we incurred no maintenance capital expenditures ~~that were not associated with re-tenanting and redevelopment projects.~~

~~During the three months ended March 31, 2021, we incurred maintenance capital expenditures of approximately $0.6 million~~ that were not associated with re-tenanting and redevelopment projects.

Litigation and Other Matters

In accordance with accounting standards regarding loss contingencies, we accrue an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued or disclose the fact that such a range of loss cannot be estimated. We do not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. In such cases, we disclose the nature of the contingency, and an estimate of the possible loss, range of loss, or disclose the fact that an estimate cannot be made.

During the Sears Holdings bankruptcy proceedings, the Official Committee of Unsecured Creditors of Sears Holdings (the “UCC”) and others, including the Restructuring Subcommittee of the Board of Directors of Sears Holdings, alleged that the 2015 ~~Transactions~~transactions between us and Sears Holdings constituted a fraudulent conveyance, and indicated an intent to pursue litigation challenging the 2015 ~~Transactions~~transactions on that and other grounds. The approval of the Holdco Acquisition by the Bankruptcy Court expressly preserved claims relating to the 2015 ~~Transactions~~transactions between us and Sears Holdings.

~~See Note 9 – Commitments and Contingencies Litigation and Other Matters~~On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the ~~Notes~~claims in the operative complaint in the Litigation relating to the ~~condensed consolidated financial statements included~~release received in ~~Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of the Consolidated Litigation in respect of~~ the Sears Holdings ~~bankruptcy~~derivative litigation, unjust enrichment, and ~~related matters.~~equitable subordination.

- 3531 -

On March 15, 2021, the Court consolidated the Litigation with a case captioned Sears Holding Corp. et al. v. Andrew H. Tisch, et al., Case No. 20-07007 (RDD) (the “Shareholder Litigation,” and, together with the Litigation, the “Consolidated Litigation”). The Shareholder Litigation was brought by the UCC, Sears Holdings Corporation, and Sears, Roebuck and Co., against certain shareholders of Sears Holdings or its related companies. Seritage was not named as a defendant in the Shareholder Litigation, which alleges, among other things, that certain transactions undertaken by Sears Holdings since 2014 (including the July 2015 transactions giving rise to Seritage, the execution of the Original Master Lease with Sears Holdings, and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends. We believe that the claims against the Seritage Defendants in the Consolidated Litigation are without merit.

On April 6, 2022, the Court entered an order in the Consolidated Litigation, upon the agreement of the parties thereto, providing for a mediation of the litigation. The parties and the Court extended the mediation several times, through August, and up until the settlement described below was reached.

On August 9, 2022, following the mediation, all of the parties to the Litigation and certain of the parties to the Shareholder Litigation (to which Seritage is not a defendant) entered into a settlement agreement pursuant to which the defendants paid to the Sears estate $175 million (of which the Seritage Defendants contributed approximately $35 million) in exchange for dismissal of the Consolidated Litigation and for the full and final satisfaction and release of all claims in the Consolidated Litigation (including, in the case of the Seritage Defendants, any and all claims between the Seritage Defendants and the Sears estate in the Sears bankruptcy proceeding).

On September 2, 2022, the United States Bankruptcy Court for the Southern District of New York entered an order approving the settlement and, on October 18, 2022, the Litigation was dismissed. While we believe that the claims against the Seritage Defendants in the Litigation were without merit, we entered into the settlement, without admitting any fault or wrongdoing, in order to avoid the continued imposition of legal defense costs, distraction, and the uncertainty and risk inherent in any litigation.

We made a settlement payment of $35.5 million based on our contributions to the settlement of the Litigation. This payment is recorded as litigation settlement in the consolidated statements of operations during the year ended December 31, 2022.

On March 2, 2021, ~~the Company~~we brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O insurance providers of the Company (the “D&O Insurers”). ~~The Company’s~~Our lawsuit ~~is seeking,~~sought, among other things, declaratory relief and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the ~~Litigation discussed above.~~Sears Bankruptcy. Any amounts received from the insurers will offset the Seritage Defendants’ contribution. We reached settlement agreements with two of the D&O Insurers for gross proceeds of $12.7 million which is recorded in interest and other income in the consolidated statements of operations during the year ended December 31, 2022. During the three months ended March 31, 2023, we reached settlement agreements with the other two D&O Insurers for gross proceeds of $11.6 million. We received $3.8 million during the three months ended March 31, 2023, which is recorded in interest and other income in the consolidated statements of operations and received $7.8 million subsequent to March 31, 2023.

We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business and due to the current environment. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, the final outcome of such ordinary course legal proceedings and claims will not have a material effect on the condensed consolidated financial position, results of operations or liquidity of the Company.

See Note 9 – Commitments and Contingencies Litigation and Other Matters of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of the Consolidated Litigation in respect of the Sears Holdings bankruptcy and related matters.

- 32 -

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. For the three months ended March 31, ~~2022,~~2023, there were no material changes to these ~~policies aside from changes resulting from our decision to terminate the Company's REIT status and become a taxable C Corporation, effective for the year ending December 31, 2022.~~policies.

Non-GAAP Supplemental Financial Measures and Definitions

The Company makes reference to NOI and Total NOI which are financial measures that include adjustments to GAAP.

Net Operating Income (“NOI”) and Total NOI

NOI is defined as income from property operations less property operating expenses. Other real estate companies may use different methodologies for calculating NOI, and accordingly the Company’s depiction of NOI may not be comparable to other real estate companies. The Company believes NOI provides useful information regarding Seritage, its financial condition, and results of operations because it reflects only those income and expense items that are incurred at the property level.

The Company also uses Total NOI, which includes its proportional share of unconsolidated properties. The Company believes this form of presentation offers insights into the financial performance and condition of the Company as a whole given our ownership of unconsolidated properties that are accounted for under GAAP using the equity method.

The Company also considers NOI and Total NOI to be a helpful supplemental measure of its operating performance because it excludes from NOI variable items such as termination fee income, as well as non-cash items such as straight-line rent and amortization of lease intangibles.

Due to the adjustments noted, NOI and Total NOI should only be used as an alternative measure of the Company’s financial performance.

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

Neither NOI nor Total NOI are measures that (i) represent cash flow from operations as defined by GAAP; (ii) are indicative of cash available to fund all cash flow needs, including the ability to make distributions; (iii) are alternatives to cash flow as a measure of liquidity; or (iv) should be considered alternatives to net income (which is determined in accordance with GAAP) for purposes of evaluating the Company’s operating performance. Reconciliations of these measures to the respective GAAP measures we deem most comparable are presented below on a comparative basis for all periods.

~~- 36 -~~

The following table reconciles NOI and Total NOI to GAAP net loss for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Three Months Ended March 31,						Three Months Ended March 31,
NOI and Total NOI	2022			2021			2023			2022
Net loss	$	(66,987	)	$	(10,933	)	$	(61,986	)	$	(66,987	)
Termination fee income		(277	)		(2,611	)		—			(277	)
Management and other fee (income)		(1,821	)		(135	)
Management and other fee income								(262	)		(1,821	)
Depreciation and amortization		11,934			13,142			4,564			11,934
General and administrative expenses		9,092			11,232			12,220			9,092
Equity in loss of unconsolidated entities		33,076			1,162			36,372			33,076
(Gain)/loss on sale of real estate, net		1,015			(24,208	)
(Gain) loss on sale of real estate, net								(12,392	)		1,015
Impairment of real estate assets		991			1,700			2,576			991
Interest and other income		(11	)		(7,624	)		(5,585	)		(11	)
Interest expense		22,588			26,150			15,202			22,588
Provision/(benefit) from income taxes		25			(138	)
Straight-line rent/(expense)		(721	)		210
Above/below market rental (income)/expense		65			(39	)
(Benefit) provision for income taxes								(13	)		25
Straight-line rent								10,843			(721	)
Above/below market rental expense								48			65
NOI	$	8,969		$	7,908		$	1,587		$	8,969
Unconsolidated entities
Net operating income of unconsolidated entities		1,846			2,437			1,659			1,846
Straight-line rent/(expense)		(328	)		(137	)
Above/below market rental (income)/expense		6			(33	)
Termination fee (income)/expense		—			(742	)
Straight-line rent								(147	)		(328	)
Above/below market rental expense								5			6
Total NOI	$	10,493		$	9,433		$	3,104		$	10,493

- 3733 -

Item 3. Quantitative and Qualitative Disclosure about Market Risk

There were no material changes in the Quantitative and Qualitative Disclosures about Market Risk set forth in our ~~2021~~2022 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Controls.

There were no changes in our internal control over financial reporting that occurred during the period ended March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

- 3834 -

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is incorporated by reference to Note 9 of the condensed consolidated financial statements included herein.

Item 1A. Risk Factors

Information regarding risk factors appears in our ~~2021~~2022 Annual Report on Form 10-K in Part I, Item 1A. Risk Factors. There have been no material changes from the risk factors previously disclosed in our ~~2021~~2022 Annual Report on Form ~~10-K, except for the following updates:~~10-K.

~~Risks Related to Our Business and Operations~~

Following the Sears Holdings bankruptcy, we have been named as a defendant in litigation that could adversely affect our business and financial condition, divert management’s attention from our business, and subject us to significant liabilities, including remedies that may be imposed as a result of a finding of fraudulent conveyance.

On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter 11 Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be controlled by five litigation designees selected by Sears Holdings and the Official Committee of Unsecured Creditors’ (the “Creditors’ Committee”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.

On November 25, 2019, the Creditors’ Committee filed a first amended complaint (the “Amended Complaint”) in the Bankruptcy Court naming us and certain of our affiliates, as well as affiliates of ESL Investments, Inc. and Sears Holdings, and certain other third parties, as defendants. The Amended Complaint alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 (including the July 2015 transactions giving rise to Seritage, the execution of the Master Lease with Sears Holdings (the “Original Master Lease”), and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings and that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth hundreds of millions of dollars more than the purchase price paid. The Amended Complaint further alleges that certain releases provided to Seritage and certain other defendants in connection with the Sears Holdings derivative litigation in the Delaware Court of Chancery in 2017 should be avoided and/or declared null and void as an actual and/or constructive fraudulent conveyance. The Amended Complaint seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers, disgorgement, recovery of the property fraudulently transferred or, in the alternative, compensatory damages in an unspecified amount to be determined at trial, equitable subordination and disallowance of defendants’ claims as creditors, punitive and exemplary damages for any intentional wrongdoing, and reasonable attorneys’ fees, costs, and expenses. On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the Amended Complaint relating to the release received in the Sears Holdings derivative litigation unjust enrichment and equitable subordination.

On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions were completed in August 2020, and the parties are awaiting a decision. The Company believes that the claims against the Seritage Defendants in the Litigation are without merit and intends to defend against them vigorously.

~~- 39 -~~

On April 6, 2022, the Court entered an order in the Consolidated Litigation, upon the agreement of the parties thereto, providing for a mediation of the litigation, which mediation shall conclude by May 23, 2022, unless extended by further order of the Court. There can be no assurance that the mediation will be successful or otherwise lead to the consensual resolution of the Litigation. While the Company believes that the claims against the Seritage Defendants in the Consolidated Litigation are without merit, the Company is participating in the nonbinding mediation and will evaluate whether the Consolidated Litigation can be resolved on reasonable terms. If the mediation is not successful or does not otherwise lead to the consensual resolution of the Consolidated Litigation, the Company intends to defend against the claims in the Consolidated Litigation vigorously.

Fraudulent transfers or conveyances include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors, or transfers made or obligations incurred in exchange for less than reasonably equivalent value when the debtor was, or was rendered, insolvent, inadequately capitalized or unable to pay its debts as they become due. To remedy a fraudulent conveyance, a court could void the challenged transfer or obligation, requiring us to return consideration that we received, or impose substantial liabilities upon us for the benefit of unpaid creditors of the debtor that made the fraudulent conveyance, which could adversely affect our financial condition and our results of operations. Among other things, a court could require our shareholders to return to Sears Holdings or its creditors some or all of the securities issued in the distribution made in connection with the formation of Seritage.

Although we believe that the claims against us in the Litigation are without merit and intend to defend against them vigorously, we are not able to predict the ultimate outcome of the Litigation, the magnitude of any potential losses or the effect such litigation may have on us or our operations. It is possible that the Litigation could cause us to incur substantial costs and that they could be resolved adversely to us, result in substantial damages or other forms of relief, result in or be connected to additional claims, affect our relations with counterparties to commercial transactions and divert management’s attention and resources, any of which could harm our business. Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, results of operations or financial condition and could subject us to adverse publicity and require us to incur significant legal fees. Please see Note 9 – Commitments and Contingencies – in our Annual Report on Form 10-K and Note 9 – Commitments and Contingencies – in this Quarterly Report for additional information regarding the Litigation.

~~Our pursuit of investments in and redevelopment of properties, and investments in and acquisitions or development of additional properties, may be unsuccessful or fail to meet our expectations.~~

We intend to grow our business through investments in, and acquisitions or development of, properties, including through the recapture and redevelopment of space at many of our properties. However, our industry is highly competitive, and we face competition from REITs, investment companies, private equity and hedge fund investors, sovereign funds, lenders, and other investors, some of whom are significantly larger and have greater resources and lower costs of capital. This competition will make it more challenging to identify and successfully capitalize on acquisition and development opportunities that meet our investment objectives. If we are unable to finance acquisitions or other development opportunities on commercially favorable terms, our business, financial condition or results of operations could be materially adversely affected. Further, if debt or equity financing is not available on acceptable terms, further acquisitions or other development opportunities might be limited or curtailed.

~~- 40 -~~

Investments in, and acquisitions of, properties we might seek to acquire entail risks associated with real estate investments generally, including (but not limited to) the following risks and as noted elsewhere in this section:

•

~~we may be unable to acquire a desired property because of competition;~~

•

~~even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price;~~

•

even if we enter into agreements for the acquisition of properties, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction;

•

~~we may incur significant costs and divert management attention in connection with evaluation and negotiation of potential acquisitions, including ones that we are subsequently unable to complete;~~

•

~~we may acquire properties that are not initially accretive to our results upon acquisition, and we may not successfully manage and lease those properties to meet our expectations;~~

•

~~we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all;~~

•

~~even if we are able to finance the acquisition, our cash flow may be insufficient to meet our required principal and interest payments;~~

•

~~we may spend more than budgeted to make necessary improvements or renovations to acquired properties;~~

•

~~we may be unable to quickly and efficiently integrate new acquisitions, particularly the acquisition of portfolios of properties, into our existing operations;~~

•

~~market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and~~

•

~~we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities.~~

In addition, we intend to redevelop a significant portion of the properties after termination or recapture of asset from the Holdco Master Lease or Original Master Lease in order to make space available for lease to additional retail tenants and potentially other lessees for other uses. The redevelopment of these properties involves the risks associated with real estate development activities generally. If we are unable to successfully redevelop properties or to lease the redeveloped properties to third parties on acceptable terms, our business, results of operations and financial condition could be materially adversely affected.

~~There can be no assurance that our review of strategic alternatives will result in any transaction or any strategic change at this time.~~

On March 1, 2022, we announced that our Board of Trustees has commenced a process to review a broad range of strategic alternatives to enhance shareholder value. The Board of Trustees created a Special Committee to oversee the process. The Special Committee has retained a financial advisor. On March 31, 2022, the Company announced that the Board, with the recommendation of the Special Committee, approved a plan to terminate the Company’s election to be treated as a REIT for tax purposes, and instead have the Company be taxed as a C corporation. The strategic review process remains ongoing, and the Company does not currently intend to comment further on the process. There can be no assurance that the review process will result in any transaction or any strategic change at this time.

~~We have ongoing capital needs and may not be able to obtain additional financing or other sources of funding on acceptable terms.~~

As of December 31, 2021, we had aggregate outstanding indebtedness of $1.44 billion. We may incur additional indebtedness in the future to refinance our existing indebtedness, to finance newly acquired properties or capital contributions to joint ventures, or to fund retenanting and redevelopment projects. Our existing debt and any significant additional indebtedness could require a substantial portion of our cash flow to make interest and principal payments. Demands on our cash resources from debt service will reduce funds available to us to pay dividends, make capital expenditures and acquisitions or carry out other aspects of our business strategy. Our indebtedness may also limit our ability to adjust rapidly to changing market conditions, make us more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for us compared to other companies with relatively lower debt levels. Increased future debt service obligations may limit our operational flexibility, including our ability to acquire properties, finance or refinance our properties, contribute properties to joint ventures or sell properties as needed.

~~- 41 -~~

Our primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service, and the reinvestment in and redevelopment of our properties. As a result of a decrease in occupancy levels due to our recapture of space for redevelopment purposes and the execution of termination rights under the Original Master Lease and Holdco Master Lease, our property rental income, which is our primary source of operating cash flow, did not fully fund property operating and other expenses incurred during the year ended December 31, 2021. Property operating and other expenses are projected to continue to exceed property rental income until such time as additional tenants commence paying rent, and we plan to incur additional development expenditures as we continue to invest in the redevelopment of our portfolio. While we do not currently have the liquid funds available to fully fund projected property and other expenses and planned development expenditures, we expect to fund these uses of cash with a combination of capital sources including, but not limited to, sales of Consolidated Properties, sales of interests in Unconsolidated Properties and potential credit and capital markets transactions, subject to compliance with certain conditions and/or the consent of our lender under our Term Loan Facility.

As of December 31, 2021, we were not in compliance with certain financial metrics applicable to us under the agreements governing our term loan facility. As a result, we must receive the consent of the lender to dispose of assets via sale or joint venture and, as of December 31, 2021, the lender had provided such consent for all such transactions submitted for approval. There can be no assurance that the lender will consent to future dispositions of assets. Additionally, the lender has the right to request mortgages against our assets pursuant to the mortgage and collateral requirement. During the year ended December 31, 2019, the lender requested mortgages on a majority of our portfolio, and then during the year ended December 31, 2020, the lender requested mortgages on the remaining unencumbered assets.

The Term Loan Facility also provides for the $400 million Incremental Funding Facility. Our ability to access the Incremental Funding Facility is subject to (i) our achieving rental income from non-Sears Holdings tenants, on an annualized basis (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $200 million, (ii) our good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under the amendment to the Term Loan Agreement (as defined below) as further described below. As of December 31, 2021, the Company has not yet achieved the requirements to access the Incremental Funding Facility.

The Company is currently marketing or about to bring to market for sale $721.3 million in assets, inclusive of the assets noted above as under contract, which would, if sold, allow the Company to meet the $640 million Term Loan Facility principal pay down to extend the term loan. While these assets are intended for sale, and the Company believes that they will close before the maturity, there is no assurance that these assets will be under contract within the one year timeframe in which the Term Loan Facility principal will need to be factored into the going concern analysis. See Note 1 – Going Concern of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of the going concern.

We may be unable to obtain additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under any indebtedness outstanding from time to time. Among other things, the absence of an investment grade credit rating or any credit rating downgrade could increase our financing costs and could limit our access to financing sources. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to enhance our properties or develop new properties, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. A decrease in available liquidity could also impair our ability to pay dividends to our shareholders.

If additional funds are raised through the issuance of equity securities, our shareholders may experience significant dilution. Additionally, sales of substantial amounts of Class A common shares in the public market, or the perception that such sales could occur, could adversely affect the market price of Class A common shares, may make it more difficult for our shareholders to sell their common shares at a time and price that they deem appropriate, and could impair our future ability to raise capital through an offering of our equity securities.

~~Real estate related taxes may increase, and if these increases are not passed on to tenants, our income will be reduced.~~

Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisitions and/or redevelopment of properties. Generally, from time to time, our property taxes increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some leases may permit us to pass through such tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will reduce our income.

~~- 42 -~~

~~Rising expenses could reduce cash flow and funds available for future development.~~

If any property is not fully occupied or becomes vacant in whole or in part, or if rents are being paid in an amount that is insufficient to cover operating costs and expenses, we could be required to expend funds with respect to that property for operating expenses. Our properties are subject to increases in tax rates and tax assessments, utility costs, insurance costs, repairs, maintenance and administrative expenses, and other operating expenses. We may also incur significant expenditures as a result of deferred maintenance for the properties we have already acquired (subject to reserved funds to cover certain of these costs) and other properties we may acquire in the future. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions and other operating expenses, we could be required to pay those costs which could adversely affect funds available for future development.

~~We may incur mortgage indebtedness and other borrowings, which may increase our business risks.~~

We may incur mortgage debt and pledge all or some of our real properties as security for that debt to finance newly acquired properties or capital contributions to joint ventures, or to fund retenanting and redevelopment projects. Since December 31, 2019, we were required to provide mortgages to the lender under our term loan facility on a majority of our portfolio. This restriction, together with the other provisions of the Term Loan Facility, limits our ability to obtain additional secured financing using such properties as collateral. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default. For U.S. federal income tax purposes, a foreclosure of any of our properties generally would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.

~~Our rights and the rights of our shareholders to take action against our trustees and officers are limited.~~

As permitted by the Maryland law, the Company’s Declaration of Trust limits the liability of its trustees and officers to Seritage and its shareholders for money damages, except for liability resulting from:

•

~~actual receipt of an improper benefit or profit in money, property or services; or~~

•

~~a final judgment based upon a finding of active and deliberate dishonesty by the trustee or officer that was material to the cause of action adjudicated.~~

In addition, our Declaration of Trust authorizes us and our bylaws obligate us to indemnify our present and former trustees and officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by Maryland law, and we have entered into indemnification agreements with our trustees and executive officers. As a result, the Company and our shareholders may have more limited rights against our trustees and officers than might otherwise exist absent the provisions in our Declaration of Trust and bylaws or that might exist with other companies. Accordingly, in the event that actions taken by any of our trustees or officers are immune or exculpated from, or indemnified against, liability but which impede our performance, the Company and our shareholders’ ability to recover damages from that trustee or officer will be limited.

~~- 43 -~~

Our Declaration of Trust and bylaws, Maryland law, and the partnership agreement of the Operating Partnership contain provisions that may delay, defer or prevent an acquisition of Class A common shares or a change in control.

The Company’s Declaration of Trust and bylaws, Maryland law and the partnership agreement of Operating Partnership contain a number of provisions, the exercise or existence of which could delay, defer or prevent a transaction or a change in control that might involve a premium price for our shareholders or otherwise be in their best interests, including the following:

•

The Company’s Board of Trustees Has the Power to Cause Us to Issue Additional Shares of Beneficial Interest and Classify and Reclassify Any Unissued Class A Common Shares without Shareholder Approval. Our Declaration of Trust authorizes us to issue additional authorized but unissued common shares or preferred shares of beneficial interest. We have also issued 2,800,000 shares of Series A Preferred Shares that are senior to our common shares with respect to priority of dividend payments and rights upon liquidation, dissolution or winding up. In addition, the Board of Trustees may, without shareholder approval, (i) amend the Declaration of Trust to increase or decrease the aggregate number of shares of beneficial interest or the number of shares of beneficial interest of any class or series that we have authority to issue and (ii) classify or reclassify any unissued common shares or preferred shares of beneficial interest and set the preferences, rights and other terms of the classified or reclassified shares. As a result, the Board of Trustees may establish a class or series of common shares or preferred shares of beneficial interest that could delay or prevent a transaction or a change in control that might involve a premium price for Class A common shares or otherwise be in the best interests of our shareholders.

•

~~The Board of Trustees Is Divided into Three Classes and Trustee Elections Require a Vote of Two-Thirds of the Class A Common Shares and Class B Non-Economic Common Shares Votes Cast.~~ The Board of Trustees is divided into three classes of trustees, with each class to be as nearly equal in number as possible. As a result, approximately one-third of the Board of Trustees will be elected at each annual meeting of shareholders, with, in both contested and uncontested elections, trustees elected by the vote of two-thirds of the votes cast of the Class A common shares and Class B non-economic common shares (voting together as a single class) entitled to be cast in the election of trustees. In the event that an incumbent trustee does not receive a sufficient percentage of votes cast for election, he or she will continue to serve on the Board of Trustees until a successor is duly elected and qualifies. The classification of trustees and requirement that trustee nominees receive a vote of two-thirds of the votes cast of the Class A common shares and Class B non-economic shares (voting together as a single class) entitled to be cast in the election of trustees may have the effect of making it more difficult for shareholders to change the composition of the Board of Trustees. The requirement that trustee nominees receive a vote of two-thirds of the votes cast of the common shares entitled to be cast in the election of trustees may also have the effect of making it more difficult for shareholders to elect trustee nominees that do not receive the votes of shares of beneficial interest held by ESL, which controls approximately 9.3% of the voting power of the Company.

•

The Partnership Agreement of Operating Partnership Provides Holders of Operating Partnership Units Approval Rights over Certain Change in Control Transactions Involving the Company or Operating Partnership. Pursuant to the partnership agreement of Operating Partnership, certain transactions, including mergers, consolidations, conversions or other combinations or extraordinary transactions or transactions that constitute a “change of control” of the Company or Operating Partnership, as defined in the partnership agreement, will require the approval of the partners (other than the Company and entities controlled by it) holding a majority of all the outstanding Operating Partnership units held by all partners (other than the Company and entities controlled by it). These provisions could have the effect of delaying or preventing a change in control. ESL holds all of the Operating Partnership units not held by the Company and entities controlled by it.

~~- 44 -~~

•

~~Certain Provisions of Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us.~~ Certain provisions of the Maryland General Corporation Law (the “MGCL”) applicable to Maryland REITs may have the effect of inhibiting a third party from acquiring us or of impeding a change of control of the Company under circumstances that otherwise could provide Class A common shareholders with the opportunity to realize a premium over the then-prevailing market price of such shares or otherwise be in the best interest of shareholders, including:

•

“business combination” provisions that, subject to certain exceptions and limitations, prohibit certain business combinations between a Maryland REIT and an “interested shareholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the Company’s outstanding voting shares or an affiliate or associate of the Maryland REIT who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding shares of the Company) or an affiliate of any interested shareholder and the Maryland REIT for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes two supermajority shareholder voting requirements on these combinations;

•

“control share” provisions that provide that, subject to certain exceptions, holders of “control shares” of our company (defined as voting shares that, if aggregated with all other shares owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights with respect to the control shares except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares; and;

•

Additionally, Title 3, Subtitle 8 of the MGCL permits the Board of Trustees, without shareholder approval and regardless of what is currently provided in our Declaration of Trust or bylaws, to implement certain takeover defenses.

The Board of Trustees has, by resolution, exempted from the provisions of the Maryland Business Combination Act all business combinations (a) between us and (i) Sears Holdings or its affiliates or (ii) ESL or Fairholme Capital Management L.L.C. (“FCM”) and/or certain clients of FCM or their respective affiliates and (b) between us and any other person, provided that in the latter case the business combination is first approved by the Board of Trustees (including a majority of our trustees who are not affiliates or associates of such person). In addition, our bylaws contain a provision opting out of the Maryland control share acquisition act.

The COVID-19 pandemic has continued to, and the future outbreak of other highly infectious or contagious diseases may, materially and adversely impact the business of our tenants and materially or adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations.

In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic has had, and other pandemics in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity, the U.S. economy and the local economies in which our properties are located and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

~~- 45 -~~

Certain states and cities, including where our tenants conduct their business and where we own properties, have development sites and where our corporate offices are located, have also reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. The Company cannot predict if additional states and cities will implement similar restrictions, when restrictions currently in place will expire or if such restrictions will be implemented again. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our tenants operate.

These containment measures and other factors have affected operations at the Company’s properties. As of March 31, 2022, the Company had collected 96% of rental income for the three months ended March 31, 2022, and agreed to no additional deferrals. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary. Some of our tenants may not re-open even after the aforementioned restrictions are lifted, which could have a material impact on occupancy at our properties which could result in an increase in the number of co-tenancy claims due to falling below required occupancy thresholds and may impact our results.

Furthermore, in the event of any default by a tenant for non-payment of lease charges or early or limited cessation of operations, we might not be able to fully recover and/or experience delays and additional costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with such parties due to potential moratoriums imposed by various jurisdictions in light of the COVID-19 pandemic on landlord initiated commercial eviction and collection actions. One or more of our tenants may seek the protection of the bankruptcy laws as a result of the prolonged impact of the COVID-19 pandemic, which could result in the termination of such tenants’ leases, and consequently causing a reduction in our income. Tenant bankruptcies may make it more difficult for us to lease the remainder of the property or properties in which the bankrupt tenant operates and adversely impact our ability to successfully execute our re-leasing strategy.

A sustained downturn in the U.S. economy and reduced consumer spending as well as consumer activity at brick-and-mortar commercial establishments due to the prolonged existence and threat of the COVID-19 pandemic, or a future pandemic, could impose an economic slowdown or recession in the United States which could impact our tenants’ ability to meet their lease obligations due to poor operating results, lack of liquidity or other reasons and therefore decrease the revenue generated by our properties or the value of our properties. Our ability to lease space and negotiate and maintain favorable rents could also be negatively impacted by a prolonged recession in the U.S. economy. Moreover, the demand for leasing space in our properties could substantially decline during a significant downturn in the U.S. economy which could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates and lead us to incur significant re-leasing costs.

The COVID-19 pandemic has also led to complete or partial shutdowns of manufacturing facilities and distribution centers in many countries and disruptions in our tenants’ supply chains, and may otherwise delay the delivery of inventory or other goods necessary for our tenants’ operations. Our tenants may also be negatively impacted if the outbreak of COVID-19 occurs within their workforce or otherwise disrupts their management.

~~- 46 -~~

The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations, liquidity and cash flows due to, among other factors:

•

Difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us;

•

~~The financial impact could negatively impact our ability to pay dividends to our shareholders;~~

•

The financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire Hathaway”) or result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our Incremental Funding Facility (as defined below), conduct asset sales, fund development activity or pay dividends to our shareholders;

•

The worsening of estimated future cash flows due to a change in our plans, policies, or views of market and economic conditions as it relates to one or more of our adversely impacted properties could result in the recognition of substantial impairment charges imposed on our assets;

•

~~The credit quality of our tenants could be negatively impacted and we may significantly increase our allowance for doubtful accounts;~~

•

~~Difficulties completing our redevelopment projects on a timely basis, on budget or at all;~~

•

~~A general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to reinvest in or redevelop our properties; and~~

•

The potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

The extent to which the COVID-19 pandemic, or a future pandemic, impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional closures by our tenants of their stores and early terminations by our tenants of their leases could reduce our cash flows, which could impact our ability to pay dividends.

The fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents, and future outbreaks of other highly infectious or contagious diseases may present, material uncertainty and risk with respect to our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations.

~~Risks Related to Our Tax Status~~

~~Our obligations to pay income taxes could increase beginning in 2022, which could result in a reduction to our earnings, and could have negative consequences to us.~~

We revoked our REIT election and become a taxable C corporation effective January 1, 2022. As a result, we will not be allowed a deduction for dividends paid to our stockholders in computing our taxable income and will be subject to U.S. federal and state taxes on our taxable income at corporate rates. This treatment could also reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability on us. Further, U.S. federal and state income tax rates could increase in the future, exacerbating these risks. The Administration of President Biden has proposed increasing the U.S. federal corporate income tax rate from 21% to 28%, and the U.S. Congress has, in the past, made similar proposals. We also will be disqualified from electing REIT status through December 31, 2026.

~~- 47 -~~

We may fail to realize the anticipated benefits of revoking our REIT election and becoming a taxable C corporation, or those benefits may take longer to realize than expected, if at all, or may not offset the costs of revoking our REIT election and becoming a taxable C corporation.

We believe that revoking our REIT election and becoming a taxable C corporation, among other things, provides us with the enhanced flexibility to efficiently pursue a variety of potential alternatives to maximize the value of our diverse portfolio of assets, including a potential sale or series of sales of assets. In reaching this determination, we considered, among other things, the potential timing and transaction limitations that would be imposed on us if we remained subject to the REIT tax rules, the significant tax basis we have in our assets, and our net operating losses. However, our ability to pursue potential alternatives to maximize the value of our assets, including the timing and amount of sales of assets, may not meet our expectations or may cause us to incur increased U.S. federal and state income taxes which may reduce, or eliminate, the anticipated benefits of the transition from a REIT to a taxable C corporation. Moreover, there can be no assurance that the anticipated benefits of the transition from a REIT to a taxable C corporation will offset its costs, which could be greater than we expect. Our failure to achieve the anticipated benefits of the transition from a REIT to a taxable C corporation at all, or in a timely manner, or a failure of any benefits realized to offset its costs, could negatively affect our business, financial condition, results of operations or the market price of our common stock.

We no longer qualify for taxation as a REIT for U.S. federal income tax purposes effective as of January 1, 2022, and there can be no assurance that the IRS will not challenge our previous REIT status.

Although we elected for U.S. federal income tax purposes to be treated as a REIT for the 2021 taxable year and in prior taxable years, we revoked our REIT election for the tax year beginning January 1, 2022 and intend to be treated as a regular C corporation for that year and any year in the foreseeable future, and, as a result, we will be unable to claim the U.S. federal income tax benefits associated with REIT status. Moreover, there can be no assurance that the IRS will not challenge our qualification as a REIT for years in which we intended to qualify as a REIT. Although we believe we did qualify as a REIT in each such year, if the IRS were to successfully challenge our previous REIT status, we would suffer adverse tax consequences, such as those described below.

For the 2022 taxable year and future years (and for any prior year if we were to fail to qualify as a REIT in such year), we will generally be subject to U.S. federal income tax on our taxable income at regular corporate rates, and distributions to stockholders would not be deductible by us in computing our taxable income. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of, and trading prices for, our stock. Our decision to revoke our REIT election could also have other effects on any given stockholder, depending on its particular circumstances. For example, certain foreign investors that own large positions in our stock may be subject to less favorable rules under the Foreign Investment in Real Property Tax Act of 1980 following the revocation of our REIT election. Stockholders are urged consult their tax advisors regarding the effects to them of the revocation of our REIT elections in light of their particular circumstances.

~~Our board of directors’ decision to revoke our REIT election means we will no longer be required to distribute substantially all of our net taxable income to our stockholders.~~

Prior to termination of our REIT election, we made distributions of a minimum of 90% of our taxable income each year in order to maintain our REIT status. On March 31, 2022, we revoked our election to be treated as a REIT, effective January 1, 2022. Consequently, we are no longer subject to the distribution requirements applicable to REITs. All future dividend distributions will be made at the discretion of our board of directors and will depend upon, among other things, our earnings, investment strategy, financial condition and liquidity, and such other factors as the board of directors deems relevant, as well as any contractual restrictions.

~~- 48 -~~

If we experience an “ownership change” for purposes of Section 382 of the Code, our ability to utilize our net operating loss and net capital loss carryforwards and certain built-in losses to reduce our future taxable income could be limited, potentially increasing the net taxable income on which we must pay corporate-level taxes, and potentially adversely affecting our liquidity, and our desire to preserve our net operating losses and net capital loss carryforwards may cause us to forgo otherwise attractive opportunities.

If we experience an “ownership change,” our future ability to utilize our net operating loss and net capital loss carryforwards to reduce our taxable income may be limited by certain provisions of the Code. Specifically, the Code limits the ability of a company that undergoes an “ownership change” to utilize its net operating loss and net capital loss carryforwards and certain built-in losses to offset taxable income earned in years after the ownership change. An ownership change occurs if, during a three-year testing period, more than 50% of the stock of a company is acquired by one or more persons (or certain groups of persons) who own, directly or constructively, 5% or more of the stock of such company. An ownership change can occur as a result of a public offering of stock, as well as through secondary market purchases of our stock and certain types of reorganization transactions. Generally, when an ownership change occurs, the annual limitation on the use of net operating loss and net capital loss carryforwards and certain built-in losses is equal to the product of the applicable long-term tax exempt rate and the value of the company’s stock immediately before the ownership change. We have substantial net operating and net capital loss carry forwards which we have used, and will continue to use, to offset our taxable income.

If we experience an ownership change, our income tax liability could materially increase. In addition, if we were to undergo an ownership change, our net operating losses and net capital loss carryforwards could become subject to additional limitations, which could result in us incurring materially greater tax liability than if we had not undergone such an ownership change. The determination of whether an ownership change has occurred or will occur is complicated and depends on changes in percentage stock ownership among stockholders. In addition, we may decide in the future that it is necessary or in our interest to take certain actions that could result in an ownership change. Therefore, no assurance can be provided as to whether an ownership change will occur in the future. Moreover, the potential negative consequences of the limitations that would result from an ownership change may discourage us from, among other things, redeeming our stock or issuing additional common stock to raise capital or to acquire businesses or assets. Accordingly, our desire to preserve our net operating losses and net capital loss carryforwards may cause us to forgo otherwise attractive opportunities.

If we do not qualify to be taxed as a REIT for any taxable year through 2021, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders.

As described above, we operated through December 31, 2021 in a manner intended to qualify us as a REIT for U.S. federal income tax purposes. However, qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which only a limited number of judicial and administrative interpretations exist. Even a technical or inadvertent violation could jeopardize our REIT qualification through 2021. Our qualification as a REIT through 2021 depends on the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements.

If we were to fail to qualify as a REIT in any taxable year through 2021, and no available relief provision applied, we would be subject to U.S. federal income tax on our taxable income at regular corporate rates (which is 21% for periods ending after December 31, 2017 through 2021), as well as U.S. state and local income tax, and dividends paid to our shareholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of our common shares.

~~- 49 -~~

~~We could fail to qualify to be taxed as a REIT through 2021 if income we received is not treated as qualifying income.~~

Under applicable provisions of the Code, we will not be treated as a REIT through 2021 unless we satisfied various requirements, including requirements relating to the sources of our gross income. Rents we received or accrued from tenants may not be treated as qualifying rent for purposes of these requirements if the applicable lease is not respected as a true lease for U.S. federal income tax purposes and is instead treated as a service contract, joint venture, financing, or some other type of arrangement. We believe that the Holdco Master Lease should be respected as a true lease for U.S. federal income tax purposes for the years in which such lease was in effect. If, contrary to expectations, the Holdco Master Lease is not respected as a true lease for U.S. federal income tax purposes, the IRS may determine that we failed to qualify to be taxed as a REIT during such time. Furthermore, our qualification as a REIT through 2021 depended on the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for some of which we did not obtain independent appraisals.

In addition, subject to certain exceptions, rents we received or accrued from our tenants would not be treated as qualifying rent for purposes of these requirements if we or an actual or constructive owner of 10% or more of our outstanding shares (by value) actually or constructively owned 10% or more of the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock of such tenant entitled to vote or 10% or more of the total value of all classes of stock of such tenant. For purposes of determining whether rental payments received by a REIT are treated as qualifying rent, the stock, assets or net profits owned by a partner in an entity classified as a partnership for U.S. federal income tax purposes are attributed to such partnership only if the partner owns (directly or indirectly) 25% or more of the capital interest or profits interest in the partnership. As a result of these constructive ownership rules, it is possible that we could have been treated as owning 10% or more of a tenant, and in such case rent payments received from such tenant may not be treated as qualifying rent for purposes of these requirements. Our Declaration of Trust provided for restrictions on ownership and transfer of Class A common shares and Series A Preferred Shares prior to the revocation of our REIT election for 2022, including restrictions on such ownership or transfer that would cause the rents we received or accrued from a tenant to be treated as non-qualifying rent for purposes of the REIT gross income requirements. Nevertheless, such restrictions may not be effective in ensuring that rents we received or accrued from our tenants will be treated as qualifying rent for purposes of REIT qualification requirements.

~~We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the price of our common stock.~~

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.

~~- 50 -~~

~~Risks Related to Ownership of our Securities~~

~~The market price and trading volume of our securities may be volatile.~~

The market price of our securities may be volatile, and the trading volume in our securities may fluctuate and cause significant price variations to occur. Some of the factors that could negatively affect the market price of our securities or result in fluctuations in the price or trading volume of our securities include:

•

~~actual or anticipated variations in our quarterly results of operations;~~

•

~~changes in our funds from operations or earnings estimates;~~

•

~~publication of research reports about us or the real estate or retail industries;~~

•

~~increases in market interest rates that may cause purchasers of our securities to demand a higher yield;~~

•

~~changes in market valuations of similar companies;~~

•

~~adverse market reaction to any additional debt we may incur in the future;~~

•

~~actions by ESL, or by institutional shareholders;~~

•

~~speculation in the press or investment community about our company or industry or the economy in general;~~

•

~~adverse performance or potential financial distress or bankruptcy of our major tenants, including Holdco;~~

•

~~the occurrence of any of the other risk factors presented in this filing;~~

•

~~adverse developments in the Litigation;~~

•

~~specific real estate market and real estate economic conditions; and~~

•

~~general market and economic conditions.~~

The transactions with Sears Holdings and Holdco could give rise to disputes or other unfavorable effects, which could have a material adverse effect on our business, financial condition or results of operations.

Disputes with third parties could arise out of our historical transactions with Sears Holdings or future transactions with Holdco, and we could experience unfavorable reactions from employees, ratings agencies, regulators or other interested parties. These disputes and reactions of third parties could have a material adverse effect on our business, financial condition or results of operations. In addition, disputes between us and Sears Holdings or Holdco could arise in connection with any of our past or future agreements with those counterparties. See “—Risks Related to Our Business and Operations—Following the Sears Holdings bankruptcy, we have been named as a defendant in litigation that could adversely affect our business and financial condition, divert management’s attention from our business, and subject us to significant liabilities, including remedies that may be imposed as a result of a finding of fraudulent conveyance.”

~~- 51 -~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

- 5235 -

Item 6. Exhibits


Exhibit No.	Description	SEC Document Reference

~~10.39~~	~~Employment Agreement Amendment, dated March 15, 2022, among Seritage Growth Properties, Seritage Growth Properties, L.P. and Andrea Olshan~~	~~Filed herewith.~~

~~10.40~~	~~Employment Offer Letter Addendum, dated March 15, 2022, among Seritage Growth Properties, Seritage Growth Properties, L.P. and Matthew Fernand~~	~~Filed herewith.~~

~~10.41~~	~~Employment Offer Letter Addendum, dated March 15, 2022, among Seritage Growth Properties, Seritage Growth Properties, L.P. and Eric Dinenberg~~	~~Filed herewith.~~

31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

31.2	Certification of the Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Furnished herewith.

32.2	Certification of the Interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Furnished herewith.

101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith.

101.SCH	Inline XBRL Taxonomy Extension Schema Document	Filed herewith.

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith.

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	Filed herewith.

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	Filed herewith.

- 5336 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SERITAGE GROWTH PROPERTIES

Dated: May 10, ~~2022~~2023	/s/ Andrea Olshan
	By:	Andrea Olshan
	President and Chief Executive Officer (Principal Executive Officer)

Dated: May 10, ~~2022~~2023	/s/ John Garilli
	By:	John Garilli
	Interim Chief Financial Officer (Principal Financial and Accounting Officer)

- 5437 -