Seritage Q3 revenue falls to $1.64M from $4.79M
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Seritage Growth Properties (SRG) reported revenue of $1.635 million for the three months ended September 30, 2026, versus $4.785 million a year earlier; net income attributable to Seritage common shareholders was $2.735 million, compared with a $13.647 million loss. For the nine months ended September 30, 2026, revenue was $5.559 million versus $14.037 million, and the net loss attributable to common shareholders was $36.161 million versus $66.805 million.
During the nine months ended September 30, 2026, Seritage sold two consolidated properties for $14.0 million gross and received $14.6 million in distributions from a joint venture's partial property sales. Operating activities used $12.643 million of cash and investing activities provided $22.176 million; rental income did not cover obligations.
In July 2026, Seritage repaid the existing $50.0 million term loan balance using proceeds from a new $15.0 million term loan and a $15.0 million initial revolver draw, together with cash on hand. At quarter-end, $10.0 million remained available under the $25.0 million revolver. The facilities mature July 24, 2028. Management concluded cash, remaining revolver availability and expected rent would fund obligations and certain development expenditures, alleviating substantial doubt about going concern.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointThird-quarter net income attributable to common shareholders was $2.735 million, versus a $13.647 million loss.
- Moderate pointOperating cash outflow narrowed to $12.643 million from $33.742 million.
- Minor pointNine-month common-shareholder loss narrowed to $36.161 million from $66.805 million.
Negative
- Moderate pointThird-quarter revenue declined to $1.635 million from $4.785 million.
- Minor pointNine-month revenue declined to $5.559 million from $14.037 million.
Key Figures
Key Terms
Plan of Sale financial
unconsolidated entities financial
substantial doubt financial
debt service coverage ratio financial
valuation allowance financial
restricted cash financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What were SRG's third-quarter 2026 revenue and earnings?
How much debt and revolver availability did SRG report at September 30, 2026?
Did SRG have asset sales under contract to support liquidity at quarter-end?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
or
For the transition period from _______to _______
Commission File Number
(Exact name of registrant as specified in its charter)
(State of Incorporation) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbols |
Name of each exchange on which registered |
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.
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).
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 |
☐ |
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Accelerated filer |
☐ |
☒ |
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Smaller reporting company |
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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 November 12, 2026, the registrant had the following common shares outstanding:
Class |
Shares Outstanding |
Class A common shares of beneficial interest, par value $0.01 per share |
|
Class B common shares of beneficial interest, par value $0.01 per share |
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Class C common shares of beneficial interest, par value $0.01 per share |
SERITAGE GROWTH PROPERTIES
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2026
TABLE OF CONTENTS
PART I. |
FINANCIAL INFORMATION |
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Page |
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Item 1. |
Condensed Consolidated Financial Statements (unaudited) |
3 |
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Condensed Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025 |
3 |
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Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2026 and 2025 |
4 |
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Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2026 and 2025 |
5 |
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Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2026 and 2025 |
6 |
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Notes to Condensed Consolidated Financial Statements |
8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
36 |
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Item 4. |
Controls and Procedures |
36 |
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PART II. |
OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
37 |
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Item 1A. |
Risk Factors |
37 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
37 |
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Item 3. |
Defaults upon Senior Securities |
37 |
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Item 4. |
Mine Safety Disclosures |
37 |
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Item 5. |
Other Information |
38 |
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Item 6. |
Exhibits |
39 |
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SIGNATURES |
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40 |
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)
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September 30, 2026 |
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December 31, 2025 |
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ASSETS |
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Investment in real estate |
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Land |
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$ |
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$ |
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Buildings and improvements |
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Accumulated depreciation |
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) |
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Construction in progress |
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Net investment in real estate |
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Real estate held for sale |
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Investment in unconsolidated entities |
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Cash and cash equivalents |
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Restricted cash |
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Tenant and other receivables, net |
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Lease intangible assets, net |
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Prepaid expenses, deferred expenses and other assets, net |
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Total assets (1) |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Liabilities |
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Term loan facility, net |
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$ |
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$ |
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Revolving loan facility |
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Accounts payable, accrued expenses and other liabilities |
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Total liabilities (1) |
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Commitments and Contingencies (Note 9) |
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Shareholders' Equity |
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Class A common shares $ |
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Series A preferred shares $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
) |
Total shareholders' equity |
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Non-controlling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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(1) The Company's condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. As of September 30, 2026, the Company no longer holds any consolidated VIEs. The consolidated balance sheets, as of December 31, 2025, include the following amounts related to our consolidated VIEs: $ |
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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)
|
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For the Three Months |
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For the Nine Months |
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2026 |
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2025 |
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2026 |
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2025 |
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REVENUE |
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Rental income |
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$ |
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$ |
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$ |
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$ |
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Management and other fee income |
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Total revenue |
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EXPENSES |
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Property operating |
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Real estate taxes |
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Depreciation and amortization |
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General and administrative |
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Total expenses |
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Gain on sale of real estate |
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Loss on sale of interests in unconsolidated |
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( |
) |
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Impairment of real estate assets |
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( |
) |
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( |
) |
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( |
) |
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Equity in income (loss) of unconsolidated |
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( |
) |
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Interest and other income (expense), net |
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( |
) |
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Interest expense |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Loss on debt extinguishment |
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( |
) |
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( |
) |
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Income (loss) before income taxes |
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( |
) |
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( |
) |
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( |
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Provision for income taxes |
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( |
) |
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Net income (loss) |
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( |
) |
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( |
) |
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( |
) |
|
Preferred dividends |
|
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( |
) |
|
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( |
) |
|
|
( |
) |
|
|
( |
) |
Net income (loss) attributable to Seritage common |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
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||||
Net income (loss) per share attributable to Seritage |
|
$ |
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|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net income (loss) per share attributable to Seritage |
|
$ |
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|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Weighted-average Class A common shares |
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||||
Weighted-average Class A common shares |
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||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, amounts in thousands, except per share amounts)
|
|
Class A |
|
|
Series A |
|
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Additional |
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Accumulated |
|
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Non- |
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Total |
|
||||||||||||||
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Shares |
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Amount |
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Shares |
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Amount |
|
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Capital |
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Deficit |
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Interests |
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Equity |
|
||||||||
Balance at January 1, 2026 |
|
|
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$ |
|
|
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$ |
|
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$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
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— |
|
|
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— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Preferred dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Contributions to consolidated VIEs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Distributions from consolidated VIEs |
|
|
— |
|
|
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— |
|
|
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— |
|
|
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— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at September 30, 2026 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
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||||||||
Balance at January 1, 2025 |
|
|
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|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Net loss |
|
|
— |
|
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Preferred dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
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( |
) |
Vesting of restricted share units |
|
|
|
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
Restricted stock withholdings |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
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( |
) |
Share-based compensation |
|
|
— |
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|
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— |
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— |
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— |
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|
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— |
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|
— |
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||
Contributions to consolidated VIEs |
|
|
— |
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— |
|
|
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— |
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— |
|
|
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— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at September 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
|
|
Class A |
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Series A |
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Additional |
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Accumulated |
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Non- |
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Total |
|
||||||||||||||
|
|
Shares |
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Amount |
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Shares |
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|
Amount |
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Capital |
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Deficit |
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Interests |
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Equity |
|
||||||||
Balance at July 1, 2026 |
|
|
|
|
$ |
|
|
|
|
|
$ |
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|
$ |
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|
$ |
( |
) |
|
$ |
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|
$ |
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
|
— |
|
|
|
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|
|
— |
|
|
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||
Preferred dividends declared ($ |
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2026 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||||
Balance at July 1, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
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|||||||
Net loss |
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|
— |
|
|
|
— |
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|
|
— |
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|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Preferred dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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|
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|
|
||
Equity in (income) loss of unconsolidated entities |
|
|
( |
) |
|
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|
Loss on sale of interests in unconsolidated entities |
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|
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|
||
Distributions from unconsolidated entities |
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|
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|
||
Gain on sale of real estate |
|
|
( |
) |
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|
( |
) |
Loss on extinguishment of debt |
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|
|
||
Impairment of real estate assets |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Amortization of above and below market leases, net |
|
|
|
|
|
|
||
Straight-line rent adjustment |
|
|
( |
) |
|
|
|
|
Non-cash lease expense |
|
|
|
|
|
|
||
Change in operating assets and liabilities |
|
|
|
|
|
|
||
Tenant and other receivables |
|
|
( |
) |
|
|
|
|
Prepaid expenses, deferred expenses and other assets |
|
|
|
|
|
( |
) |
|
Accounts payable, accrued expenses and other liabilities |
|
|
( |
) |
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOW FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Investment in unconsolidated entities |
|
|
( |
) |
|
|
( |
) |
Distributions from unconsolidated entities |
|
|
|
|
|
|
||
Net proceeds from sale of interests in unconsolidated entities |
|
|
|
|
|
|
||
Net proceeds from sale of real estate |
|
|
|
|
|
|
||
Development of real estate |
|
|
( |
) |
|
|
( |
) |
Net cash provided by investing activities |
|
|
|
|
|
|
||
CASH FLOW FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Repayment of term loan facility |
|
|
( |
) |
|
|
( |
) |
Proceeds from revolving loan facility |
|
|
|
|
|
|
||
Proceeds from issuance of new term loan facility |
|
|
|
|
|
|
||
Payment of debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Preferred dividends paid |
|
|
( |
) |
|
|
( |
) |
Contributions from non-controlling member of consolidated variable interest entities |
|
|
|
|
|
|
||
Distributions to non-controlling member of consolidated variable interest entities |
|
|
( |
) |
|
|
|
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash and cash equivalents, and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
SERITAGE GROWTH PROPERTIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited, amounts in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND |
|
|
|
|
|
|
||
Cash and cash equivalents at beginning of period |
|
$ |
|
|
$ |
|
||
Restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash at beginning of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
Restricted cash at end of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
||
Cash payments for interest |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND |
|
|
|
|
|
|
||
Accounts payable related to development of real estate |
|
$ |
|
|
$ |
|
||
Preferred dividends declared and unpaid |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
SERITAGE GROWTH PROPERTIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization
Seritage Growth Properties (“Seritage”) (NYSE: SRG), was formed as a Maryland real estate investment trust 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) 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 was principally engaged in the ownership, development, redevelopment, management, sale and leasing of diversified retail and mixed-use properties throughout the United States. As of September 30, 2026, the Company’s portfolio consisted of interests in
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 $
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 created a Special Committee (the “Special Committee”) of the Company’s Board of Trustees to oversee the process. The Special Committee retained Barclays Capital, Inc. (“Barclays”) as its financial advisor. The agreement with Barclays expired in August 2023. The Company’s strategic review process remains ongoing as the Company executes sales pursuant to the Plan of Sale, and the Company remains open minded to pursuing value maximizing alternatives, including a potential sale of the Company. There can be no assurance that the review process will result in any transaction or that the Company will be successful in fully executing the Plan of Sale. The Board of Trustees is currently overseeing 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
As a result of the Company’s change in corporate structure to a taxable C Corporation effective January 1, 2022, the Company incurred a one-time, non-cash deferred tax benefit of approximately $
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 of Trustees 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 September 30, 2026, Mr. Lampert owns approximately
- 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's 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, and the Company remains open minded to pursuing value maximizing alternatives, including a potential sale of the Company. 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. See “Item 1A. Risk Factors — Risks Related to Our Business and Operations — There can be no assurance that we will be able to complete any transaction or any strategic change on terms satisfactory to the Board of Trustees.” included in our Annual Report on Form 10-K, (the “Annual Report”) for the year ended December 31, 2025.
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. Property rental income, which is the Company’s primary source of operating cash flow, did not fully fund Obligations during the nine months ended September 30, 2026, and the Company recorded net operating cash outflows of $
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, but not limited to, cash on hand, sales of Consolidated Properties, sales of Unconsolidated Properties and sales of portions of Unconsolidated Properties. During the nine months ended September 30, 2026, the Company sold two Consolidated Properties for gross proceeds of $
Going Concern
In accordance with ASC 205-40, Presentation of Financial Statements - Going Concern, for each annual and interim reporting period, 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 and certain development expenditures due within the subsequent 12 months, as well as cash on hand and expected cash receipts, plus drawdowns from our new revolving loan facility as described below. The Company does not currently have any assets under contract with closings that are deemed probable within the 12 month period.
On July 24, 2026, the Company entered into (i) a Loan and Security Agreement (the “Real Estate Loan Agreement”) providing for a $
Management estimates existing cash on hand, the ability to draw on the remaining unfunded Revolving Loan Facility, and expected rental income would allow the Company to fund its Obligations and certain development expenditures. As a result, the Company has concluded that management’s plans alleviate substantial doubt about the Company’s ability to continue as a going concern as of September 30, 2026.
- 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, 2025. 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 and nine months ended September 30, 2026 may not be indicative of the results that may be expected for any other interim period or for the year ending December 31, 2026. Capitalized terms used, but not defined in this quarterly report, have the same meanings as set forth in our Annual 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 they have a controlling financial interest. For entities that meet the definition of a variable interest entity (“VIE”), the Company consolidates such 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 December 31, 2025, the Company consolidated
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 September 30, 2026, the Company, and its wholly owned subsidiaries, holds a
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
Given the continued decline in size of the portfolio and the continued progression of the Plan of Sale, the Company has concluded that they have
Real Estate
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. To the extent any 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
- 10 -
costs of employees directly involved, and other miscellaneous costs incurred during the period of redevelopment, are capitalized and classified as construction in progress. The capitalization period begins when redevelopment activities are underway and ends when the project is substantially complete. Capitalized costs remain in construction in progress until such time as the project is completed and placed in service, the project is abandoned, the asset is classified as held for sale or the asset is sold.
Depreciation of real estate assets, excluding land, is recognized on a straight-line basis over their estimated useful lives which generally range between:
Building and building improvements: |
|
Land improvements: |
|
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 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. In estimating the fair value of an asset, various factors are considered, including expected future operating income, trends and leasing prospects, including the effects of demand, competition, and other economic factors, such as discount rates and market comparables. 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. Changes in any estimates and/or assumptions, including the anticipated holding period, could have a material impact on the projected 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 losses of $
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 when a property is contributed to an investment in unconsolidated entity. Gains and losses from the disposition of real estate are recorded as gain (loss) on sale of real estate on the Company’s condensed consolidated statements of operations. Refer to Note 4 for more information on the Company’s unconsolidated entity transactions. During the three months ended September 30, 2026, the Company sold
The following table summarizes the Company’s gain on sale of real estate during the three and nine months ended September 30, 2026 and 2025 (in millions):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Dispositions to third parties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash proceeds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Gain on sale of real estate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 under contract for sale and are expected 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
- 11 -
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 September 30, 2026, there were
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 and losses 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.
The Company did
Cash and Cash Equivalents
The Company considers instruments with an original maturity of three months or less to be cash and cash equivalents. Cash and cash equivalent balances may, at a limited number of banks and financial institutions, exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions.
Restricted Cash
As of September 30, 2026, restricted cash represents cash collateral for letters of credit and the Revolving Loan Facility. As of December 31, 2025, restricted cash represented cash collateral for letters 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 an 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.
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
- 12 -
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
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.
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.
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. As of September 30, 2026, the Company has
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
- 13 -
Class B non-economic common shares are excluded from earnings per share computations as they do not have economic rights. As of December 31, 2020, all outstanding Class B common shares had been surrendered and there are currently
Recently Issued Accounting Pronouncements
In January 2025, the FASB issued ASU 2025-01, “Clarifying the Effective Date” as an update to ASU 2024-03, “Disaggregation of Income Statement Expenses” (“ASU 2024-03”). ASU 2024-03 requires enhanced disclosures regarding income statement expenses, including disaggregation of significant categories such as depreciation and amortization of real estate assets, property operating expenses and employee compensation, within relevant expense captions presented in the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 31, 2027. The Company is currently evaluating the impact on its financial statement disclosures.
In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow Scope Improvements” (“ASU 2025-11”), which amends the guidance in ASC 270, Interim Reporting. The update enhances interim disclosure requirements by clarifying the information that must be presented in quarterly periods, including improved transparency regarding significant events, accounting policy updates and material developments that occur between annual reporting dates. ASU 2025-11 also aligns certain interim reporting requirements more closely with annual disclosure objectives to promote consistency and comparability. The amendments are effective for interim periods beginning after December 15, 2027. The Company is currently evaluating the impact on its financial statement disclosures.
Note 3 – Lease Intangible Assets and Liabilities
The following table summarizes the Company’s lease intangible assets (acquired in-place leases and above-market leases) and liabilities (acquired below-market lease, which is included in accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheets), net of accumulated amortization, as of December 31, 2025 (in thousands):
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|||
Lease Intangible Assets |
|
Asset |
|
|
Amortization |
|
|
Balance |
|
|||
In-place leases, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|||
Lease Intangible Liabilities |
|
Liability |
|
|
Amortization |
|
|
Balance |
|
|||
Below-market leases, net |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Total |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of $
Amortization of acquired in-place leases resulted in additional depreciation and amortization expense of $
There were
Amortization of an acquired below-market ground lease resulted in additional property expense of $
- 14 -
Future amortization of these lease intangibles is set forth below (in thousands):
|
|
Below Market |
|
|
Remainder of 2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
2031 |
|
|
|
|
Thereafter |
|
|
|
|
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.
As of September 30, 2026, the Company has investments in five unconsolidated entities as follows:
|
|
|
|
|
|
Seritage % |
|
# of |
|
Total |
|
|
Unconsolidated Entities |
|
Entity Partner(s) |
|
Ownership |
|
Properties |
|
GLA |
|
|||
GS Portfolio Holdings (2017) LLC |
|
Brookfield Properties Retail |
|
|
|
|
|
|||||
Mark 302 JV LLC |
|
An investment fund managed by |
|
|
|
|
|
|||||
SI UTC LLC |
|
A separate account advised by |
|
|
|
|
|
|||||
Tech Ridge JV Holding LLC |
|
An affiliate of |
|
|
|
|
— |
|
||||
Landmark Land Holdings, LLC |
|
The Howard Hughes Corporation |
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||
In certain circumstances, when the Company has contributed properties to unconsolidated entities in exchange for equity interests in those unconsolidated entities, the transaction price attributed to the property at the closing (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. As of September 30, 2026, the Company has one remaining instance where the Contribution Value is subject to a revaluation under certain conditions. The Company did
- 15 -
Summarized Financial Information for Unconsolidated Entities
The following tables present summarized financial data for UTC JV (in thousands):
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
ASSETS |
|
|
|
|
|
|
||
Investment in real estate |
|
|
|
|
|
|
||
Land |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Net investment in real estate |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Tenant and other receivables, net |
|
|
|
|
|
|
||
Other assets, net |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
LIABILITIES AND MEMBERS' INTERESTS |
|
|
|
|
|
|
||
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Members' Interest |
|
|
|
|
|
|
||
Total members' interest |
|
|
|
|
|
|
||
Total liabilities and members' interest |
|
$ |
|
|
$ |
|
||
Carrying value of Company's investments in unconsolidated entities |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Property operating expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income (expenses) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Equity in income of unconsolidated entities (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
- 16 -
The following tables present combined condensed financial data for all of the Company’s Unconsolidated Entities, excluding UTC JV (in thousands):
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
ASSETS |
|
|
|
|
|
|
||
Investment in real estate |
|
|
|
|
|
|
||
Land |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Net investment in real estate |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Tenant and other receivables, net |
|
|
|
|
|
|
||
Other assets, net |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
LIABILITIES AND MEMBERS' INTERESTS |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Members' Interest |
|
|
|
|
|
|
||
Total members' interest |
|
|
|
|
|
|
||
Total liabilities and members' interest |
|
$ |
|
|
$ |
|
||
Carrying value of Company's investments in unconsolidated entities |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Property operating expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Equity in income (loss) of unconsolidated entities (1) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
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. The Company utilizes appraisals and third-party prepared fair value estimates as well as negotiated offers to sell the investments for the impairment analysis. The Company did
As of September 30, 2026, the Company has put rights for
- 17 -
Unconsolidated Entity Management and Related Fees
The Company acts as the operating partner and day-to-day manager for the Mark 302 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. Refer to Note 2 for the Company’s accounting policies. The Company earned $
Note 5 – Leases
Lessor Disclosures
Future minimum rental receipts, excluding variable payments and tenant reimbursements of expenses, and rents related to tenants in default, under non-cancelable operating leases executed as of September 30, 2026 is approximately as follows (in thousands):
|
|
September 30, 2026 |
|
|
Remainder of 2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
2031 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
The components of rental revenues for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Fixed rental revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable rental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total rental revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Lessee Disclosures
As of September 30, 2026 and December 31, 2025, the Company has
The Company recorded rent expense related to leased corporate office space of $
On July 28, 2025, the Company entered into a
On July 27, 2026, the Company entered into an amendment to its office lease which provides for a
In addition, the Company recorded ground rent expense of approximately $
- 18 -
rent expense is classified within property operating expenses on the condensed consolidated statements of operations. The ground lease requires the Company to make fixed annual rental payments and expires in
As of September 30, 2026, the Company expects to make cash payments on operating leases of $
The following table sets forth information related to the measurement of our lease liabilities as of September 30, 2026:
|
|
September 30, 2026 |
|
|
Weighted-average remaining lease term (in years) |
|
|
|
|
Weighted-average discount rate |
|
|
% |
|
Cash paid for operating leases (in thousands) |
|
$ |
|
|
Note 6 – Debt
Term Loan Facility
On
Funded amounts under the Term Loan Facility bore interest at an annual rate of
The Term Loan Facility was guaranteed by the Company and, subject to certain exceptions, was required to be guaranteed by all existing and future subsidiaries of the Operating Partnership. The Term Loan Facility was 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 contained a requirement to provide mortgages and other customary collateral upon the breach of certain financial metrics, the occurrence and continuation of an event of default and certain other conditions set forth in the Term Loan Agreement.
The extension fees paid were recorded as a direct deduction from the carrying amount of the Term Loan Facility and amortized over the remaining term of the Term Loan Agreement. As of September 30, 2026, the Company’s extension fees were fully amortized.
On July 24, 2026, the Company repaid the Term Loan Facility in full. The Company recorded a loss on the extinguishment of debt of $
New Term Loan Facility and Revolving Loan Facility
On July 24, 2026, the Company and b1Bank, a Louisiana state charted bank (“Lender”) as lender entered into (i) a Loan and Security Agreement (the “Real Estate Loan Agreement”) providing for a $
- 19 -
of
The Facilities mature on
Each Facility also includes certain limitations relating to, among other activities, the Company’s ability to: sell assets (subject to payment of release prices) or merge, consolidate or transfer all or substantially all of its assets (subject to permitted transfers); incur additional debt; incur certain liens; and make certain restricted payments including distributions on the Company’s capital stock. Each 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 under the applicable Facility to be immediately due and payable, exercise any rights they might have under any of the applicable Facility documents, and require the Company to pay a default interest rate on overdue amounts equal to
The table below details the Company’s debt as of September 30, 2026 (amounts in millions):
Debt Type |
|
Outstanding Principal Balance |
|
|
Unamortized Debt Issuance Costs |
|
|
Balance |
|
|
Interest Rate |
|
||||
New Term Loan Facility |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
% |
|||
Revolving Loan Facility |
|
|
|
|
|
|
|
|
|
|
|
% |
||||
Note 7 – Income Taxes
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 $
The Company’s effective tax rate of
The significant components of the Company’s deferred tax assets of $
- 20 -
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 September 30, 2026. 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
The following tables present the Company's assets measured at fair value on a non-recurring basis as of September 30, 2026 and December 31, 2025 (in thousands), aggregated by the level in the fair value hierarchy within which those measurements fall:
|
|
Balance |
|
|
Fair Value Measurements Using |
|
||||||||||
Description |
|
September 30, 2026 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Impaired real estate assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other-than-temporary impaired investments in |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Balance |
|
|
Fair Value Measurements Using |
|
||||||||||
Description |
|
December 31, 2025 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Other-than-temporary impaired investments in |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
In accordance with ASC 360-10, Property, Plant and Equipment, the Company reviews the carrying value of its real estate assets at each reporting period. The Company did
In accordance with ASC 323, Equity Method and Joint Ventures, the Company reviews the carrying value of its investments in unconsolidated entities at each reporting period. The Company did
- 21 -
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 and the Facilities. The fair value of the Facilities are classified as Level 2. Cash equivalents 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.
The table below (in millions) shows the estimated fair values of the Company’s debt obligations as of September 30, 2026 and December 31, 2025.
Debt Type |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
New Term Loan Facility |
|
$ |
|
|
$ |
|
||
Revolving Loan Facility |
|
|
|
|
|
|
||
Term Loan Facility |
|
|
|
|
|
|
||
Total Fair Value of the Facilities |
|
$ |
|
|
$ |
|
||
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 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.
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 July 1, 2024, a purported shareholder of the Company filed a class action lawsuit in the U.S. District Court for the Southern District of New York, captioned Zhengxu He, Trustee of the He & Fang 2005 Revocable Living Trust v. Seritage Growth Properties, Case No. 1:24:CV:05007, alleging that the Company, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer violated the federal securities laws (the “Securities Action”). The complaint seeks to bring a class action on behalf of all persons and entities that purchased or otherwise acquired Company securities between July 7, 2022 and May 10, 2024. The complaint alleges that the defendants violated federal securities laws by issuing false, misleading, and/or omissive disclosures concerning the Company’s alleged lack of effective internal controls regarding the identification and review of impairment indicators for investments in real estate and the Company’s value and projected gross proceeds of certain real estate assets. The complaint seeks compensatory damages in an unspecified amount to be proven at trial, an award of reasonable costs and expenses to the plaintiff and class counsel, and such other and further relief as the court may deem just and proper. On or around January 15, 2025, another purported shareholder of the Company filed a derivative lawsuit in the U.S. District Court for the District of Maryland, captioned Paul Sidhu v. Seritage Growth Properties, Case No. 1:25-cv-00152 (the “Sidhu Derivative Action”). On or around January 20, 2025, another purported shareholder of the Company filed a derivative lawsuit in the U.S. District Court for the District of Maryland, captioned James Wallen v. Seritage Growth Properties, Case No. 1:25-cv-00190 (the “Wallen Derivative Action”). On or around May 8, 2025, another purported shareholder of the Company
- 22 -
filed a derivative lawsuit in the U.S. District Court for the Southern District of New York, captioned Derrick Cheroti v. Seritage Growth Properties, Case No. 1:25-vc-00152 (the “Cheroti Derivative Action”). The derivative actions allege the same or similar claimed acts and omissions underlying the Securities Action, assert breach of fiduciary duty and other claims against the Company’s Chief Executive Officer, the Company’s Chief Financial Officer, and current and former members of the Company’s Board of Trustees, and name the Company as a nominal defendant. The complaint in each of the derivative actions seeks compensatory damages in an unspecified amount to be proven at trial, an order directing the Company and the individual defendants to reform and improve the Company’s corporate governance and internal procedures, restitution from the individual defendants, an award of costs and expenses to the plaintiff and reasonable attorneys’ and experts’ fees, costs, and expenses, and such other and further relief as the court may deem just and proper. The complaint in the Cheroti Derivative Action also seeks an award of punitive damages, an order directing the individual defendants to account for all damages caused by them and all profits and special benefits and unjust enrichment obtained, and the imposition of a constructive trust. On September 2, 2025, the court in the Cheroti Derivative Action stayed the Cheroti Derivative Action until resolution of the anticipated motion to dismiss in the Securities Action. On November 5, 2025, the court in the District of Maryland proceedings consolidated the Sidhu Derivative Action and the Wallen Derivative Action (the “Consolidated Derivative Action”) and appointed lead counsel. On November 12, 2025, the court in the Consolidated Derivative Action stayed the Consolidated Derivative Action until resolution of the anticipated motion to dismiss in the Securities Action. The Company intends to vigorously defend itself against the allegations in these lawsuits.
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 consolidated financial position, results of operations, cash flows or liquidity of the Company.
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.
On July 6, 2022, Mr. Lampert converted all of his remaining Operating Partnership Units (“OP Units”) to Class A common shares. As a result, he no longer holds a direct interest in the Operating Partnership and he owns approximately
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 pays Winthrop a monthly fee of $
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.
At September 30, 2026 and December 31, 2025, there was $
At September 30, 2026, the Company had a put right on
- 23 -
Note 11 – Shareholders’ Equity
Class A Common Shares
As of September 30, 2026,
Class B Non-Economic Common Shares
As of September 30, 2026, there were
Series A Preferred Shares
In December 2017, the Company issued
On and after December 14, 2022, the Company may redeem any or all of the Series A Preferred Shares at $
Dividends and Distributions
The Company’s Board of Trustees has not declared dividends on the Company’s Class A common shares during 2026 or 2025. 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.
Our Board of Trustees will determine future distributions following the repayment of the Facilities.
The Company’s Board of Trustees also declared the following dividends on preferred shares during 2026 and 2025:
|
|
|
|
|
|
Series A |
|
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Preferred Share |
|
|
2026 |
|
2026 |
|
|
|
|
|
|
October 27 |
|
December 31 |
|
|
$ |
|
||
July 28 |
|
September 30 |
|
|
|
|
||
April 20 |
|
June 30 |
|
|
|
|
||
February 25 |
|
March 31 |
|
|
|
|
||
2025 |
|
2025 |
|
|
|
|
|
|
October 29 |
|
December 31 |
|
|
$ |
|
||
July 23 |
|
September 30 |
|
|
|
|
||
May 8 |
|
June 30 |
|
|
|
|
||
February 26 |
|
March 31 |
|
|
|
|
||
Note 12 – Earnings (Loss) per Share
The table below provides a reconciliation of net 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.
- 24 -
(in thousands except per share amounts) |
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Numerator - Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) attributable to common shareholders - Diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Preferred dividends |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income (loss) attributable to common shareholders - Basic and |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator - Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average Class A common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average Class A common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average Class A common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) per share attributable to Class A |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Income (loss) per share attributable to Class A |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
No adjustments were made to the numerator for the three and nine months ended September 30, 2026 and 2025, 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.
No adjustments were made to the denominator for the three and nine months ended September 30, 2026 and 2025, respectively, as there were
Note 13 – 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
Restricted Shares and Share Units
Pursuant to the Plan, the Company periodically made grants of restricted shares or share units. The vesting terms of these grants were specific to the individual grant and varied in that a portion of the restricted shares and share units vested in equal annual amounts over the subsequent
In general, participating employees were required to remain employed for vesting to occur (subject to certain limited exceptions). Restricted shares and share units that did not vest were forfeited. Dividends on restricted shares and share units with time-based vesting were paid to holders of such shares and share units and were not returnable, even if the underlying shares or share units did not ultimately vest. Dividends on restricted shares and share units with performance-based vesting were 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.
- 25 -
Note 14 – 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 CODM regularly reviews the operating results of the Company to determine how to best allocate resources. The Company’s measure of segment profitability is consolidated net loss. The CODM uses consolidated net loss when deciding whether to market a property for sale, make an investment in a property to improve its marketability, or reduce general and administrative expenses. Consolidated net loss is also used to monitor budgeted versus actual results. The measure of segment assets is reported on the condensed consolidated balance sheets as Total assets.
The table below reconciles total segment revenues to consolidated net loss and includes the significant segment expenses regularly provided to and reviewed by the CODM as part of their decision making process (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Real estate taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Common area maintenance |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Property insurance |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Personnel expenses (1) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other segment items (2) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Income (loss) before income taxes |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
- 26 -
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,” “will,” “continue to,” “pro forma” or the opposite of these words and phrases or other similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters 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, 2025. 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
Prior to our adoption of the Plan of Sale, we were principally engaged in the ownership, development, redevelopment, management, sale and leasing of diversified retail and mixed-use properties throughout the United States. As of September 30, 2026, our portfolio consisted of interests in eight properties comprised of approximately 0.5 million square feet of gross leasable area (“GLA”) or build-to-suit leased area and 133 acres of land. The portfolio encompasses three consolidated properties consisting of approximately 0.2 million square feet of GLA and 51 acres and five unconsolidated entities consisting of approximately 0.3 million square feet of GLA and 82 acres.
Review of Strategic Alternatives
On March 1, 2022, the Company announced that its Board of Trustees 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 retained Barclays as its financial advisor from March 2022 to August 2023 to assist with the strategic review. 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 of Trustees 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 as the Company executes the Plan of Sale, and the Company remains open minded to pursuing value maximizing alternatives, including a potential sale of the Company. 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. The Board of Trustees is currently overseeing the Plan of Sale.
Impairment of Real Estate Assets and Investments in Unconsolidated Entities
We did not recognize any impairment losses for the three months ended September 30, 2026. For the nine months ended September 30, 2026, we recognized a total of $15.2 million of impairment losses due to a marketed process that resulted in receiving offers below carrying value, which are included in impairment of real estate assets within the condensed consolidated statements of operations. In addition, we recognized $5.2 million in other-than-temporary impairment losses on our investments in unconsolidated entities during the nine months ended September 30, 2026, which is included in equity in income (loss) of unconsolidated entities within the condensed consolidated statements of operations. We continue to evaluate our portfolio, including our development plans, hold periods and, if applicable, offers received, which may result in additional impairments in future periods on our consolidated properties and investments in unconsolidated entities.
- 27 -
REIT Qualification
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 January 1, 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 shareholders, 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 the 2021 tax year and prior tax years, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place through 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.
Market Update
The Company continues to face challenging market conditions such as elevated interest rates and the availability of debt and equity capital, and it continues to assess other potential macroeconomic impacts including supply chain issues, international conflicts associated with tariffs, potential labor issues, and uncertainty caused by wars. Interest rates are currently higher than interest rates in 2022. Additionally, raising equity capital for land development deals remains challenging. These conditions could apply downward pricing pressures on our remaining assets. In making decisions regarding whether and when to transact on each of the Company’s remaining assets, the Company considers various factors including, but not limited to, the breadth of the buyer universe, macroeconomic conditions, the availability and cost of financing, as well as corporate, operating and other capital expenses required to carry the asset. If these challenging market conditions persist, then we expect that they will continue to adversely impact the Plan of Sale proceeds from our assets and the amounts and timing of distributions to shareholders.
Business Strategies
The Company’s primary objective is to create value for its shareholders through the monetization of the Company's assets through the Plan of Sale, which can be suspended by the Board of Trustees. We look to enhance sale value through leasing our built footprint, densification of our sites, achievement of entitlements and modification of agreements that govern our properties. We continue to position all remaining assets for sale.
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 includes interest on our Term Loan Facility, New Term Loan Facility, and Revolving Loan Facility. In addition, we incur substantial non-cash charges for depreciation of our properties and amortization of intangible assets and liabilities.
- 28 -
Comparison of the Three Months Ended September 30, 2026 to the Three Months Ended September 30, 2025
The following table presents selected data on comparative results from the Company’s condensed consolidated statements of operations for the three months ended September 30, 2026, as compared to the three months ended September 30, 2025 (in thousands):
|
|
Three Months Ended September 30, |
|
|
|
|
||||||
|
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Rental income |
|
$ |
1,502 |
|
|
$ |
4,603 |
|
|
$ |
(3,101 |
) |
Expenses |
|
|
|
|
|
|
|
|
|
|||
Property operating |
|
|
(486 |
) |
|
|
(3,625 |
) |
|
|
3,139 |
|
Real estate taxes |
|
|
(345 |
) |
|
|
(607 |
) |
|
|
262 |
|
Depreciation and amortization |
|
|
(385 |
) |
|
|
(1,698 |
) |
|
|
1,313 |
|
General and administrative |
|
|
(4,925 |
) |
|
|
(4,922 |
) |
|
|
(3 |
) |
Gain on sale of real estate |
|
|
1,207 |
|
|
|
- |
|
|
|
1,207 |
|
Impairment of real estate assets |
|
|
- |
|
|
|
(800 |
) |
|
|
800 |
|
Equity in income (loss) of unconsolidated entities |
|
|
7,707 |
|
|
|
644 |
|
|
|
7,063 |
|
Interest and other income (expense), net |
|
|
897 |
|
|
|
(834 |
) |
|
|
1,731 |
|
Interest expense |
|
|
(1,268 |
) |
|
|
(5,290 |
) |
|
|
4,022 |
|
Rental Income
Rental income decreased by $3.1 million for the three months ended September 30, 2026, primarily due to property sales.
Property Operating Expenses
Property operating expenses decreased by $3.1 million primarily due to sales. The largest decreases were in common area maintenance, utilities, and insurance.
Real Estate Taxes
Real estate taxes decreased by approximately $0.3 million for the three months ended September 30, 2026 due to property sales.
Depreciation and Amortization Expenses
The decrease of $1.3 million in depreciation and amortization expenses for the three months ended September 30, 2026 was primarily due to property sales.
Gain on Sale of Real Estate
During the three months ended September 30, 2026, the Company sold one property for $3.0 million and recorded a gain totaling $1.2 million which is included in the gain on sale of real estate within the condensed consolidated statements of operations.
The Company did not sell any properties during the three months ended September 30, 2025.
Impairment of Real Estate Assets
The Company did not recognize any impairment charges during the three months ended September 30, 2026. During the three months ended September 30, 2025, the Company recognized a $0.8 million impairment of real estate assets as a result of the Company transferring the Aventura, FL property to held for sale which requires the asset be carried at the lower of book value or fair value less costs to sell.
- 29 -
Equity in Income (Loss) of Unconsolidated Entities
During the three months ended September 30, 2026, equity in income of unconsolidated entities increased by $7.1 million due to the sale of an Unconsolidated Property’s parcel resulting in income of $7.4 million, offset by an increase of losses of $0.3 million related to the Company’s other investments.
Interest and Other Income (Expense), Net
For the three months ended September 30, 2026, interest and other income (expense), net increased by $1.7 million. During the three months ended September 30, 2026, the Company had interest income of $0.5 million, and received option payments of $0.4 million related to the Dallas property purchase and sale agreement.
During the three months ended September 30, 2025, the Company had a settlement expense of $1.5 million partially offset by interest income of $0.7 million.
Interest Expense
The decrease of $4.0 million in interest expense for the three months ended September 30, 2026 was driven by Term Loan Facility paydowns subsequent to September 30, 2025.
Comparison of the Nine Months Ended September 30, 2026 to the Nine Months Ended September 30, 2025
The following table presents selected data on comparative results from the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025 (in thousands):
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||
|
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Rental income |
|
$ |
5,171 |
|
|
$ |
13,586 |
|
|
$ |
(8,415 |
) |
Expenses |
|
|
|
|
|
|
|
|
|
|||
Property operating |
|
|
(2,708 |
) |
|
|
(9,770 |
) |
|
|
7,062 |
|
Real estate taxes |
|
|
(1,062 |
) |
|
|
(2,252 |
) |
|
|
1,190 |
|
Depreciation and amortization |
|
|
(1,175 |
) |
|
|
(5,813 |
) |
|
|
4,638 |
|
General and administrative |
|
|
(15,313 |
) |
|
|
(26,787 |
) |
|
|
11,474 |
|
Gain on sale of real estate |
|
|
1,242 |
|
|
|
8,903 |
|
|
|
(7,661 |
) |
Loss on sale of interests in unconsolidated entities |
|
|
— |
|
|
|
(1,417 |
) |
|
|
1,417 |
|
Impairment of real estate assets |
|
|
(15,183 |
) |
|
|
(18,800 |
) |
|
|
3,617 |
|
Equity in income (loss) of unconsolidated entities |
|
|
1,048 |
|
|
|
(6,528 |
) |
|
|
7,576 |
|
Interest and other income (expense), net |
|
|
2,290 |
|
|
|
956 |
|
|
|
1,334 |
|
Interest expense |
|
|
(7,107 |
) |
|
|
(15,659 |
) |
|
|
8,552 |
|
Rental Income
Rental income decreased by $8.4 million primarily due to property sales.
Property Operating Expenses
Property operating expenses decreased by $7.1 million primarily due to sales. The largest decreases were in common area maintenance, utilities, and insurance.
Real Estate Taxes
Real estate taxes decreased by $1.2 million primarily due to sales. Additionally, during the nine months ended September 30, 2026, there were no real estate tax reduction fees and therefore no real estate tax refunds.
Depreciation and Amortization Expenses
The decrease of $4.6 million in depreciation and amortization during the nine months ended September 30, 2026 was primarily due to property sales.
- 30 -
General and Administrative Expenses
General and administrative expenses consist of personnel costs, including share-based compensation and third-party consulting fees, professional fees, office expenses and overhead expenses.
The decrease of $11.5 million was partially driven by the recognition of severance expense of $6.9 million for the nine months ended September 30, 2025. Other decreasing costs include $3.6 million in personnel costs, $0.9 million office and ground rent, and $0.2 million in other office costs.
Gain on Sale of Real Estate
During the nine months ended September 30, 2026, the company sold two properties for $14.1 million and recorded gains totaling $1.2 million, which is included in the gain on sale of real estate within the condensed consolidated statements of operations.
During the nine months ended September 30, 2025, the Company sold two properties for $52.6 million and recorded a gain totaling $8.9 million which is included in gain on sale of real estate within the condensed consolidated statements of operations.
Loss on Sale of Interests in Unconsolidated Entities
There were no sales of interests in Unconsolidated entities for the nine months ended September 30, 2026.
During the nine months ended September 30, 2025, the Company sold its remaining interest in the SPS Portfolio Holdings II LLC joint venture to an affiliate of its joint venture partner and recognized a loss of $1.4 million on the sale.
Impairment of Real Estate Assets
During the nine months ended September 30, 2026 the Company recognized a $15.2 million impairment of real estate assets due to a marketed process that resulted in receiving offers below carrying value.
During the nine months ended September 30, 2025, the Company recognized an $18.8 million impairment of real estate assets as a result of the Company agreeing to sell one property at an amount below book value.
Equity in Income (Loss) of Unconsolidated Entities
During the nine months ended September 30, 2026, $5.2 million of other-than-temporary impairment losses and a $4.7 million gain on sale of a portion of an Unconsolidated Property were recorded, compared to an $8.5 million other-than-temporary impairment loss recorded during the nine months ended September 30, 2025. These factors resulted in a decrease in loss of $7.7 million.
Interest and Other Income (Expense), Net
For the nine months ended September 30, 2026, interest and other income increased by $1.3 million primarily due to a decrease of settlement expenses.
Interest Expense
The decrease of $8.6 million in interest expense for the nine months ended September 30, 2026 was driven by the net $170.0 million of Term Loan Facility paydowns made since September 30, 2025.
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 during the nine months ended September 30, 2026 and the Company recorded net operating cash outflows of $12.6 million. Additionally, the Company generated net investing cash inflows of $22.2 million during the nine months ended September 30, 2026, which were driven by distributions from unconsolidated entities and sales of real estate partially offset by development expenditures and investments in unconsolidated entities.
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, sales of Consolidated Properties, sales
- 31 -
of interests in Unconsolidated Properties and financing transactions, subject to any approvals that may be required under the loan agreements. Below is our sales activity since we began our capital recycling program:
The Company has entered into an option purchase and sale agreement (the “PSA”) to sell one vacant non-income producing premier asset in Dallas, Texas for anticipated gross proceeds of $50.8 million before applicable credits and costs. The sale is subject to customary closing conditions and is also cross-conditioned and cross-defaulted with an option purchase and sale agreement between the buyer and unaffiliated owners of a neighboring parcel. The buyer made an initial option payment of $169,200, then (i) commencing on July 1, 2026, and each month thereafter that the PSA remains in effect through December 1, 2026, the Company shall receive an option payment equal to $126,900 and (ii) commencing on January 1, 2027, and each month thereafter that the PSA remains in effect through January 1, 2028, the Company shall receive an option payment equal to $274,950. All option payments are incremental to the purchase price and are non-refundable except as otherwise provided for in the PSA. There can be no assurances that the buyer will exercise the option to purchase the property. During the three and nine months ended September 30, 2026, the Company received $0.4 million and $0.6 million in option payments.
Term Loan Facility / Incremental Funding Facility
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 permitted 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”) was equal to or less than $30.0 million. In such instances, for each interest period, the Operating Partnership was 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 should not exceed the amount of current interest otherwise due under the Term Loan Agreement). Any deferred interest should accrue interest at 2.0% in excess of the then applicable interest rate and should be due and payable on July 31, 2023; provided, that the Operating Partnership was 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).
- 32 -
In addition, repayment of any outstanding deferred interest was a condition to any borrowings under the $400.0 million incremental funding facility under the Term Loan Agreement (the “Incremental Funding Facility”).
On July 28, 2025, the Company exercised its extension option pursuant to the Fourth Term Loan Amendment (as defined in Note 6 – Debt) and on July 30, 2025, the Company paid a 2% extension fee equal to $4.0 million extending the maturity date to July 31, 2026. The Company also paid the incremental facility fee of $4.0 million. All other terms under the Term Loan Agreement remained unchanged during the extension period including the interest rate and the incremental facility fee in accordance with the Term Loan Agreement.
During the nine months ended September 30, 2026, the Company repaid the existing Term Loan Facility in full.
New Term Loan Facility and Revolving Loan Facility
On July 24, 2026, the Company entered into (i) a Loan and Security Agreement (the “Real Estate Loan Agreement”) providing for a $15.0 million term loan (the “New Term Loan Facility”) and (ii) a Business Loan Agreement (the “Revolving Loan Facility”), as amended by an omnibus agreement, providing for a $25.0 million revolving loan. At closing of the Revolving Loan Facility, the Company drew $15.0 million (the “Initial Draw”), and has $10.0 million available and unfunded. The Company used the proceeds from the closing of the New Term Loan Facility and the Initial Draw, together with cash on hand, to fully repay the $50.0 million outstanding balance on the existing Term Loan Facility and to pay transaction and related costs. The New Term Loan Facility is collateralized by the Company’s interest in three Consolidated Properties and bears interest at an annual rate of one-month SOFR plus 2.75% which interest rate shall be reduced to one-month SOFR plus 2.25% if the outstanding balance is reduced to $10.0 million or less. The Revolving Loan Facility is collateralized by $25.0 million of cash held in a restricted account with the lender. Drawn amounts under the Revolving Loan Facility bear interest at an annual rate equal to a spread of 2.0% above the money market rate on the cash collateral which is currently 3.5% for 12 months from closing and thereafter resets annually. The Revolving Loan Facility and the New Term Loan Facility mature on July 24, 2028 and have a one-year extension option.
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 a discussion of liquidity and going concern.
Cash Flows for the Nine Months Ended September 30, 2026 Compared to the Nine Months Ended September 30, 2025
The following table summarizes the Company’s cash flow activities for the nine months ended September 30, 2026 and 2025, respectively (in thousands):
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||
|
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|||
Net cash used in operating activities |
|
$ |
(12,643 |
) |
|
$ |
(33,742 |
) |
|
$ |
21,099 |
|
Net cash provided by investing activities |
|
|
22,176 |
|
|
|
43,562 |
|
|
|
(21,386 |
) |
Net cash used in financing activities |
|
|
(26,395 |
) |
|
|
(47,657 |
) |
|
|
21,262 |
|
Cash Flows from Operating Activities
Our primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses. Rental revenues are not sufficient to cover these expenses.
Significant components of net cash used in operating activities included:
Cash Flows from Investing Activities
Significant components of net cash provided by investing activities include:
- 33 -
Cash Flows from Financing Activities
Significant components of net cash used in financing activities include:
Dividends and Distributions
The Company’s Board of Trustees did not declare dividends on the Company’s Class A common shares during the nine months ended September 30, 2026 and 2025, respectively. 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 Company’s Board of Trustees also declared the following dividends on the Company’s Series A Preferred Shares during 2026 and 2025:
|
|
|
|
|
|
Series A |
|
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Preferred Share |
|
|
2026 |
|
2026 |
|
|
|
|
|
|
October 27 |
|
December 31 |
|
January 15, 2027 |
|
$ |
0.43750 |
|
July 28 |
|
September 30 |
|
October 15, 2026 |
|
|
0.43750 |
|
April 20 |
|
June 30 |
|
July 15, 2026 |
|
|
0.43750 |
|
February 25 |
|
March 31 |
|
April 15, 2026 |
|
|
0.43750 |
|
2025 |
|
2025 |
|
|
|
|
|
|
October 29 |
|
December 31 |
|
January 15, 2026 |
|
$ |
0.43750 |
|
July 23 |
|
September 30 |
|
October 15, 2025 |
|
|
0.43750 |
|
May 8 |
|
June 30 |
|
July 15, 2025 |
|
|
0.43750 |
|
February 26 |
|
March 31 |
|
April 15, 2025 |
|
|
0.43750 |
|
Off-Balance Sheet Arrangements
The Company accounts for its investments in entities that it does not have a controlling interest in but exercises significant influence under 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 September 30, 2026 and December 31, 2025, 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, 2025.
Capital Expenditures
During the three and nine months ended September 30, 2026, the Company invested $1.9 million and $2.8 million, respectively, in our consolidated properties. The Company also invested $0.3 million and $2.8 million in our unconsolidated joint ventures during three and nine months ended September 30, 2026, respectively.
During the three and nine months ended September 30, 2025, the Company invested $3.8 million and $21.8 million, respectively, in our consolidated properties. The Company did not make any investments in its unconsolidated joint ventures during the three months ended September 30, 2025. The Company invested $0.4 million in its unconsolidated joint ventures during the nine months ended September 30, 2025.
- 34 -
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 material contingency, and an estimate of the possible loss, range of loss, or disclose the fact that an estimate cannot be made.
On July 1, 2024, a purported shareholder of the Company filed a class action lawsuit in the U.S. District Court for the Southern District of New York, captioned Zhengxu He, Trustee of the He & Fang 2005 Revocable Living Trust v. Seritage Growth Properties, Case No. 1:24:CV:05007, alleging that the Company, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer violated the federal securities laws. The complaint seeks to bring a class action on behalf of all persons and entities that purchased or otherwise acquired Company securities between July 7, 2022 and May 10, 2024. The complaint alleges that the defendants violated federal securities laws by issuing false, misleading, and/or omissive disclosures concerning the Company’s alleged lack of effective internal controls regarding the identification and review of impairment indicators for investments in real estate and the Company’s value and projected gross proceeds of certain real estate assets. The complaint seeks compensatory damages in an unspecified amount to be proven at trial, an award of reasonable costs and expenses to the plaintiff and class counsel, and such other and further relief as the court may deem just and proper. On or around January 15, 2025, another purported shareholder of the Company filed a derivative lawsuit in the U.S. District Court for the District of Maryland, captioned Paul Sidhu v. Seritage Growth Properties, Case No. 1:25-cv-00152. On or around January 20, 2025, another purported shareholder of the Company filed a derivative lawsuit in the U.S. District Court for the District of Maryland, captioned James Wallen v. Seritage Growth Properties, Case No. 1:25-cv-00190. On or around May 8, 2025, another purported shareholder of the Company filed a derivative lawsuit in the U.S. District Court for the Southern District of New York, captioned Derrick Cheroti v. Seritage Growth Properties, Case No. 1:25-vc-00152. The derivative actions allege the same or similar claimed acts and omissions underlying the Securities Action, assert breach of fiduciary duty and other claims against the Company’s Chief Executive Officer, the Company’s Chief Financial Officer, and current and former members of the Company’s Board of Trustees, and name the Company as a nominal defendant. The complaint in each of the derivative actions seeks compensatory damages in an unspecified amount to be proven at trial, an order directing the Company and the individual defendants to reform and improve the Company’s corporate governance and internal procedures, restitution from the individual defendants, an award of costs and expenses to the plaintiff and reasonable attorneys’ and experts’ fees, costs, and expenses, and such other and further relief as the court may deem just and proper. The complaint in the Cheroti Derivative Action also seeks an award of punitive damages, an order directing the individual defendants to account for all damages caused by them and all profits and special benefits and unjust enrichment obtained, and the imposition of a constructive trust. On September 2, 2025, the court in the Cheroti Derivative Action stayed the Cheroti Derivative Action until resolution of the anticipated motion to dismiss in the Securities Action. On November 5, 2025, the court in the District of Maryland proceedings consolidated the Sidhu Derivative Action and the Wallen Derivative Action and appointed lead counsel. On November 12, 2025, the court in the Consolidated Derivative Action stayed the Consolidated Derivative Action until resolution of the anticipated motion to dismiss in the Securities Action. The Company intends to vigorously defend itself against the allegations in these lawsuits.
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 Litigation and related matters.
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, 2025 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. For the nine months ended September 30, 2026, there were no material changes to these policies.
- 35 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in the Quantitative and Qualitative Disclosures about Market Risk set forth in our 2025 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)). Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due to the material weaknesses described below.
Notwithstanding the material weaknesses in our internal control over financial reporting, our principal executive officer and principal financial officer have concluded that the unaudited condensed consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
Material Weaknesses
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
As previously reported, management identified material weaknesses due to deficiencies in the design and operating effectiveness of controls which remain unremediated as of, and for the nine months ended September 30, 2026. The material weaknesses identified in our internal control over financial reporting related to: (i) level of precision of the review of the general ledger and underlying reconciliations, and (ii) lack of appropriate segregation of duties over journal entries. These deficiencies contributed to the potential for there to be material errors in our financial statements.
Update on Remediation Plan
As previously reported, in response to the material weaknesses, management, with oversight of the Audit Committee, began to implement steps to remediate the material weaknesses. While the Company has made progress with the remediation of these material weaknesses, the remediation efforts are ongoing, because additional time is needed to complete the remediation and allow for the internal controls to be tested by management.
However, the material weaknesses discussed above cannot be considered completely remediated until the applicable controls are fully implemented, have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Accordingly, we will continue to monitor and evaluate the effectiveness of our internal control over financial reporting.
Changes in Internal Controls over Financial Reporting
Other than as described above, there were no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 36 -
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.
On July 1, 2024, a purported shareholder of the Company filed a class action lawsuit in the U.S. District Court for the Southern District of New York, captioned Zhengxu He, Trustee of the He & Fang 2005 Revocable Living Trust v. Seritage Growth Properties, Case No. 1:24:CV:05007, alleging that the Company, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer violated the federal securities laws. The complaint seeks to bring a class action on behalf of all persons and entities that purchased or otherwise acquired Company securities between July 7, 2022 and May 10, 2024. The complaint alleges that the defendants violated federal securities laws by issuing false, misleading, and/or omissive disclosures concerning the Company’s alleged lack of effective internal controls regarding the identification and review of impairment indicators for investments in real estate and the Company’s value and projected gross proceeds of certain real estate assets. The complaint seeks compensatory damages in an unspecified amount to be proven at trial, an award of reasonable costs and expenses to the plaintiff and class counsel, and such other and further relief as the court may deem just and proper. On or around January 15, 2025, another purported shareholder of the Company filed a derivative lawsuit in the U.S. District Court for the District of Maryland, captioned Paul Sidhu v. Seritage Growth Properties, Case No. 1:25-cv-00152. On or around January 20, 2025, another purported shareholder of the Company filed a derivative lawsuit in the U.S. District Court for the District of Maryland, captioned James Wallen v. Seritage Growth Properties, Case No. 1:25-cv-00190. On or around May 8, 2025, another purported shareholder of the Company filed a derivative lawsuit in the U.S. District Court for the Southern District of New York, captioned Derrick Cheroti v. Seritage Growth Properties, Case No. 1:25-vc-00152. The derivative actions allege the same or similar claimed acts and omissions underlying the Securities Action, assert breach of fiduciary duty and other claims against the Company’s Chief Executive Officer, the Company’s Chief Financial Officer, and current and former members of the Company’s Board of Trustees, and name the Company as a nominal defendant. The complaint in each of the derivative actions seeks compensatory damages in an unspecified amount to be proven at trial, an order directing the Company and the individual defendants to reform and improve the Company’s corporate governance and internal procedures, restitution from the individual defendants, an award of costs and expenses to the plaintiff and reasonable attorneys’ and experts’ fees, costs, and expenses, and such other and further relief as the court may deem just and proper. The complaint in the Cheroti Derivative Action also seeks an award of punitive damages, an order directing the individual defendants to account for all damages caused by them and all profits and special benefits and unjust enrichment obtained, and the imposition of a constructive trust. On September 2, 2025, the court in the Cheroti Derivative Action stayed the Cheroti Derivative Action until resolution of the anticipated motion to dismiss in the Securities Action. On November 5, 2025, the court in the District of Maryland proceedings consolidated the Sidhu Derivative Action and the Wallen Derivative Action and appointed lead counsel. On November 12, 2025, the court in the Consolidated Derivative Action stayed the Consolidated Derivative Action until resolution of the anticipated motion to dismiss in the Securities Action. The Company intends to vigorously defend itself against the allegations in these lawsuits.
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 consolidated financial position, results of operations, cash flows or liquidity of the Company.
Item 1A. Risk Factors
Please refer to Item 1A—Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2025 for a description of certain material risks and uncertainties to which our business, financial condition and results of operations are subject. There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2025.
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.
- 37 -
Item 5. Other Information
- 38 -
Item 6. Exhibits
Exhibit No. |
|
Description |
|
SEC Document Reference |
|
|
|
|
|
10.1 |
|
Loan and Security Agreement between Seritage SRC Finance LLC and b1Bank, dated as of July 24, 2026 |
|
Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed on August 14, 2026. |
|
|
|
|
|
10.2 |
|
Business Loan Agreement between Seritage Growth Properties, L.P. and b1Bank, dated July 24, 2026 |
|
Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q, filed on August 14, 2026. |
|
|
|
|
|
10.3 |
|
Omnibus Agreement between Seritage Growth Properties, L.P., Seritage SRC Finance LLC, Seritage SRC Mezzanine Finance LLC, and Seritage Growth Properties, and b1Bank, dated July 24, 2026 |
|
Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q, filed on August 14, 2026. |
|
|
|
|
|
10.4 |
|
Amended and Restated Employment Agreement by and among Adam Metz, Seritage Growth Properties, L.P., and Seritage Growth Properties, dated July 1, 2026 |
|
Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 8, 2026. |
|
|
|
|
|
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 With Embedded Linkbase Documents |
|
Filed herewith. |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
Filed herewith. |
- 39 -
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: November 13, 2026 |
|
|
|
/s/ Adam Metz |
||
|
|
|
|
By: |
|
Adam Metz |
|
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
||
|
|
|
|
|
||
Dated: November 13, 2026 |
|
|
|
/s/ John Garilli |
||
|
|
|
|
By: |
|
John Garilli |
|
|
|
|
Interim Chief Financial Officer (Principal Financial and Accounting Officer) |
||
- 40 -