UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017~~

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

☐	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______to _______

Commission File Number 001-37420

SERITAGE GROWTH PROPERTIES

(Exact name of registrant as specified in its charter)


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


~~489~~500 Fifth Avenue ~~18th Floor,~~ , Suite 1530, New York, New York	~~10017~~10110
(Address of principal executive offices)	(Zip Code)

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

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


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

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes☒ No ☐

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


Large accelerated filer	☒☐		Accelerated filer	☐☒
Non-accelerated filer	☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐
			Emerging growth company	☐

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

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

As of October ~~27, 2017,~~29, 2021, the registrant had the following common shares outstanding:


Class	Shares Outstanding
Class A common shares of beneficial interest, par value $0.01 per share	~~28,672,642~~ 43,631,345
Class B common shares of beneficial interest, par value $0.01 per share	~~1,434,922~~ 0
Class C common shares of beneficial interest, par value $0.01 per share	~~5,280,630~~ 0

SERITAGE GROWTH PROPERTIES

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED ~~SEPTEMBER~~September 30, ~~2017~~2021

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION
		Page

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2021 and December 31, ~~2016~~2020	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2021 and ~~2016~~2020	4
	Condensed Consolidated Statements of Equity for the three and nine months ended September 30, ~~2017~~2021 and ~~2016~~2020	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2021 and ~~2016~~2020	67
	Notes to Condensed Consolidated Financial Statements	79

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2827

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	4038

Item 4.	Controls and Procedures	4038

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4139

Item 1A.	Risk Factors	4139

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4140

Item 3.	Defaults upon Senior Securities	4140

Item 4.	Mine Safety Disclosures	4140

Item 5.	Other Information	4140

Item 6.	Exhibits	4241

SIGNATURES		4342

PART I. FINANCIAL INFORMATION

~~FINANCIAL INFORMATION~~

~~Item 1.~~

~~Unaudited Condensed Consolidated Financial Statements~~

Item 1. Unaudited Condensed Consolidated Financial Statements

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	September 30, 2017			December 31, 2016				September 30, 2021			December 31, 2020
ASSETS
Investment in real estate
Land	$	799,971		$	840,021			$	516,488		$	592,770
Buildings and improvements		859,782			839,663				999,343			1,107,532
Accumulated depreciation		(126,712	)		(89,940	)			(159,347	)		(142,206	)
		1,533,041			1,589,744				1,356,484			1,558,096
Construction in progress		175,516			55,208				390,443			352,776
Net investment in real estate		1,708,557			1,644,952				1,746,927			1,910,872
Investment in unconsolidated joint ventures		338,326			425,020
Real estate held for sale									12,273			1,864
Investment in unconsolidated entities									464,244			457,033
Cash and cash equivalents		104,153			52,026				153,378			143,728
Restricted cash		202,513			87,616				7,150			6,526
Tenant and other receivables, net		28,166			23,172				27,499			46,570
Lease intangible assets, net		327,229			464,399				15,970			18,595
Prepaid expenses, deferred expenses and other assets, net		20,284			15,052				67,265			63,755
Total assets	$	2,729,228		$	2,712,237
Total assets (1)								$	2,494,706		$	2,648,943

LIABILITIES AND EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable, net	$	1,200,615		$	1,166,871
Unsecured term loan, net		84,009			—
Term Loan Facility, net								$	1,599,226		$	1,598,909
Sales-leaseback financing obligations									20,613			20,425
Accounts payable, accrued expenses and other liabilities		111,482			121,055				123,178			146,882
Total liabilities		1,396,106			1,287,926
Total liabilities (1)									1,743,017			1,766,216

Commitments and contingencies (Note 9)

Shareholders' Equity
Class A shares $0.01 par value; 100,000,000 shares authorized; 28,001,411 and 25,843,251 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		280			258
Class B shares $0.01 par value; 5,000,000 shares authorized; 1,434,922 and 1,589,020 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		14			16
Class C shares $0.01 par value; 50,000,000 shares authorized; 5,951,861 and 5,754,685 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		59			58
Class A common shares $0.01 par value; 100,000,000 shares authorized; 43,631,345 and 38,896,428 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively									436			389
Series A preferred shares $0.01 par value; 10,000,000 shares authorized; 2,800,000 shares issued and outstanding as of September 30, 2021 December 31, 2020; liquidation preference of $70,000									28			28
Additional paid-in capital		996,047			925,563				1,240,311			1,177,260
Accumulated deficit		(177,394	)		(121,338	)			(625,491	)		(528,637	)
Total shareholders' equity		819,006			804,557				615,284			649,040
Non-controlling interests		514,116			619,754				136,405			233,687
Total equity		1,333,122			1,424,311				751,689			882,727
Total liabilities and equity	$	2,729,228		$	2,712,237
Total liabilities and shareholders' equity								$	2,494,706		$	2,648,943
(1) The Company's condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The condensed consolidated balance sheets, as of September 30, 2021, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(0.9) million of accumulated depreciation and $4.3 million of other assets included in other line items. The Company's condensed consolidated balance sheets as of December 31, 2020, do not include assets and liabilities of consolidated variable interest entities.							(1) The Company's condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The condensed consolidated balance sheets, as of September 30, 2021, include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $6.6 million of land, $3.9 million of building and improvements, $(0.9) million of accumulated depreciation and $4.3 million of other assets included in other line items. The Company's condensed consolidated balance sheets as of December 31, 2020, do not include assets and liabilities of consolidated variable interest entities.

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

- 3 -

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

REVENUE

Rental income

$
48,167

$
45,584

$
139,526

$
136,737

Tenant reimbursements

15,881

12,023

47,813

45,741

Total revenue

64,048

57,607

187,339

182,478

EXPENSES

Property operating

4,311

4,505

13,985

17,176

Real estate taxes

11,335

7,965

35,707

31,101

Depreciation and amortization

61,059

44,532

170,293

121,365

General and administrative

5,272

4,252

16,639

13,104

Litigation charge

—

19,000

—

19,000

Provision for doubtful accounts

68

124

119

269

Acquisition-related expenses

—

—

—

73

Total expenses

82,045

80,378

236,743

202,088

Operating loss

(17,997
)

(22,771
)

(49,404
)

(19,610
)
Equity in (loss) income of unconsolidated joint
   ventures

(3,686
)

1,497

(4,226
)

4,495

Gain on sale of interest in unconsolidated
   joint venture

43,729

—

43,729

—

Gain on sale of real estate

13,018

—

13,018

—

Interest and other income

352

77

472

196

Interest expense

(18,049
)

(15,931
)

(53,072
)

(47,297
)
Unrealized loss on interest rate cap

(91
)

(47
)

(686
)

(1,898
)
Income (loss) before income taxes

17,276

(37,175
)

(50,169
)

(64,114
)
Provision for income taxes

—

(72
)

(266
)

(412
)
Net income (loss)

17,276

(37,247
)

(50,435
)

(64,526
)
Net (income) loss attributable to non-controlling
   interests

(6,762
)

16,145

19,892

27,972

Net income (loss) attributable to common shareholders

$
10,514

$
(21,102
)

$
(30,543
)

$
(36,554
)

Net income (loss) per share attributable to Class A and
   Class C common shareholders - Basic

$
0.31

$
(0.67
)

$
(0.91
)

$
(1.16
)
Net income (loss) per share attributable to Class A and
   Class C common shareholders - Diluted

$
0.31

$
(0.67
)

$
(0.91
)

$
(1.16
)
Weighted average Class A and Class C common shares
   outstanding - Basic

33,774

31,419

33,685

31,414

Weighted average Class A and Class C common shares
   outstanding - Diluted

33,841

31,419

33,685

31,414


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
REVENUE
Rental income	$	28,819		$	33,966		$	87,560		$	88,724
Management and other fee income / (expense)		184			(259	)		598			119
Total revenue		29,003			33,707			88,158			88,843
EXPENSES
Property operating		11,585			11,154			33,514			30,152
Real estate taxes		8,542			9,487			27,758			28,096
Depreciation and amortization		13,159			23,647			39,629			81,446
General and administrative		8,780			11,203			32,002			29,267
Total expenses		42,066			55,491			132,903			168,961
Gain / (loss) on sale of real estate, net		22,774			(14,706	)		65,079			59,959
Impairment of real estate assets		(3,814	)		(14,594	)		(70,053	)		(16,407	)
Equity in loss of unconsolidated entities		(5,535	)		(335	)		(9,024	)		(2,551	)
Interest and other income		48			1,986			8,202			2,460
Interest expense		(26,721	)		(22,742	)		(81,847	)		(66,400	)
Loss before taxes		(26,311	)		(72,175	)		(132,388	)		(103,057	)
Provision for taxes		(38	)		(226	)		(198	)		(215	)
Net loss		(26,349	)		(72,401	)		(132,586	)		(103,272	)
Net loss attributable to non-controlling interests		5,815			22,348			31,492			32,627
Net loss attributable to Seritage	$	(20,534	)	$	(50,053	)	$	(101,094	)	$	(70,645	)
Preferred dividends		(1,225	)		(1,225	)		(3,675	)		(3,675	)
Net loss attributable to Seritage common shareholders	$	(21,759	)	$	(51,278	)	$	(104,769	)	$	(74,320	)

Net loss per share attributable to Seritage Class A common shareholders - Basic	$	(0.50	)	$	(1.33	)	$	(2.50	)	$	(1.95	)
Net loss per share attributable to Seritage Class A common shareholders - Diluted	$	(0.50	)	$	(1.33	)	$	(2.50	)	$	(1.95	)
Weighted average Class A common shares outstanding - Basic		43,631			38,645			41,976			38,172
Weighted average Class A common shares outstanding - Diluted		43,631			38,645			41,976			38,172

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)~~thousands, except per share amounts)

Additional

Non-

Class A

Class B

Class C

Paid-In

Accumulated

Controlling

Total

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Interests

Equity

Balance at January 1, 2016

24,818

$
248

1,589

$
16

6,773

$
68

$
924,508

$
(38,145
)

$
683,382

$
1,570,077

Net loss

—

—

—

—

—

—

—

(36,554
)

(27,972
)

(64,526
)
Dividends and
   distributions declared
   ($0.75 per share and unit)

—

—

—

—

—

—

—

(23,726
)

(18,133
)

(41,859
)
Vesting of restricted share units

7

0

—

—

—

—

(13
)

—

—

(13
)
Stock-based compensation

—

—

—

—

—

—

801

—

—

801

Share class exchanges, net
   (997,450 common shares)

997

10

—

—

(997
)

(10
)

—

—

—

—

Balance at September 30, 2016

25,822

$
258

1,589

$
16

5,776

$
58

$
925,296

$
(98,425
)

$
637,277

$
1,464,480

Balance at January 1, 2017

25,843

258

1,589

16

5,755

58

925,563

(121,338
)

619,754

1,424,311

Net loss

—

—

—

—

—

—

—

(30,543
)

(19,892
)

$
(50,435
)
Dividends and
   distributions declared
   ($0.75 per share and unit)

—

—

—

—

—

—

—

(25,513
)

(16,394
)

(41,907
)
Vesting of restricted share units

11

0

—

—

—

—

(13
)

—

—

(13
)
Stock-based compensation

—

—

—

—

—

—

1,166

—

—

1,166

Share class exchanges, net
   (197,176 common shares)

(197
)

(1
)

—

—

197

1

—

—

—

—

Share class surrenders
   (154,098 common shares)

—

—

(154
)

(2
)

—

—

2

—

—

—

OP Unit exchanges
   (2,344,589 units)

2,344

23

—

—

—

—

69,329

—

(69,352
)

—

Balance at September 30, 2017

28,001

$
280

1,435

$
14

5,952

$
59

$
996,047

$
(177,394
)

$
514,116

$
1,333,122


	Class A Common				Class B Common						Series A Preferred				Additional Paid-In			Accumulated			Non- Controlling			Total
	Shares		Amount		Shares			Amount			Shares		Amount		Capital			Deficit			Interests			Equity
Balance at January 1, 2020		36,897	$	369		1,243		$	12			2,800	$	28	$	1,149,721		$	(418,711	)	$	311,951		$	1,043,370
Net loss		—		—		—			—			—		—		—			(70,645	)		(32,627	)		(103,272	)
Preferred dividends declared ($1.3125 per share)		—		—		—			—			—		—		—			(3,675	)		—			(3,675	)
Vesting of restricted share units		98		1		—			—			—		—		(1	)		—			—			—
Share-based compensation		—		—		—			—			—		—		3,372			—			—			3,372
Share class surrenders (1,242,536 common shares)		—		—		(1,243	)		(12	)		—		—		12			—			—			—
OP Units exchanges (1,650,000 units)		1,650		16		—			—			—		—		26,623			—			(26,639	)		—
Balance at September 30, 2020		38,645	$	386		—			—		$	2,800	$	28	$	1,179,727		$	(493,031	)	$	252,685		$	939,795

Balance at January 1, 2021		38,896	$	389		—		$	—			2,800	$	28	$	1,177,260		$	(528,637	)	$	233,687		$	882,727
Net loss		—		—		—			—			—		—		—			(101,094	)		(31,492	)		(132,586	)
Preferred dividends declared ($1.3125 per share)		—		—		—			—			—		—		—			(3,675	)		—			(3,675	)
Vesting of restricted share units		87		1		—			—			—		—		(1	)		—			—			—
Share-based compensation		—		—		—			—			—		—		1,263			—			—			1,263
OP Unit exchanges (4,647,943 units)		4,648		46		—			—			—		—		61,789			—			(61,835	)		—
Contributions to consolidated variable interest entities		—				—			—			—		—		—			7,915			(3,955	)		3,960
Balance at September 30, 2021		43,631	$	436		—		$	—			2,800	$	28	$	1,240,311		$	(625,491	)	$	136,405		$	751,689

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

- 5 -

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~EQUITY

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

Nine Months Ended September 30,

2017

2016

CASH FLOW FROM OPERATING ACTIVITIES

Net loss

$
(50,435
)

$
(64,526
)
Adjustments to reconcile net loss to net cash provided by operating activities:

Equity in loss (income) of unconsolidated joint ventures

4,226

(4,495
)
Distributions from unconsolidated joint ventures

10,714

11,872

Gain on sale of interest in unconsolidated joint venture

(43,729
)

—

Gain on sale of real estate

(13,018
)

—

Unrealized loss on interest rate cap

686

1,898

Stock-based compensation

1,167

801

Depreciation and amortization

170,293

121,365

Amortization of deferred financing costs

6,390

4,021

Amortization of above and below market leases, net

(581
)

(520
)
Straight-line rent adjustment

(2,364
)

(11,242
)
Change in operating assets and liabilities

Tenants and other receivables

(3,444
)

8,425

Prepaid expenses, deferred expenses and other assets

(7,300
)

8,496

Accounts payable, accrued expenses and other liabilities

(15,657
)

24,043

Net cash provided by operating activities

56,948

100,138

CASH FLOW FROM INVESTING ACTIVITIES

Investments in unconsolidated joint ventures

(36,038
)

—

Net proceeds from sale of real estate

50,887

—

Net proceeds from disposition of interest in unconsolidated joint venture

189,391

—

Development of real estate

(164,070
)

(47,236
)
Net cash provided by (used in) investing activities

40,170

(47,236
)
CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from Future Funding Facility

79,998

19,239

Proceeds from Unsecured Term Loan

85,000

—

Repayment of mortgage loans payable, net

(50,634
)

—

Payment of deferred financing costs

(2,686
)

(6
)
Common dividends paid

(25,379
)

(31,482
)
Non-controlling interests distributions paid

(16,393
)

(24,176
)
Net cash provided by (used in) financing activities

69,906

(36,425
)
Net increase in cash, cash equivalents, and restricted cash

167,024

16,477

Cash, cash equivalents, and restricted cash, beginning of period

139,642

155,342

Cash, cash equivalents, and restricted cash, end of period

$
306,666

$
171,819

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash payments for interest

$
54,026

$
45,495

Capitalized interest

7,785

2,198

Income taxes paid

266

412

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Development of real estate financed with accounts payable

$
17,223

$
3,442

Dividends and distribution declared and unpaid

13,969

13,954

Decrease in assets and liabilities resulting from deconsolidated properties

Real estate, net

(64,998
)

—

Tenant and other receivables, net

(814
)

—

Lease intangible assets, net

(13,480
)

—

Prepaid expenses, deferred expenses and other assets, net

(8
)

—

Accounts payable, accrued expenses and other liabilities

3,612

—


	Class A Common				Class B Common				Series A Preferred				Additional Paid-In		Accumulated			Non- Controlling			Total
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Interests			Equity
Balance at July 1, 2020		38,645	$	386		—	$	—		2,800	$	28	$	1,178,268	$	(441,753	)	$	275,033			1,011,962
Net loss		—		—		—		—		—		—		—		(50,053	)		(22,348	)		(72,401	)
Preferred dividends declared ($0.4375 per share)		—		—		—		—		—		—		—		(1,225	)		—			(1,225	)
Vesting of restricted share units		—		—		—		—		—		—		—		—			—			-
Share-based compensation		—		—		—		—		—		—		1,459		—			—			1,459
Balance at September 30, 2020		38,645	$	386		—	$	—		2,800	$	28	$	1,179,727	$	(493,031	)	$	252,685		$	939,795

Balance at July 1, 2021		42,795	$	428		—	$	—		2,800	$	28	$	1,230,009	$	(611,647	)	$	156,071			774,889
Net loss		—		—		—		—		—		—		—		(20,534	)		(5,815	)		(26,349	)
Preferred dividends declared ($0.4375 per share)		—		—		—		—		—		—		—		(1,225	)		—			(1,225	)
Vesting of restricted share units		—		—		—		—		—		—		—		—			—			—
Share-based compensation		—		—		—		—		—		—		414		—			—			414
OP Unit exchanges (836,078 units)		836		8		—		—		—		—		9,888		—			(9,896	)		—
Contributions to consolidated variable interest entities		—		—		—		—		—		—		—		7,915			(3,955	)		3,960
Balance at September 30, 2021		43,631	$	436		—	$	—		2,800	$	28	$	1,240,311	$	(625,491	)	$	136,405		$	751,689

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

- 6 -

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)


	Nine Months Ended September 30,
	2021			2020
CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(132,586	)	$	(103,272	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in loss of unconsolidated entities		9,024			2,551
Distributions from unconsolidated entities		141			93
Gain on sale of real estate, net		(65,079	)		(59,959	)
Impairment of real estate assets		70,053			16,407
Share-based compensation		1,225			3,179
Depreciation and amortization		39,629			81,446
Amortization of deferred financing costs		317			316
Amortization of above and below market leases, net		111			(1,677	)
Straight-line rent adjustment		(2,033	)		3,621
Interest on sale-leaseback financing obligations		188			—
Change in operating assets and liabilities
Tenants and other receivables		7,156			6,315
Prepaid expenses, deferred expenses and other assets		(8,165	)		(3,627	)
Accounts payable, accrued expenses and other liabilities		(5,547	)		29,307
Net cash (used in) operating activities		(85,566	)		(25,300	)
CASH FLOW FROM INVESTING ACTIVITIES
Investment in unconsolidated entities		(31,722	)		(50,660	)
Distributions from unconsolidated entities		9,913			1,150
Net proceeds from sale of real estate		195,183			234,777
Development of real estate		(77,554	)		(194,964	)
Net cash provided by (used in) investing activities		95,820			(9,697	)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from sale-leaseback financing obligations		—			20,416
Purchase of shares related to stock grant recipients' tax withholdings		(262	)		(85	)
Preferred dividends paid		(3,675	)		(3,675	)
Contributions from noncontrolling interests in to consolidated VIEs		3,957			—
Net cash provided by financing activities		20			16,656
Net increase / (decrease) in cash and cash equivalents		10,274			(18,341	)
Cash and cash equivalents, and restricted cash, beginning of period		150,254			139,260
Cash and cash equivalents, and restricted cash, end of period	$	160,528		$	120,919

- 7 -

SERITAGE GROWTH PROPERTIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited, amounts in thousands)


	Nine Months Ended September 30,
	2021		2020
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents at beginning of period	$	143,728	$	139,260
Restricted cash at beginning of period		6,526		—
Cash and cash equivalents and restricted cash at beginning of period		150,254		139,260

Cash and cash equivalents at end of period	$	153,378	$	118,227
Restricted cash at end of period		7,150		2,692
Cash and cash equivalents and restricted cash at end of period		160,528		120,919


	Nine Months Ended September 30,
	2021			2020
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest	$	86,321		$	85,555
Capitalized interest		8,759			22,215
Income taxes paid		198			256
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Development of real estate financed with accounts payable	$	34,260		$	45,091
Preferred dividends declared and unpaid		1,225			1,225
Transfer to / (from) real estate assets held for sale		(1,864	)		2,915
Recording / (removal) of right of use assets		(983	)		1,598
(Recording) / removal of lease liabilities		983			(1,598	)

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

- 8 -

SERITAGE GROWTH PROPERTIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Organization

Seritage Growth Properties (“Seritage”) ~~was organized in~~(NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, is a fully integrated, self-administered and ~~was initially capitalized with 100 shares~~self-managed real estate investment trust (“REIT”) as defined under Section 856(c) of ~~Class A common shares. The Company conducts~~the Internal Revenue Code (the “Code”). Seritage’s assets are held by and its operations are primarily conducted, directly or indirectly, through Seritage Growth Properties, L.P. ~~(the “Operating Partnership”)~~, a Delaware limited partnership ~~that was formed on April 22, 2015.~~(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, ~~“Seritage”~~the “Company” and ~~the “Company”~~“Seritage” refer to Seritage, the Operating Partnership and its owned and controlled subsidiaries.

~~On June 11,~~Seritage is principally engaged in the ownership, development, redevelopment, management and leasing of diversified retail and mixed-use properties throughout the United States. As of September 30, 2021, the Company’s portfolio consisted of interests in 170 properties comprised of approximately 10.0 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately 4.0 million of which is held by unconsolidated entities (the “Unconsolidated Properties”), approximately 600 acres held for or under development and approximately 10.0 million square feet or approximately 850 acres to be disposed of.

The Company commenced operations on July 7, 2015, following a rights offering to the shareholders of Sears Holdings Corporation (“Sears Holdings” or “Sears”) ~~effected a rights offering (the “Rights Offering”) to Sears Holdings stockholders~~ to purchase common shares of Seritage in order to fund, in part, the ~~$2.7~~$2.7 billion acquisition of ~~234~~certain of Sears Holdings’ owned properties and ~~one of~~ its ~~ground leased properties (the “Wholly Owned Properties”), and its 50%~~50% interests in ~~three~~3 joint ventures ~~(such joint ventures, the “JVs,” and such 50% joint venture interests, the “JV Interests”) that collectively owned 28 properties, ground~~which were simultaneously leased ~~one property and leased two properties (collectively, the “JV Properties”) (collectively, the “Transaction”). The Rights Offering ended on July 2, 2015,~~back to Sears Holdings under a master lease agreement (the “Original Master Lease” and the ~~Company’s Class A common shares were listed on~~“Original JV Master Leases”, respectively).

As of September 30, 2021, the ~~New York Stock Exchange (“NYSE”) on July 6, 2015.~~

~~On July 7, 2015, the Company completed the Transaction with Sears Holdings and commenced operations. The~~ Company did not have any ~~operations prior~~remaining properties leased to Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments Inc., or Sears Holdings after giving effect to the ~~completion~~termination of the ~~Rights Offering~~remaining 5 Consolidated Properties, which were completed on March 15, 2021, as further described in Note 5, Leases.

COVID-19 Pandemic

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

~~On July 12, 2017,~~As a result of the development, fluidity and uncertainty surrounding this situation, the Company ~~completed two transactions whereby it (i) sold its 50% JV Interests~~expects that these conditions may change, potentially significantly, in ~~eight JV Properties~~future periods and ~~(ii) sold a 50% interest in five Wholly-Owned Properties retaining a 50% JV Interest in~~results for the ~~five new JV Properties.~~

~~Seritage is a fully-integrated, self-administered, self-managed real estate investment trust (“REIT”) primarily engaged in~~three and nine months ended September 30, 2021 may not be indicative of the ~~real property business through~~impact of the COVID-19 pandemic on the Company’s ~~investment in~~business for future periods. As such, the ~~Operating Partnership.~~ Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operations or cash flows over the foreseeable future.

As of September 30, ~~2017,~~2021, the Company had collected 97% of rental income for the three and nine months ended September 30, 2021 and agreed to defer an additional 1%. While the Company intends to enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.

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 ~~portfolio consisted~~primary source of ~~interests in 258 properties, including 230 Wholly Owned Properties and 28 JV Properties. 171 of~~operating cash flow, did not fully fund Obligations incurred during the Wholly Owned Properties were leased to Sears Holdings pursuant to a master lease agreement (the “Master Lease”) and operated under either the Sears or Kmart brand. At 85 Wholly Owned Properties, third-party tenants under direct leases occupied a portion of leasable space alongside Sears or Kmart, and 41 Wholly Owned Properties were leased only to third parties. A substantial majority of the space at the JV Properties is also leased (or subleased) by the JVs to Sears Holdings under master lease agreements (collectively, the “JV Master Leases”). The Master Leasenine months ended September 30, 2021 and the ~~JV Master Leases~~Company recorded net operating cash outflows of $85.6 million. Additionally, the Company generated investing cash inflows of $95.8 million during the nine months ended September 30, 2021, which were driven by asset sales and partially offset by development expenditures.

Obligations are projected to continue to exceed property rental income and the Company expects to fund such costs with a combination of capital sources including, cash on hand, and sales of Consolidated Properties, subject to any approvals, that may be required under the Company’s Term Loan Facility, as described in Note 6, Debt. Management has determined that it is probable its plans will be effectively implemented within one year after the date the condensed consolidated financial statements are issued and that these actions will provide the ~~Company~~necessary cash flows to fund the Company’s Obligations and ~~the JVs with the right to recapture certain space from Sears Holdings at each property for retenanting or redevelopment purposes.~~development expenditures.

- 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, ~~as amended,~~ (the “Annual Report”), for the year ended December 31, ~~2016.~~2020. 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 offor the three and nine months ended September 30, ~~2017~~2021 may not be indicative of the results that may be expected for any other interim period or for the year ending December 31, ~~2017.~~2021. 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 ~~wholly-owned subsidiaries,~~consolidated properties, and all other entities in which ~~they have~~the Company has a controlling financial ~~interest or~~interest. For entities that meet the definition of a variable interest entity (“VIE”) ~~in which~~, the Company ~~has, as a result~~consolidates those entities when the Company is the primary beneficiary of ~~ownership, contractual interests or other financial interests,~~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. ~~All intercompany accounts and transactions have been eliminated.~~

~~- 7 -~~

~~If the~~The Company ~~has an interest in a VIE but~~continually evaluates whether it ~~is not determined to be~~qualifies as the primary beneficiary ~~the Company accounts for its interest under the equity method of accounting. Similarly, for those entities which are not VIEs~~ and over which the Company has the ability to exercise significant influence, but does not have a controlling financial interest, the Company accounts for its interests under the equity method of accounting. The Company continually reconsiders its determination of whether an entity is a VIE ~~and whether~~upon reconsideration events. As of September 30, 2021, the Company ~~qualifies~~consolidates 2 VIEs in which we are considered the primary beneficiary, as ~~its primary beneficiary.~~

~~To the extent such variable interests are in entities that cannot be evaluated under the VIE model,~~ the Company ~~evaluates its interests using~~has the ~~voting interest entity model. The~~power to direct the activities of the entities, specifically surrounding the development plan. As of September 30, 2021 and December 31, 2021, the Company has several unconsolidated VIEs and does not consolidate these entities because the Company is not the primary beneficiary. All intercompany accounts and transactions have been eliminated.

As of September 30, 2021, the Company holds a ~~60.9%~~77.9% interest in the Operating Partnership and is the sole general partner which gives the Company exclusive and complete responsibility for the day-to-day management, authority to make decisions, and control of the Operating Partnership. ~~Through consideration of new consolidation guidance effective for the~~The Company ~~as of January 1, 2016, it~~ has ~~been concluded~~determined that the Operating Partnership is a VIE as the limited partners in the Operating Partnership, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. ~~Accordingly, the~~The Company consolidates its interest in the Operating Partnership. ~~However, as the Company holds what is deemed a majority voting interest in the Operating Partnership, it qualifies for the exemption from providing certain~~The assets and liabilities of ~~the disclosure requirements associated with investments in VIEs.~~

~~The portions of consolidated entities not owned by the Company and~~ the Operating Partnership are the same as those of the Company and are presented ~~as non-controlling~~in the condensed consolidated balance sheets.

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

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

Use of Estimates

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

~~Segment Reporting~~

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

~~Accounting for Real Estate Acquisitions~~

Upon the acquisition of real estate, the Company assesses the fair value of acquired assets and liabilities assumed, including land, buildings, improvements and identified intangibles such as above-market and below-market leases, in-place leases and other items, as applicable, and allocates the purchase price based on these assessments. In making estimates of fair values, the Company may use a number of sources, including data provided by third parties, as well as information obtained by the Company as a result of its due diligence, including expected future cash flows of the property and various characteristics of the markets where the property is located.

The fair values of tangible assets are determined on an "if vacant" basis. The "if vacant" fair value allocated to land is generally estimated via a market or sales comparison approach with the subject site being compared to similar properties that have sold or are currently listed for sale. The comparable properties are adjusted for dissimilar characteristics such as market conditions, location, access/frontage, size, shape/topography, or intended use, including the impact of any encumbrances on such use. The "if vacant" value allocated to buildings and site improvements is generally estimated using an income approach and a cost approach that utilizes published guidelines for current replacement cost or actual construction costs for similar, recently developed properties. Assumptions used in the income approach include capitalization and discount rates, lease-up time, market rents, make-ready costs, land value, and site improvement value.

~~- 8 -~~

The estimated fair value of in-place tenant leases includes lease origination costs (the costs the Company would have incurred to lease the property to the current occupancy level) and the lost revenues during the period necessary to lease-up from vacant to the current occupancy level. Such estimates include the fair value of leasing commissions, legal costs and tenant coordination costs that would be incurred to lease the property to this occupancy level. Additionally, the Company evaluates the time period over which such occupancy level would be achieved and includes an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during the lease-up period, which generally ranges up to one year. The fair value of acquired in-place tenant leases is included in lease intangible assets on the condensed consolidated balance sheets and amortized over the remaining lease term for each tenant.

Identifiable intangible assets and liabilities are calculated for above-market and below-market tenant and ground leases where the Company is either the lessor or the lessee. The difference between the contractual rental rates and the Company’s estimate of market rental rates is measured over a period equal to the remaining non-cancelable term of the leases, including significantly below-market renewal options for which exercise of the renewal option appears to be reasonably assured. Above-market tenant leases and below-market ground leases are included in lease intangible assets on the condensed consolidated balance sheets; below-market tenant leases and above-market ground leases are included in accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheets. The values assigned to above-market and below-market tenant leases are amortized as reductions and increases, respectively, to base rental revenue over the remaining term of the respective leases. The values assigned to below-market and above-market ground leases are amortized as increases and reductions, respectively, to property operating expenses over the remaining term of the respective leases.

The Company expenses transaction costs associated with business combinations in the period incurred; these costs are included in acquisition-related expenses within the condensed consolidated statements of operations. The Company capitalizes transaction costs associated with asset acquisitions; these costs are allocated to the fair values of the net assets acquired, included within the condensed consolidated balance sheets and depreciated or amortized over the remaining life or term of the acquired assets.

Real Estate Investments

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

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

- 10 -

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


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

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

OnThe Company, on a periodic basis, ~~management~~ assesses whether there are indicators, including macroeconomic conditions, that the value of the ~~Company’s~~ real estate assets ~~(including any related intangible assets or liabilities)~~ may be impaired. If an indicator is identified, amanagement will estimate the real estate asset ~~is considered impaired only if management’s estimate of current and~~recoverability based on projected operating cash flows (undiscounted and unleveraged), taking into account the anticipated ~~and probability weighted~~ holding period and capitalization rates, to determine if the undiscounted cash flows are less than a real estate asset’s carrying value. ~~Various~~If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the estimated fair value of the real estate asset. In estimating the fair value of an asset, various factors are considered, ~~in the estimation process,~~ including expected future operating income, trends and leasing prospects and the effects of demand, competition, and other economic ~~factors.~~factors such as discount rates and market comparables. Changes in any estimates and/or assumptions, including the anticipated holding period, could have a material impact on the projected operating cash flows. If management determines that the carrying value of a real estate asset is impaired, a loss will be recorded for the excess of its carrying amount over its estimated fair value. ~~No such impairment losses were recognized~~

Real Estate Dispositions

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

The following table summarizes our gain on sale of real estate, net during the three orand nine months ended September 30, ~~2017~~2021 and 2020 (in millions):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Contributions to unconsolidated entities
Gross proceeds	$	—	$	27.0		$	—	$	27.0
(Loss) gain on sale of real estate, net		—		(1.5	)		—		(1.5	)

Dispositions to third parties
Gross proceeds	$	76.8	$	62.8		$	203.7	$	221.7
Gain on sale of real estate, net (1)		22.8		16.8			65.1		91.5

Total gains on contributions and dispositions, net	$	22.8	$	15.3		$	65.1	$	90.0

(1) Excludes loss of $30.0 million related to the revaluation of Mark 302 JV to adjust the gain from $38.8 million to $8.8 million as further described in Note 4 below.

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 probable to close within a year.

In evaluating whether a property meets the held for sale criteria, the Company makes a determination as to the point in time that it is probable that a sale will be consummated. Given the nature of all real estate sales contracts, it is not unusual for such contracts to allow potential buyers a period of time to evaluate the property prior to formal acceptance of the contract. In addition, certain other

- 11 -

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, ~~2016.~~2021, 1 property was classified as held for sale with assets of $12.3 million and 0 liabilities, and, as of December 31, 2020, 1 property was classified as held for sale with assets of $1.9 million and 0 liabilities.

Investments in Unconsolidated ~~Joint Ventures~~Entities

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

~~- 9 -~~

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 ~~joint ventures~~entities may be impaired. An investment’s value is impaired ~~only~~ 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. NoNaN such impairment losses were recognized for the three orand nine months ended September 30, ~~2017 or September 30, 2016.~~

~~Cash~~2021 and ~~Cash Equivalents~~2020.

The Company considers instruments with an original maturity of three months or less to be cash and cash equivalents. Cash and cash equivalents 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 and primarily in funds that are insured by the United States federal government.

Restricted Cash

Restricted cash represents cash deposited in escrow accounts which generally can only be used for the payment of real estate taxes, debt service, insurance, and future capital expenditures as required by certain loan and lease agreements, as well as legally restricted tenant security deposits. As of September 30, ~~2017, the Company had approximately $202.5 million of~~2021, restricted cash ~~including $174.4 million reserved~~represents cash collateral for ~~redevelopment costs,~~a letter of credit.

Rental Revenue Recognition and Tenant Receivables

Rental income is comprised of base rent and reimbursements of property operating expenses. The Company commences rental revenue recognition when the lessee takes control of the physical use of the leased asset based on evaluation of several factors. Base rent is recognized on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable base rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded as straight-line rent receivable and included as a component of tenant ~~allowances and leasing commissions, deferred maintenance, environmental remediation~~ and other ~~capital expenditures, $22.1 million reserved~~receivables on the condensed consolidated balance sheets. Reimbursement of property operating expenses arises from tenant leases which provide for ~~basic property carrying costs such as~~the recovery of all or a portion of the operating expenses and real estate taxes ~~insurance and ground rent, and $6.0 million~~ of ~~other restricted cash which consisted primarily of prepaid rental income.~~the respective property. This revenue is accrued in the same periods as the expenses are incurred.

~~Tenant and Other Receivables~~

~~Accounts receivable 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.~~ 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. InTenant receivables, including receivables arising from the ~~event~~straight-lining of rents, are written-off directly when management deems that the collectability of substantially all future lease payments from a ~~receivable with respect~~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 ~~any tenant~~be uncollectable 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 ~~in doubt,~~reasonably certain that the Company will collect all rental income remaining on such leases, the Company will resume accruing rental income and recognize a ~~provision~~cumulative catch up for ~~uncollectible amounts will~~previously written-off receivables. The Company also recognizes a general reserve, as a reduction to rental income, for its portfolio of operating lease receivables which are not expected to be ~~established or~~fully collectable.

The Company recorded a ~~direct write-off~~reduction to rental income of $0.5 million and $2.3 million during the three months ended September 30, 2021 and 2020, respectively, as a result of the ~~specific~~Company’s evaluation of collectability, and the Company recorded an increase to rental income of $0.1 million and a reduction to rental income of $6.1 million during the nine months ended September 30, 2021 and 2020, respectively. In addition, the Company recorded a reduction of income of previously recorded straight-line rent ~~receivable will be made. For~~of $0.4 million and $0.3 million for the three and nine months ended September 30, 2021, respectively. NaN adjustments were recorded to straight-line rent for the three months ended September 30, 2020. Straight-line rent reversals of $4.7 million were recorded for the nine months ended September 30, 2020. During the three and nine months ended September 30, 2021, the Company recorded a reduction to rental income of $0.4 million and an increase to rental income of $0.2 million related to the allowance for deferral agreements.

Due to the COVID-19 pandemic, the Company has entered into amendments to existing leases with certain tenants (the “Rent Deferral Agreements”), that provide for the deferral of all or some portion of rental payments due during the period which such tenant was affected by the COVID-19 pandemic (“Deferred Rent”). The Rent Deferral Agreements typically provide for repayment of the Deferred Rent within six to 12 months following the end of the rent deferral period and, in many instances, waive certain other conditions in favor of the Company while Deferred Rent is outstanding. Deferred Rent generally becomes immediately due and

- 12 -

payable under the Rent Deferral Agreements if the tenant does not make the minimum contractual payments or otherwise defaults on the lease. We recognize lease concessions related to the COVID-19 pandemic such as rent deferrals and abatements in accordance with the Lease Modification Q&A issued by the Financial Standards Accounting Board, (“FASB”), in April 2020, which provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. As a result, the Company has not adjusted accrued rental revenues or the portion of accrued rental revenues related to the straight-line method ~~of reporting rental revenue,~~for the portion which has been deferred. When the Deferred Rents are repaid, the Company ~~performs a periodic review of receivable balances to assess~~will relieve the ~~risk of uncollectible amounts and establish appropriate provisions.~~

~~Revenue Recognition~~

Rental income is recognized on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded as deferred rent receivable and included as a component ofaccrual in tenant and other ~~receivables on the condensed consolidated balance sheets.~~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 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 ~~to be~~ 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

~~The Company commences recognizing revenue based on an evaluation~~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 ~~number of factors. In most cases, revenue recognition under~~management fee receivable is in doubt, a ~~lease begins when the lessee takes possession of~~provision for uncollectible amounts will be established or ~~controls the physical use~~a direct write-off of the ~~leased asset. Generally, this occurs on the lease commencement date.~~specific receivable will be made.

Management and Other Fee Income

~~Tenant reimbursement~~Management and other fee income ~~arises from tenant leases which provide~~represents property management, construction, leasing and development fees for services performed for the ~~recovery~~benefit of ~~all or a portion~~certain unconsolidated entities.

Property management fee income is reported at 100% of the ~~operating expenses and real estate taxes of the respective property. This~~ revenue ~~is accrued~~earned from such unconsolidated properties in ~~the same periods as the expenses are incurred.~~

~~- 10 -~~

~~Accounting for Recapture and Termination Activity Pursuant to the Master Lease~~

Seritage 100% Recapture Rights. The Company generally treats the delivery of a 100% recapture notice as a modification of the Master Lease as of the date of notice. Such a notice and lease modification result in the following accounting adjustments for the recaptured property:

−	Accrued rental revenues related to the straight-line method of reporting rental revenue that are deemed uncollectable as result of the lease modification are amortized over the remaining shortened life of the lease from the date of notice to the date of vacancy.

−	Intangible lease assets and liabilities that are deemed to be impacted by the lease modification are amortized over the shorter of the shortened lease term from the date of notice to the date of vacancy or the remaining useful life of the asset or liability.

A 100% recapture will generally occur in conjunction with obtaining a new tenant or a real estate development project. As such, termination fees, if any, associated with the 100% recapture notice are generally capitalized as either an initial direct cost of obtaining a new lease or a necessary cost of the real estate project and depreciated over the life of the new lease obtained or the real estate asset being constructed or improved.

Seritage 50% Recapture Rights. The Company generally treats the delivery of a 50% recapture notice as a modification of the Master Lease as of the date of notice. Such a notice and lease modification result in the following accounting adjustments for the recaptured property:

−

The portion of accrued rental revenues related to the straight-line method of reporting rental revenue that are subject to the lease modification are amortized over the remaining shortened life of the lease from the date of notice to the date of vacancy. The portion of accrued rental revenues related to the straight-line method of reporting rental revenue that is attributable to the retained space is amortized over the remaining life of the Master Lease.

−

The portion of intangible lease assets and liabilities that is deemed to be impacted by the lease modification is amortized over the shorter of the shortened lease term from the date of notice to the date of vacancy or the remaining useful life of the asset or liability. The portion of intangible lease assets and liabilities that is attributable to the retained space is amortized over the remaining useful life of the asset or liability.

Sears Holdings Termination Rights. The Master Lease provides Sears Holdings with certain rights to terminate the Master Lease with respect to properties that cease to be profitable for operation by Sears Holdings. Such a termination would generally result in the following accounting adjustments for the terminated property:

−	Accrued rental revenues related to the straight-line method of reporting rental revenue that are subject to the termination are amortized over the remaining shortened life of the lease from the date of notice to the date of vacancy.

−	Intangible lease assets and liabilities that are deemed to be impacted by the termination are amortized over the shorter of the shortened lease term from the date of notice to the date of vacancy or the remaining useful life of the asset or liability.

−	~~Termination fees required to be paid by Sears Holdings are recognized as follows:~~

For the portion of the termination fee attributable to the annual base rent of the subject property, termination income is recognized on a straight-line basis over the shortened life of the lease from the date the termination fee becomes legally binding to the date of vacancy.

For the portion of the termination fee attributable to estimated real estate taxes and property operating expenses for the subject property, prepaid rental income is recorded in the period such fee is received and recognized as tenant reimbursement revenue in the same periods as the expenses are incurred.

~~Derivatives~~

~~The Company’s use of derivative instruments is limited to the~~ management of interest rate exposure and not for speculative purposes. In connection with the issuance of the Company’s Mortgage Loans and Future Funding Facility, the Company purchased for $5.0 million an interest rate cap with a term of four years, a notional amount of $1,261 million and a strike rate of 3.5%. The interest rate cap is measured at fair value and included as a component of prepaid expenses, deferred expenses and other assets on the condensed consolidated balance sheets. The Company has elected not to utilize hedge accounting, and therefore, the change in fair value is included within change in fair value of interest rate capfee income on the condensed consolidated statements of operations. ~~For~~The Company’s share of management expenses incurred by the ~~three months ended September 30, 2017, the Company recorded a~~unconsolidated entities is reported in equity in loss of $0.1 million compared to a loss of less than $0.1 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the Company recorded a loss of $0.7 million compared to a loss of $1.9 million for the nine months ended September 30, 2016.

~~- 11 -~~

~~Stock-Based Compensation~~

~~The Company generally recognizes equity awards to employees as compensation expense and includes such expense within general and administrative expenses~~unconsolidated entities on the condensed consolidated statements of ~~operations. Compensation expense~~operations and in other expenses in the combined financial data in Note 4.

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

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

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 ~~date of~~point in time when the grant and is recognized (i) ratably over the vesting period for awards with time-based vesting and (ii) for awards with performance-based vesting, at the date the achievement of performance criteria is deemed probable, an amount equal to that which would haveobligation has been recognized ratably from the date of the grant through the date the achievement of performance criteria is deemed probable, and then ratably from the date the achievement of performance criteria is deemed probable through the remainder of the vesting period.satisfied.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of operators, tenants, or obligors related to the ~~Company's~~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, 2017, a majority of the Company's real estate properties were leased to Sears Holdings, and the majority of Company’s rental revenues were derived from the Master Lease (see Note 5). Until the Company further diversifies the tenancy of its portfolio, an event that has a material adverse effect on Sears Holdings’ business, financial condition or results of operations could have a material adverse effect onManagement believes the Company’s ~~business, financial condition or results of operations. Sears Holdings~~portfolio is a publicly traded company that is subject to the informational filing requirements of the Securities Exchange Act of 1934, as amended, and is required to file periodic reports on Form 10-K and Form 10-Q with the SEC. Refer to www.sec.gov for Sears Holdings publicly-available financial information.

~~Other than the Company's tenant concentration, management believes the Company's portfolio was~~ reasonably diversified ~~by geographical location~~ and ~~did~~does not contain any ~~other~~ significant concentrations of credit risk. As of September 30, ~~2017,~~2021, the ~~Company's~~Company has 1 tenant that comprises 13.1% of annualized based rent, with no other tenants

- 13 -

exceeding 10.0% of annualized based rent. The Company’s portfolio of ~~230 Wholly Owned~~146 Consolidated Properties and ~~28 JV~~24 Unconsolidated Properties was diversified by location across 4938 states and Puerto Rico.

Earnings 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. As of August 29, 2018, all outstanding Class C common shares had been exchanged for Class A common shares and there are currently 0 Class C common shares outstanding.

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 have been surrendered and there are currently 0 Class B common shares outstanding.

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

Recently Issued Accounting Pronouncements

In February 2017, the Financial Accounting Standards Boards (“FASB”) issued Accounting Standards Update (“ASU”) 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets” to provide guidance for recognizing gains and losses from the transfer of nonfinancial assets. The standard requires a company to derecognize nonfinancial assets once it transfers control of a distinct nonfinancial asset or distinct in substance nonfinancial assets to noncustomers. Additionally, when a company transfers its controlling interest in a nonfinancial asset, but retains a non-controlling ownership interest, the company is required to measure any non-controlling interest it receives or retains at fair value. ASU 2017-15 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The effective date of this guidance coincides with revenue recognition guidance. The Company is currently assessing the impact that adoption of this guidance will have on its condensed consolidated financial statements and footnote disclosures.

~~- 12 -~~

In January 2017, the FASB issued ASU 2017-01 which changes the definition of a business to exclude acquisitions where substantially all of the fair value of the assets acquired are concentrated in a single identifiable asset or a group of similar identifiable assets. While there are various differences between the accounting for an asset acquisition and a business combination, the Company expects that the largest impact will be the capitalization of transaction costs for asset acquisitions which are expensed for business combinations. ASU 2017-01 is effective, on a prospective basis, for interim and annual periods beginning after January 1, 2019; early adoption is permitted. The Company has ~~chosen to early adopt ASU 2017-01~~not adopted any Accounting Standards Updates (“ASUs”) issued by the FASB during the ~~current period on~~three and nine months ended September 30, 2021. Any other recently issued accounting standards or pronouncements not disclosed have been excluded as they either are not applicable to the Company, or they are not expected to have a ~~prospective basis and it did not have an impact~~material effect on the condensed consolidated financial ~~statements.~~

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows - Restricted Cash." ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or cash equivalents. Therefore, amounts generally described as restricted cash and equivalents should be included with cash and cash equivalents when reconciling the beginning and end of period total amounts on the statement of cash flows. ASU 2016-18 is effective, on a retroactive basis, for interim and annual periods beginning after December 15, 2017; early adoption is permitted. The Company early adopted this guidance on March 31, 2017, which changes our statements of ~~cash flows and related disclosure for all periods presented and accordingly,~~ the following is a summary of our cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the nine months ended September 30, 2017 and September 30, 2016 (in thousands):Company.

Nine Months Ended

September 30, 2017

September 30, 2016

Cash and cash equivalents

$
104,153

$
90,029

Restricted cash

202,513

81,790

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

$
306,666

$
171,819

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 provides classification guidance for eight specific topics including debt extinguishment costs, contingent consideration payments made after a business combination, and distributions received from equity method investees. ASU 2016-18 is effective, on a prospective basis, for interim and annual periods beginning after December 15, 2017; early adoption is permitted. The Company expects to retrospectively adopt ASU 2016-15 on the effective date of January 1, 2018, applying the cumulative earnings approach to classify distributions received from our equity method investees, which will impact our consolidated statements of cash flows upon adoption where distributions from unconsolidated joint ventures in excess of cumulative equity in earnings will be classified as an inflow from investing activities.

On February 25, 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which replaces the existing guidance in ASC 840, Leases. ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASC 842 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset and for operating leases, the lessee would recognize a straight-line total lease expense. The Company is currently assessing the impact that adoption of this guidance will have on its condensed consolidated financial statements and footnote disclosures.

In September 2015, the FASB issued ASU 2015-16, which amends Topic 805, Business Combinations, and requires the recognition of purchase price allocation adjustments that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, and eliminates the requirement to retrospectively account for these adjustments. ASU 2015-16 is effective, on a prospective basis, for interim and annual periods beginning after December 15, 2015; early adoption is permitted. The Company has chosen to early adopt ASU 2015-16 during the current period on a prospective basis and it did not have an impact on the condensed consolidated financial statements.

In May 2014, with subsequent updates issued in August 2015 and March, April, May and December 2016, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it does not apply to contracts within the scope of ASC 840 and ASC 842 (leases) and it may apply to certain other transactions such as the sale of real estate or equipment. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year. Accordingly, ASU 2014-09 is effective for annual periods beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. The standard can be applied either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment recognized as of the date of initial application. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this guidance.

~~- 13 -~~

We have considered the sources of revenue that will be affected by ASU 2014-09, and do not believe our revenue recognition will be impacted by the new standard, as leases (the source of the majority of the Company's revenues) are excluded from ASU 2014-09. However, once the new lease guidance goes into effect on January 1, 2019 which sets forth principles for the recognition, measurement, presentation and disclosure of leases, we believe that the new revenue standard will apply to executory costs and other components of revenue due under leases that are deemed to be non-lease components (such as common area maintenance), which could affect our recognition pattern for such revenue.

Note 3 – Lease Intangible Assets and Liabilities

~~Lease~~The following tables summarize the Company’s lease intangible assets (acquired in-place leases, above-market leases and below-market ground leases) and liabilities (acquired below-market ~~leases)~~leases, which is included in accounts payable, accrued expenses and other liabilities on the consolidate balance sheets), net of accumulated amortization, ~~were $327.2 million and $15.0 million, respectively,~~ as of September 30, ~~2017~~2021 and ~~$464.4 million and $16.8 million, respectively, as of~~ December 31, ~~2016. The following table summarizes the Company’s lease intangible assets and liabilities~~2020 (in thousands):


September 30, 2021
	Gross		Accumulated
Lease Intangible Assets	Asset		Amortization			Balance
In-place leases, net	$	32,571	$	(18,113	)	$	14,458
Above-market leases, net		3,925		(2,413	)		1,512
Total	$	36,496	$	(20,526	)	$	15,970

September 30, 2017

Gross

Accumulated

Lease Intangible Assets

Asset

Amortization

Balance

In-place leases, net

$
553,656

$
(243,872
)

$
309,784

Below-market ground leases, net

11,766

(457
)

11,309

Above-market leases, net

8,925

(2,789
)

6,136

Total

$
574,347

$
(247,118
)

$
327,229


	Gross		Accumulated
Lease Intangible Liabilities	Liability		Amortization			Balance
Below-market leases, net	$	6,626	$	(2,765	)	$	3,861
Total	$	6,626	$	(2,765	)	$	3,861


December 31, 2020
	Gross		Accumulated
Lease Intangible Assets	Asset		Amortization			Balance
In-place leases, net	$	73,169	$	(56,369	)	$	16,800
Above-market leases, net		4,139		(2,344	)		1,795
Total	$	77,308	$	(58,713	)	$	18,595


	Gross		Accumulated
Lease Intangible Liabilities	Liability		Amortization			Balance
Below-market leases, net	$	6,626	$	(2,440	)	$	4,186
Total	$	6,626	$	(2,440	)	$	4,186

- 14 -

Gross

Accumulated

Lease Intangible Liabilities

Liability

Amortization

Balance

Below-market leases, net

$
19,730

$
(4,732
)

$
14,998

Total

$
19,730

$
(4,732
)

$
14,998

December 31, 2016

Gross

Accumulated

Lease Intangible Assets

Asset

Amortization

Balance

In-place leases, net

$
592,871

$
(146,964
)

$
445,907

Below-market ground leases, net

11,766

(305
)

11,461

Above-market leases, net

8,964

(1,933
)

7,031

Total

$
613,601

$
(149,202
)

$
464,399

Gross

Accumulated

Lease Intangible Liabilities

Liability

Amortization

Balance

Below-market leases, net

$
20,011

$
(3,184
)

$
16,827

Total

$
20,011

$
(3,184
)

$
16,827

Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of ~~$0.3~~$0.1 million and ~~$0.3~~$1.5 million for the three ~~months ended September 30, 2017~~ and ~~September 30, 2016, respectively, and $0.9 million and $0.9 million for the~~ nine months ended September 30, ~~2017~~2021 and ~~September 30, 2016,~~2020, respectively. ~~Future amortization~~Amortization of ~~these intangibles is estimated to increase rental income as set forth below (in thousands):~~

Remainder of 2017

$
(241
)
2018

(961
)
2019

(934
)
2020

(800
)
2021

(786
)

~~- 14 -~~

~~Amortization of~~an acquired below-market ground ~~leases~~lease resulted in additional property expense of ~~$50 thousand~~$0.1 million and $0.2 million for the three ~~months ended September 30, 2017~~ and ~~September 30, 2016, respectively, and $150 thousand for the~~ nine months ended September 30, ~~2017~~2021 and ~~September 30, 2016,~~2020, respectively. ~~Future amortization of below-market ground leases is estimated to increase property expenses as set forth below (in thousands):~~

Remainder of 2017

$
51

2018

203

2019

203

2020

203

2021

203

Amortization of acquired in-place leases resulted in additional depreciation and amortization expense of ~~$47.5~~$0.8 million and ~~$27.4~~$11.0 million for the three months ended September 30, ~~2017~~2021 and ~~September 30, 2016,~~2020, respectively and ~~$124.3~~$2.4 million and ~~$72.1~~$42.0 million for the nine months ended September 30, ~~2017~~2021 and ~~September 30, 2016,~~2020 respectively. Future ~~estimated~~ amortization of ~~acquired in-place~~these leases intangibles is set forth below (in thousands):


	(Above) / below market leases, net			Below market ground lease		In-place leases
Remainder of 2021	$	(13	)	$	51	$	699
2022		(43	)		203		2,787
2023		6			203		1,921
2024		27			203		1,385
2025		97			203		1,077
2026		190			203		724
Thereafter		2,084			9,433		5,866

Remainder of 2017

$
15,521

2018

42,303

2019

40,543

2020

40,097

2021

39,313

Note 4 – Investments in Unconsolidated ~~Joint Ventures~~Entities

The Company conducts a portion of its property rental activities through investments in unconsolidated ~~joint ventures for which the Company holds less than a controlling interest.~~entities. The Company’s partners in these unconsolidated ~~joint ventures~~entities are unrelated real estate entities or commercial enterprises. The Company and its partners in these unconsolidated ~~joint venture partners~~entities make initial and/or ongoing capital contributions to these unconsolidated ~~joint ventures.~~entities. The obligations to make capital contributions are governed by each unconsolidated ~~joint venture’s~~entity’s respective operating agreement and related governing documents.

As of September 30, 2021, the Company had investments in ten unconsolidated entities as follows:


		Seritage %	# of	Total
Unconsolidated Entities	Entity Partner(s)	Ownership	Properties	GLA
GS Portfolio Holdings II LLC ("GGP I JV")	Brookfield Properties Retail (formerly GGP Inc.)	50.0%	3		402,900
GS Portfolio Holdings (2017) LLC ("GGP II JV")	Brookfield Properties Retail (formerly GGP Inc.)	50.0%	3		474,100
MS Portfolio LLC ("Macerich JV")	The Macerich Company	50.0%	7		1,266,600
SPS Portfolio Holdings II LLC ("Simon JV")	Simon Property Group, Inc.	50.0%	5		872,200
Mark 302 JV LLC ("Mark 302 JV")	An investment fund managed by Invesco Real Estate	50.0%	1		103,000
SI UTC LLC ("UTC JV")	A separate account advised by Invesco Real Estate	50.0%	1		226,200
SF WH Joint Venture LLC ("West Hartford JV")	An affiliate of First Washington Realty	50.0%	1		163,700
GGCAL SRG HV LLC ("Cockeysville JV")	An affiliate of Greenberg Gibbons	50.0%	1		160,200
Tech Ridge JV Holding LLC ("Tech Ridge JV")	An affiliate of RD Management	50.0%	1		—
J&J Baldwin Park LLC ("Carson Investment")	An affiliate of NewMark Merrilll Companies and other entities	20.0%	1		182,200
			24		3,851,100

The Company ~~currently~~ has ~~investments~~contributed certain properties to unconsolidated entities in ~~four~~exchange for equity interests in those unconsolidated ~~entities: (i) GS Portfolio Holdings II LLC~~entities. The contribution of property to unconsolidated entities is accounted for as a sale of real estate and the Company recognizes the gain or loss on the sale (the ~~“GGP I JV”~~“Gain (Loss)”), a joint venture between Seritage and a subsidiary of GGP Inc. (together with its subsidiaries, “GGP”); (ii) GS Portfolio Holdings (2017) LLC (the “GGP II JV”), a joint venture between Seritage and a subsidiary of GGP; (iii) SPS Portfolio Holdings LLC (the “Simon JV”), a joint venture between Seritage and a subsidiary of Simon Property Group, Inc. (together with its subsidiaries, “Simon”); and (iv) MS Portfolio LLC (the “Macerich JV”), a joint venture between Seritage and a subsidiary of The Macerich Company (together with its subsidiaries, “Macerich”). A substantial majority based upon the transaction price attributed to the property at the closing of the ~~space at the JV Properties is leased to Sears Holdings under the JV Master Leases which include recapture rights and termination rights with similar terms as those described under the Master Lease.~~

unconsolidated entities transaction (the “Contribution Value”). The ~~Company’s investments in unconsolidated joint ventures at September 30, 2017, consisted of (in thousands, except number of properties):~~

Seritage %

# of

Total

Initial

Joint Venture

Ownership

Properties

GLA

Value (1)

GGP I JV

50
%

4

598

$
37,570

GGP II JV

50
%

5

1,187

57,500

Macerich JV

50
%

9

1,572

150,000

Simon JV

50
%

10

1,714

114,012

Total

28

5,071

$
359,082

~~(1)~~

~~Represents contribution value at formation of each JV.~~

On July 12, 2017, the Company completed two transactions with GGP for gross consideration of $247.6 million whereby the Company (i) sold to GGP the Company’s 50% JV Interests in eight of the 12 assets in the GGP I JV for $190.1 million and recorded a gain of $43.7 million which is included in gain on sale of interest in unconsolidated joint venture within the condensed consolidated statements of operations; and (ii) contributed five Wholly Owned Properties to the GGP II JV and sold a 50% interest in the new JV Properties to GGP for $57.5 million and recorded a gain of $13.0 million whichGain or (Loss) is included in gain on sale of real estate ~~within~~on the condensed consolidated statements of operations.

- 15 -

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

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

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


		September 30, 2021
Unconsolidated Entities	Contribution Date	Contribution Value		Gain (Loss)
2018
Mark 302 JV (1)	March 20, 2018	$	60.0	$	8.8
2019
Cockeysville JV (2)	March 29, 2019	$	12.5	$	3.8
Tech Ridge JV (3)	September 27, 2019		3.0		0.1

(1)

The Mark 302 JV was subject to a revaluation which resulted in the Company adjusting the Contribution Value down to $60.0 million and reduced the Gain (Loss) by $30.0 million. As of September 30, ~~2017,~~2021, the amended determination date, there has been no change to the adjusted Contribution Value and the final Contribution Value is $60.0 million.

(2)

The Cockeysville JV is subject to revaluation if an affiliate of Greenberg Gibbons contributes another adjacent parcel of land (the “Additional Land Parcel”) to the joint venture which was conditioned on certain milestones being met with respect to entitling the Additional Land Parcel for residential use. The Additional Land Parcel has been entitled for residential use. The Company ~~agreed~~has not reflected the contribution value of the Additional Land Parcel in the value of its investment in the Cockeysville JV based on uncertainty related to ~~sell~~a potential alternative transaction with respect to ~~Simon~~the Additional Land Parcel. The Company will record an increased investment in the Cockeysville JV and additional gain in an amount equal to 50% of the fair value of the Additional Land Parcel at the earlier of when it becomes probable that the Additional Land Parcel will be contributed or upon an alternate outcome.

(3)

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

- 16 -

The following tables present combined condensed financial data for the Company’s ~~50% JV Interests~~unconsolidated entities (in thousands):


	September 30, 2021			December 31, 2020
ASSETS
Investment in real estate
Land	$	318,540		$	318,540
Buildings and improvements		505,793			492,973
Accumulated depreciation		(90,454	)		(81,730	)
		733,879			729,783
Construction in progress		216,479			222,663
Net investment in real estate		950,358			952,446
Cash and cash equivalents		25,881			16,094
Investment in unconsolidated entities		47,184			24,686
Tenant and other receivables, net		2,544			4,104
Other assets, net		35,789			38,196
Total assets	$	1,061,756		$	1,035,526

LIABILITIES AND MEMBERS' INTERESTS
Liabilities
Mortgage loans payable, net	$	52,942		$	34,672
Accounts payable, accrued expenses and other liabilities		34,771			48,405
Total liabilities		87,713			83,077

Members' Interest
Additional paid in capital		989,811			964,868
Retained earnings (accumulated deficit)		(15,768	)		(12,419	)
Total members' interest		974,043			952,449
Total liabilities and members' interest	$	1,061,756		$	1,035,526


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Total revenue	$	5,354		$	5,273		$	18,904		$	15,590
Property operating expenses		(2,969	)		(2,270	)		(8,382	)		(6,956	)
Depreciation and amortization		(8,094	)		(2,562	)		(21,137	)		(11,441	)
Operating income / (loss)		(5,709	)		441			(10,615	)		(2,807	)
Other expenses		(1,195	)		(1,093	)		(3,205	)		(2,060	)
Loss on disposition of real estate		(4,171	)		—			(4,171	)		—
Net loss	$	(11,075	)	$	(652	)	$	(17,991	)	$	(4,867	)
Equity in loss of unconsolidated entities (1)	$	(5,535	)	$	(335	)	$	(9,024	)	$	(2,551	)

(1)

Equity in ~~five~~loss of unconsolidated entities on the ~~ten assets in the Simon JV for $68.0 million, subject to certain closing conditions (see Note 16).~~condensed consolidated statements of operations includes basis difference adjustments.

~~The Company continues to own 50% interests in nine assets in the Macerich JV.~~

~~Each unconsolidated joint venture is obligated to maintain financial statements in accordance with GAAP.~~ The Company shares in the profits and losses of these unconsolidated ~~joint ventures~~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 ~~joint venture~~entity that differ from the Company’s equity interest in the unconsolidated ~~joint venture.~~entity. This may arise from impairments that the Company recognizes related to its investment that differ from the impairments the unconsolidated ~~joint venture~~entity recognizes with respect to its ~~assets;~~assets, differences between the Company’s basis in assets it has transferred to the unconsolidated ~~joint venture~~entity and the unconsolidated ~~joint venture’s~~entity’s basis in those ~~assets; the Company’s deferral of the unconsolidated joint venture’s profits from land sales to the Company;~~assets or other items. There were ~~no joint venture~~0 impairment charges ~~for the three or nine months ended September 30, 2017 or September 30, 2016.~~

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

September 30, 2017

December 31, 2016

ASSETS

Investment in real estate

Land

$
178,658

$
214,109

Buildings and improvements

510,641

598,978

Accumulated depreciation

(62,959
)

(56,324
)

626,340

756,763

Construction in progress

15,986

48,885

Net investment in real estate

642,326

805,648

Cash and cash equivalents

4,958

3,434

Tenant and other receivables, net

3,354

6,133

Other assets, net

47,564

38,646

Total assets

$
698,202

$
853,861

LIABILITIES AND MEMBERS INTERESTS

Liabilities

Mortgage loans payable, net

$
121,665

$
—

Accounts payable, accrued expenses and other liabilities

6,681

14,177

Total liabilities

128,346

14,177

Members Interest

Additional paid in capital

580,009

830,389

Retained earnings

(10,153
)

9,295

Total members interest

569,856

839,684

Total liabilities and members interest

$
698,202

$
853,861

Three Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

EQUITY IN INCOME OF UNCONSOLIDATED
JOINT VENTURES

Total revenue

$
12,550

$
16,266

$
46,062

$
50,113

Property operating expenses

(3,077
)

(3,103
)

(9,594
)

(9,703
)
Depreciation and amortization

(9,509
)

(10,382
)

(37,206
)

(31,304
)
Operating income

(36
)

2,781

(738
)

9,106

Other expenses

(7,337
)

212

(7,714
)

(117
)
Net (loss) income

$
(7,373
)

$
2,993

$
(8,452
)

$
8,989

Equity in (loss) income of unconsolidated
joint ventures

$
(3,686
)

$
1,497

$
(4,226
)

$
4,495

~~- 16 -~~

~~Note 5 – Leases~~

~~Master Lease~~

On July 7, 2015, subsidiaries of Seritage and subsidiaries of Sears Holdings entered into the Master Lease. The Master Lease generally is a triple net lease with respect to all space which is leased thereunder to Sears Holdings, subject to proportional sharing by Sears Holdings for repair and maintenance charges, real property taxes, insurance and other costs and expenses which are common to both the space leased by Sears Holdings and other space occupied by unrelated third-party tenants in the same or other buildings pursuant to third-party leases, space which is recaptured pursuantrelated to the Company recapture rights described below and all other space which is constructed on the properties. Under the Master Lease, Sears Holdings and/or one or more of its subsidiaries will be required to make all expenditures reasonably necessary to maintain the premises in good appearance, repair and condition for as long as they are in occupancy.

The Master Lease has an initial term of 10 years and contains three options for five-year renewals of the term and a final option for a four-year renewal. As of September 30, 2017 and September 30, 2016, the annualized base rent paid directly by Sears Holdings and its subsidiaries under the Master Lease was approximately $108.5 million and $134.2 million, respectively. In each of the initial and first two renewal terms, annual base rent will be increased by 2.0% per annum for each lease year over the rent for the immediately preceding lease year. For subsequent renewal terms, rent will be set at the commencement of the renewal term at a fair market rent based on a customary third-party appraisal process, taking into account all the terms of the Master Lease and other relevant factors, but in no event will the renewal rent be less than the rent payable in the immediately preceding lease year.

~~Revenues from the Master Lease~~Unconsolidated Properties for the three and nine months ended September 30, ~~2017~~2021 and 2020.

Unconsolidated Entity Management and Related Fees

The Company acts as the operating partner and day-to-day manager for the Mark 302 JV, the West Hartford JV, the UTC JV, and Tech Ridge JV. The Company is entitled to receive certain fees for providing management, leasing, and construction supervision services to certain of its unconsolidated entities. Refer to Note 2 for the Company’s accounting policies. The Company also acted as the development manager for one of the properties in the GGP II JV which entitled the Company to receive certain development fees

- 17 -

which ended as of September 30, ~~2016 are as follows (in thousands and excluding straight-line rental income of ($1.7)~~2021. The Company earned $0.2 million and ~~$2.3~~reversed $0.3 million from these services for the three months ended September 30, 2021 and 2020, respectively and $0.6 million and $0.1 million from these services for the nine months ended September 30, 2021 and 2020, respectively.

Note 5 – Leases

Lessor Disclosures

Future minimum rental receipts, excluding variable payments and tenant reimbursements of expenses, under non-cancelable operating leases executed as of September 30, 2021 are approximately as follows:


(in thousands)	September 30, 2021
Remainder of 2021	$	22,510
2022		85,443
2023		78,755
2024		75,545
2025		74,753
2026		69,768
Thereafter		337,480
Total	$	744,254

The components of lease revenues for the three and nine months ended September 30, 2021 and 2020 were as follows:


(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Fixed rental income	$	23,160	$	19,675	$	68,567	$	70,474
Variable rental income		4,652		10,976		16,921		20,195
Total rental income	$	27,812	$	30,651	$	85,488	$	90,669

Lessee Disclosures

The Company has 1 ground lease and 1 corporate office lease which are classified as operating leases. As of September 30, 2021, and December 31, 2020, the outstanding amount of right-of-use, or ROU, assets were $17.2 million and $18.8 million, respectively.

The Company recorded rent expense related to leased corporate office space of $0.3 million and $0.5 million for the three months ended September 30, ~~2017~~2021 and ~~September 30, 2016, respectively, and $0.1~~2020, respectively. The Company recorded rent expense related to leased corporate office space of $1.0 million and ~~$8.4~~$1.3 million for the nine months ended September 30, ~~2017~~2021 and 2020, respectively. Such rent expense is classified within general and administrative expenses on the condensed consolidated statements of operations.

In addition, the Company recorded ground rent expense of approximately $0.1 million for the three and nine months ended September 30, ~~2016, respectively):~~2021 and 2020. Such ground 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 2073 assuming all extension options are exercised.

The following table sets forth information related to the measurement of our lease liabilities as of September 30, 2021:


	September 30, 2021
Weighted average remaining lease term (in years)		10.40
Weighted average discount rate		6.98	%
Cash paid for operating leases (in thousands)	$	1,432

Sale-leaseback Financing Obligations

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

- 18 -

25-year term to reacquire, solely at the Company’s option, the Hialeah property at a predetermined price. The Hialeah property continues to be reflected as a long-lived asset and depreciated over its remaining useful life.

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Rental income

$
27,889

$
33,378

$
88,748

$
99,846

Termination fee income

10,596

—

17,361

—

Tenant reimbursements

10,639

10,627

38,370

41,895

Total revenue

$
49,124

$
44,005

$
144,479

$
141,741

Future sale-leaseback financing obligations as of September 30, 2021 are approximately as follows:


(in thousands)	September 30, 2021
Remainder of 2021	$	363
2022		1,464
2023		1,486
2024		1,508
2025		1,531
2026		1,554
Thereafter		34,022
Interest		(21,315	)
Total	$	20,613

~~The~~Original Master Lease ~~provides~~and Holdco Master Lease

On February 28, 2019, the Company and certain affiliates of Transform Holdco LLC (“Holdco”), an affiliate of ESL Investments, Inc., executed the Holdco Master Lease (the “Holdco Master Lease”) which became effective on March 12, 2019 when the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) issued an order approving the rejection of the Original Master Lease. The Company analyzed this transaction under applicable accounting guidance and determined that the termination of the Original Master Lease and entering into the Holdco Master Lease should be accounted for as a modification. The Holdco Master Lease provided the Company with the right to recapture ~~up to approximately 50% of~~ the space occupied by ~~Sears Holdings~~the tenant at ~~each of the 224 Wholly Owned Properties initially included in the Master Lease (subject to certain exceptions). While the Company is permitted to exercise its recapture rights~~ all ~~at once or in stages as to any particular property, it is not permitted to recapture all or substantially all of the space subject to the recapture right at more~~properties (other than ~~50 Wholly Owned Properties during any lease year. In addition, Seritage has~~five specified properties) and the right to recapture any automotive care centers which are free-standing or attached as “appendages” to the properties, all outparcels or outlots and certain portions of ~~the~~ parking areas and common areas. ~~Upon exercise of these recapture rights,~~Under the ~~Company will generally incur certain costs and expenses for the separation~~terms of the ~~recaptured space from the remaining Sears Holdings space as it reconfigures and rents the recaptured space to third-party tenants.~~

~~The Company also has~~Holdco Master Lease, Holdco had the right, ~~to recapture 100% of the space occupied by Sears Holdings~~ at each of 21 identified Wholly Owned Properties by making a specified lease termination payment to Sears Holdings, after which the Company can reposition and re-lease those stores. The lease termination payment is calculated as the greater of an amount specified at theany time, the Company entered into the Master Lease with Sears Holdings and an amount equal to 10 times the adjusted EBITDA attributable to such space within the Sears Holdings main store which is not attributable to the space subject to the separate 50% recapture right discussed above for the 12-month period ending at the end of the fiscal quarter ending immediately prior to recapturing such space.

~~- 17 -~~

~~As of September 30, 2017, the Company had exercised certain recapture rights at 45 properties:~~

~~Property~~	~~Recapture Type~~		~~Notice Date~~
~~North Little Rock, AK~~	~~Auto Center~~		~~September 2017~~
~~Ft. Wayne, IN~~	~~Out parcel~~		~~September 2017~~
~~St. Clair Shores, MI~~		~~100%~~	~~September 2017~~
~~Austin, TX~~	~~Partial~~		~~September 2017~~
~~Redmond, WA~~	~~Auto Center~~		~~September 2017~~
~~Temecula, CA~~	~~Partial~~		~~June 2017~~
~~Roseville, CA~~	~~Auto center~~		~~June 2017~~
~~North Riverside, IL~~	~~Partial~~		~~June 2017~~
~~Watchung, NJ~~		~~100%~~	~~June 2017~~
~~Canton, OH~~	~~Partial~~		~~June 2017~~
~~Dayton, OH~~	~~Auto center~~		~~June 2017~~
~~Carson, CA~~	~~100% (1)~~		~~April 2017 / December 2016~~
~~San Diego, CA~~	~~100% (2)~~		~~April 2017~~
~~Aventura, FL~~		~~100%~~	~~April 2017~~
~~Hialeah, FL~~	~~100% (2)~~		~~April 2017~~
~~Anderson, SC~~	~~100% (1)~~		~~April 2017 / July 2016~~
~~Charleston, SC~~	~~100% (1)~~		~~April 2017 / October 2016~~
~~Valley View, TX~~		~~100%~~	~~April 2017~~
~~North Miami, FL~~		~~100%~~	~~March 2017~~
~~Cockeysville, MD~~	~~Partial~~		~~March 2017~~
~~Olean, NY~~	~~Partial~~		~~March 2017~~
~~Santa Cruz, CA~~	~~Partial~~		~~December 2016~~
~~Santa Monica, CA~~		~~100%~~	~~December 2016~~
~~Saugus, MA~~	~~Partial~~		~~December 2016~~
~~Guaynabo, PR~~	~~Partial~~		~~December 2016~~
~~Roseville, MI~~	~~Partial~~		~~November 2016~~
~~Troy, MI~~	~~Partial~~		~~November 2016~~
~~West Hartford, CT~~		~~100%~~	~~October 2016~~
~~Rehoboth Beach, DE~~	~~Partial~~		~~October 2016~~
~~St. Petersburg, FL~~		~~100%~~	~~October 2016~~
~~Warwick, RI~~	~~Auto center~~		~~October 2016~~
~~North Hollywood, CA~~	~~Partial~~		~~July 2016~~
~~Orlando, FL~~		~~100%~~	~~July 2016~~
~~Ft. Wayne, IN~~	~~Out parcel~~		~~July 2016~~
~~West Jordan, UT~~	~~Partial + auto center~~		~~July 2016~~
~~Madison, WI~~	~~Partial~~		~~July 2016~~
~~Bowie, MD~~	~~Auto center~~		~~May 2016~~
~~Hagerstown, MD~~	~~Auto center~~		~~May 2016~~
~~Wayne, NJ (3)~~	~~Partial~~		~~May 2016~~
~~Albany, NY~~	~~Auto center~~		~~May 2016~~
~~Fairfax, VA~~	~~Partial + auto center~~		~~May 2016~~
~~San Antonio, TX~~	~~Auto center~~		~~March 2016~~
~~Honolulu, HI~~		~~100%~~	~~December 2015~~
~~Memphis, TN~~		~~100%~~	~~December 2015~~
~~Braintree, MA~~		~~100%~~	~~November 2015~~

~~(1)~~

~~In April 2017, the Company converted previously exercised partial recapture rights to 100% recapture rights.~~

~~(2)~~

~~In April 2017, the Company converted partial recapture rights to 100% recapture rights and exercised such recapture rights.~~

~~(3)~~

~~In July 2017, the Company contributed this asset to the GGP II JV and retained a 50% JV Interest in the JV.~~

~~The Master Lease also provides for certain rights to Sears Holdings~~ to terminate the Holdco Master Lease with respect to ~~Wholly Owned Properties that cease to be profitable for operation by Sears Holdings. In order to terminate~~any property upon the ~~Master Lease with respect to~~payment of a ~~certain property, Sears Holdings must make a payment to the Company of an amount~~termination fee equal to one year of base rent ~~(together with~~plus annual taxes and other ~~expenses)~~operating expenses. Sears Holdings exercised termination rights with respect to such property. Sears Holdings must provide notice of not less than 90 days of their intent to exercise such termination right and such termination right will be limited so that it will not have the effect of reducing the fixed rent87 properties under the Original Master Lease prior to its rejection on March 12, 2019 and Holdco exercised termination rights with respect to all remaining properties under the Holdco Master Lease during the year ended December 31, 2020, with the remaining five properties effective in March 2021.

Revenues from the Holdco Master Lease as amended by ~~more than 20% per annum.~~the Amendment, and the Original Master Lease for the three months ended September 30, 2021 and 2020 are as follows (in thousands) and excluding straight-line rental income of $0.0 million and $0.0 million for the three months ended September 30, 2021 and 2020, respectively, and $0.0 million and $(7.9) million for the nine months ended September 30, 2021 and 2020, respectively.


(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Fixed rental income	$	—	$	—	$	—	$	4,288
Variable rental income		—		5,997		4,510		9,416
Total rental income	$	—	$	5,997	$	4,510	$	13,704

Note 6 – Debt

Term Loan Facility

On July 31, 2018, the Operating Partnership, as borrower, and the Company, as guarantor, entered into a Senior Secured Term Loan Agreement (the “Term Loan Agreement”) providing for a $2.0 billion term loan facility (the “Term Loan Facility”) with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire Hathaway”) as lender and Berkshire Hathaway as administrative agent. The Term Loan Facility provided for an initial funding of $1.6 billion at closing and includes a $400.0 million incremental funding facility (the “Incremental Funding Facility”) subject to certain conditions described below. The Term Loan Facility matures on July 31, 2023.

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

As of September 30, 3017, Sears Holdings had terminated, or provided notice that it intended to exercise its rights to terminate, the Master Lease with respect to 56 stores totaling 7.4 million square feet of gross leasable area. The aggregate base rent at these stores at the time of termination was approximately $23.6 million. Sears Holdings continued to pay the Company rent until it vacated the stores and also paid aggregate termination fees of approximately $45.1 million, amounts equal to one year of aggregate annual base rent plus one year of estimated real estate taxes and operating expense.

~~- 18 -~~

As of September 30, 2017, the Company had announced redevelopment projects at 17 of the terminated properties and will continue to announce redevelopment activity as new leases are signed to occupy the space formerly occupied by Sears Holdings.

					~~Announced~~
~~Property~~	~~Square Feet~~		~~Notice~~	~~Termination~~	~~Redevelopment~~
~~Cullman, AL~~		~~98,500~~	~~September 2016~~	~~January 2017~~	~~Q2 2017~~
~~Sierra Vista, AZ~~		~~86,100~~	~~September 2016~~	~~January 2017~~
~~Thornton, CO~~		~~190,200~~	~~September 2016~~	~~January 2017~~	~~Q1 2017~~
~~Chicago, IL~~		~~118,800~~	~~September 2016~~	~~January 2017~~
~~Springfield, IL~~		~~84,200~~	~~September 2016~~	~~January 2017~~	~~Q3 2016~~
~~Elkhart, IN~~		~~86,500~~	~~September 2016~~	~~January 2017~~	~~Q4 2016~~
~~Merrillville, IN~~		~~108,300~~	~~September 2016~~	~~January 2017~~	~~Q4 2016~~
~~Houma, LA~~		~~96,700~~	~~September 2016~~	~~January 2017~~
~~New Iberia, LA~~		~~91,700~~	~~September 2016~~	~~January 2017~~	~~Q2 2017~~
~~Alpena, MI~~		~~118,200~~	~~September 2016~~	~~January 2017~~
~~Manistee, MI~~		~~87,800~~	~~September 2016~~	~~January 2017~~
~~Sault Sainte Marie, MI~~		~~92,700~~	~~September 2016~~	~~January 2017~~
~~Kearney, NE~~		~~86,500~~	~~September 2016~~	~~January 2017~~	~~Q3 2016~~
~~Deming, NM~~		~~96,600~~	~~September 2016~~	~~January 2017~~
~~Harlingen, TX~~		~~91,700~~	~~September 2016~~	~~January 2017~~
~~Yakima, WA~~		~~97,300~~	~~September 2016~~	~~January 2017~~
~~Riverton, WY~~		~~94,800~~	~~September 2016~~	~~January 2017~~
~~Riverside, CA~~		~~94,500~~	~~January 2017~~	~~April 2017~~
~~Kissimmee, FL~~		~~112,505~~	~~January 2017~~	~~April 2017~~
~~Leavenworth, KS~~		~~76,853~~	~~January 2017~~	~~April 2017~~
~~Hopkinsville, KY~~		~~70,326~~	~~January 2017~~	~~April 2017~~
~~Paducah, KY~~		~~108,244~~	~~January 2017~~	~~April 2017~~	~~Q3 2017~~
~~Owensboro, KY~~		~~68,334~~	~~January 2017~~	~~April 2017~~
~~Detroit Lakes, MN~~		~~79,102~~	~~January 2017~~	~~April 2017~~
~~Jefferson City, MO~~		~~92,016~~	~~January 2017~~	~~April 2017~~	~~Q2 2017~~
~~Henderson, NV~~		~~122,823~~	~~January 2017~~	~~April 2017~~	~~Q1 2017~~
~~Concord, NC~~		~~137,499~~	~~January 2017~~	~~April 2017~~
~~Chapel Hill, OH~~		~~187,179~~	~~January 2017~~	~~April 2017~~
~~Kenton, OH~~		~~96,066~~	~~January 2017~~	~~April 2017~~
~~Muskogee, OK~~		~~87,500~~	~~January 2017~~	~~April 2017~~
~~Mount Pleasant, PA~~		~~83,536~~	~~January 2017~~	~~April 2017~~
~~Sioux Falls, SD~~		~~72,511~~	~~January 2017~~	~~April 2017~~
~~El Paso, TX~~		~~103,657~~	~~January 2017~~	~~April 2017~~
~~Layton, UT~~		~~90,010~~	~~January 2017~~	~~April 2017~~
~~Elkins, WV~~		~~94,885~~	~~January 2017~~	~~April 2017~~
~~Platteville, WI~~		~~94,841~~	~~January 2017~~	~~April 2017~~
~~Sarasota, FL~~		~~204,500~~	~~June 2017~~	~~October 2017 (1)~~
~~Chicago, IL~~		~~293,700~~	~~June 2017~~	~~October 2017 (1)~~
~~Overland Park, KS~~		~~215,000~~	~~June 2017~~	~~October 2017 (1)~~
~~Lafayette, LA~~		~~194,900~~	~~June 2017~~	~~October 2017 (1)~~
~~Cockeysville, MD~~		~~83,900~~	~~June 2017~~	~~October 2017 (1)~~	~~Q1 2017~~
~~Hagerstown, MD~~		~~107,300~~	~~June 2017~~	~~October 2017 (1)~~	~~Q1 2016~~
~~Roseville, MI~~		~~277,000~~	~~June 2017~~	~~October 2017 (1)~~	~~Q3 2016~~
~~Burnsville, MN~~		~~161,700~~	~~June 2017~~	~~October 2017 (1)~~
~~Albany, NY~~		~~216,200~~	~~June 2017~~	~~October 2017 (1)~~	~~Q1 2016~~
~~East Northport, NY~~		~~187,000~~	~~June 2017~~	~~October 2017 (1)~~	~~Q2 2017~~
~~Johnson City, NY~~		~~155,100~~	~~June 2017~~	~~October 2017 (1)~~
~~Olean, NY~~		~~75,100~~	~~June 2017~~	~~October 2017 (1)~~	~~Q1 2017~~
~~Mentor, OH~~		~~208,700~~	~~June 2017~~	~~October 2017 (1)~~
~~Middleburg Heights, OH~~		~~351,600~~	~~June 2017~~	~~October 2017 (1)~~
~~Toledo, OH~~		~~209,900~~	~~June 2017~~	~~October 2017 (1)~~
~~York, PA~~		~~82,000~~	~~June 2017~~	~~October 2017 (1)~~
~~Warwick, RI~~		~~169,200~~	~~June 2017~~	~~October 2017 (1)~~	~~Q3 2016 / Q3 2017~~
~~Friendswood, TX (2)~~		~~166,000~~	~~June 2017~~	~~October 2017 (1)~~
~~Westwood, TX (3)~~		~~215,000~~	~~June 2017~~	~~October 2017 (1)~~
~~Greendale, WI~~		~~238,400~~	~~June 2017~~	~~October 2017 (1)~~
~~Total square feet~~		~~7,411,187~~

~~(1)~~

~~Sears Holdings vacated this property subsequent to September 30, 2017.~~

~~- 19 -~~

~~(2)~~

~~The Company and Sears Holdings agreed to extend occupancy, under the existing Master Lease terms, through November 2017 to support Hurricane Harvey relief efforts.~~

~~(3)~~

~~The Company and Sears Holdings agreed to extend occupancy, under the existing Master Lease terms, through January 2018 to support Hurricane Harvey relief efforts.~~

~~Note 6 – Debt~~

~~Mortgage Loans Payable~~

On July 7, 2015, pursuant to the Transaction, the Company entered into a mortgage loan agreement (the “Mortgage Loan Agreement”) and mezzanine loan agreement (collectively, the “Loan Agreements”), providing for term loans in an initial principal amount of approximately $1,161 million (collectively, the “Mortgage Loans”) and a $100 million future funding facility (the “Future Funding Facility”). Pursuant to the terms of the Loan Agreements, amounts available under the Future Funding Facility were fully drawn by the Company on June 30, 2017. Such amounts were deposited into a redevelopment reserve and will be used to fund redevelopment activity at the Company’s properties.

On July 12, 2017, as a result of the transaction whereby the Company contributed five Wholly Owned Properties to the GGP II JV and sold a 50% interest in the new JV Properties to GGP for $57.5 million, the Company reduced amounts outstanding under its mortgage loan by $50.6 million.

~~As of September 30, 2017,~~2021, the aggregate principal amount outstanding under the ~~Mortgage Loans and~~Term Loan Facility was $1.6 billion.

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The Company’s ability to access the ~~Future~~Incremental Funding Facility ~~was $1,211 million.~~

~~Interest~~is subject to (i) the Company achieving rental income from non-Sears Holdings tenants, on an annualized basis (after giving effect to signed not yet open leases (“SNO Leases”) expected to commence rent payment within 12 months) for the fiscal quarter ending prior to the date of incurrence of the Incremental Funding Facility, of not less than $200 million (ii) the Company’s good faith projection that rental income from non-Sears Holdings tenants (after giving effect to SNO Leases expected to commence rent payment within 12 months) for the succeeding four consecutive fiscal quarters (beginning with the fiscal quarter during which the incremental facility is accessed) will be not less than $200 million, and (iii) the repayment by the Operating Partnership of any deferred interest permitted under the ~~Mortgage Loans is due and payable on the payment dates, and all outstanding principal amounts are due when the loan matures on the payment date in July 2019, pursuant~~amendment to the Term Loan Agreements. The Company has two one-year extension options subject to the payment of an extension fee and satisfaction of certain other conditions. Borrowings under the Mortgage Loans bear interest at the London Interbank Offered Rates (“LIBOR”) plus, asAgreement dated May 5, 2020 (as further described below). As of September 30, ~~2017,~~2021, the Company has not yet achieved the requirements to access the Incremental Funding Facility.

The Term Loan Facility is guaranteed by the Company and, subject to certain exceptions, is required to be guaranteed by all existing and future subsidiaries of the Operating Partnership. The Term Loan Facility is secured on a ~~weighted-average spread~~first lien basis by a pledge of ~~470 basis points; payments are made monthly~~the capital stock of the direct subsidiaries of the Operating Partnership and the guarantors, including its joint venture interests, except as prohibited by the organizational documents of such entities or any joint venture agreements applicable to such entities, and contains a requirement to provide mortgages and other customary collateral upon the breach of certain financial metrics described below, the occurrence and continuation of an event of default and certain other conditions set forth in the Term Loan Agreement. During 2019, mortgages were recorded on ~~an interest-only basis. The weighted-average interest rates for~~a majority of the ~~Mortgage Loans~~Company’s portfolio and Future Funding Facility for the three months ended September 30, 2017 and September 30, 2016 were 5.97% and 5.24%, respectively. The weighted-average interest rates for the Mortgage Loans and Future Funding Facility forduring the nine months ended September 30, ~~2017~~2021, mortgages were recorded on the remaining unmortgaged properties in all but three locations.

The Term Loan Facility includes certain financial metrics to govern springing collateral requirements and certain covenant exceptions set forth in the Term Loan Agreement, including: (i) a total fixed charge coverage ratio of not less than 1.00 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, ~~2016 were 5.92%~~2018 through the fiscal quarter ending September 30, 2021, and ~~5.19%, respectively.~~

~~The Loan Agreements contain~~not less than 1.20 to 1.00 for each fiscal quarter thereafter; (ii) an unencumbered fixed charge coverage ratio of not less than 1.05 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending September 30, 2018 through the fiscal quarter ending September 30, 2021, and not less than 1.30 to 1.00 for each fiscal quarter thereafter; (iii) a ~~yield maintenance provision for the early extinguishment~~total leverage ratio of ~~the debt before March 9, 2018.~~

~~The Mortgage Loans~~not more than 65%; (iv) an unencumbered ratio of not more than 60%; and ~~Future Funding Facility are secured by all~~(v) a minimum net worth of ~~the Company’s Wholly Owned Properties and a pledge~~at least $1.2 billion. Any failure to satisfy any of ~~its equity in the JVs. The Loan Agreements contain customary covenants for a real estate financing, including restrictions that limit~~these financial metrics limits the Company’s ability to ~~grant liens on~~dispose of assets via sale or joint venture and triggers the springing mortgage and collateral requirements but will not result in an event of default. The Term Loan Facility also includes certain limitations relating to, among other activities, the Company’s ability to: sell assets or merge, consolidate or transfer all or substantially all of its ~~assets,~~assets; incur additional ~~indebtedness,~~debt; incur certain liens; enter into, terminate or ~~transfer~~ modify certain material leases and/or ~~sell assets, as well as those that may require~~ the ~~Company to obtain lender approval~~material agreements for ~~certain major tenant leases or significant redevelopment projects. Such restrictions also include cash flow sweep provisions based upon certain measures of~~ the Company’s properties; make certain investments (including limitations on joint ventures) and Sears Holdings’ financial and operating performance, including (a) where the “Debt Yield” (the ratio of net operating income for the mortgage borrowers to their debt) is less than 11.0%, (b) if the performance of Sears Holdings at the stores subject to the Master Lease with Sears Holdings fails to meet specified rent ratio thresholds, (c) if the Company fails to meet specified tenant diversification tests and (d) upon the occurrence of a bankruptcyother restricted payments; pay distributions on or insolvency action with respect to Sears Holdings or if there is a payment default under the Master Lease with Sears Holdings, in each case, subject to cure rights, including providing specified amounts of cash collateral or satisfying tenant diversification thresholds.

In November 2016, the Company and the servicer for its Mortgage Loans entered into amendments to the Loan Agreements to resolve a disagreement regarding one of the cash flow sweep provisions in the Loan Agreements. The principal terms of these amendments are that the Company (i) posted $30.0 million, and will post $3.3 million on a monthly basis, to a redevelopment project reserve account, which amounts may be used by the Company to fund redevelopment activity and (ii) extended the spread maintenance provision for prepayment of the loan by two months through March 9, 2018 (with the spread maintenance premium for the second month at a reduced amount). As a result of this agreement and the resolution of the related disagreement, no cash flow sweep was imposed.

All obligations under the Loan Agreements are non-recourse to the borrowers and the pledgors of the JV Interests and the guarantors thereunder, except that (i) the borrowers and the guarantors will be liable, on a joint and several basis, for losses incurred by the lenders in respect of certain matters customary for commercial real estate loans, including misappropriation of funds and certain environmental liabilities and (ii) the indebtedness under the Loan Agreements will be fully recourse to the borrowers and guarantors upon the occurrence of certain events customary for commercial real estate loans, including without limitation prohibited transfers, prohibited voluntary liens, and bankruptcy. Additionally the guarantors delivered a limited completion guaranty with respect to future redevelopments undertaken by the borrowers at the properties, and the Company must maintain (i) a net worth of not less than $1.0 billion and (ii) a minimum liquidity of not less than $50.0 million, throughout the term of the Loan Agreements.

~~- 20 -~~

~~The Company believes it is currently in compliance with all material terms and conditions of the Loan Agreements.~~

The Company incurred $22.3 million of debt issuance costs related to the Mortgage Loans and Future Funding Facility which are recorded as a direct deduction from the carrying amount of the Mortgage Loans and Future Funding Facility and amortized over the term of the Loan Agreements. As of September 30, 2017, the unamortized balance ofrepurchase the Company’s ~~debt issuance costs was $9.9 million as compared to $14.3 million as December 31, 2016.~~capital stock; and enter into certain transactions with affiliates.

~~Unsecured~~The Term Loan

~~On February 23, 2017 (the “Closing Date”), the Operating Partnership, as borrower,~~ ~~and the Company~~, as guarantor, entered into a $200.0 million senior unsecured delayed draw term loan facility (the “Unsecured Term Loan”) with JPP, LLC (“JPP”) and JPP II, LLC, as lenders (collectively, the “Initial Lenders”), and JPP, as administrative agent (the “Administrative Agent”).

Loans under the Unsecured Term Loan may be requested by the Operating Partnership at any time from the Closing Date until thirty days prior to the stated maturity date, upon five business days’ prior notice to the Administrative Agent. The total commitment of the lenders under the Unsecured Term Loan is $200.0 million. Amounts drawn under the Unsecured Term Loan and repaid may not be redrawn.

~~As of September 30, 2017, the total principal amount outstanding under the Unsecured Term Loan was $85.0 million.~~

The Unsecured Term Loan will mature the earlier of (i) December 31, 2017 and (ii) the date on which the outstanding indebtedness under the Loan Agreements are repaid or refinanced in full. The Unsecured Term Loan may be prepaid at any time in whole or in part, without any penalty or premium.

With respect to the December 31, 2017 maturity of the Unsecured Term Loan, the Company may repay the $85.0 million total principal amount outstanding as of September 30, 2017 with unrestricted cash on hand, seek an extension of the maturity date, or raise additional capital through a refinancing transaction or from the proceeds of asset sales or new joint ventures.

The principal amount of loans outstanding under the Unsecured Term Loan bear a base annual interest rate of 6.50%. If a cash flow sweep period were to occur and be continuing under the Company’s Mortgage Loan Agreement (i) the interest rate on any outstanding advances would increase from and after such date by 1.5% per annum above the base interest rate and (ii) the interest rate on any advances made after such date would increase by 3.5% per annum above the base interest rate. Accrued and unpaid interest will be payable in cash, except that during the continuance of a cash flow sweep period under the existing mortgage loan agreement, the Operating Partnership may defer the payment of interest which deferred amount would be added to the outstanding principal balance of the loans.

On the Closing Date, the Operating Partnership paid to the Initial Lenders an upfront commitment fee equal to $1.0 million. On May 24, 2017, the Operating Partnership paid an additional, and final, commitment fee of $1.0 million.

~~The Unsecured Term Loan documentation requires that the Company at all times maintain (i) a net worth of not less than $1.0 billion, and (ii) a leverage ratio not to exceed 60.0%.~~

~~The Unsecured Term Loan includes customary representations and warranties, covenants and indemnities. The Unsecured Term Loan also has~~ Facility contains customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, ~~failure to comply with covenants,~~ material inaccuracy of ~~representation~~representations or ~~warranty,~~warranties, and bankruptcy or insolvency proceedings. If there is an event of default, the ~~Lenders~~lenders may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights they might have under any of the ~~Unsecured~~ Term Loan Facility documents, and require the ~~Operating Partnership~~Company to pay a default interest rate on overdue amounts equal to ~~1.50%~~2.0% in excess of the then applicable ~~base~~ interest rate.

As of September 30, 2021, the Company was not in compliance with certain of the financial metrics described above. As a result, the Company must receive the consent of Berkshire Hathaway to dispose of assets via sale or joint venture and, as of September 30, 2021, Berkshire Hathaway had provided such consent for all such transactions submitted for approval. There can be no assurance that the lender will consent to future dispositions of assets. The Company believes it is ~~currently~~ in compliance with all ~~material~~other terms and conditions of the ~~Unsecured~~ Term ~~Loan.~~Loan Agreement.

~~Mr. Edward S. Lampert,~~The Company incurred $2.1 million of debt issuance costs related to the Term Loan Facility which are recorded as a direct deduction from the carrying amount of the Term Loan Facility and amortized over the term of the Term Loan Agreement. As of September 30, 2021 and December 31, 2020, the unamortized balance of the Company’s ~~Chairman,~~debt issuance costs were $0.8 million and $1.1 million, respectively.

On May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment to the Term Loan Agreement by and among the Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the Term Loan Agreement if, as of the first day of each applicable month, (x) the amount of unrestricted and unencumbered (other than liens created under the Term Loan Agreement) cash on hand of the Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or less than $30.0 million. In such instances, for each interest period, the ~~Chairman~~Operating Partnership is obligated to make payments of interest in an amount equal to the difference between (i) Available Cash and ~~Chief Executive Officer~~(ii) $20.0 million (provided that such payment shall not exceed the amount of ~~ESL, which controls JPP, LLC~~current interest otherwise due under the Term Loan Agreement). Any deferred interest shall accrue interest at 2.0% in excess of the then applicable interest rate and ~~JPP II, LLC.~~shall be due and payable on July 31, 2023; provided, that the Operating Partnership is required to pay any deferred interest from Available Cash in excess of $30.0 million (unless otherwise agreed

- 20 -

to by the administrative agent under the Term Loan Agreement in its sole discretion). In addition, repayment of any outstanding deferred interest is a condition to any borrowings under the $400.0 million Incremental Funding Facility under the Term Loan Agreement. The Company has paid all interest due under the Term Loan Agreement and has not deferred any interest as permitted under the amendment to the Term Loan Agreement.

Additionally, the amendment to the Term Loan Agreement provides that the administrative agent and the lenders express their continued support for asset dispositions, subject to the administrative agent’s right to approve the terms of individual transactions due to the ~~Unsecured~~occurrence of a Financial Metric Trigger Event, as such term is defined under the Term Loan ~~were approved by the Company’s Audit Committee and the Company’s Board of Trustees (with Mr. Edward S. Lampert recusing himself).~~Facility.

~~- 21 -~~

Note 7 – Income Taxes

The Company has elected to be taxed as a REIT as defined under Section 856(c) of the Code for federal income tax purposes and expects to continue to operate to qualify as a REIT. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to currently distribute at least ~~90%~~90% of its adjusted REIT taxable income to its shareholders.

As a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to its shareholders. If the Company fails to qualify as a REIT or does not distribute 100% of its taxable income in any taxable year, it will be subject to U.S. federal ~~taxes~~income tax at regular corporate rates (including for any taxable year ended on or before December 31, 2017, any applicable alternative minimum tax) and any applicable state and local income taxes. In addition, if the Company fails to qualify as a REIT, it may not be able to qualify as a REIT for four subsequent taxable ~~years.~~years in some cases.

Even if the Company qualifies for taxation as a REIT, the Company is subject to certain U.S. state, local and Puerto Rico taxes on its income and property, and to U.S. federal income and excise taxes on its undistributed REIT taxable income. The Company’s taxable REIT subsidiaries are subject to U.S. corporate income tax.

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.

~~Financial~~

Assets ~~and Liabilities~~ Measured at Fair Value on a ~~Recurring or Non-Recurring~~Nonrecurring Basis

~~All derivative instruments are carried~~

Assets measured at fair value on a nonrecurring basis on our condensed consolidated balance sheets consist of real estate assets that have been written down to estimated fair value and are ~~valued using~~classified as Level 2 input. The Company’s derivative instruments as of September 30, 2017 and December 31, 2016 consisted of a single interest rate cap. The Company utilizes an independent third party and interest rate market pricing models to assist management in determining3 within the fair value ~~of this instrument.~~hierarchy.

~~The fair value of~~

During the ~~Company’s interest rate cap at~~three and nine months ended September 30, ~~2017~~2021, in accordance with ASC 360-10, Property, Plant and ~~December 31, 2016 was less than $0.1~~Equipment, the Company recorded impairment losses of $3.8 million and ~~approximately $0.7~~$70.1 million, respectively, ~~and is~~on real estate assets which are included ~~as a component of prepaid expenses, deferred expenses and other~~in impairment on real estate assets ~~on the condensed consolidated balance sheets.~~

~~The Company has elected not to utilize hedge accounting, and therefore, the change in fair value is included~~ within ~~change in fair value of interest rate cap on~~ the condensed consolidated statements of operations. ~~For~~In the second quarter of 2021, the Company announced an organizational restructuring and in conjunction commenced a portfolio review resulting in the modification of the plan for certain assets. As a result of the foregoing, the Company’s intent, anticipated holding periods and/or projected cash flows with respect to certain assets has evolved. This affected the Company’s view of recoverability of the carrying value of those assets over their respective holding periods. Of the $64.5 million of impairments recorded during the second quarter, approximately $30.6 million resulted from the Company’s decision to monetize additional assets through sales or development joint ventures. The $3.8 million of impairment losses recorded during the three months ended September 30, ~~2017, the Company recorded a loss~~2021 relate to 5 properties, which are being marketed for sale. We continue to evaluate our portfolio, including our development plans and holding periods, which may result in additional impairments in future periods on our consolidated properties and investments in unconsolidated entities. Impairment losses of ~~$0.1~~$14.6 million ~~compared to a loss of less than $0.1~~and $16.4 million were recognized for the three ~~months ended September 30, 2016. For the~~and nine months ended September 30, ~~2017,~~2020, respectively.

- 21 -

The fair value estimates used to determine the ~~Company recorded a loss~~impairment charges were determined primarily by discounted cash flow analyses, market comparable data, and/or third-party appraisals, as applicable. The cash flows utilized in such analyses are comprised of ~~$0.7 million compared~~unobservable inputs which include, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates based upon market conditions and future expectations. The capitalization rates and discount rates used in the analysis ranged from 6.0% and 12.0%. Comparable data utilizes comparable sales, listings, sales contracts and letters of intent which are subject to ~~a loss~~judgment as to comparability to the valued property. Because of ~~$1.9 million for~~these inputs, we have determined that the ~~nine months ended September 30, 2016.~~fair values of these properties are classified within Level 3 of the fair value hierarchy.

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 ~~debt obligations.~~the term loan facility. The fair value of cash equivalents isand restricted cash are classified as Level 1 and the fair value of ~~debt obligations~~term loan facility is classified as Level 2.

Cash equivalents and restricted cash are carried at cost, which approximates fair value. The fair value of debt obligations is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings. As of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the estimated fair values of the Company’s debt obligations were ~~$1.3~~$1.7 billion and ~~$1.2~~$1.6 billion, respectively, which approximated the carrying value at such dates as the current risk-adjusted rate approximates the stated rates on the Company’s debt obligations.

~~- 22 -~~

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 ~~2020.~~2027.

Insurance premiums are charged directly to each of the ~~retail~~ properties. The Company ~~or its tenants may~~will be responsible for deductibles and losses in excess of insurance coverage, which ~~losses~~ could be ~~material, subject to the terms of the respective tenant leases.~~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. The Company does not believe that any resulting liability from such matters will have a material effect on the condensed consolidated financial position, results of operations, or liquidity of the Company.

Under the Original Master Lease ~~Sears Holdings has indemnified~~and the Holdco Master Lease, Holdco is required to indemnify the Company from certain environmental liabilities at the ~~Wholly Owned~~Consolidated Properties ~~existing~~ before or ~~caused by Sears Holdings~~ during the period in which each ~~Wholly Owned~~Consolidated Property iswas leased to ~~Sears Holdings,~~Holdco, including removal and remediation of all affected facilities and equipment constituting the automotive care ~~center facilities (and each JV Master Lease includes a similar requirement~~center. In addition, an environmental reserve was funded at the closing of ~~Sears Holdings).~~the transactions in connection with the Company commencing operations in the amount of approximately $12.0 million. As of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the ~~Company had~~balance of the environmental reserve was approximately ~~$11.2~~$9.5 million and ~~$11.8~~$9.5 million, respectively, ~~of restricted cash~~and is included in ~~a lender reserve account to fund potential environmental costs that were identified during due diligence related to~~accounts payable, accrued expenses and other liabilities in the ~~Transaction.~~condensed consolidated balance sheets.

Litigation and Other Matters

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued or ~~disclose~~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. ~~In such cases,~~

On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, and the Company, ~~discloses~~ the ~~nature~~Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD). The Litigation alleges, among

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other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the execution of the ~~contingency,~~Original Master Lease with Sears Holdings, and ~~an estimate~~the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $649 to $749 million more than the purchase price paid. The Litigation seeks as relief, among other things, declaratory relief, avoidance of the ~~possible loss, range~~allegedly actual and/or constructive fraudulent transfers and either (i) rescission of ~~loss,~~the transfers of real estate from Sears Holdings to Seritage in 2015 and return of the proceeds of the transactions between Sears Holdings and Seritage, or, ~~disclose~~in the ~~fact~~alternative, (ii) payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.

On October 15, 2019, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Modified Second Amended Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the “Chapter 11 Plan”). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter 11 Plan, a liquidating trust will be formed, and the Litigation will vest in the liquidating trust. The Confirmation Order further provides that, ~~an estimate cannot~~prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation shall be ~~made.~~controlled by five litigation designees selected by Sears Holdings and the Unsecured Creditors’ Committee (the “UCC”). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement, each of which has been publicly filed with the Bankruptcy Court.

On February 21, 2020, the Seritage defendants filed a partial motion to dismiss seeking dismissal of the claims in the operative complaint in the Litigation relating to the release received in the Sears Holdings derivative litigation, unjust enrichment, and equitable subordination. Briefing and oral argument on the motions have been completed, and the parties are awaiting a decision.

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

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.~~business and due to the current environment. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material effect on the condensed consolidated financial position, results of operations, cash flows or liquidity of the Company. As of September 30, 2021, and December 31, 2020, the Company did not record any amounts for litigation or other matters.

Note 10 – Related Party Disclosure

Edward S. Lampert

Edward S. Lampert ~~is Chairman and Chief Executive Officer of Sears Holdings and~~ is the Chairman and Chief Executive Officer of ~~ESL. Mr. Lampert beneficially owned approximately 53.9%~~ESL, which owns Holdco, and was Chairman of Sears ~~Holdings’ outstanding common stock at September 30, 2017.~~Holdings. Mr. Lampert is also the Chairman of Seritage.

As of September 30, ~~2017,~~2021, Mr. Lampert beneficially owned a ~~39.1%~~22.1% interest in the Operating Partnership and approximately ~~3.8% and 100%~~9.3% of the outstanding Class A common ~~shares~~shares.

Subsidiaries of Holdco, as lessees, and ~~Class B non-economic common shares, respectively.~~

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

~~Unsecured Term Loan~~Unconsolidated Entities

~~On February 23, 2017, the Operating Partnership, as borrower,~~ ~~and~~Certain unconsolidated entities have engaged the Company~~, as guarantor, entered into a $200.0 million senior unsecured delayed draw term loan facility with JPP, LLC~~ to provide management, leasing, construction supervision and ~~JPP II, LLC as lenders, and JPP, LLC as administrative agent.~~

~~- 23 -~~

~~Edward S. Lampert,~~development services at the properties owned by the unconsolidated entities. Refer to Note 2 for the Company’s ~~Chairman, is~~significant accounting policies.

In addition, as of September 30, 2021, the ~~Chairman and Chief Executive Officer~~Company had incurred $0.2 million of ~~ESL,~~development expenditures at properties owned by certain unconsolidated entities for which ~~controls JPP, LLC and JPP II, LLC. The terms of~~ the ~~unsecured delayed draw term loan facility were approved~~Company will be repaid by the ~~Company’s Audit Committee and the Company’s Board of Trustees (with Mr. Edward S. Lampert recusing himself).~~

~~Transition Services Agreement~~

On July 7, 2015, the Operating Partnership and Sears Holdings Management Corporation (“SHMC”), a wholly owned subsidiary of Sears Holdings, entered into a transition services agreement (the “Transition Services Agreement” or “TSA”). Pursuant to the TSA, SHMC was to provide certain limited services to the Operating Partnership during the period from the closing of the Transaction through the 18-month anniversary of the closing. On January 7, 2017, the TSA expired by its terms.

During the three and nine months ended September 30, 2017 the Company did not incur any fees under the TSA. During the three and nine months ended September 30, 2016, the Company incurred fees of approximately $0.1 million for certain accounting and tax services provided in support of the Company’s 2015 yearend activities.respective unconsolidated entities. These ~~fees~~amounts are included in ~~general~~tenant and ~~administrative expenses~~other receivables, net on the Company’s condensed consolidated ~~statements~~balance sheets. As of ~~operations.~~December 31, 2020, the Company had incurred $5.0 million of such development expenditures.

- 23 -

Note 11 – Non-Controlling Interests

Partnership Agreement

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

~~During the nine months ended September 30, 2017, 2,344,589 Operating Partnership units were converted to Class A common shares.~~

As of September 30, ~~2017,~~2021, the Company held a ~~60.9%~~77.9% interest in the Operating Partnership and ESL held a ~~39.1%~~22.1% interest. The portions of consolidated entities not owned by the Company are presented as non-controlling interest as of and during the periods presented.

Note 12 – Shareholders’ Equity

Class A Common Shares

During the nine months ended September 30, 2017, 2,344,589 Operating Partnership units were converted to Class A common shares and 197,176 net Class A common shares were converted to Class C non-voting common shares.

As of September 30, ~~2017, 28,001,411~~2021, 43,631,345 Class A common shares were issued and outstanding.

~~Subsequent to September 30, 2017, 671,231 net Class C non-voting common shares were converted to~~ Class A ~~common shares.~~

~~Class B Non-Economic Common Shares~~

shares have a par value of $0.01 per share. During the nine months ended September 30, ~~2017, 154,098~~2021, 4,647,943 Operating Partnership Units (“OP Units”) were issued and exchanged for an equal number of Class A shares.

Class B Non-Economic Common Shares

As of September 30, 2021, there were 0 Class B non-economic common shares ~~were surrendered to the Company.~~

~~As of September 30, 2017, 1,434,922 Class B non-economic common shares were~~ issued and outstanding.

Series A Preferred Shares

In December 2017, the Company issued 2,800,0007.00% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”) in a public offering at $25.00 per share. The ~~Class B non-economic common shares~~Company received net proceeds from the offering of approximately $66.4 million, after deducting payment of the underwriting discount and offering expenses.

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

~~Class C Non-Voting Common Shares~~Dividends and Distributions

~~During~~The Company’s Board of Trustees has not declared dividends on the ~~nine months ended September 30, 2017, 197,176 net~~Company’s Class A common shares ~~were converted to Class C non-voting common shares.~~during 2021 or 2020.

As of September 30, 2017, 5,951,861 Class C non-voting common shares were issued and outstanding. The Class C non-voting common shares have economic rights, but do not have voting rights. Upon any transfer of a Class C non-voting common share to any person other than an affiliate of the holder of such share, such share shall automatically convert into one Class A common share.

~~Subsequent to September 30, 2017, 671,231 net Class C non-voting common shares were converted to Class A common shares.~~

~~- 24 -~~

~~Dividends and Distributions~~

The Company’s Board of Trustees declared the following ~~common stock~~ dividends on preferred shares during ~~2017~~2021 and ~~2016, with holders of Operating Partnership units entitled to an equal distribution per Operating Partnership unit held~~2020:


			Series A
Declaration Date	Record Date	Payment Date	Preferred Share
2021
October 26	December 31	January 14, 2022	$	0.43750
July 27	September 30	October 15		0.43750
April 27	June 30	July 15		0.43750
February 23	March 31	April 15		0.43750
2020
December 17	December 31	January 15, 2021	$	0.43750
September 17	September 30	October 15		0.43750
June 9	June 30	July 15		0.43750
February 18	March 31	April 15		0.43750

- 24 -

the Company’s investment opportunities and its expectations of taxable income for the remainder of 2021. The Company intends to, at a minimum, make distributions to its shareholders to comply with the REIT requirements of the Code, which may be satisfied by dividends on the Company’s Series A Preferred Shares.

Dividends per

Class A and Class C

Declaration Date

Record Date

Payment Date

Common Share

2017

October 24

December 29

January 11, 2018

$
0.25

July 25

September 29

October 12

0.25

April 25

June 30

July 13

0.25

February 28

March 31

April 13

0.25

2016

November 1

December 31

January 12, 2017

$
0.25

August 2

September 30

October 13

0.25

May 3

June 30

July 14

0.25

March 8

March 31

April 14

0.25

Note 13 – Earnings per Share

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

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

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

(in thousands except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Numerator

Net income (loss)

$
17,276

$
(37,247
)

$
(50,435
)

$
(64,526
)
Net (income) loss attributable to non-controlling interests

(6,762
)

16,145

19,892

27,972

Net income (loss) attributable to common shareholders

$
10,514

$
(21,102
)

$
(30,543
)

$
(36,554
)
Earnings allocated to unvested participating securities

(21
)

-

-

-

Net income (loss) available to common shareholders -
   Basic and diluted

$
10,493

$
(21,102
)

$
(30,543
)

$
(36,554
)

Denominator

Weighted average Class A common shares
   outstanding

27,758

25,671

27,810

25,443

Weighted average Class C common shares
   outstanding

6,016

5,748

5,875

5,971

Weighted average Class A and Class C
   common shares outstanding -  Basic

33,774

31,419

33,685

31,414

Restricted shares and share units

67

-

-

-

Weighted average Class A and Class C
   common shares outstanding - Diluted

33,841

31,419

33,685

31,414

Net income (loss) per share attributable to Class A and
   Class C common shareholders - Basic

$
0.31

$
(0.67
)

$
(0.91
)

$
(1.16
)
Net income (loss) per share attributable to Class A and
   Class C common shareholders - Diluted

$
0.31

$
(0.67
)

$
(0.91
)

$
(1.16
)


(in thousands except per share amounts)	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Numerator - Basic and Diluted
Net loss		(26,349	)		(72,401	)		(132,586	)		(103,272	)
Net loss attributable to non-controlling interests		5,815			22,348			31,492			32,627
Preferred dividends		(1,225	)		(1,225	)		(3,675	)		(3,675	)
Net loss attributable to common shareholders - Basic and diluted	$	(21,759	)	$	(51,278	)	$	(104,769	)	$	(74,320	)

Denominator - Basic and Diluted
Weighted average Class A common shares outstanding		43,631			38,645			41,976			38,172
Weighted average Class A common shares outstanding - Basic		43,631			38,645			41,976			38,172
Restricted shares and share units		—			—			—			—
Weighted average Class A common shares outstanding - Diluted		43,631			38,645			41,976			38,172

Net loss per share attributable to Class A common shareholders - Basic	$	(0.50	)	$	(1.33	)	$	(2.50	)	$	(1.95	)
Net loss per share attributable to Class A common shareholders - Diluted	$	(0.50	)	$	(1.33	)	$	(2.50	)	$	(1.95	)

~~- 25 -~~

No adjustments were made to the numerator for the three ~~months ended September 30, 2016 or the~~and nine months ended September 30, ~~2017 or September 30, 2016~~2021 and 2020 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 ~~months ended September 30, 2016 or the~~and nine months ended September 30, ~~2017 or September 30, 2016~~2021 and 2020 because (i) the inclusion of outstanding non-vested restricted shares would have had an anti-dilutive effect and (ii) including the non-controlling interest in the Operating Partnership would also require that the share of the Operating Partnership loss attributable to such interests be added back to net loss, therefore, resulting in no effect on earnings per share.

As of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, there were ~~245,570~~169,768 and ~~216,348~~157,465 shares, respectively, of non-vested restricted shares ~~and share units~~ outstanding.

- 25 -

Note 14 – ~~Stock Based~~Share-Based Compensation

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

Restricted Shares and Share Units

Pursuant to the Plan, the Company has periodically made grants of restricted shares or share ~~units during the nine months ended September 30, 2017 and September 30, 2016, as well as the period from July 7, 2015 (Date Operations Commenced) through December 31, 2015.~~units. The vesting terms of these grants are specific to the individual grant and vary in that a portion of the restricted shares and share units vest in equal annual amounts over the ~~next~~ subsequent three years (time-based vesting) and a portion of the restricted shares and share units vest on the third, and in some instances, the fourth anniversary of the grants subject to the achievement of certain performance criteria (performance-based and market-based vesting). ~~As of September 30, 2017, the performance criteria have not been met for any outstanding restricted shares or share units with performance-based vesting.~~

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

The following table summarizes restricted share activity for the nine months ended September 30, ~~2017:~~2021:



	Nine Months Ended September 30, 2017					Nine Months Ended September 30,
				Weighted-					Weighted-
				Average Grant					Average Grant
	Shares			Date Fair Value		Shares			Date Fair Value
Unvested restricted shares at beginning of period		216,348		$	38.98		157,465		$	38.73

Restricted shares granted		62,135			45.23
Share units granted							189,349			21.39
Restricted shares vested		(32,345	)		33.02		(143,899	)		37.30
Restricted shares forfeited		(568	)		45.23		(33,147	)		29.65

Unvested restricted shares at end of period		245,570		$	41.33		169,768			22.38

The Company recognized ~~$0.4~~$0.4 million and ~~$0.3~~$1.4 million in compensation expense related to the restricted shares for the three months ended September 30, ~~2017~~2021 and ~~September 30, 2016,~~2020, respectively and ~~$1.2~~$1.5 million and ~~$0.82~~$3.2 million ~~in compensation expense related to the restricted shares~~ for the nine months ended September 30, ~~2017~~2021 and ~~September 30, 2016,~~2020, respectively. ~~Such~~Compensation expenses related to the restricted shares are included in general and administrative expenses on the ~~Company's~~Company’s condensed consolidated statements of operations.

As of September 30, ~~2017,~~2021, there were approximately ~~$10.2~~$3.2 million of total unrecognized compensation costs related to the outstanding restricted ~~shares.~~

~~- 26 -~~

~~Note 15 – Accounts Payable, Accrued Expenses and Other Liabilities~~

~~The following table summarizes the significant components~~shares which are expected to be recognized over a weighted-average period of ~~accounts payable, accrued expenses and other liabilities as~~approximately 2.1 years. As of September 30, ~~2017 and December 31, 2016 (in thousands):~~

September 30, 2017

December 31, 2016

Accounts payable and accrued expenses

$
21,905

$
22,424

Accrued real estate taxes

21,576

23,942

Unearned tenant reimbursements

17,133

4,039

Below-market leases

14,998

16,827

Dividends payable

14,648

14,132

Environmental reserve

11,322

11,584

Prepaid rental income

3,875

1,979

Accrued interest

3,444

3,004

Deferred maintenance

2,581

4,124

Litigation charge

—

19,000

Total accounts payable, accrued expenses and other
liabilities

$
111,482

$
121,055

~~Note 16 – Subsequent Events~~

Subsequent to September 30, 2017, the Company agreed to sell to Simon the Company’s 50% interest in five of the ten assets in the Simon JV for $68.0 million, subject to certain closing conditions. Upon closing, which is expected in the fourth quarter of 2017, the Company would realize2020, there were approximately ~~$7.0~~$5.7 million of ~~value creation above its basis across~~total unrecognized compensation costs related to the ~~five properties~~outstanding restricted shares which were expected to be recognized over a weighted-average period of approximately 1.7 years.

- 26 -

Item 2. Management’s Discussion and ~~generate unrestricted cash proceeds, after closing costs~~Analysis of Financial Condition and ~~any required tax distributions, to fund its redevelopment pipeline and for general corporate purposes.~~Results of Operations

~~The table below presents the properties sold in the transaction and the properties remaining in the Company’s JV with Simon:~~

~~Five Existing JV Assets to be Sold to Simon~~		~~Five Remaining Assets in JV with Simon~~
~~Retail Center~~	~~Location~~	~~Retail Center~~	~~Location~~
~~Brea Mall~~	~~Brea, CA~~	~~Barton Creek Square~~	~~Austin, TX~~
~~Burlington Mall~~	~~Burlington, MA~~	~~Briarwood Mall~~	~~Ann Arbor, MI~~
~~Midland Park Mall~~	~~Midland, TX~~	~~Santa Rosa Plaza~~	~~Santa Rosa, CA~~
~~Ross Park Mall~~	~~Pittsburgh, PA~~	~~The Shops at Nanuet~~	~~Nanuet, NY~~
~~Ocean County Mall~~	~~Toms River, NJ~~	~~Woodland Hills Mall~~	~~Tulsa, OK~~

~~- 27 -~~

~~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,” ~~“will,”~~ “would,” “may” or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. 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

Seritage Growth Properties (NYSE: SRG), a Maryland real estate investment trust formed on June 3, 2015, is 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”). Seritage’s assets are held by and its operations are primarily conducted through, directly or indirectly, 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”, “we,” “us,” and “our” as used herein refer to Seritage, the Operating Partnership, and its owned and controlled subsidiaries.

We are principally engaged in the ~~acquisition,~~ ownership, development, redevelopment, management and leasing of diversified retail ~~real estate~~and mixed-use properties throughout the United States. As of September 30, ~~2017,~~2021, our portfolio ~~included over 40.0~~consisted of interests in 170 properties comprised of approximately 10.0 million square feet of gross leasable area (“GLA”) or build-to-suit leased area, approximately 4.0 million of which is held by unconsolidated entities (the “Unconsolidated Properties”), ~~consisting of 230 Wholly Owned Properties totaling over 35.4~~approximately 600 acres held for or under development and approximately 10.0 million square feet or approximately 850 acres to be disposed of.

In the second quarter of ~~GLA across 49 states~~2021, we announced an organizational restructuring and ~~Puerto Rico,~~in conjunction commenced a portfolio review resulting in the modification of the plan for certain assets. We continue to evaluate our strategy and ~~interests~~at this time, we expect to reposition our portfolio into three business lines: residential developments, premier mixed-use assets, and multi-tenant retail destinations.

COVID-19 Pandemic

The Coronavirus (“COVID-19”) pandemic has caused and continues to cause significant impacts on the real estate industry in ~~28 JV Properties totaling approximately 5.1 million square feet~~the United States, including the Company’s properties.

As a result of ~~GLA across 15 states.~~the development, fluidity and uncertainty surrounding this situation, the Company expects that these conditions may change, potentially significantly, in future periods and results for the three and nine months ended September 30, 2021 may not be indicative of the impact of the COVID-19 pandemic on the Company’s business for future periods. As such, the Company cannot reasonably estimate the impact of COVID-19 on its financial condition, results of operations or cash flows over the foreseeable future.

As of September 30, 2017, 171 of the Company’s wholly-owned properties were leased to Sears Holdings pursuant to the Master Lease and operated under either the Sears or Kmart brand. At 85 properties, third-party tenants under direct leases occupy a portion of leasable space alongside Sears and Kmart, and 41 properties are leased only to third parties. A substantial majority of the space at the JV Properties is also leased to Sears Holdings under the JV Master Leases.

We generate revenues primarily by leasing our properties to tenants, including both Sears Holdings and third-party tenants, who operate retail stores (and potentially other uses) in the leased premises, a business model common to many publicly traded REITs. In addition to revenues generated under the Master Lease through rent payments from Sears Holdings,2021, we ~~generate revenue through leases to third-party tenants under existing and future leases for space at our properties.~~

The Master Lease provides us with the right to recapture up to approximately 50% of the space occupied by Sears Holdings at each of the 224 Wholly Owned Properties initially included in the Master Lease (subject to certain exceptions and limitations). In addition, Seritage has the right to recapture any automotive care centers which are free-standing or attached as “appendages” to the properties, and all outparcels or outlots and certain portions of parking areas and common areas. Upon exercise of this recapture right, we will generally incur certain costs and expenseshad collected 97% of rental income for the ~~separation of the recaptured space from the remaining Sears Holdings space~~three and can reconfigure and rent the recaptured space to third-party tenants on potentially superior terms determined by us and for our own account. We also have the right to recapture 100% of the space occupied by Sears Holdings at each of 21 identified Wholly Owned Properties by making a specified lease termination payment to Sears Holdings, after which we expect to be able to reposition and re-lease those stores on potentially superior terms determined by us and for our own account.

~~As of~~nine months ended September 30, 2017, we had exercised recapture rights at 45 properties, including 17 properties at which we exercised partial recapture rights, 17 properties at which we exercised 100% recapture rights (five of which were converted from partial recapture properties), 2021, and ~~11 properties at which we exercised our rights~~agreed to ~~recapture only automotive care centers or outparcels.~~

~~- 28 -~~

~~Effects of Natural Disasters~~

defer an additional 1%. While the Company ~~continues~~intends to ~~assess~~enforce its contractual rights under its leases, there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary.

Impairment of real estate assets and investments in unconsolidated entities

In the ~~impact~~second quarter of 2021, we announced an organizational restructuring and in conjunction commenced a portfolio review resulting in the modification of the ~~natural disasters (wildfires~~plan for certain assets. As a result of the foregoing, our intent, anticipated holding periods and/or projected cash flows with respect to certain assets evolved. This affected our view of recoverability of the carrying value of those assets over their respective holding periods. We have recognized $70.1 million of impairment losses in ~~California and Hurricanes Harvey, Irma, and Maria) that occurred during~~ the ~~quarter~~nine months ended September 30, 2017 on our operations our ability to collect rent from tenants, we do not believe these natural disasters will have a material impact on our operating results or financial position. All stores occupied by Sears Holdings31, 2021, which are ~~currently open for business and the Company has not experienced interruptions in rental payments nor does it expect to incur material capital expenditures to repair any property damage.~~

~~GGP Transactions~~

On July 12, 2017, the Company completed two transactions with GGP for gross consideration of $247.6 million whereby the Company (i) sold to GGP the Company’s 50% JV Interests in eight of the 12 assets in the GGP I JV for $190.1 million and recorded a gain of $43.7 million which is included in ~~gain~~impairment on ~~sale of interest in unconsolidated joint venture~~real estate assets within the condensed consolidated statements of ~~operations; and (ii) contributed five Wholly Owned Properties to the GGP II JV and sold a 50% interest~~operations, in ~~the new JV Properties to GGP for $57.5 million and recorded a gain of $13.0 million which is included in gain on sale of real estate within the condensed consolidated statements of operations.~~

Aspart as a result of ~~the transactions, the Company reduced amounts outstanding under its mortgage loan by $50.6 million~~this portfolio review. We continue to evaluate our portfolio, including our development plans and ~~received approximately $171.6 million of~~holding periods, which may result in additional ~~cash proceeds before closing costs, which it intends to use to fund its redevelopment pipeline and for general corporate purposes.~~

~~Simon Transaction~~

~~Subsequent to September 30, 2017, the Company agreed to sell to Simon the Company’s 50% JV Interests~~impairments in ~~five of the ten assets in the Simon JV for $68.0 million, subject to certain closing conditions.~~

~~Upon closing, which is expected in the fourth quarter of 2017, the Company would realize approximately $7.0 million of value creation above its basis across the five~~future periods on our consolidated properties and ~~generate unrestricted cash proceeds, after closing costs and any required tax distributions, to fund its redevelopment pipeline and for general corporate purposes.~~investments in unconsolidated entities.

- 27 -

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:~~include real estate taxes, repairs and maintenance, management ~~expenses,~~fees, insurance, ground lease costs and utilities; general and administrative expenses include payroll, office expenses, professional fees, and other administrative expenses; and interest expense is ~~primarily~~ on our ~~mortgage loans payable.~~term loan facility. In addition, we incur substantial non-cash charges for depreciation ~~and amortization on~~of our properties and ~~related~~amortization of intangible assets and ~~liabilities resulting~~liabilities.

Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020

The following table presents selected data on comparative results from the ~~Transaction.~~

~~We did not have any revenues or expenses until we completed the Transaction on July 7, 2015.~~

~~Rental Income~~

~~For~~Company’s condensed consolidated statements of operations for the three months ended September 30, ~~2017:~~

−

~~The Company recognized total rental income of $48.2 million~~2021, as compared to $45.6 million for the three months ended September 30, 2016. The $2.6 million increase was driven primarily by (i) termination fee income of $10.6 million and (ii) increased third-party rental income of $1.5 million, offset by (iii) reduced rental income under the Master Lease of $5.4 million and (iv) reduced straight-line rent of $4.1 million, in each case for the three months ended September 30, 2017 as compared to the prior year period.

−

Rental income attributable to Sears Holdings was $27.9 million (excluding termination fee income of $10.6 million and straight-line rental income of $(1.7) million), or 72.7% of total rental income earned in the period. For the prior year period, the comparable rental income attributable to Sears Holdings was $33.4 million, or approximately 79.0% of total rental income earned in the period.

−

~~Rental income attributable to third-party tenants was $10.5 million (excluding straight-line rental income of $0.6~~ million), or 27.3% of total rental income earned in the period. For the prior year period, the comparable rental income attributable to third-party tenants was $9.0 million, or approximately 21.0% of total rental income earned in the period.

~~- 29 -~~

−

Straight-line rent was ($1.1) million as compared to $3.0 million for the prior year period. The reduction in straight-line rent was primarily due to reduced rental income under the Master Lease and the amortization of accrued rental revenues related to the straight-line method of reporting that are deemed uncollectable as result of recapture and termination activity under the Master Lease.

~~For the nine months ended September 30, 2017:~~

−

The Company recognized total rental income of $139.5 million as compared to $136.7 million for the nine months ended September 30, 2016. The $2.8 million increase was driven primarily by (i) termination fee income of $17.4 million and (ii) increased third-party rental income of $5.2 million, offset by (iii) reduced rental income under the Master Lease of $11.0 million and (iv) reduced straight-line rent of $8.8 million, in each case for the nine months ended September 30, 2017 as compared to the prior year period.

−

Rental income attributable to Sears Holdings was $88.8 million (excluding termination fee income of $17.4 million and straight-line rental income of $0.1 million), or 74.7% of total rental income earned in the period. For the prior year period, the comparable rental income attributable to Sears Holdings was $99.8 million, or approximately 80.0% of total rental income earned in the period.

−

~~Rental income attributable to third-party tenants was $30.1 million (excluding straight-line rental income of $2.3~~ million), or 25.3% of total rental income earned in the period. For the prior year period, the comparable rental income attributable to third-party tenants was $25.0 million, or approximately 20.0% of total rental income earned in the period.

−

Straight-line rent was $2.4 million as compared to $11.2 million for the prior year period. The reduction in straight-line rent was primarily due to reduced rental income under the Master Lease and the amortization of accrued rental revenues related to the straight-line method of reporting that are deemed uncollectable as result of recapture and termination activity under the Master Lease.

On an annual basis, and taking into account all signed leases, including those which have not yet commenced rental payments, rental income attributable to third-party tenants would have represented approximately 45.4% of total annual base rental income as of September 30, 2017.

The increase in rental income attributable to third-party tenants, and the reduction in rental income attributable directly to Sears Holdings, are driven by the Company’s leasing and redevelopment activity, including signing leases with new, third-party tenants and recapturing space from Sears Holdings.

~~Tenant Reimbursements and Property Operating Expenses~~

~~Pursuant to the provisions of the Master Lease and many third-party leases, the Company is entitled to be reimbursed for certain property related expenses. For~~ the three months ended September 30, ~~2017 and September 30, 2016,~~2020 (in thousands):


	Three Months Ended September 30,
	2021		2020			$ Change
Revenue
Rental income	$	28,819	$	33,966		$	(5,147	)
Expenses
Property operating		11,585		11,154			431
Real estate taxes		8,542		9,487			(945	)
Depreciation and amortization		13,159		23,647			(10,488	)
General and administrative		8,780		11,203			(2,423	)
Gain / (loss) on sale of real estate, net		22,774		(14,706	)		37,480
Impairment of real estate assets		3,814		14,594			(10,780	)
Interest expense		26,721		22,742			3,979

Rental Income

The following table presents the ~~Company recorded tenant reimbursement~~results for rental income of $15.9 million and $12.0 million, respectively, compared to property operating expenses and real estate tax expense aggregating of $15.6 million and $12.5 million, respectively. For the nine months ended September 30, 2017 and September 30, 2016, the Company recorded tenant reimbursement income of $47.8 million and $45.7 million, respectively, compared to property operating expenses and real estate tax expense aggregating of $49.7 million and $48.3 million, respectively.

~~Depreciation and Amortization Expenses~~

~~Depreciation and amortization expenses consist of depreciation of real property, depreciation of furniture, fixtures and equipment, and amortization of certain lease intangible assets.~~

~~For~~for the three months ended September 30, ~~2017,~~2021, as compared to the ~~Company~~corresponding period in 2020 (in thousands):


	Three Months Ended September 30,					Three Months Ended September 30,
	2021					2020
	Rental Income		% of Total Rental Income			Rental Income		% of Total Rental Income			$ Change
Sears/Kmart	$	—		0.0	%	$	5,997		17.7	%	$	(5,997	)
In-place diversified, non-Sears leases		27,812		96.5	%		24,654		72.6	%		3,158
Straight-line rent		1,004		3.5	%		1,775		5.2	%		(771	)
Amortization of the above/below market leases		3		0.0	%		1,540		4.5	%		(1,537	)
Total rental income	$	28,819		100.0	%	$	33,966		100.0	%	$	(5,147	)

The decrease of $6.0 million in Sears or Kmart rental income during 2021 is due to the termination of the Holdco Master Lease in 2020. As of March 15, 2021, Sears no longer occupies any space in the portfolio.

The increase of $3.2 million in diversified tenants rental income during 2021 is primarily due to newly commenced leases, offset by reductions related to properties sold and a reduction to rental revenue record as a result of the Company’s evaluation of collectability of its rental revenue recorded in the third quarter of 2020.

The decrease of $0.8 million in straight-line rental income during 2021 was primarily due to (i) properties sold after the third quarter of 2020 and (ii) reserves for cash basis tenants.

The decrease of $1.5 million in amortization of above/below market leases during 2021 was due primarily to the termination of certain leases previously acquired by the Company.

- 28 -

Property Operating Expenses and Real Estate Taxes

The increase of $0.4 million in property operating expense for the three months ended September 30, 2021 was due primarily to an increase in utilities costs for spaces previously occupied by Holdco, insurance and management fees incurred, offset by a reduction in expenses related to sold properties and a decrease in property repair costs.

The decrease of $0.9 million in real estate taxes for the three months ended September 30, 2021 was due primarily to asset sales, lower tax assessments and was partially offset by a decrease in amounts capitalized.

Depreciation and Amortization Expenses

The decrease of $10.5 million in depreciation and amortization expenses ~~of $61.1 million as compared~~for the three months ended September 30, 2021 was primarily due to ~~depreciation and amortization expenses of $44.5 million in the prior year period. The increase of $16.6 million was due primarily to approximately $30.2 million of additional~~recording accelerated amortization attributable to certain lease intangible assets offset by (i) approximately $11.0 million of lower scheduled amortization resulting from an increase in fully-amortized lease intangibles, (ii) approximately $2.1 million of lower depreciation resulting fromfor the accelerated depreciation in the prior year period of certain buildings that were demolished for redevelopment, and (iii) approximately $0.5 million of lower scheduled amortization and depreciation as a result of the contribution of five Wholly Owned Properties into the GGP II JV and sale of a 50% interest in the new JV Properties in July 2017.

~~For the nine~~three months ended September 30, ~~2017, the Company incurred~~2020, and lower depreciation and amortization expenses of $170.3 million as compared to depreciation and amortization expenses of $121.4 million in the prior year period. The increase of $48.9 million was due primarily to approximately (i) $67.6 million of additional accelerated amortization attributable to certain lease intangible assets and (ii) $1.1 million of additional accelerated depreciation in the current year period of certain buildings that were demolished for redevelopment, offsetexpense driven by (i) approximately $19.3 million of lower scheduled amortization resulting from an increase in fully-amortized lease intangibles and (ii) approximately $0.5 million of lower scheduled amortization and depreciation as a result of the contribution of five Wholly Owned Properties into the GGP II JV and sale of a 50% interest in the new JV Properties in July 2017.property sales.

~~- 30 -~~

Accelerated amortization results from the recapture of space from, or the termination of space, by ~~Sears Holdings.~~Holdco. Such recaptures and terminations are deemed lease modifications and require related lease intangibles to be amortized over the shorter of the shortened lease term or the remaining useful life of the asset.

General and Administrative Expenses

~~General and administrative expenses consist~~The decrease of ~~personnel costs, including stock-based compensation, professional fees, office expenses and overhead expenses.~~

~~For the three months ended September 30, 2017, the Company incurred~~$2.4 million in general and administrative expenses ~~of $5.3 million compared to general and administrative expenses of $4.3 million for the prior year period. The $1.0 million increase was driven primarily by increased personnel costs~~.

For the nine months ended September 30, 2017, the Company incurred general and administrative expenses of $16.6 million compared to general and administrative expenses of $13.1 million for the prior year period. The $3.5 million increase was driven primarily by ~~increased personnel costs and an increase in fees to firms providing professional services~~.

~~Acquisition-Related Expenses~~

The Company did not incur any acquisition-related expenses for the three or nine months ended September 30, 2017. For the three and nine months ended September 30, 2016, the Company recorded less than $0.1 million of acquisition-related expenses, primarily remaining legal fees.

~~Interest Expense~~

For the three months ended September 30, 2017, the Company incurred $18.0 million of interest expense (net of amounts capitalized) as compared to interest expense of $15.9 million for the prior year period. For the nine months ended September 30, 2017, the Company incurred $53.1 million of interest expense (net of amounts capitalized) as compared to interest expense of $47.3 million for the prior year period. The increase in interest expense in both periods was driven by higher average borrowings under the Future Funding Facility and Unsecured Term Loan, as well as higher average LIBOR rates.

~~Unrealized Loss on Interest Rate Cap~~

~~For the three months ended September 30, 2017, the Company recorded a loss of $0.1 million compared to a loss of less than $0.1 million~~ for the three months ended September 30, ~~2016. For~~2021 was driven by reductions in legal fees related to our litigation, stock-based compensation and salary expenses. This was partially offset by a $2.9 million increase in severance expenses and restructuring costs during the ~~nine~~three months ended September 30, ~~2017,~~2021.

Gain on Sale of Real Estate, Net

During the three months ended September 30, 2021, the Company sold three properties and pad sites for aggregate consideration of $76.9 million and recorded gains totaling $22.8 million, which are included in gain on sale of real estate, net within the condensed consolidated statements of operations.

Impairment of Real Estate Assets

During the three months ended September 30, 2021, the Company recognized $3.8 million in impairment on 5 real estate assets, which is included within the condensed consolidated statements of operations.

Interest Expense

The increase of $4.0 million in interest expense for the three months ended September 30, 2021 was driven by a ~~loss~~decrease in amounts capitalized.

Comparison of ~~$0.7 million compared~~the Nine Months Ended September 30, 2021 to ~~a loss~~the Nine Months Ended September 30, 2020

The following table presents selected data on comparative results from the Company’s condensed consolidated statements of ~~$1.9 million~~operations for the nine months ended September 30, ~~2016.~~2021, as compared to the nine months ended September 30, 2020 (in thousands):


	Nine Months Ended September 30,
	2021		2020		$ Change

Revenue
Rental income	$	87,560	$	88,724	$	(1,164	)
Expenses
Property operating		33,514		30,152		3,362
Real estate taxes		27,758		28,096		(338	)
Depreciation and amortization		39,629		81,446		(41,817	)
General and administrative		32,002		29,267		2,735
Gain on sale of real estate, net		65,079		59,959		5,120
Impairment of real estate assets		70,053		16,407		53,646
Interest expense		81,847		66,400		15,447

- 29 -

Rental Income

The following table presents the results for rental income for the nine months ended September 30, 2021, as compared to the corresponding period in 2020 (in thousands):


	Nine Months Ended September 30,					Nine Months Ended September 30,
	2021					2020
	Rental Income		% of Total Rental Income			Rental Income			% of Total Rental Income			$ Change
Sears or Kmart	$	4,510		5.2	%	$	13,302			15.0	%	$	(8,792	)
In-place diversified, non-Sears leases		80,978		92.5	%		77,367			87.2	%		3,611
Straight-line rent / (expense)		2,033		2.3	%		(3,621	)		-4.1	%		5,654
Amortization of above/below market leases		39		0.0	%		1,676			1.9	%		(1,637	)
Total rental income	$	87,560		100.0	%	$	88,724			100.0	%	$	(1,164	)

The decrease of $8.8 million in Sears or Kmart rental income during 2021 is due to a reduction in the number of properties leased to Sears or Kmart under the Holdco Master Lease, as a result of terminations. As of March 15, 2021, Sears no longer occupies space at any properties.

The increase of $3.6 million in diversified tenants rental income during 2021 is primarily due to newly commenced leases, offset by reductions related to properties sold and a reduction to rental revenue record as a result of the Company’s evaluation of collectability of its rental revenue recorded in the second quarter of 2020.

The increase of $5.7 million in straight-line rental income during 2021 was primarily due to (i) the reversal in 2020 of previously recorded straight-line rent and (ii) the commencement of new leases with fixed rent increases.

The decrease of $1.6 million in amortization of above/below market leases during 2021 was due primarily to the termination of certain leases previously acquired by the Company.

Property Operating Expenses and Real Estate Taxes

The increase of $3.4 million in property operating expense for the nine months ended September 30, 2021 was due primarily to lower capitalized expenses for the nine months ended September 30, 2021 and payments relating to the sales leaseback financing obligation effective October 1st 2020, partially offset by property sales.

The decrease of $0.3 million in real estate taxes for the nine months ended September 30, 2021 was due primarily to asset sales, lower tax assessments, and was partially offset by increasing assessed real estate taxes and a decrease in amounts capitalized.

Depreciation and Amortization Expenses

The decrease of $41.8 million in depreciation and amortization expenses for the nine months ended September 30, 2021 was primarily due to recording accelerated amortization attributable to certain lease intangible assets for the nine months ended September 30, 2020, and lower depreciation expense driven by property sales.

Accelerated amortization results from the recapture of space from, or the termination of space by Holdco. Such recaptures and terminations are deemed lease modifications and require related lease intangibles to be amortized over the shorter of the shortened lease term or the remaining useful life of the asset.

General and Administrative Expenses

The increase of $2.7 million in general and administrative expenses for the nine months ended September 30, 2021 was driven by a $5.1 million increase in severance and restructuring costs, director and officer ("D&O") insurance, and decreased capitalized wages. This was partially offset by a decrease in stock-based compensation and legal fees relating to our litigation.

- 30 -

Gain on Sale of Real Estate, Net

During the nine months ended September 30, 2021, the Company sold 14 properties and pad sites for aggregate consideration of $203.7 million and recorded gains totaling $65.1 million, which are included in gain on sale of real estate, net within the condensed consolidated statements of operations.

Impairment of Real Estate Assets

During the nine months ended September 30, 2021, the Company recognized $70.1 million in impairment of 34 real estate assets, which is included within the condensed consolidated statements of operations.

Interest Expense

The increase of $15.4 million in interest expense for the nine months ended September 30, 2021 was driven by a decrease in amounts capitalized and an increase of costs incurred relating to mortgage recording costs.

Liquidity and Capital Resources

~~Property rental income is our primary source of cash and is dependent on a number of factors, including occupancy levels and rental rates, as well as our tenants’ ability to pay rent.~~ Our primary uses of cash include the payment of property operating and other expenses, including general and administrative expenses and debt service ~~reinvestment in~~(collectively, “Obligations”), and ~~redevelopment~~certain development expenditures. Property rental income, which is the Company’s primary source of ~~properties,~~operating cash flow, did not fully fund Obligations incurred during the nine months ended September 30, 2021 and ~~distributions~~the Company recorded net operating cash outflows of $85.6 million. Additionally, the Company’s generated investing cash inflows of $95.8 million during the nine months ended September 30, 2021, which were driven by asset sales and partially offset by development expenditures.

Obligations are projected to ~~shareholders~~continue to exceed property rental income and ~~unitholders. We believe that~~ we ~~currently have sufficient liquidity~~expect to fund such ~~uses in~~obligations and any development expenditures with cash on hand and a combination of capital sources including, but not limited to the ~~form~~following, subject to any approvals that may be required under the Term Loan Agreement:



Sales of asConsolidated Properties. As of September 30, ~~2017, (i) $104.1~~2021, we had sold 82 Consolidated Properties, and additional outparcels at certain properties, and generated approximately $795.2 million of ~~unrestricted cash, (ii) $202.5~~gross proceeds since we began our capital recycling program in July 2017.



Sales of interests in Unconsolidated Properties. As of September 30, 2021, we had sold our interests in 15 Unconsolidated Properties and generated approximately $278.1 million of ~~restricted cash, (iii) anticipated cash provided by operations; and subsequent~~gross proceeds since July 2017. Certain of our unconsolidated entity agreements also include rights that allow us to sell our interests in select Unconsolidated Properties to our partners at fair market value;



New Unconsolidated Properties. As of September 30, ~~2017, unrestricted cash~~2021, we had contributed interests in 11 properties to unconsolidated entities, which generated approximately $212.4 million of gross proceeds ~~after~~since July 2017. In addition to generating liquidity upon closing, ~~costs and any required tax distributions, that we expect to receive as a result~~these entities also reduce our development expenditures by the amount of ~~selling certain JV Interests to Simon.~~our partners’ interests in the unconsolidated entities;



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



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

equity.

~~With respect~~As previously disclosed, on May 5, 2020, the Operating Partnership and Berkshire Hathaway entered into an amendment (the “Term Loan Amendment”) to the ~~Company’s Unsecured~~ Term Loan ~~due December 31, 2017,~~Agreement by and among the ~~Company may repay~~Operating Partnership and Berkshire Hathaway as initial lender and administrative agent that permits the ~~$85.0 million total principal amount outstanding~~deferral of payment of interest under the Term Loan Agreement if, as of ~~September 30, 2017 with~~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 ~~seek an extension~~ of the ~~maturity date,~~Operating Partnership and its subsidiaries, minus (y) the aggregate amount of anticipated necessary expenditures for such period (such sum, “Available Cash”) is equal to or ~~raise additional capital through a refinancing transaction or from~~less than $30.0 million. In such instances, for each interest period, the ~~proceeds~~Operating Partnership is obligated to make payments of ~~asset sales or new JVs.~~

~~In November 2016,~~interest in an amount equal to the ~~Company~~difference between (i) Available Cash and (ii) $20.0 million (provided that such payment shall not exceed the ~~servicer for our Mortgage Loans entered into amendments to our~~amount of current interest otherwise due under the Term Loan ~~Agreements to resolve a disagreement regarding one~~Agreement). Any deferred interest shall accrue interest at 2.0% in excess of the ~~cash flow sweep provisions in our Loan Agreements. The principal terms of these amendments are~~then applicable interest rate and shall be due and payable on July 31, 2023; provided, that the ~~Company has (i) posted~~Operating Partnership is required to pay any deferred interest from Available Cash in excess of $30.0 million ~~and will post $3.3 million on a monthly basis,~~(unless otherwise agreed to ~~a redevelopment project reserve account, which amounts may be used~~ by the ~~Company to fund redevelopment activity and (ii) extended~~administrative agent under the ~~spread maintenance provision for prepayment of the loan by two months through March 9, 2018 (with the spread maintenance premium for the second month at a reduced amount)~~Term Loan Agreement in its sole discretion).

- 31 -

~~The Company believes it~~In addition, repayment of any outstanding deferred interest is ~~currently~~a condition to any borrowings under the $400.0 million incremental funding facility under the Term Loan Agreement (the “Incremental Funding Facility”).

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

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

~~Summary of~~ Cash Flows for the nine months Ended September 30, 2021 Compared to the nine months Ended September 30, 2020

~~Net~~The following table summarizes the Company’s cash ~~provided by operating~~flow activities ~~was $56.9 million~~ for the nine months ended September 30, ~~2017~~2021 and ~~$100.1 million for the nine months ended September 30, 2016.~~ 2020 (in thousands):


	Nine Months Ended September 30,
	2021			2020			$ Change
Net cash (used in) operating activities	$	(85,566	)	$	(25,300	)	$	(60,266	)
Net cash provided by (used in) investing activities		95,820			(9,697	)		105,517
Net cash provided by financing activities		20			16,656			(16,636	)

Cash Flows from Operating Activities

Significant ~~changes in the~~ components of net cash ~~provided by~~used in operating activities include:

−	~~In 2017, a decrease in operating cash inflows due the payment of a previously recorded litigation expense;~~

−

~~In 2017, a decrease in operating cash inflows due to net reductions in rental income under the Master Lease and increased interest expense,~~

In 2021, a decrease in rental income and a decrease in accounts payable, accrued expenses and other liabilities, partially offset ~~by termination fee income and additional third-party rental income;~~

−	~~In 2016, an increase in operating cash inflows due to changes in operating assets and liabilities.~~

~~Net cash provided~~ by ~~investing activities was $40.2 million for the nine months ended September 30, 2017 compared to net cash used by investing activities of $47.2 million for the nine months ended September 30, 2016.~~ a decrease in tenant and other receivables.

Cash Flows from Investing Activities

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

−	~~In 2017, proceeds from the sale of real estate and JV Interests, $240.3 million;~~

−

In 2021, $195.2 million of net proceeds from the sale of real estate offset by development of real estate of ($77.6) million and investments in unconsolidated entities of ($31.7) million; and

−	~~In 2017, development of real estate and property improvements, ($164.1) million;~~

−

In 2020, development of real estate and property improvements of ($195.0) million and investments in unconsolidated entities of $(50.7) million, partially offset by $234.8 million of net proceeds from the sale of real estate.

−	~~In 2017, investments in unconsolidated joint ventures, ($36.0) million; and~~

−	~~In 2016, development of real estate and property improvements, ($47.2) million.~~

Net cash provided by financing activities was $69.9 million for the nine months ended September 30, 2017 compared to net cash used in financing activities of $36.4 million for the nine months ended September 30, 2016. Cash Flows from Financing Activities

Significant components of net cash provided by ~~and used~~financing activities include:

−

In 2021, contributions from noncontrolling interest in ~~financings activities include:~~

−	~~In 2017, proceeds from the Future Funding Facility, $80.0 million;~~

other partnerships, $4.0 million;

−	~~In 2017, proceeds from the Unsecured Term Loan, $85.0 million;~~

−

In 2021, cash payments of preferred dividends, ($3.7) million;

−	~~In 2017, repayment of mortgage loan payables, ($50.6) million;~~

−

In 2020, cash proceeds from sales-leaseback financing, $20.4 million;

−	~~In 2017, cash distributions to common stockholders and holders of Operating Partnership units, ($41.8) million; and~~

−

In 2020, cash payments of preferred dividends, ($3.7) million.

−	~~In 2016, cash distributions to common stockholders and holders of Operating Partnership units, ($55.7) million.~~

Dividends and Distributions

The Company’s Board of Trustees has not declared dividends on the Company’s Class A common shares during the nine months ended September 30, 2021.

- 32 -


			Series A
Declaration Date	Record Date	Payment Date	Preferred Share
2021
October 26	December 31	January 14, 2022	$	0.43750
July 27	September 30	October 15		0.43750
April 27	June 30	July 15		0.43750
February 23	March 31	April 15		0.43750
2020
December 17	December 31	January 15, 2021	$	0.43750
September 17	September 30	October 15		0.43750
June 9	June 30	July 15		0.43750
February 18	March 31	April 15		0.43750

As previously disclosed, the Company declared a dividend on the ~~record date:~~Company’s Class A common shares for the first quarter of 2019 and has not declared dividends on the Company’s Class A common shares since that time, based on our Board of Trustees’ assessment of the Company’s investment opportunities and its expectations of taxable income for the remainder of 2021. The Company intends to, at a minimum, make distributions to our shareholders to comply with the REIT requirements of the Code, which may be satisfied by dividends on the Company’s Series A Preferred shares.

Off-Balance Sheet Arrangements

The Company accounts for its investments in entities that it does not have a controlling interest in or is not the primary beneficiary using the equity method of accounting and those investments are reflected on the condensed consolidated balance sheets of the Company as investments in unconsolidated entities. As of September 30, 2021 and December 31, 2020, 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, 2020.

Capital Expenditures

During the three and nine months ended September 30, 2021 the Company invested $32.6 million and $77.6 million, respectively, in our consolidated development and operating properties and an additional $10.4 million and $31.7 million, respectively, into our unconsolidated joint ventures.

The Company also continued to advance its previously underway premier projects in Aventura (FL) and La Jolla (CA), and its pipeline of such projects, including its two previously announced multifamily projects, in Redmond (WA) and Dallas (TX), each of which represents the first phase of larger, mixed-use developments. A multifamily project in Lynwood (WA) in an Unconsolidated Entity is also underway and has been scheduled for opening in the fourth quarter of 2021.

During the three and nine months ended September 30, 2021, we incurred maintenance capital expenditures of approximately $1.7 million and $2.6 million, respectively, that were not associated with re-tenanting and redevelopment projects.

During the three and nine months ended September 30, 2020, we incurred maintenance capital expenditures of approximately $0.1 million and $2.6 million, respectively, that were not associated with re-tenanting and redevelopment projects.

Litigation and Other Matters

In accordance with accounting standards regarding loss contingencies, ~~the Company accrues~~we accrue 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~~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. ~~The Company does~~We do not record liabilities when the likelihood that the liability has been incurred is probable

~~- 32 -~~

but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. In such cases, ~~the Company discloses~~we disclose the nature of the contingency, and an estimate of the possible loss, range of loss, or disclose the fact that an estimate cannot be made.

- 33 -

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

On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring Committee of the Board of Directors of Sears Holdings Corporation, Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the “Litigation”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain members of the Sears Holdings board of directors, the Company, the Operating Partnership, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries collectively, the “Seritage Defendants”). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD).

The Litigation alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 constituted actual and/or constructive fraudulent transfers and/or illegal dividends by Sears Holdings. The challenged transactions include the July 2015 transactions giving rise to Seritage, the master lease agreement (the “Original Master Lease”) with Sears Holdings, and the acquisition of real estate from Sears Holdings. The Litigation alleges, among other things, that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth at least $649 to $749 million more than the purchase price paid. The Litigation seeks as relief, among other things, declaratory relief, avoidance of the allegedly actual and/or constructive fraudulent transfers and either (i) rescission of the transfers of real estate from Sears Holdings to Seritage in 2015, return of the proceeds of the transactions between Sears Holdings and Seritage, or (ii) in the alternative, payment by Seritage to Sears Holdings of damages at least equal to the value of the transferred property.

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

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

On March 2, 2021, the Company brought a lawsuit in Delaware state court against QBE Insurance Corporation, Endurance American

Insurance Company, Allianz Global Risks US Insurance Company and Continental Casualty Company, each of which are D&O

insurance providers of the Company (the “D&O Insurers”). The Company’s lawsuit is seeking, among other things, declaratory relief

and money damages as a result of certain of the D&O Insurers refusal to pay certain costs and expenses related to the defense of the

Litigation discussed above.

We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of ~~business.~~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~~ordinary course legal proceedings and claims will not have a material effect on the condensed consolidated financial position, results of operations ~~cash flows~~ or liquidity of the Company.

~~Off-Balance Sheet Arrangements~~- 34 -

Critical Accounting Policies

~~The Company accounts~~A summary of our critical accounting policies is included in our Annual Report on Form 10-K for ~~its investments~~the year ended December 31, 2020 in ~~joint ventures that it does not have a controlling interest or is not~~Management’s Discussion and Analysis of Financial Condition and Results of Operations. For the primary beneficiary using the equity method of accounting and those investments are reflected on the condensed consolidated balance sheets of the Company as investments in unconsolidated joint ventures. As ofnine months ended September 30, ~~2017 and December 31, 2016, we did not have any off-balance sheet financing arrangements.~~2021, there were no material changes to these policies.

~~- 33 -~~

~~Retenanting and Redevelopment Projects~~

We are currently retenanting or redeveloping several properties primarily to convert single-tenant buildings occupied by Sears Holdings into multi-tenant properties occupied by a diversity of retailers and related concepts. The table below provides a brief description of each of the 55 new redevelopment projects originated on the Seritage platform as of September 30, 2017. These projects represent an estimated total investment of $676.0 million, of which $520.5 million remained to be spent.

~~Total Project Costs under $10 Million~~

~~Total~~

~~Estimated~~

~~Project~~

~~Construction~~

~~Substantial~~

~~Property~~

~~Description~~

~~Square Feet~~

~~Start~~

~~Completion~~

~~King of Prussia, PA~~

~~Repurpose former auto center space for Outback Steakhouse, Yard House and small shop retail~~

~~29,100~~

~~Substantially complete~~

~~Merrillville, IN~~

~~Termination property; redevelop existing store for At Home, Powerhouse Gym and small shop retail~~

~~132,000~~

~~Substantially complete~~

~~Elkhart, IN~~

~~Termination property; existing store has been released to Big R Stores~~

~~86,500~~

~~Substantially complete~~

~~San Antonio, TX~~

~~Recapture and repurpose auto center space for Orvis, Jared's Jeweler, Shake Shack and small shop retail~~

~~18,900~~

~~Substantially complete~~

~~Bowie, MD~~

~~Recapture and repurpose auto center space for BJ's Brewhouse~~

~~8,200~~

~~Delivered to tenant~~

~~Albany, NY~~

~~Recapture and repurpose auto center space for BJ's Brewhouse and additional small shop retail~~

~~28,000~~

~~Underway~~

~~Q4 2017~~

~~Hagerstown, MD~~

~~Recapture and repurpose auto center space for BJ's Brewhouse, Verizon and additional restaurants~~

~~15,400~~

~~Underway~~

~~Q4 2017~~

~~Roseville, MI~~

~~Partial recapture; redevelop existing store for At Home~~

~~100,400~~

~~Underway~~

~~Q4 2017~~

~~Troy, MI~~

~~Partial recapture; redevelop existing store for At Home~~

~~100,000~~

~~Underway~~

~~Q4 2017~~

~~Henderson, NV~~

~~Termination property; redevelop existing store for At Home, Seafood City and additional retail~~

~~144,400~~

~~Underway~~

~~Q4 2017~~

~~Rehoboth Beach, DE~~

~~Partial recapture; redevelop existing store for Christmas Tree Shops andThat! and PetSmart~~

~~56,700~~

~~Underway~~

~~Q1 2018~~

~~Ft. Wayne, IN~~

~~Site densification; new outparcels for BJ's Brewhouse (substantially complete) and Chick-Fil-A (project expansion)~~

~~12,000~~

~~Underway~~

~~Q1 2018~~

~~Kearney, NE~~

~~Termination property; redevelop existing store for Marshall's, PetSmart and additional junior anchors~~

~~92,500~~

~~Underway~~

~~Q2 2018~~

~~Jefferson City, MO~~

~~Termination property; redevelop existing store for Orscheln Farm and Home~~

~~96,000~~

~~Underway~~

~~Q2 2018~~

~~Olean, NY~~

~~Partial recapture; redevelop existing store for Marshall's and additional retail~~

~~45,000~~

~~Underway~~

~~Q2 2018~~

~~Cullman, AL~~

~~Termination property; redevelop existing store for Bargain Hunt, Tractor Supply and Planet Fitness~~

~~99,000~~

~~Underway~~

~~Q3 2018~~

~~Guaynabo, PR~~

~~Partial recapture; redevelop existing store for Planet Fitness and Capri~~

~~56,100~~

~~Underway~~

~~Q3 2018~~

~~Roseville, CA~~

~~Recapture and repurpose auto center space for AAA~~

~~10,400~~

~~Q4 2017~~

~~Q2 2018~~

~~Dayton, OH~~

~~Recapture and repurpose auto center space for Outback Steakhouse and additional restaurants~~

~~14,100~~

~~Q4 2017~~

~~Q4 2018~~

~~Florissant, MO~~

~~Site densification; new outparcel for Chick-Fil-A~~

~~5,000~~

~~Q1 2018~~

~~Q3 2018~~

~~New Iberia, LA~~

~~Termination property; redevelop existing store for Rouses Supermarkets, additional junior anchors and small shop retail~~

~~93,100~~

~~Q1 2018~~

~~Q1 2019~~

~~North Little Rock, AR~~

~~Recapture and repurpose auto center space for LongHorn Steakhouse and additional small shop retail~~

~~17,300~~

~~Q2 2018~~

~~Q2 2019~~

~~St. Clair Shores, MI~~

~~100% recapture; demolish existing store and develop site for new Kroger store~~

~~107,200~~

~~Q2 2018~~

~~Q2 2019~~

~~Oklahoma City, OK~~

~~Site densification; new fitness center for Vasa Fitness~~

~~59,500~~

~~Q3 2018~~

~~Q3 2019~~

~~- 34 -~~

~~Total Project Costs $10 - $20 Million~~

~~Total~~

~~Estimated~~

~~Project~~

~~Construction~~

~~Substantial~~

~~Property~~

~~Description~~

~~Square Feet~~

~~Start~~

~~Completion~~

~~Braintree, MA~~

~~100% recapture; redevelop existing store for Nordstrom Rack, Saks OFF 5th and additional retail~~

~~90,000~~

~~Substantially complete~~

~~Honolulu, HI~~

~~100% recapture; redevelop existing store for Longs Drugs (CVS), PetSmart and Ross Dress for Less~~

~~79,000~~

~~Substantially complete~~

~~Madison, WI~~

~~Partial recapture; redevelop existing store for Dave & Busters, Total Wine & More, additional retail and restaurants~~

~~75,300~~

~~Underway~~

~~Q4 2017~~

~~West Jordan, UT~~

~~Partial recapture; redevelop existing store and attached auto center for Burlington Stores and additional retail~~

~~81,400~~

~~Underway~~

~~Q4 2017~~

~~Anderson, SC~~

~~100% recapture (project expansion); redevelop existing store for Burlington Stores, Sportsman's Warehouse, additional retail and restaurants~~

~~111,300~~

~~Underway~~

~~Q4 2017~~

~~Fairfax, VA~~

~~Partial recapture; redevelop existing store and attached auto center for Dave & Busters, Seasons 52, additional junior anchors and restaurants~~

~~110,300~~

~~Underway~~

~~Q1 2018~~

~~North Hollywood, CA~~

~~Partial recapture; redevelop existing store for Burlington Stores and additional junior anchors~~

~~79,800~~

~~Underway~~

~~Q1 2018~~

~~Saugus, MA~~

~~Partial recapture; redevelop existing store and detached auto center for Round One and restaurants~~

~~99,000~~

~~Underway~~

~~Q1 2018~~

~~Thornton, CO~~

~~Termination property; redevelop existing store for Vasa Fitness and additional junior anchors~~

~~191,600~~

~~Underway~~

~~Q1 2018~~

~~Orlando, FL~~

~~100% recapture; demolish and construct new buildings for Floor & Décor, Orchard Supply Hardware, LongHorn Steakhouse, Olive Garden, additional small shop retail and restaurants~~

~~139,200~~

~~Underway~~

~~Q2 2018~~

~~Springfield, IL~~

Termination property; redevelop existing store for Burlington Stores, Binny's Beverage Depot, Orange Theory Fitness, Outback Steakhouse, CoreLife Eatery, additional junior anchors and small shop retail

~~133,400~~

~~Underway~~

~~Q2 2018~~

~~North Miami, FL~~

~~100% recapture; redevelop existing store for Michael's, PetSmart and Ross Dress for Less~~

~~124,300~~

~~Underway~~

~~Q2 2018~~

~~Hialeah, FL~~

~~100% recapture; redevelop existing store for Bed, Bath & Beyond, Ross Dress for Less and additional junior anchors to join current tenant, Aldi~~

~~88,400~~

~~Underway~~

~~Q2 2018~~

~~Charleston, SC~~

~~100% recapture (project expansion); redevelop existing store and detached auto center for Burlington Stores and additional retail~~

~~126,700~~

~~Underway~~

~~Q3 2018~~

~~Warwick, RI~~

~~Termination property; repurpose auto center space for BJ's Brewhouse and additional retail~~

~~Redevelop existing store for At Home and Raymour & Flanigan (project expansion)~~

~~190,700~~

~~Underway~~

~~Q4 2018~~

~~Cockeysville, MD~~

~~Partial recapture; redevelop existing store for HomeGoods, Michael's Stores, additional junior anchors and restaurants~~

~~83,500~~

~~Q4 2017~~

~~Q2 2018~~

~~Salem, NH~~

~~Site densification; new theatre for Cinemark~~

~~Recapture and repurpose auto center for restaurant space.~~

~~71,200~~

~~Q4 2017~~

~~Q3 2018~~

~~Paducah, KY~~

~~Termination property; redevelop existing store for Burlington Stores and additional retail~~

~~102,300~~

~~Q1 2018~~

~~Q3 2018~~

~~Santa Cruz, CA~~

~~Partial recapture; redevelop existing store for TJ Maxx, HomeGoods and Petco~~

~~62,200~~

~~Q1 2018~~

~~Q4 2018~~

~~Temecula, CA~~

~~Partial recapture; redevelop existing store and detached auto center for Round One, small shop retail and restaurants~~

~~65,100~~

~~Q1 2018~~

~~Q4 2018~~

~~Canton, OH~~

~~Partial recapture; redevelop existing store for Dave & Busters and restaurants~~

~~83,900~~

~~Q1 2018~~

~~Q2 2019~~

~~North Riverside, IL~~

~~Partial recapture; redevelop existing store and detached auto center for Round One, additional junior anchors, small shop retail and restaurants~~

~~103,900~~

~~Q1 2018~~

~~Q3 2019~~

~~Austin, TX~~

~~Partial recapture; redevelop existing store for AMC Theatres, additional retail and restaurants~~

~~80,500~~

~~Q2 2018~~

~~Q3 2019~~

~~- 35 -~~

~~Total Project Costs over $20 Million~~

~~Total~~

~~Estimated~~

~~Project~~

~~Construction~~

~~Substantial~~

~~Property~~

~~Description~~

~~Square Feet~~

~~Start~~

~~Completion~~

~~Memphis, TN~~

~~100% recapture; demolish and construct new buildings for LA Fitness, Nordstrom Rack, Ulta Beauty, Hopdoddy Burger Bar, additional junior anchors, restaurants and small shop retail~~

~~135,200~~

~~Delivered to tenants~~

~~West Hartford, CT~~

~~100% recapture; redevelop existing store and detached auto center for Buy Buy Baby, Cost Plus World Market, REI, Saks OFF Fifth, other junior anchors, Shake Shack and additional small shop retail~~

~~147,600~~

~~Underway~~

~~Q1 2018~~

~~St. Petersburg, FL~~

100% recapture; demolish and construct new buildings for Dick's Sporting Goods, Lucky's Market, PetSmart, Five Below, Chili's Grill & Bar, Pollo Tropical, LongHorn Steakhouse and additional small shop retail and restaurants

~~142,400~~

~~Underway~~

~~Q2 2018~~

~~Wayne, NJ~~

~~Partial recapture; redevelop existing store for Dave & Busters, additional junior anchors and restaurants~~

~~Recapture and repurpose detached auto center for Cinemark (project expansion)~~

~~NOTE: contributed to GGP II JV in July 2017~~

~~156,700~~

~~Underway~~

~~Q3 2018~~

~~Carson, CA~~

~~100% recapture (project expansion); redevelop existing store for Burlington Stores, Ross Dress for Less and additional retail~~

~~163,800~~

~~Underway~~

~~Q1 2019~~

~~Santa Monica, CA~~

~~100% recapture; redevelop existing building into premier, mixed-use asset featuring unique, small-shop retail and creative office space~~

~~96,500~~

~~Q4 2017~~

~~Q4 2019~~

~~Watchung, NJ~~

~~100% recapture; demolish full-line store and construct new buildings for HomeSense, Sierra Trading Post, Ulta Beauty and additional small shop retail and restaurants~~

~~Demolish detached auto center and construct a freestanding Cinemark theater~~

~~126,700~~

~~Q1 2018~~

~~Q2 2019~~

~~East Northport, NY~~

~~Termination property (notice period); redevelop existing store and attached auto center for AMC Theatres, 24 Hour Fitness, additional junior anchors and small shop retail~~

~~179,700~~

~~Q2 2018~~

~~Q4 2019~~

Non-GAAP Supplemental Financial Measures and Definitions

The Company makes reference to NOI, Total NOI, FFO and Company FFO ~~EBITDA and Adjusted EBITDA~~ which are ~~considered non-GAAP measures.~~financial measures that include adjustments to GAAP.

Net Operating Income ("NOI") and Total NOI

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

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

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

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

~~Earnings Before Interest Expense, Income Tax, Depreciation, and Amortization ("EBITDA") and Adjusted EBITDA~~

We define EBITDA as net income less depreciation, amortization, interest expense and provision for income and other taxes. EBITDA is a commonly used measure of performance in many industries, but may not be comparable to measures calculated by other companies. We believe EBITDA provides useful information to investors regarding our results of operations because it removes the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management also believes the use of EBITDA facilitates comparisons between us and other equity REITs, retail property owners who are not REITs, and other capital-intensive companies.

~~- 36 -~~

The Company makes certain adjustments to EBITDA, which it refers to as Adjusted EBITDA, to account for certain non-cash and non-comparable items, such as termination fee income, unrealized loss on interest rate cap, litigation charges, acquisition-related expenses, up-front-hiring and personnel costs and gains (or losses)Funds from ~~property sales, that it does not believe are representative of ongoing operating results.~~

~~Due to the adjustments noted, EBITDA and Adjusted EBITDA should only be used as an alternative measure of the Company's financial performance~~

~~Funds From~~ Operations ("FFO") and Company FFO

~~We define~~ FFO ~~using the definition set forth by the~~is calculated in accordance with National Association of ~~Real Estate Investment Trusts ("NAREIT"),~~REITs which ~~may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO.~~defines FFO ~~is calculated~~ as net income computed in accordance with GAAP, excluding gains (or losses) from property sales, real estate related depreciation and amortization, and impairment charges on depreciable real estate assets.

~~We consider~~ The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry. FFO facilitates an understanding of the operating performance of our properties between periods because it does not give effect to real estate depreciation and amortization which are calculated to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, the Company believes that FFO provides investors with a clearer view of the Company's operating performance.

The Company makes certain adjustments to FFO, which it refers to as Company FFO, to account for certain non-cash and non-comparable items, such as termination fee income, ~~unrealized loss on interest rate cap, litigations~~severance and restructuring costs, litigation charges, acquisition-related expenses, amortization of deferred financing costs and certain up-front-hiring ~~and personnel~~ costs, that it does not believe are representative of ongoing operating results. ~~The Company previously referred to this metric as Normalized FFO; the definition and calculation remain the same.~~

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

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

None of NOI, Total NOI, ~~EBITDA, Adjusted EBITDA,~~ FFO and Company FFO are measures that (i) represent cash flow from operations as defined by GAAP; (ii) are indicative of cash available to fund all cash flow needs, including the ability to make distributions; (iii) are alternatives to cash flow as a measure of liquidity; or (iv) should be considered alternatives to net income (which is determined in accordance with GAAP) for purposes of evaluating the Company’s operating performance. Reconciliations of these measures to the respective GAAP measures we deem most comparable are presented below on a comparative basis for all periods.

- 3735 -

The following table reconciles NOI and Total NOI to GAAP net loss for the three ~~and nine~~ months ended September 30, ~~2017~~2021 and ~~September 30, 2016~~2020 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

NOI

2017

2016

2017

2016

Net income (loss)

$
17,276

$
(37,247
)

$
(50,435
)

$
(64,526
)
Termination fee income

(10,596
)

—

(17,360
)

—

Depreciation and amortization

61,059

44,532

170,293

121,365

General and administrative

5,272

4,252

16,639

13,104

Litigation charge

—

19,000

—

19,000

Acquisition-related expenses

—

—

—

73

Equity in loss (income) of unconsolidated joint
ventures

3,686

(1,497
)

4,226

(4,495
)
Gain on sale of interest in unconsolidated
joint venture

(43,729
)

—

(43,729
)

—

Gain on sale of real estate

(13,018
)

—

(13,018
)

—

Interest and other income

(352
)

(77
)

(472
)

(196
)
Interest expense

18,049

15,931

53,072

47,297

Unrealized loss on interest rate cap

91

47

686

1,898

Provision for income taxes

—

72

266

412

NOI

$
37,738

$
45,013

$
120,168

$
133,932

Total NOI

NOI

37,738

45,013

120,168

133,932

NOI of unconsolidated joint ventures

4,830

6,431

18,328

20,057

Straight-line rent adjustment (1)

1,230

(3,100
)

(2,396
)

(11,526
)
Above/below market rental income/expense (1)

(212
)

(257
)

(902
)

(681
)
Total NOI

$
43,586

$
48,087

$
135,198

$
141,782


	Three Months Ended September 30,						Nine Months Ended September 30,
NOI and Total NOI	2021			2020			2021			2020
Net loss	$	(26,349	)	$	(72,401	)	$	(132,586	)	$	(103,272	)
Termination fee income		(379	)		(5,300	)		(2,990	)		(6,290	)
Management and other fee (income) / expense		(184	)		259			(598	)		(119	)
Depreciation and amortization		13,159			23,647			39,629			81,446
General and administrative expenses		8,780			11,203			32,002			29,267
Equity in loss of unconsolidated entities		5,535			335			9,024			2,551
(Gain) / loss on sale of real estate, net		(22,774	)		14,706			(65,079	)		(59,959	)
Impairment of real estate assets		3,814			14,594			70,053			16,407
Interest and other income		(48	)		(1,986	)		(8,202	)		(2,460	)
Interest expense		26,721			22,742			81,847			66,400
Provision for income taxes		38			226			198			215
Straight-line rent / (expense)		(1,005	)		(1,774	)		(2,033	)		3,621
Above/below market rental (income) / expense		48			(1,541	)		111			(1,677	)
NOI	$	7,356		$	4,710		$	21,376		$	26,130
Unconsolidated entities
Net operating income of unconsolidated entities		666			1,481			4,749			4,297
Straight-line rent		(272	)		(136	)		(576	)		(407	)
Above/below market rental (income) / expense		181			(76	)		119			(616	)
Termination fee (income) / expense		144			—			(607	)		(293	)
Total NOI	$	8,075		$	5,979		$	25,061		$	29,111

~~(1)~~

~~Includes adjustments for unconsolidated joint ventures.~~

~~The following table reconciles EBITDA and Adjusted EBITDA to GAAP net loss for the three and nine months ended September 30, 2017 and September 30, 2016 (in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,

EBITDA

2017

2016

2017

2016

Net income (loss)

$
17,276

$
(37,247
)

$
(50,435
)

$
(64,526
)
Depreciation and amortization

61,059

44,532

170,293

121,365

Depreciation and amortization (unconsolidated
joint ventures)

4,755

5,191

18,583

15,653

Interest expense

18,049

15,931

53,072

47,297

Provision for income and other taxes

—

72

266

412

EBITDA

$
101,139

$
28,479

$
191,779

$
120,201

Adjusted EBITDA

EBITDA

$
101,139

$
28,479

$
191,779

$
120,201

Termination fee income

(10,596
)

—

(17,360
)

—

Unrealized loss on interest rate cap

91

47

686

1,898

Litigation charge

—

19,000

—

19,000

Acquisition-related expenses

—

—

—

73

Up-front hiring and personnel costs

—

—

—

328

Gain on sale of interest in unconsolidated
joint venture

(43,729
)

—

(43,729
)

—

Gain on sale of real estate

(13,018
)

—

(13,018
)

—

Adjusted EBITDA

$
33,887

$
47,526

$
118,358

$
141,500

- 3836 -

The following table reconciles FFO and Company FFO to GAAP net loss for the three and nine months ended September 30, ~~2017~~2021 and ~~September 30, 2016~~2020 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
FFO and Company FFO	2021			2020			2021			2020
Net loss	$	(26,349	)	$	(72,401	)	$	(132,586	)	$	(103,272	)
Real estate depreciation and amortization (consolidated properties)		12,781			23,158			38,496			79,946
Real estate depreciation and amortization (unconsolidated entities)		3,971			1,270			10,354			5,711
(Gain) / loss on sale of real estate, net		(22,774	)		14,706			(65,079	)		(59,959	)
Impairment of real estate assets		3,814			14,594			70,053			16,407
Loss on disposition of real estate (unconsolidated entities)		2,086			—			2,086			—
Dividends on preferred shares		(1,225	)		(1,225	)		(3,675	)		(3,675	)
FFO attributable to common shareholders and unitholders	$	(27,696	)	$	(19,898	)	$	(80,351	)	$	(64,842	)
Termination fee income		(379	)		(5,300	)		(2,990	)		(6,290	)
Termination fee (income) / expense (unconsolidated entities)		144			—			(607	)		(293	)
Amortization of deferred financing costs		105			105			317			316
Severance and restructuring costs		2,891			—			5,087			425
Mortgage recording costs		26			—			2,339			—
Company FFO attributable to common shareholders and unitholders	$	(24,909	)	$	(25,093	)	$	(76,205	)	$	(70,684	)

FFO per diluted common share and unit	$	(0.49	)	$	(0.36	)	$	(1.44	)	$	(1.16	)
Company FFO per diluted common share and unit	$	(0.44	)	$	(0.45	)	$	(1.36	)	$	(1.27	)

Weighted Average Common Shares and Units Outstanding
Weighted average common shares outstanding		43,631			38,645			41,976			38,172
Weighted average OP units outstanding		12,355			17,255			13,978			17,694
Weighted average common shares and units outstanding		55,986			55,900			55,954			55,866

- 37 -

Three Months Ended September 30,

Nine Months Ended September 30,

Funds from Operations

2017

2016

2017

2016

Net income (loss)

$
17,276

$
(37,247
)

$
(50,435
)

$
(64,526
)
Real estate depreciation and amortization
   (consolidated properties)

60,483

44,307

169,158

120,845

Real estate depreciation and amortization
   (unconsolidated joint ventures)

4,755

5,191

18,583

15,653

Gain on sale of interest in unconsolidated
   joint venture

(43,729
)

—

(43,729
)

—

Gain on sale of real estate

(13,018
)

—

(13,018
)

—

FFO attributable to common shareholders
   and unitholders

$
25,767

$
12,251

$
80,559

$
71,972

FFO per diluted common share and unit

$
0.46

$
0.22

$
1.45

$
1.29

Company Funds from Operations

Funds from Operations attributable to Seritage
   Growth Properties

$
25,767

$
12,251

$
80,559

$
71,972

Termination fee income

(10,596
)

—

(17,360
)

—

Unrealized loss on interest rate cap

91

47

686

1,898

Amortization of deferred financing costs

2,329

1,340

6,390

4,020

Litigation charge

—

19,000

—

19,000

Acquisition-related expenses

—

—

—

73

Up-front hiring and personnel costs

—

—

—

328

Company FFO attributable to common
   shareholders and unitholders

$
17,591

$
32,638

$
70,275

$
97,291

Company FFO per diluted common share and unit

$
0.32

$
0.59

$
1.26

$
1.75

Weighted Average Common Shares and Units Outstanding

Weighted average common shares outstanding

33,841

31,419

33,685

31,414

Weighted average OP units outstanding

21,832

24,176

21,916

24,176

Weighted average common shares and
   units outstanding

55,673

55,595

55,601

55,590

Item 3. Quantitative and Qualitative Disclosure about Market Risk

~~- 39 -~~

~~Item 3.~~

~~Quantitative and Qualitative Disclosure about Market Risk~~

~~Except as discussed below, there~~There were no material changes in the Quantitative and Qualitative Disclosures about Market Risk set forth in our ~~2016~~2020 Annual Report on Form 10-K.

~~Interest Rate Fluctuations~~

As of September 30, 2017, we had $1.30 billion of consolidated debt, including $1.21 billion outstanding under our variable-rate Mortgage Loans and Future Funding Facility. The interest rate on the loans is the 30-day LIBOR rate plus, as of September 30, 2017, a weighted average spread of 470 basis points. We have purchased a LIBOR interest rate cap that has a LIBOR strike rate of 3.5% and a term of four years. We are subject to market risk with respect to changes in the LIBOR rate. An immediate 100 basis point change in interest rates would have affected annual pretax funding costs by approximately $12.1 million.

~~Fair Value of Debt~~

As of September 30, 2017, the estimated fair value of our consolidated debt was $1.3 billion. The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt.

~~Item 4.~~

~~Controls and Procedures~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

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

Changes in Internal Controls.

There were no changes in our internal control over financial reporting that occurred during the period ended September 30, ~~2017~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

- 4038 -

PART II. OTHER INFORMATION

~~OTHER~~ ~~INFORMATION~~

~~Item 1.~~

~~Legal Proceedings~~

Item 1. Legal Proceedings

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

~~Item 1A.~~

~~Risk Factors~~

Item 1A. Risk Factors

Information regarding risk factors appears in our ~~2016~~2020 Annual Report on Form 10-K in Part I, Item 1A. Risk Factors. ~~Except as discussed below, there~~There have been no material changes from the risk factors previously disclosed in our ~~2016~~2020 Annual Report on Form ~~10-K.~~10-K, except for the following updates.

~~We will~~Economic conditions may affect the cost of borrowing, which could materially adversely affect our business

Our business is affected by a number of factors that are largely beyond our control but may nevertheless have a significant negative impact on us. These factors include, but are not limited to:



interest rates and credit spreads;



the availability of credit, including the price, terms and conditions under which it can be ~~substantially dependent on Sears Holdings,~~obtained;



a decrease in consumer spending or sentiment, including as a ~~tenant, until we further diversify~~ result of increases in savings rates and tax increases, and any effect that this may have on retail activity;



the ~~tenancy of our portfolio,~~actual and an event that has a material adverse effect on Sears Holdings’ business, financial condition or results of operations could have a material adverse effect on our business, financial condition or results of operations.

Sears Holdings is the lessee of a substantial majority of our properties and accounts for a substantial majority of our revenues. Under the Master Lease, Sears Holdings is required to pay all insurance, taxes, utilities and maintenance and repair expenses in connection with these leased properties and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with its business, subject to proportionate sharing of certain of these expenses with occupantsperceived state of the ~~remainder of~~real estate and retail markets, market for dividend-paying stocks and public capital markets in general; and



unemployment rates, both nationwide and within the ~~space not leased to Sears Holdings. Sears Holdings may not~~primary markets in the future have sufficient assets, income and access to financing to enable it to satisfy its payment obligations under the Master Lease. In its most recent Form 10-K, Sears Holdings disclosed, among other things, that its historical operating results indicate substantial doubt exists related to Sears Holdings’ ability to continue as a going concern. which we operate.

In addition, ~~Sears Holdings has disclosed that its domestic pension and postretirement benefit plan obligations are currently underfunded. Sears Holdings may have to make significant cash payments to some~~economic conditions such as inflation or all of its pension and postretirement benefit plans, which would reduce the cash available for its businesses, potentially including its rent obligations under the Master Lease. The inability or unwillingness of Sears Holdings to meet its rent obligations and other obligations under the Master Leasedeflation could materially adversely affect our business, financial condition orand results of ~~operations, including~~operations. Deflation may have an impact on our ability to repay our debt. Deflation may delay consumption and thus weaken tenant sales, which may reduce our tenants’ ability to pay rents. Deflationary pressure on retailers may diminish their ability to rent our space and decrease our ability to re-lease the space on favorable terms to us.

The U.S. economy is currently experiencing and may continue to experience higher inflation than in prior periods. During inflationary periods, interest rates have historically increased, which may materially increase the interest ~~principal~~expense we pay in connection with our indebtedness. Our general and ~~other costs and~~administrative expenses ~~under our financings, or~~would also be expected to ~~pay cash dividends to Seritage shareholders. For these reasons, if Sears Holdings were to experience~~increase at a ~~material~~rate higher than rents we collect. Also, inflation may adversely affect tenant leases with stated rent increases, which could be lower than the increase in inflation at any given time. Inflation could also have an adverse effect on ~~its business, financial condition or~~consumer spending, which could impact our tenants’ sales and, in turn, our own results of ~~operations, our business, financial condition or results of operations could also be materially adversely affected.~~operations.

~~Our dependence on rental payments from Sears Holdings as our main source of revenues~~Restricted lending practices may ~~limit~~impact our ability to ~~enforce~~obtain financing for our ~~rights under~~properties and may also negatively impact our tenants’ ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the ~~Master Lease. In addition,~~rents we receive.

We may face increased risks and costs associated with volatility in commodity and labor prices or as a result of supply chain or procurement disruptions, which may adversely affect the status of our construction projects

The price of commodities and skilled labor for our construction projects may increase unpredictably due to external factors, including, but not limited to, performance of third-party suppliers and contractors; overall market supply and demand; government regulation; international trade; and changes in general business, economic, or political conditions. As a result, the costs of raw construction materials and skilled labor required for the completion of our development and redevelopment projects may fluctuate significantly from time to time.

While we do not rely on any single supplier or vendor for the majority of our materials and skilled labor, we may ~~be limited in our ability to enforce our rights under the Master Lease because it is a unitary lease and does not provide for termination with respect to individual properties~~experience difficulties obtaining necessary materials from suppliers or vendors whose supply chains might become impacted by ~~reason of the default of the tenant. Failure by Sears Holdings to comply with the terms of the Master Lease~~economic or ~~to comply with the regulations to which the leased properties are subject could require us to find another master lessee for all such leased property and there could be a decrease~~political changes, or cessation of rental payments by Sears Holdings. In such event, we may be unable to locate a suitable master lessee or a lessee for individual properties at similar rental rates and other obligations anddifficulties obtaining adequate skilled labor from third-party contractors in a tightening labor market. It is uncertain whether we would be able to source the essential commodities, supplies, materials, and skilled labor timely ~~manner~~ or at all ~~which would~~without incurring significant costs or delays, particularly during times of economic uncertainty resulting from events outside of our control. We may be forced to seek new third-party suppliers or contractors, who we have not worked with in the ~~effect~~past.

- 39 -

During 2021, industry prices for certain construction materials, including steel, copper, lumber, plywood, electrical materials, and heating, ventilation, and air conditioning materials, experienced significant increases as a result of ~~reducing~~low inventories; surging demand fueled by the U.S. economy rebounding from the effects of COVID-19; tariffs imposed on imports of foreign steel, including on products from key competitors in the European Union and China; and significant changes in the U.S. steel production landscape stemming from the consolidation of certain steel-producing companies. Price surges on construction materials may result in corresponding increases in our ~~rental revenues.~~ overall construction costs as our projects undergo construction.

In addition, ~~each JV~~as of November 2021, the U.S. is ~~subject~~widely reported to ~~similar limitations~~be experiencing serious supply chain disruptions as a result of substantial backlogs of container ships seeking to unload cargo at major ports on ~~enforcements~~both the west and east coasts, with delays caused or exacerbated by port and trucking labor shortages, railway logistics issues and a shortage of ~~remedies~~warehouse space in close proximity to the affected ports. Supply chain constraints have impacted the cost, availability, and ~~risks under its respective JV Master Lease, which~~timing of certain materials deliveries. If not resolved, these backlogs and related logistics issues could ~~reduce~~result in project delays and increased costs for our construction activities and the ~~value of our investment in, or distributions to us by, one or more of the JVs.~~US economy generally.

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

None.

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

~~None.~~

Item 3.Defaults Upon Senior Securities

None.

~~Defaults Upon Senior Securities~~

~~None.~~

~~Item 4.~~

~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

Not applicable.

~~Item 5.~~

~~Other Information~~

~~None.~~

Item 5. Other Information

None.

- 4140 -

Item 6. Exhibits


~~Item 6.~~Exhibit No.	~~Exhibits~~

~~Exhibit No.~~	Description		~~Description~~	SEC Document Reference

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 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		~~Filed~~Furnished herewith.

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

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

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

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

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

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

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

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

- 4241 -

~~SIGNATURES~~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 ~~3, 2017~~4, 2021	/s/ ~~Benjamin Schall~~Andrea Olshan
	By:	~~Benjamin Schall~~Andrea Olshan
	President and Chief Executive Officer (Principal Executive Officer)

Dated: November ~~3, 2017~~4, 2021	/s/ ~~Brian Dickman~~Amanda Lombard
	By:	~~Brian Dickman~~Amanda Lombard
	~~Executive Vice President and~~ Chief Financial Officer (Principal Financial and Accounting Officer)

- 4342 -

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
REVENUE
Rental income	$	48,167		$	45,584		$	139,526		$	136,737
Tenant reimbursements		15,881			12,023			47,813			45,741
Total revenue		64,048			57,607			187,339			182,478
EXPENSES
Property operating		4,311			4,505			13,985			17,176
Real estate taxes		11,335			7,965			35,707			31,101
Depreciation and amortization		61,059			44,532			170,293			121,365
General and administrative		5,272			4,252			16,639			13,104
Litigation charge		—			19,000			—			19,000
Provision for doubtful accounts		68			124			119			269
Acquisition-related expenses		—			—			—			73
Total expenses		82,045			80,378			236,743			202,088
Operating loss		(17,997	)		(22,771	)		(49,404	)		(19,610	)
Equity in (loss) income of unconsolidated joint ventures		(3,686	)		1,497			(4,226	)		4,495
Gain on sale of interest in unconsolidated joint venture		43,729			—			43,729			—
Gain on sale of real estate		13,018			—			13,018			—
Interest and other income		352			77			472			196
Interest expense		(18,049	)		(15,931	)		(53,072	)		(47,297	)
Unrealized loss on interest rate cap		(91	)		(47	)		(686	)		(1,898	)
Income (loss) before income taxes		17,276			(37,175	)		(50,169	)		(64,114	)
Provision for income taxes		—			(72	)		(266	)		(412	)
Net income (loss)		17,276			(37,247	)		(50,435	)		(64,526	)
Net (income) loss attributable to non-controlling interests		(6,762	)		16,145			19,892			27,972
Net income (loss) attributable to common shareholders	$	10,514		$	(21,102	)	$	(30,543	)	$	(36,554	)

Net income (loss) per share attributable to Class A and Class C common shareholders - Basic	$	0.31		$	(0.67	)	$	(0.91	)	$	(1.16	)
Net income (loss) per share attributable to Class A and Class C common shareholders - Diluted	$	0.31		$	(0.67	)	$	(0.91	)	$	(1.16	)
Weighted average Class A and Class C common shares outstanding - Basic		33,774			31,419			33,685			31,414
Weighted average Class A and Class C common shares outstanding - Diluted		33,841			31,419			33,685			31,414

																			Additional						Non-
	Class A						Class B						Class C						Paid-In			Accumulated			Controlling			Total
	Shares			Amount			Shares			Amount			Shares			Amount			Capital			Deficit			Interests			Equity
Balance at January 1, 2016		24,818		$	248			1,589		$	16			6,773		$	68		$	924,508		$	(38,145	)	$	683,382		$	1,570,077

Net loss		—			—			—			—			—			—			—			(36,554	)		(27,972	)		(64,526	)
Dividends and distributions declared ($0.75 per share and unit)		—			—			—			—			—			—			—			(23,726	)		(18,133	)		(41,859	)
Vesting of restricted share units		7			0			—			—			—			—			(13	)		—			—			(13	)
Stock-based compensation		—			—			—			—			—			—			801			—			—			801
Share class exchanges, net (997,450 common shares)		997			10			—			—			(997	)		(10	)		—			—			—			—

Balance at September 30, 2016		25,822		$	258			1,589		$	16			5,776		$	58		$	925,296		$	(98,425	)	$	637,277		$	1,464,480


Balance at January 1, 2017		25,843			258			1,589			16			5,755			58			925,563			(121,338	)		619,754			1,424,311

Net loss		—			—			—			—			—			—			—			(30,543	)		(19,892	)	$	(50,435	)
Dividends and distributions declared ($0.75 per share and unit)		—			—			—			—			—			—			—			(25,513	)		(16,394	)		(41,907	)
Vesting of restricted share units		11			0			—			—			—			—			(13	)		—			—			(13	)
Stock-based compensation		—			—			—			—			—			—			1,166			—			—			1,166
Share class exchanges, net (197,176 common shares)		(197	)		(1	)		—			—			197			1			—			—			—			—
Share class surrenders (154,098 common shares)		—			—			(154	)		(2	)		—			—			2			—			—			—
OP Unit exchanges (2,344,589 units)		2,344			23			—			—			—			—			69,329			—			(69,352	)		—

Balance at September 30, 2017		28,001		$	280			1,435		$	14			5,952		$	59		$	996,047		$	(177,394	)	$	514,116		$	1,333,122

	Nine Months Ended
	September 30, 2017		September 30, 2016
Cash and cash equivalents	$	104,153	$	90,029
Restricted cash		202,513		81,790
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	306,666	$	171,819

Remainder of 2017	$	15,521
2018		42,303
2019		40,543
2020		40,097
2021		39,313

	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
EQUITY IN INCOME OF UNCONSOLIDATED JOINT VENTURES
Total revenue	$	12,550		$	16,266		$	46,062		$	50,113
Property operating expenses		(3,077	)		(3,103	)		(9,594	)		(9,703	)
Depreciation and amortization		(9,509	)		(10,382	)		(37,206	)		(31,304	)
Operating income		(36	)		2,781			(738	)		9,106
Other expenses		(7,337	)		212			(7,714	)		(117	)
Net (loss) income	$	(7,373	)	$	2,993		$	(8,452	)	$	8,989
Equity in (loss) income of unconsolidated joint ventures	$	(3,686	)	$	1,497		$	(4,226	)	$	4,495

			Dividends per
			Class A and Class C
Declaration Date	Record Date	Payment Date	Common Share
2017
October 24	December 29	January 11, 2018	$	0.25
July 25	September 29	October 12		0.25
April 25	June 30	July 13		0.25
February 28	March 31	April 13		0.25
2016
November 1	December 31	January 12, 2017	$	0.25
August 2	September 30	October 13		0.25
May 3	June 30	July 14		0.25
March 8	March 31	April 14		0.25

	September 30, 2017		December 31, 2016
Accounts payable and accrued expenses	$	21,905	$	22,424
Accrued real estate taxes		21,576		23,942
Unearned tenant reimbursements		17,133		4,039
Below-market leases		14,998		16,827
Dividends payable		14,648		14,132
Environmental reserve		11,322		11,584
Prepaid rental income		3,875		1,979
Accrued interest		3,444		3,004
Deferred maintenance		2,581		4,124
Litigation charge		—		19,000
Total accounts payable, accrued expenses and other liabilities	$	111,482	$	121,055

	Three Months Ended September 30,						Nine Months Ended September 30,
EBITDA	2017			2016			2017			2016
Net income (loss)	$	17,276		$	(37,247	)	$	(50,435	)	$	(64,526	)
Depreciation and amortization		61,059			44,532			170,293			121,365
Depreciation and amortization (unconsolidated joint ventures)		4,755			5,191			18,583			15,653
Interest expense		18,049			15,931			53,072			47,297
Provision for income and other taxes		—			72			266			412
EBITDA	$	101,139		$	28,479		$	191,779		$	120,201

Adjusted EBITDA
EBITDA	$	101,139		$	28,479		$	191,779		$	120,201
Termination fee income		(10,596	)		—			(17,360	)		—
Unrealized loss on interest rate cap		91			47			686			1,898
Litigation charge		—			19,000			—			19,000
Acquisition-related expenses		—			—			—			73
Up-front hiring and personnel costs		—			—			—			328
Gain on sale of interest in unconsolidated joint venture		(43,729	)		—			(43,729	)		—
Gain on sale of real estate		(13,018	)		—			(13,018	)		—
Adjusted EBITDA	$	33,887		$	47,526		$	118,358		$	141,500

	Three Months Ended September 30,						Nine Months Ended September 30,
Funds from Operations	2017			2016			2017			2016
Net income (loss)	$	17,276		$	(37,247	)	$	(50,435	)	$	(64,526	)
Real estate depreciation and amortization (consolidated properties)		60,483			44,307			169,158			120,845
Real estate depreciation and amortization (unconsolidated joint ventures)		4,755			5,191			18,583			15,653
Gain on sale of interest in unconsolidated joint venture		(43,729	)		—			(43,729	)		—
Gain on sale of real estate		(13,018	)		—			(13,018	)		—
FFO attributable to common shareholders and unitholders	$	25,767		$	12,251		$	80,559		$	71,972

FFO per diluted common share and unit	$	0.46		$	0.22		$	1.45		$	1.29

Company Funds from Operations
Funds from Operations attributable to Seritage Growth Properties	$	25,767		$	12,251		$	80,559		$	71,972
Termination fee income		(10,596	)		—			(17,360	)		—
Unrealized loss on interest rate cap		91			47			686			1,898
Amortization of deferred financing costs		2,329			1,340			6,390			4,020
Litigation charge		—			19,000			—			19,000
Acquisition-related expenses		—			—			—			73
Up-front hiring and personnel costs		—			—			—			328
Company FFO attributable to common shareholders and unitholders	$	17,591		$	32,638		$	70,275		$	97,291

Company FFO per diluted common share and unit	$	0.32		$	0.59		$	1.26		$	1.75

Weighted Average Common Shares and Units Outstanding
Weighted average common shares outstanding		33,841			31,419			33,685			31,414
Weighted average OP units outstanding		21,832			24,176			21,916			24,176
Weighted average common shares and units outstanding		55,673			55,595			55,601			55,590