Seritage Growth Properties shareholders could receive a smaller payout than previously estimated if they approve a plan to sell off the Sears real estate spinoff’s properties and dissolve the company, according to a proxy statement released ahead of next month’s shareholder meeting.
Complications with the key issue up for a vote — approval to sell off the entire real estate portfolio over 18 to 30 months — are the latest sign that rising interest rates are pushing down sale prices and causing some deals to stall.
Higher borrowing costs, inflation, talk of a potential recession and other economic concerns mean the overall return to Seritage investors is unlikely to be in the higher range of the previously stated $18.50 to $29 per share unless conditions improve, Seritage said in the proxy statement Wednesday.
The statement to investors said reaching the upper half of the previously calculated projection is unlikely because offers for properties already up for sale “generally reflected valuations below the valuations implied by the upper half” of the earlier estimated range.
“Additionally, there remains the risk that the net proceeds that will ultimately be distributed to our Class A shareholders could potentially be below" the previously estimated range of return, according to the statement.
Shares closed at $11.99 Thursday, well below the 52-week high of just over $17.
Shareholder Meeting Set
The former real estate investment trust, which was spun out of Sears in 2015, this week said its annual shareholder meeting is set for Oct. 24.
A two-thirds vote would allow Seritage, which already has been selling off properties to pay down debt to billionaire Warren Buffett’s Berkshire Hathaway, to proceed with plans to wind down the company without a need for further shareholder approvals.
Regardless of the vote results, Seritage said it will continue exploring the possibility of an outright sale of the company and other strategic alternatives besides selling off the company in single- and multi-property deals.
Eddie Lampert, the former Sears CEO and Seritage chairman, has agreed to vote in favor of the Seritage dissolution, and he has exchanged equity interest in the company into Class A common shares. Lampert owns more than 29% of Seritage’s shares.
Seritage, led by President and CEO Andrea Olshan, has made a series of changes to the company ahead of the upcoming vote to wind down the company by selling retail buildings, mixed-use properties and development sites throughout the country.
The company undertook a review of strategic alternatives, advised by Barclays, before earlier this year deciding to change from a REIT to a C corporation for tax purposes.
Seritage in June confirmed it was putting 38 properties on the market for sale, as part of an effort to reduce its debt to Buffett to $800 million by the middle of next year, which would extend the loan maturity into mid-2025.
Shares soared in July when Seritage announced plans to sell all 161 of its properties and make a one-time cash payment to investors after paying off debt and other expenses.
In August, the company said in securities filings that it had sold off more than $265 million in properties in recent months and had deals to sell another $260 million-plus. The deals allowed the company to pay off $100 million in debt to Berkshire Hathaway, lowering the total to $1.34 billion.
In one deal completed since then, Seritage sold a two-building property in San Jose, California, for almost $25 million.