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EQUITY ANALYSISKristen Mousa

James Goyer

Paul Stanley

SERITAGEGROWTH PROPERTIES

Seritage Property in Philadelphia, PA

Agenda

Company Overview2

Industry Overview1

Investment Thesis3

Valuation4

Recommendation5

Industry

Overview

Company

Overview

Investment

ThesisValuation Recommendation Appendix

Appendix6

INDUSTRY

OVERVIEWSERITAGEGROWTH PROPERTIES

Seritage Property in San Diego, CA

3.2%

1.0% 1.4%0.5%

7.4%

6.1%

10.1%9.0%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

2014 2015 2016 2017

Sale

s G

row

th

Retail Online

Retail REITs Show Strong Fundamentals Despite Discount

Source: Bloomberg, Thasos Group, JLL Research

6.0%

7.5%

9.0%

10.5%

12.0%

$15

$16

$17

$18

$19

2007 2009 2011 2013 2015 YTD2017

Vacancy R

ate

Eff

ective R

ent

Effective Rent (Per Square Ft.) Vacancy Rate

LTM Move-Ins

24.1mm

Sq. Ft.

LTM Move-Outs

15.1mm

Sq. Ft.

1

12x

14x

16x

18x

20x

22x

Dec-15 May-16 Oct-16 Mar-17 Aug-17

Price /

Forw

ard

FF

O

Mall REIT Index Shopping-Center REIT Index Overall REIT Index

…Prompting 18% Discount For Retail REITsE-Commerce Has Disrupted Retail…

9mm Sq. Ft. Absorbed In LTM

Retail REIT Fundamentals Remain Strong

Vacancy Rates Continue To FallMove-Ins Outweigh Move-Outs

18%

Discount

Industry

Overview

Company

Overview

Investment

ThesisValuation Recommendation

(Per Sq. Ft.)

Appendix

COMPANY

OVERVIEWSERITAGEGROWTH PROPERTIES

Seritage Property in St. Petersburg, FL

Seritage Created From Sears’ Strongest Retail Locations

Seritage Growth Properties (NYSE: SRG) Is A Fully Integrated REIT That Owns 266 Retail Properties

Seritage Created In 2015 To Provide Sears With Liquidity In Return For Properties

2

1

Sources: Company Filings, Press Releases

266 Properties

(Top 15%)

266 Properties

(Top 15%)

Sears Becomes

Lessee Of

Formerly Owned

Properties

$2.7bn Cash

Boosts Liquidity

2Industry

Overview

Company

Overview

Investment


Sources: Company presentation, Company Filings, JLL Research, REIS

1. US Census Bureau

Master Lease Drives Value for Seritage

Los Angeles

Property Before Recapture

Master Lease Agreement Increases Rent By 4.0x

Property Following Recapture

$4.50

$18.98

$0

$4

$8

$12

$16

$20

Sears Holdings Signed 3rd Party Leases

Rent P

er

Sq. F

t.

… But Seritage Can Recapture Sears LeasesSeritage Leases To Sears For Cheap…

Premier Real Estate Portfolio Attracts Wide Variety Of Tenants

Average Household Income Within 10 Miles Of

Properties Is 40% Higher Than US Average1

Miami

New York

City

Value

Fashion

Everyday

Use

Home

Food

Entertainment

Junior

Anchors

Signed Diversified Tenants

Comparable Property

Rental Rates

$4.50 Per Sq. Ft. $19.00 Per Sq. Ft.

$19.00

3Industry

Overview

Company

Overview

Investment


Non-

Retail

Retail

4.0x

Higher

Rent

Sears Pays Rental

Rates 1/4th Of

Comparable

Market Rent Rates

Appendix

0.0mm

0.5mm

1.1mm

1.6mm

2.1mm

2.6mm

3.2mm

$30

$35

$40

$45

$50

$55

$60

7/6/2015 1/28/2016 8/22/2016 3/17/2017 10/10/2017

Market Has Sold-Off Seritage Due to High Exposure

7/6/15 7/25/16 6/16 – 6/17

3

Sears continues to wind

down operations and close

stores as its debt balance

balloons to ~$4bn

1

Seritage spun-off

from Sears

2

Investors sell-off Seritage

after Sears announces

store closures and liquidity

concerns

2 3

Source: Bloomberg, Press Releases

As Nears Bankruptcy Investors Have Sold-Off Seritage

1

Rent By Tenant

Diversified

Tenants

In-Place

Seritage Currently

Earns Over Half Of

Its Rental Income

From .

4Industry

Overview

Company

Overview

Investment


56%

44%

Appendix

87%

13%

75%

12%

13%

Seritage Must Recapture Properties To Hedge Sears Exposure

Seritage Must Recapture 12% Of Sq. Ft. To Make Up For Lost Rent From Bankruptcy

Recapture Needed (% Of Total Sq. Ft.)Current Leases (% Of Total Sq. Ft.)

Source: Company Presentation

Sears Rent

$91mm

12%Recaptures

Needed

Diversified

Tenants

In-Place

Recaptures

Needed

New Rent from Recaptures

~$93mm

Diversified

Tenants

In-Place

5Industry

Overview

Company

Overview

Investment


INVESTMENT

THESISSERITAGEGROWTH PROPERTIES

Seritage Property in Naples, FL

12%

13%

$93.1$91.0

$50.0

$60.0

$70.0

$80.0

$90.0

$100.0

Future Rent from In-PlaceRevelopments

Annual R

ent

Future Rent From In-

Process Redevelopments

Catalyst I: Redevelopments Replace Sears Revenue In 2018


12% Of Properties Under Redevelopment

Properties Must Be Redeveloped Before Seritage Begins To Earn Rental Income

Diversified Tenants

In-Place

In-Process

Redevelopments

For Diversified

Tenants

Redevelopment Rent Replaces Rent

Recapture Notice

Issued

12 Months of

Redevelopment

Diversified Tenants

Pay 4.0x Sears Rent

4

6Industry

Overview

Company

Overview

Investment


Q1 2017 Q3 2018Q2 2017

Diversified Tenants

Signed On To Lease

1 2 3

Q3 2017 Q4 2017 Q1 2018 Q2 2018

Appendix

Implied Probability Of Survival By Year1

234

50

243

330

0

50

100

150

200

250

300

350

2014 2015 2016 2017

Sto

re S

ale

s

Store Closures

1. Debt Issuances

~$900mm Sale To

Stanley Black &

Decker

Announced Deal To

Sell Products On

Amazon.com

Source: Company Filings, Press Releases

1. Implied probability of default derived from Sears bond pricing data as of August 18, 2017

Additional Brands

For Future Sale

2. Store Sales 3. Brand Sales

$750mm 2020 Secured Term Loan

$500mm 2020 RE Loan Facility

$300mm 2020 2nd Lien Credit Line

$500mm ESL Letter Of Credit

$2.05bn In 2017 YTD Liquidity

Can Generate Liquidity Through…

Catalyst II: Sears Survives Until Redevelopment Completion

- Probability of Survival95%

85%68%

0%

20%

40%

60%

80%

100%

2018 2019 2020

Pro

babili

ty o

f S

urv

ival

Year End 2017 Year End 2018 Year End 2019

7Industry

Overview

Company

Overview

Investment


Catalyst III: Short Squeeze On Seritage Shares

Market Is Shorting Seritage As Proxy To Short .

Completion Of Redevelopment Pipeline Will Result In Seritage Short Squeeze

17% 38%

>SERITAGE

Seritage Completes

Redevelopments By

Q3 2018

Catalyst I

Sears Survives

Through Q3 2018

Catalyst II Independent Of Sears

8

Seritage No Longer

A Viable Means Of

Shorting Sears…

…Leads To Short Squeeze

On Seritage Shares

Industry

Overview

Company

Overview

Investment


63% 12%>Short

Interest

Borrowing

Cost

1

1. Cost to borrow Seritage compared at ~17% short interest

Appendix

Market Myopia Has Led To A Buying Opportunity In Seritage

What The Market Believes…

9

Current

Redevelopment

Pipeline Hedges

Downside Risk

From Sears

Sears Can Raise

Liquidity To

Survive Through

2019

Realization Of

Redevelopment

Pipeline Will

Result In Seritage

Short Squeeze

Catalyst

I

Catalyst

II

Catalyst

III

Seritage Doesn’t Have

Enough Time To Finish

Current Redevelopments

Before Sears Bankruptcy

Seritage Has Too Big Of A

Gap To Make Up To

Become Independent Of

Sears

Shorting Seritage Is A Less

Expensive Means Of

Shorting Sears

Industry

Overview

Company

Overview

Investment


VALUATIONSERITAGEGROWTH PROPERTIES

Seritage Property in Sacramento, CA

$0 mm

$20 mm

$40 mm

$60 mm

$80 mm

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

Q12019

Q22019

Q32019

Q42019

Quart

erly R

enta

l R

evenue

Diversified Tenants Rental Income Sears Rental Income

Rent From Completely Replaced By Q3 2018

Seritage Leased Square Footage And Rental Revenue By Quarter

Current Tenant Base

Q2 2017

87%

13%

Q3 2018 llllllllll

Bankruptcy

10Industry

Overview

Company

Overview

Investment


75%

12%

13%

75%

25%

Redevelopments Completed

by Q3 2018

Available

For Future

Re-leases

$52mm $57mm

Q2

2017

Q3

2018

Source: Operating Model

Appendix

Intrinsic Valuation Implies ~30% Upside In Next 12 Months

Key Valuation Assumptions And Implied Share Prices

Net Asset Value ModelDividend Discount Model Levered DCF

9.0%Cost of

Equity

13.0xMarket Cap /

FFO

Exit Multiple

30.0%FFO Dividend

Payout

9.0%Cost of

Equity

13.0x

6.5%Cap Rate

11Industry

Overview

Company

Overview

Investment


26%Implied Upside Or

$57.67 Implied Share

Price



Price



Price

Market Cap /

FFO

Exit Multiple

Appendix

$51.81 $52.36 $52.09

$35

$40

$45

$50

$55

$60

Dividend DiscountModel

Levered DiscountCash Flow

Net Asset Value

Upside Even In Immediate Sears Bankruptcy Scenario

Seritage Interest Coverage Remains Healthy In Immediate Bankruptcy Scenario

Upside Even In Immediate Sears BankruptcySeritage Has Massive Debt Capacity

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

Inte

rest

Covera

ge R

atio

$145.8

$128.5

$101.3$91.9

$71.2$62.0

$31.7

$2

$24

$46

$68

$90

$112

$134

$156

1 2 3 4 5 6 7

SRG Commands

Lowest Debt PSF

Ratio Among Peers

10/13/17

Share Price

Source: Capital IQ

12Industry

Overview

Company

Overview

Investment


RECOMMENDATIONSERITAGEGROWTH PROPERTIES

Seritage Property in Honolulu, HI

$30 $40 $50 $60 $70 $80 $90

Dividend Discount Model - Bear

Dividend Discount Model - Base

Dividend Discount Model - Bull

Levered DCF - Bear

Levered DCF - Base

Levered DCF - Bull

NAV - Bear

NAV - Base

NAV - Bull

NTM EV / FFO

Market Price Offers Significant Margin of Safety

Target Price: $60.00

Implied Upside: ~30%

Current Price: $45.721

Conclusion

Seritage Will

Complete

Redevelopments…

…Resulting In

Short Squeeze On

Seritage Shares

… Making Seritage

Independent Of

Sears…

30% Implied Upside In Next 12 Months

10/13/17 Share

Price

13Industry

Overview

Company

Overview

Investment


12-Month Price

Target

1. Share price as of 10/13/17

Appendix

Q & ASERITAGEGROWTH PROPERTIES

Seritage Property Local Mall

APPENDIX

Seritage Property in Los Angeles, CA

Appendix Guide

I. Key Industry Dynamics 14 – 15

II. Redevelopment Pipeline 16 – 21

III. Master Lease Legal Breakdown 22 – 24

IV. Seritage Liquidity Profile 25 – 26

V. Seritage Valuation and Operating Model 27 – 34

VI. Sears Operating Model 35 – 40

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model

Retail REIT Industry Landscape

Source: Bloomberg, PwC

Mall / Shopping-

Center REITs

Community / Strip-

Center REITs

Retail REIT Have Two Major Classifications

▪ Local discount

stores, groceries,

specialty stores /

category killers

▪ Gross leasable area

of 125,000-400,000

sq. ft.

▪ 1+ Tenants

▪ 3-6 mile trade area

radius

▪ Full-line department

stores, upscale

specialty retail, mass

merchants

▪ Gross leasable area

of 150,000-800,000+

sq. ft.

▪ 2+ Tenants

▪ 5-25 mile trade area

radius

Key

Characteristics

Key

Characteristics

-5mm

0mm

5mm

10mm

15mm

20mm

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Net

Absorp

tion (

Sq.

Ft.) Q1 Q2 Q3 Q4

1H 2017 Shows Highest Mall / Shopping-Center Net Move-Ins Since 2008 Recession

Absorption was driven

primarily by off-price

retailers and grocery-

anchored centers

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 14

1643

796

685

370

319

241

241

216

159

70

59

48

48

36

8

3

0 500 1000 1500 2000

Apparel

Electronics Stores

Shoe Stores

Office Supply

Restaurants

Department Stores

Books & Music

Discount Dept. Stores

Sporting Goods

Drug Stores

Dollar Stores

Home Furnishings

Grocery Stores

Specialty Stores

Thrift Stores

Wholesale Clubs

Consumer Preferences Drive Strong Retail REIT Fundamentals

Apparel And Electronic

Stores Are Shrinking Rapidly,

While Groceries And

Discount Stores Are Growing

2017 Announced Gross Store

Closures

Consumer Staples & Discount Stores Prompt Continued Retail Demand

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

Oct2016

Nov2016

Dec2016

Jan2017

Feb2017

Mar2017

Apr2017

May2017Y

oY

Mall

Foot T

raff

ic G

row

th

Diversified Malls Class A Malls Class B Malls

Diversified Malls Outperform by ~5%

Source: JLL Research, Statistical 2016 Survey, Company Filings

Retailers Continue to Grow Store Counts

Retailer ‘16 Net Openings ‘17 Net Openings

795 Stores ~900 Stores




28 Stores NA

68%

67%

51%

44%

34%

33%

29%

24%

23%

8%

32%

33%

49%

56%

66%

67%

71%

76%

77%

92%

Books

Electronics

Office Supplies

Sporting Goods

Pet Supplies

Tools

Household Goods

Discount Clothing and Apparel

Consumer Packaged Goods

Perishable Foods / Grocery

Prefer to Purchase Online Prefer to Purchase In-Person

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 15

Robust Redevelopment Pipeline Growth

Source: Company Presentation, JLL Research, Company Filings

7 7 9 11 1216

20813

16

19

28

32

33

5

5

5

10

8

5

12

20

25

30

40

48

53

65

0

10

20

30

40

50

60

70

Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

Pro

jects

Completed In-Process Commenced

Robust Diversified Tenant Demand Has Filled Recaptured Sears Stores

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 16

Redevelopment Takes 12 months To Increase Rent By 4.0x


Before

After

Announce Recapture

Sears Immediately

Vacates 50% Of

Property

New Tenants Sign At

4.0x Sears Rental Rate

12 Months of

Redevelopments

Illustrative Redevelopment

1

3

2

4

New Tenants Move In

And Begin Paying Rent5

Redevelopment Timeline

Redevelopments

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 17

Completed: San Antonio, TX

Repurposing Auto Center Located On Highly Visible Corner Across From Regional Mall

Project Details Before

After

Site Map

▪ Total Project Square Feet: 18,900

▪ Construction Start: Q3 2016

▪ Estimated Completion: Q2 2017

Source: Company presentation

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 18

In Process: Memphis, TN

100% Recapture; Redeveloping Freestanding Building To Create Multi-tenant Shopping Center

Project Details Before

After

Site Map

▪ Total Project Square Feet: 135,200

▪ Construction Start: Q2 2016

▪ Estimated Completion: Q3 2017

Source: Company presentation

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 19

Sears Occupied Property: Local Mall

Building And Auto Center Adjacent To Premier Regional Mall With Strong Surrounding Demographics

Site Map

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 20

Inventory Levels Appeared LowStore Was Primarily Empty (Except for Us)

Current Redevelopment Pipeline

Memphis, TN

West Hartford, CT

Rehoboth Beach, DE

Orlando, FL

St. Petersburg, FL

Cockeysville, MD

Kearney, NE

Multiple locations (5)



Multiple locations (5) (auto centers)

Property Lead Tenant(s)

Selected Redevelopment Projects


Source: Company presentation, Company filings

Carson, CA

Santa Cruz, CA

North Miami, FL

Watchung, NJ

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 21

Characteristics of Master Lease

Master Lease Benefits Both Companies But Seritage Gaines More As Sears Declines

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 22

Benefits To Seritage

• Sears announced exploration of monetizing its owned real estate through a potential sale-

leaseback transaction

• Sears formed Seritage and filed a registration statement on Form S-11 with the SEC

• Sears stockholders given the right to purchase proportionate interest in Sears

• Seritage filed a final prospectus concerning the Seritage Transaction and the Rights Offering

• Sears and Seritage close the Transaction and Rights Offering, approximately 97% of the

rights were exercised

• .

• Master Lease balanced Sears, need for liquidity, while allowing for significant growth

opportunities at Seritage. Seritage can unlock more value as Sears vacates stores.

Source: SEC Filings, Publically Available Information

• Raised needed liquidity

($2.7bn in cash)

• Locked in below market rent

($4.5/sq. ft. vs $ 19/sq. ft. )

• Ability to close Stores up to

20% GLA per year

• Recapture increases

profitability per store

Benefits To ……….

• Received top 15% of Sears Real Estate portfolio

• Sears pays for real estate taxes, building insurance, and maintenance

• Right to recapture properties up to 20% GLA per year

• Right to and release properties to third party tenants

• Right to receive termination payment from Sears in the event of a store

closure equal to (1) years rent

• Should Sears reject the leans in bankruptcy, Seritage has subordinated claim

to the lesser of (1) years rent or 15% of the remaining value of the lease

Nov. 2014

April 2015

June 2015

July 2015

Significance

Legal Precedent Recharacterizing Sale-Leaseback Transaction

Factors Considered by Courts1

1. Robinson v. Builders Supply & Lumber Co., 586 N.E.2d 316, 320–21 (Ill. App. Ct. 1992); In RE PCH Associates, 804 F.2d 193, 200–01 (2d Cir. 1986); U.S. Bank Trust

N.A. v. Nielsen Enterprises Md., LLC, 232 F. Supp. 2d 500 (D. Md. 2002); Helvering v. F&R Lazarus & Co., 308 U.S. 252 (1939)

• Both parties had proper legal council

• Both parties show evidence of Sophistication (Business Judgment Rule)

• Consideration appears adequate for a true sale

• Consideration paid in cash not amortized interest

• Master lease does not trade tax shelter for a fixed return

• No reasonable belief that Seritage owes Sears any unpaid debt

• Seritage assumed tax and insurance obligations

• Seritage assumed the risks and rewards associated of ownership

• Sears has to option or agreement to repurchase properties

• Rent payments compensate Seritage for the use of the land

• Structure of the sale was not unusual

Arguments

Supporting

Seritage

Arguments

Against

Seritage

• Sears liquidity needs surrounding the sale may imply financing arrangement

• Relationship between the parties may imply creation of a financing vehicle

• Seritage settled suit determining purchase sale price was below fair market

value

No View• Continued evidence of debt or liability (Classification of operating lease)

• Prior unsuccessful attempts to obtain a loan (Information not publically

available)

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 23

Name: Mary Rottler

Position: EVP, Leasing and Operations

Prior Experience: VP, Real Estate and VP, Realty Supplier Management and Compliance at Walmart

Name: James Bry

Position: EVP, Development and Construction

Prior Experience: SVP, Development and Construction at Vornado Realty Trust

Name: Matthew Fernand

Position: EVP and General Counsel

Prior Experience: Partner in Sidley Austin LLP’s Real Estate Group

Name: Brian Dickman

Position: CFO and EVP

Prior Experience: CFO at Agree Realty, Real Estate Investment Banker at Lehman Brothers, Barclays, and RBC

Name: Benjamin Schall

Position: President and CEO

Prior Experience: COO of Rouse Properties, Inc., SVP at Vornado Realty Trust

SERITAGE Key Management

Management Brings Experience from Wide Range of Real Estate Backgrounds

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 24

Enhanced Liquidity Through Debt or JV Sale

Source: Capital IQ, Company Filings

1. As of June 30, 2017

2. Stake value assumed to be equivalent to initial investment in JV. SRG current holds a 50% stake in all 3 JVs

Multiple Avenues to Sell JV Stake

JV Partner Total Sq. Ft. Stake Value2Properties

2.1mm

1.6mm

1.7mm

12

9

10

$165mm

$150mm

$114mm

Seritage Has Substantial Debt Capacity

Metric SRGImplied Debt

Capacity

Industry

Average

NOI

Coverage

Debt /

Total Sq. Ft.

Debt /

Equity

$31.75 $90.34 $2,280mm

$1,832mm0.5x 1.2x

Estimated Annual Cash from Operations1Current Liquidity Summary1

Low Leverage and High Liquidity Support ~90% of Capital Needed For Redevelopment Costs

($ in millions)

Cash & Equivalents $9.9

Restricted Cash 172.6

Unsecured Term Loan Facility 115.0

Proceeds from GGP Sale 171.6

Total Liquidity $469.0

($ in millions)

Total NOI from 3rd-Party Tenants $138.4

G&A Expenses (20)

EBITDA 118.4

Interest Expense (75)

Cash from Operations $43.4

Remaining Redevelopment Funding Requirement: $150mm

3.9x 2.1x $1,142mm

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 25

$5.5

$11.0$11.8

$15.5 $15.7$13.0

$27.2

$7.3

$15.6 $16.9

$0 bn

$10 bn

$20 bn

$30 bn

$40 bn

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Seritage Existing Debt Profile

Total Retail REIT Debt Issuances Have Grown at a ~13% CAGR since 2008 Recession1

Source: Capital IQ, Company Filings

1. Shaded Area represents YTD figures and patterned area denotes Q4 2017 Estimates

Current credit market conditions

remain highly liquid despite

uncertainty around e-commerce

(1)

$145.8

$128.5

$101.3$91.9

$71.2$62.0

$31.7

$2

$24

$46

$68

$90

$112

$134

$156

1 2 3 4 5 6 7

Retail REIT Debt / Equity Ratios

3.0x

2.3x

1.1x

0.7x 0.7x0.5x 0.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

1 2 3 4 5 6 7

SRG Has Enough

Leverage Capacity to

Raise ~2bn in additional

debt

Retail REIT Total Debt / Per Sq. Ft.

SRG commands

Lowest Debt PSF

ratio of its peer group

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 26

$51.81 $52.36 $52.09

$57.67 $58.20 $61.81

$63.90 $64.42

$75.11

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

Dividend Discount Model Levered Discount Cash Flow Net Asset Value

Implie

d S

hare

Price

Immediate Sears Bankruptcy Q3 2018 Sears Bankruptcy Q2 2019 Sears Bankruptcy

Intrinsic Valuation Implies 30% Upside

Dividend Discount Model Net Asset Value Model

Implied Premium Breakdown

▪ Dividend Payout Ratio – 30.0%

▪ Cost of Equity – 9.0%

▪ EV / FFO Exit Multiple – 13.0x

(Industry Average ~13.4x)

▪ Cap Rate – 6.5% (Prime Mall Cap

Rates ~6.0%)


▪ Valuation of PV of 2018E Balance

Sheet discounted back at Cost of

EquityAssu

mp

tio

ns

Se

nsitiv

ity

Levered DCF Model

10/13/17

Share Price


▪ EV / FFO Exit Multiple – 13.0x

(Industry Average ~13.4x)

▪ Assumes ~150mm funding gap in

redevelopments is funded through

debt

Implied Share Price Implied Perpetuity Growth Rate

Exit Multiple Exit Multiple

12.0x 12.5x 13.0x 13.5x 14.0x

8.0% $56.01 $58.12 $60.22 $62.32 $64.42

8.5% $55.07 $57.13 $59.20 $61.26 $63.32

9.0% $54.15 $56.17 $58.20 $60.23 $62.25

9.5% $53.24 $55.23 $57.22 $59.22 $61.21

10.0% $52.36 $54.32 $56.27 $58.23 $60.18Cost of E

quity

Implied Share Price Implied Perpetuity Growth Rate

Exit Multiple Exit Multiple

12.0x 12.5x 13.0x 13.5x 14.0x

8.0% $55.49 $57.60 $59.70 $61.80 $63.90

8.5% $54.54 $56.61 $58.67 $60.73 $62.80

9.0% $53.61 $55.64 $57.67 $59.69 $61.72

9.5% $52.70 $54.69 $56.68 $58.67 $60.67

10.0% $51.81 $53.77 $55.72 $57.68 $59.63Cost of E

quity

Implied Share Price

Cap Rate

5.5% 6.0% 6.5% 7.0% 7.5%

8.0% $75.11 $68.26 $62.47 $57.51 $53.21

8.5% $74.70 $67.90 $62.14 $57.20 $52.93

9.0% $74.31 $67.54 $61.81 $56.90 $52.65

9.5% $73.91 $67.18 $61.48 $56.60 $52.37

10.0% $73.52 $66.82 $61.16 $56.30 $52.09Cost of E

quity

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 27

Relative Valuation Implies ~35% Upside

Seritage Has Shown Strong NOI Growth and Healthy Leverage / Coverage Ratios

Debt Per Sq. Ft.LTM NOI GrowthNOI Interest Coverage

Seritage trades at ~35% Discount to Peers Due to Market Myopia on Sears Bankruptcy

Price / 2018E AFFO1Price / 2019E FFO1Price / 2018E FFO1

17.4 x16.4 x

15.8 x 15.3 x

8.7 x

7.0 x

3.0 x

7.0 x

11.0 x

15.0 x

19.0 x

1 2 3 4 5 6

18.4 x17.9 x16.8 x

14.1 x

8.7 x7.8 x

3.0 x

7.0 x

11.0 x

15.0 x

19.0 x

23.0 x

1 2 3 4 5 6

20.0 x

18.2 x17.6 x16.6 x

9.6 x

7.9 x

3.0 x

7.0 x

11.0 x

15.0 x

19.0 x

23.0 x

1 2 3 4 5 6

3.9x

2.9x

2.3x 2.2x

0.9x

0.3x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

1 2 3 4 5 6

8.0%

6.5%

4.0%3.0%

-2.0%

-4.0%-5.0%

0.0%

5.0%

10.0%

1 2 3 4 5 6

$67

$56

$45 $35

$33$28

$0

$20

$40

$60

$80

1 2 3 4 5 6

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model

1. Share price as of 10/13/17

28

8.2x

Dividend Discount Model (Q3 2018 Sears Bankruptcy)

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model

1. Implied premium calculated based on current share price as of 10/13/17

Dividend Discount Model Implied Share Price

(Fiscal Year Ending December 31) Historical Period Stub Projection Period '18-'21

($ in Millions) 1H 2015 2016 2017 2018 2019 2020 2021 CAGR

Rental Income $87 $186 $130 $256 $241 $282 $324 8.1%

Tenant Reimbursements 27 62 51 50 41 54 69

Total Revenue 114 249 180 306 281 336 392 8.6%

Property Operating Expense 6 22 10 16 15 17 18

Real Estate Taxes 22 44 24 49 51 52 53

Depreciation and Amorization 66 177 101 203 253 387 546

General and Administrative 10 17 10 16 15 16 17

Other Expenses 18 19 - - - - -

Operating Income (Loss) (9) (30) 35 22 (53) (136) (242) N/A

Net Income (22) (52) 35 9 (74) (139) (232) N/A

Dividends - 39 41 64 54 74 94 13.8%

Present Value of Dividend 40 60 47 59 68

Equity Value Implied Equity Value and Share Price

FFO Exit Multiple 13.0x Implied Equity Value 3,179

Equity Value 3,179 FDSO 55

Price Per Share $57.67

Implied Premium to Current Share Price 26.1%

29

Levered DCF Model (Q3 2018 Sears Bankruptcy)

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model


30

Levered DCF Model Implied Share Price

(Fiscal Year Ending December 31) Historical Period Stub Projection Period '18-'21

($ in Millions) 1H 2015 2016 2017 2018 2019 2020 2021 CAGR

Cash Flow from Operations $21 $110 $97 $135 $130 $178 $231 19.6%

(+) Cash Flow from Investing Activities (2,734) (70) - (197) (228) (126) (129)

Cash Flow Before Financing Activities (2,713) 40 97 (63) (98) 52 101 NM

(+) Non-Equity Cash Flow from Financing Activities (37) 187 139 (10) (22)

Levered FCF (1,581) 29 60 125 40 43 80 -13.9%

Present Value of Levered FCF 60 118 35 34 58

Equity Value Implied Equity Value and Share Price

FFO Exit Multiple 13.0x Implied Equity Value 3,208

Equity Value 3,208 FDSO 55

Price Per Share $58.20

Implied Premium to Current Share Price 27.3%

Net Asset Value Model (6.5% Cap Rate)1

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model


31

Net Asset Value Model

Projection Period

2017E 2018E 2019E 2020E 2021E

Assumed Cap Rate 6.50% 6.50% 6.50% 6.50% 6.50%

NOI Contribution

Wholly-Owned Properties $221.4 $235.7 $210.6 $260.8 $313.7

JV Properties 30.0 36.5 17.0 15.4 14.0

Total NOI 251.4 272.2 227.6 276.3 327.7

Capitalized Income Value 3,868.2 4,187.5 3,501.1 4,250.1 5,041.4

Balance Sheet Assets:

Non-Operating Real Estate Assets

Construction in Progress $134.2 $418.2 $43.4 $48.5 $48.5

Vacatent Buildings and Land 523.4 640.2 1,733.1 1,620.7 1,463.0

Other Balance Sheet Assets

Cash & Cash Equivalents 50.0 50.0 50.0 52.2 91.5

Restricted Cash 38.4 - - - -

Tenant and Other Recievables, Net 29.5 31.7 29.6 35.0 40.3

Prepaid Expenses, Deferred Expenses, and Other Assets, Net 10.6 7.9 8.3 8.9 9.5

Lease Intangible Assets, Net 389.9 392.2 394.3 396.9 399.8

Total Asset Value: 5,044.3 5,727.7 5,760.0 6,412.2 7,094.0

Liabilities:

Accounts Payable, Accrued Expenses, and Other Liabilities 97.5 71.8 75.4 79.7 84.3

Mortgage Loans Payable, Net 1,250.3 1,250.3 1,250.3 1,250.3 1,250.3

Unsecured Term Loan, Net - - - - -

Additional Borrowings 56.4 260.7 414.9 423.8 423.8

Total Liabilities Value: 1,404.2 1,582.8 1,740.6 1,753.8 1,758.4

Other Claims on Equity:

Noncontrolling Interest 463.2 379.1 301.7 209.4 101.5

Total other Claims on Equity: 463.2 379.1 301.7 209.4 101.5

Net Asset Value: $3,176.8 $3,765.8 $3,717.7 $4,449.0 $5,234.1

FDSO 55.1 55.1 55.1 55.1 55.1

Implied Share Price $57.63 $68.31 $67.44 $80.71 $94.95

PV of Implied Share Price $57.11 $61.81 $55.98 $61.46 $66.34

Current Share Price $45.72 $45.72 $45.72 $45.72 $45.72

Implied Premium (Discount) to Current Share Price 24.9% 35.2% 22.4% 34.4% 45.1%

Used Q4 2018

Balance Sheet

Following

Estimated Sears

Bankruptcy of

Q3 2018. Implied

Share Price was

Discounted Back

at Cost of Equity

of 9.0%

Seritage Operating Model – Income Statement

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model

Income Statement

Historical Period Projection Period

($ in Millions) 2H 2015A 2016A 2017E 2018E 2019E 2020E 2021E LTM

Rental Income 86.6$ 186.4$ 221.2$ 256.0$ 240.9$ 281.8$ 323.7$ 186.6$

Tenant Reimbursements 26.9 62.3 82.5 50.0 40.5 53.7 68.7 60.5

Total Revenue 113.6 248.7 303.7 306.0 281.4 335.5 392.4 247.1

Property Operating Expense 6.3 21.5 19.5 15.8 15.4 16.8 18.5 18.5

Real Estate Taxes 22.4 43.7 48.5 49.2 50.6 52.0 53.3 44.9

Depreciation and Amorization 65.9 177.1 210.4 203.2 253.3 387.2 545.7 209.5

General and Administrative 10.0 17.5 21.4 15.8 14.9 15.9 17.0 20.0

Nonrecurring Expenses 18.4 19.3 0.1 0.0 0.0 0.0 0.0 19.2

Operating Income (Loss) (9.4) (30.4) 3.8 22.0 (52.8) (136.4) (242.1) (65.0)

Equity Income from Unconsolidated JV Operations 4.8 4.6 1.2 3.8 1.8 1.6 1.5 1.1

Interest and Other Income 0.1 0.3 0.2 0.3 0.3 0.3 0.4 0.3

Interest Expense 30.5 63.6 74.5 80.1 81.1 74.2 73.7 67.2

Unrealized Loss on Interest Rate Cap 2.9 1.4 2.4 3.1 2.8 3.4 3.9 0.1

Operating Income (Loss) Before Income Taxes (37.9) (90.5) (71.6) (57.0) (134.6) (212.1) (317.9) (131.0)

Provision for Income Tax 0.9 0.5 0.7 0.9 0.9 0.9 0.9 0.4

Net Income (Loss) (38.8) (91.0) (72.3) (57.8) (135.4) (213.0) (318.8) (131.4)

Net Income (Loss) Attributable to Minority Interest 16.5 39.5 66.3 67.3 61.9 73.8 86.3 54.3

Net Income (Loss) Attributable to Parent (22.3) (51.6) (6.0) 9.5 (73.5) (139.2) (232.4) (77.2)

Key Assumptions

Projected Annual Income Statement

▪ Assumes Sears Bankruptcy Date of Q3 2018

▪ Current redevelopment projects are completed upon announced date in SRG company filings

▪ Future redeveloped properties are leased at $19.00 per square foot upon completion

▪ Sears vacates roughly 5,000,000 square feet per quarter until bankruptcy due to store closures

▪ Real estate taxes are projected as a % of total square feet and grow at the rate of inflation

▪ Properties are depreciated over a 15-year period

32

Seritage Operating Model – Balance Sheet

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model

Projected Annual Balance Sheet

Balance Sheet



Real Estate 0 0 0

Land 840.6$ 840.0$ 840.0$ 840.0$ 840.0$ 840.0$ 840.0$ 840.0$

Buildings and Improvements 814.7 839.7 1,000.6 1,036.9 1,639.6 1,760.8 1,890.0 845.6

Gross Real Estate Operating Assets 1,655.2 1,679.7 1,840.7 1,877.0 2,479.6 2,600.8 2,730.1 1,685.6

(-) Accumulated Depreciation (29.1) (89.9) (218.5) (421.7) (675.0) (1,062.2) (1,608.0) (117.3)

Net Operating Real Estate 1,626.1 1,589.7 1,622.2 1,455.3 1,804.6 1,538.5 1,122.1 1,568.3

Construction in Progress 13.1 55.2 134.2 418.2 43.4 48.5 48.5 155.0

Total Real Estate, Net of Accumulated Depreciation 1,639.3 1,645.0 1,756.3 1,873.5 1,848.0 1,587.0 1,170.6 1,723.3

Cash and Cash Equivalents 62.9 52.0 50.0 50.0 50.0 52.2 91.5 9.9

Restricted Cash 92.5 87.6 38.4 - - - - 172.6

Tenant and Other Recievables, Net 9.8 23.2 29.5 31.7 29.6 35.0 40.3 26.4

Prepaid Expenses, Deferred Expenses, and Other Assets, Net 23.1 15.1 10.6 7.9 8.3 8.9 9.5 13.4

Investments in Unconsolidated Joint Ventures 427.1 425.0 425.1 409.7 402.5 396.0 390.2 432.0

Lease Intangible Assets, Net 578.8 464.4 389.9 392.2 394.3 396.9 399.8 388.6

Total Assets 2,833.4 2,712.2 2,699.9 2,764.9 2,732.9 2,476.0 2,101.8 2,766.1

Liabilities and Shareholder's Equity 0 0 0 0 0 0 0

Accounts Payable, Accrued Expenses, and Other Liabilities 120.9 121.1 97.5 71.8 75.4 79.7 84.3 103.3

Mortgage Loans Payable, Net 1,142.4 1,166.9 1,250.3 1,250.3 1,250.3 1,250.3 1,250.3 1,250.3

Unsecured Term Loan, Net - - - - - - - 83.0

Additional Debt Raised - - 56.4 260.7 414.9 423.8 423.8 -

Total Liabilities 1,263.3 1,287.9 1,404.2 1,582.8 1,740.6 1,753.8 1,758.4 1,436.6

Common Stock Class A - Par Value 0.2 0.3 0.0 0.0 0.0 0.0 0.0 0.0

Common Stock Class B - Par Value 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1

Common Stock Class C - Par Value 0.1 0.1 0.3 0.3 0.3 0.3 0.3 0.3

Noncontrolling Interest 683.4 619.8 463.2 379.1 301.7 209.4 101.5 512.8

Additional Paid-In Capital 924.5 925.6 996.6 998.1 999.5 1,001.2 1,003.2 995.7

Accumulated Deficit (38.1) (121.3) (164.5) (195.4) (309.3) (488.8) (761.6) (179.4)

Total Shareholder's Equity 1,570.1 1,424.3 1,295.6 1,182.1 992.3 722.2 343.4 1,329.4

Total Liabilities and Shareholder's Equity 2,833.4 2,712.2 2,699.9 2,764.9 2,732.9 2,476.0 2,101.8 2,766.1

33

Seritage Operating Model – Cash Flow Statement

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model

Projected Annual Cash Flow Statement

Cash Flow Statement



Cash Flow from Operations

Net Income (Loss) (22.3)$ (51.6)$ (6.0)$ 9.5$ (73.5)$ (139.2)$ (232.4)$ (77.2)$

Noncontrolling Interest (16.5) (39.5) (66.3) (67.3) (61.9) (73.8) (86.3) (54.3)

Depreciation and Amortization 68.2 181.8 213.8 203.2 253.3 387.2 545.7 215.3

Unrealized Loss on Interest Rate Cap 2.9 1.4 2.4 3.1 2.8 3.4 3.9 0.1

Equity Income from Unconsolidated JVs (4.8) (4.6) (1.2) (3.8) (1.8) (1.6) (1.5) (1.1)

Distribution from Unconsolidated JV 6.7 15.7 16.2 19.2 8.9 8.1 7.4 15.0

Stock Based Compensation 0.9 1.1 1.7 1.5 1.4 1.7 2.0 1.3

Straight-Line Rent Adjustment (8.3) (12.9) (6.6) (5.4) (4.9) (5.9) (6.9) (8.1)

Tenant and other Recievables (1.5) 0.4 (2.9) (2.2) 2.0 (5.3) (5.4) (0.2)

Accounts Payable, Accrued Expenses, and Other Liabilities 21.6 12.1 (28.3) (25.7) 3.6 4.4 4.6 (15.8)

Prepaid Expenses, Deferred Expenses, and Other Assets (25.6) 6.1 3.2 2.7 (0.5) (0.6) (0.6) (6.2)

Cash Flow from Operations 21.4 110.0 126.0 134.8 129.5 178.4 230.5 68.9

Cash Flow from Investing Activities

Restricted Cash (69.87) 4.86 49.23 38.39 - - - (85.52)

Development of Real Estate (11.3) (66.2) (240.3) (320.3) (227.9) (126.3) (129.3) (139.0)

Investment in Unconsolidated JVs (2,653.0) (9.0) (15.0) - - - - (24.0)

Cash Flow from Investing Activities (2,734.2) (70.3) (206.1) (281.9) (227.9) (126.3) (129.3) (248.6)

Cash Flow from Financing Activities

Proceeds from Issuance of Common Stock & Noncontrolling Interest 1,644.0 - - - - - - -

Proceeds from Additional Debt Raised (Paid Off) - - 56.4 204.3 154.2 8.8 - -

Proceeds from Issuance of Mortgage Loans Payable, Net 1,161.2 - - - - - - -

Proceeds from Future Funding Facility - 20.0 80.0 - - - - 100.0

Common Dividend Paid - (39.4) (37.1) (40.4) (40.4) (40.4) (40.4) (32.7)

Noncontrolling Interest Distributions Paid - (30.2) (20.9) (16.8) (15.5) (18.5) (21.6) (23.0)

Other Financings Costs (29.6) (0.9) (2.4) - - - - (3.4)

Proceeds from Unsecured Term Loans - - 2.0 - - - - 85.0

Cash Flow from Financing Activities 2,775.6 (50.5) 78.0 147.1 98.4 (50.0) (61.9) 126.0

Beginning Cash Balance - 62.9 52.0 50.0 50.0 50.0 52.2 63.7

Change in Cash 62.9 (10.8) (2.0) - - 2.2 39.3 (53.8)

Ending Cash Balance 62.9 52.0 50.0 50.0 50.0 52.2 91.5 9.9

34

Implied Default Probability

Assumptions

Calculation

Source: Company filings

Pricing Data as of 9/18/2017

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 35

Inputs Bond Data

Today 10/15/2017 Maturity Coupon Price Probability

Risk Free Rate 1.3% 10/15/2017 6.88% 99.05$ 5.36%

Risk Premium 1.0% 10/15/2018 6.63% 94.50$ 14.74%

Recovery Rate 25.0% 12/15/2019 8.00% 86.41$ 31.50%

Default Survival

CF Date CF Prob. FV CF Prob. FV Total CF Price10/15/2017 -$

10/15/2017 $25.00 5.36% 1.34$ 103.44$ 94.64% 97.89$ 99.23$ 99.23$

12/31/2017 25.00 3.09% 0.11 3.31 96.91% 3.21 3.32$

6/15/2018 25.00 6.51% 0.24 3.31 90.61% 3.00 3.24$

10/15/2018 25.00 4.47% 0.16 103.31 86.56% 89.42 89.59$ 94.51$

12/31/2017 25.00 1.11% 0.04 4.00 98.89% 3.96 4.00$

12/31/2018 25.00 6.44% 0.24 4.00 89.24% 3.57 3.81$

6/15/2019 25.00 8.87% 0.33 4.00 81.33% 3.25 3.58$

12/15/2019 25.00 11.54% 0.43 104.00 71.94% 74.82 75.25$ 86.59$

Operating Model – Income Statement

Key Assumptions

Projected Quarterly Income Statement

▪ Assumes ~100 store closures per quarter, in-line with previous quarterly store closures

▪ 4.0% quarterly decline in same store sales, ramping down to 5.0%

▪ Sears is able to gradually sell-off assets in order to make debt payments

o Sears still owns most of their stores and there has been some demand from 3rd parties to purchase these

stores

o Sears sold off the rights to its Craftsman brand to Stanley Black & Decker for ~$900mm in January 2017

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model

Income Statement

Projection Period Historical Period

($ in Millions) Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Revenue 4,301.0$ 4,365.0$ 3,713.4$ 4,343.6$ 3,039.1$ 2,985.4$ 2,348.8$ 2,571.2$

COGS 3,334.0 3,239.0 2,896.4 3,366.3 2,340.1 2,298.8 1,796.9 1,967.0

Gross Profit 967.0 1,126.0 816.9 977.3 699.0 686.6 552.0 604.2

SG&A 1,228.0 1,396.0 1,076.9 1,216.2 820.5 776.2 610.7 642.8


Other Operating Expense / (Income) - - - - - - - -

Operating Income (342.0) (345.0) (323.1) (296.1) (175.8) (139.2) (98.7) (72.4)

Net Interest Expense 128.0 123.0 106.3 99.7 93.1 92.8 88.7 80.5

Other Non-Operating Expenses (Income) - - - - - - - -

EBT Excluding Usual Items (470.0) (468.0) (429.5) (395.8) (269.0) (232.0) (187.4) (152.9)

Restructuring Charges 97.0 141.0 48.7 112.8 62.2 45.6 30.8 66.8

Loss (Gain) on Sale of Assets and Investments (739.0) (368.0) - (506.8) - (133.9) (110.3) (91.0)

Asset Writedown & Other Unusual Items - - - - - - - -

EBT Including Usual Items 172.0 (241.0) (478.2) (1.8) (331.1) (143.7) (108.0) (128.7)

Income Tax Expense (72.0) 10.0 - - - - - -

Net Income 244.0 (251.0) (478.2) (1.8) (331.1) (143.7) (108.0) (128.7)

Net Income Attrib. Minority Interest - - - - - - - -

Net Income to Parent 244.0 (251.0) (478.2) (1.8) (331.1) (143.7) (108.0) (128.7)

36

Operating Model – Balance Sheet

Projected Quarterly Balance Sheet

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 37

Balance Sheet



Assets

Cash and Cash Equivalents 264.0$ 442.0$ 222.5$ 150.0$ 274.2$ 150.0$ 150.0$ 150.0$

Accounts Receivable 479.0 370.0 322.9 377.7 303.9 295.3 229.8 251.5

Inventory 3,884.0 3,433.0 3,305.7 3,110.1 2,340.1 2,147.2 1,757.8 1,603.5

Prepaid Expenses 311.0 318.0 256.34 193.00 249.58 171.23 157.49 114.76

Current Assets 4,938.0 4,563.0 4,107.4 3,830.8 3,167.8 2,763.7 2,295.1 2,119.8

Net PP&E 2,130.0 1,969.0 2,057.1 1,395.3 1,373.1 1,130.9 933.2 769.6

Long-Term Investments 12.0 17.0 - - - - - -

Goodwill 269.0 269.0 269.0 269.0 269.0 269.0 269.0 269.0

Other Intangibles 1,251.0 1,249.0 1,249.0 1,249.0 1,249.0 1,249.0 1,249.0 1,249.0

Deferred Tax Assets (NOLs) - - 310.8 312.0 527.2 620.7 690.9 774.5

Other Long-Term Assets 471.0 284.0 170.5 14.6 - - - -

Total Assets 9,071.0 8,351.0 8,163.9 7,070.7 6,586.1 6,033.3 5,437.1 5,181.9

Liabilities and Shareholder's Equity

Accounts Payable 961.0 670.0 1,007.5 658.6 624.0 530.5 546.9 342.1

Current Income Taxes Payable 293.0 302.0 235.3 205.8 189.0 186.6 148.9 121.8

Unearned Revenue 1,982.0 1,908.0 1,915.2 1,809.4 1,725.5 1,676.4 1,491.0 1,428.1

Other Liabilities 2,574.0 2,515.0 2,565.3 2,616.6 2,668.9 2,722.3 2,776.8 2,832.3

Total Current Liabilities 5,810.0 5,395.0 5,723.3 5,290.4 5,207.5 5,115.8 4,963.5 4,724.3

Long-Term Debt 4,281.0 4,003.0 3,984.5 3,444.9 3,431.6 3,149.5 2,872.6 3,081.5

Capital Leases 183.0 230.0 217.0 204.0 196.3 188.5 180.8 173.0

Pension & Other Post-Retirement Benefits 1,677.0 1,731.0 1,731.0 1,731.0 1,731.0 1,731.0 1,731.0 1,731.0

Deferred Tax Liability 647.0 643.0 637.3 531.5 482.0 454.4 403.1 314.6

Total Liabilities 12,598.0 12,002.0 12,293.1 11,201.8 11,048.3 10,639.2 10,151.0 10,024.4

Common Stock 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Additional Paid-In Capital 9,116.0 9,102.0 9,102.0 9,102.0 9,102.0 9,102.0 9,102.0 9,102.0

Retained Earnings (5,268.0) (5,519.0) (5,997.2) (5,999.0) (6,330.1) (6,473.9) (6,581.9) (6,710.5)

Treasury Stock (5,875.0) (5,861.0) (5,861.0) (5,861.0) (5,861.0) (5,861.0) (5,861.0) (5,861.0)

Other Comprehensive Income (1,501.0) (1,374.0) (1,374.0) (1,374.0) (1,374.0) (1,374.0) (1,374.0) (1,374.0)

Minority Interest - - - - - - - -

Total Shareholder's Equity (3,527.0) (3,651.0) (4,129.2) (4,131.0) (4,462.1) (4,605.9) (4,713.9) (4,842.5)

Total Liabilities and Shareholder's Equity 9,071.0 8,351.0 8,163.9 7,070.7 6,586.1 6,033.3 5,437.1 5,181.9

Operating Model – Cash Flow Statement

Projected Quarterly Cash Flow Statement

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 38

Cash Flow Statements



Cash Flow from Operations

Net Income 244.0$ (251.0)$ (478.2)$ (1.8)$ (331.1)$ (143.7)$ (108.0)$ (128.7)$


(Gain) Loss from Sale of Assets (762.0) (399.0) - (506.8) - (133.9) (110.3) (91.0)

Asset Writedown 21.0 13.0 - - - - - -

Change in Inventories 58.0 451.0 127.3 195.6 770.0 192.9 389.4 154.3

Change in Accounts Payable (87.0) (291.0) 337.5 (348.8) (34.6) (93.5) 16.4 (204.8)

Change in Income Taxes (36.0) 12.0 (66.7) (29.6) (16.8) (2.4) (37.8) (27.0)

Change in Deferred Taxes 182.0 (83.0) (5.7) (105.9) (49.5) (27.6) (51.2) (88.5)

Change in Other Net Operating Activities (613.0) 185.0 (144.6) (47.1) (229.6) (2.2) (121.9) (70.0)

Cash Flow from Operations (880.0) (258.0) (167.1) (787.2) 162.7 (160.8) 16.6 (421.9)

Cash Flow from Investing Activities

Capital Expenditures (22.0) (19.0) (20.8) (19.2) (17.4) (13.5) (11.9) (10.2)

Gain (Loss) from Sale of Assets - - - 506.8 - 133.9 110.3 91.0

Sale of PP&E & Long Term Investments 765.0 669.0 - 779.7 - 206.0 169.6 140.0

Cash Flow from Investing Activities 743.0 650.0 (20.8) 1,267.3 (17.4) 326.4 268.0 220.7

Cash Flow from Financing Activities

Debt Issued (Repaid) 121.0 (203.0) (18.6) (539.6) (13.3) (282.1) (276.9) 208.9

Capital Lease Payments / Pension / Other Financing Actities (6.0) (11.0) (13.0) (13.0) (7.8) (7.8) (7.8) (7.8)

Cash Flow from Financing Activities 115.0 (214.0) (31.6) (552.6) (21.1) (289.8) (284.6) 201.1

Beginning Cash Balance 286.0 264.0 442.0 222.5 150.0 274.2 150.0 150.0

Change in Cash (22.0) 178.0 (219.5) (72.5) 124.2 (124.2) (0.0) -

Ending Cash Balance 264.0 442.0 222.5 150.0 274.2 150.0 150.0 150.0

Operating Model – Debt Schedule

Projected Quarterly Debt Schedule

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model 39

Debt Schedule



Beginning Cash 442.0 222.5 150.0 274.2 150.0 150.0

(+) Cash Avaliable for Debt Principal Repayment (200.9) (312.6) 137.5 (48.1) 107.3 (348.9)

(-) Minimmum Cash Balance 150.0 150.0 150.0 150.0 150.0 150.0

Subtotal Before Borrowing 91.1 (240.1) 137.5 76.1 107.3 (348.9)

(+) Additional Funds Required - 805.6 - 664.2 209.0 390.2

Sale of PP&E & Other Long Term Assets - 779.7 - 206.0 169.6 140.0

Additional Debt Required - 26.0 - 458.2 39.4 250.2

Total Sources of Funds 91.1 565.6 137.5 740.3 316.3 41.3

Debt Balances

Capital Lease Obligations 97.0$ 84.0$ 71.0$ 63.3$ 55.5$ 47.8$ 40.0$

Note Due 2017 289.0 289.0 - - - - -

Note Due 2018 28.0 28.0 28.0 28.0 28.0 28.0 -

Note Due 2019 613.0 613.0 613.0 613.0 613.0 613.0 613.0

Term Loan I Due 2018 727.0 727.0 727.0 727.0 - - -

Term Loan II Due 2020 555.0 549.5 543.9 538.4 532.8 527.3 521.7

Term Loan III Due 2020 330.0 330.0 330.0 330.0 330.0 330.0 330.0

Secured Loan Facility Due 2017 258.0 258.0 - - - - -

Secured Note Due 2018 303.0 303.0 303.0 303.0 303.0 - -

Senior Loan Facility Due 2020 454.0 454.0 454.0 454.0 454.0 454.0 454.0

Senior Unsecured Due 2019 446.0 446.0 446.0 446.0 446.0 446.0 446.0

Additional Borrowings - 26.0 26.0 458.2 497.6 289.6

Total Outstanding Debt 4,100.0 4,081.5 3,541.9 3,528.6 3,220.5 2,943.6 2,694.3

Mandatory Debt Repayments

Capital Lease Obligations 13.0 13.0 7.8 7.8 7.8 7.8

Note Due 2017 - 289.0 - - - -

Note Due 2018 - - - - - 28.0

Note Due 2019 - - - - - -

Term Loan I Due 2018 - - - 727.0 - -

Term Loan II Due 2020 5.6 5.6 5.6 5.6 5.6 5.6

Term Loan III Due 2020 - - - - - -

Secured Loan Facility Due 2017 - 258.0 - - - -

Secured Note Due 2018 - - - - 303.0 -

Senior Loan Facility Due 2020 - - - - - -

Senior Unsecured Due 2019 - - - - - -

Total Mandatory Debt Repayments 18.6 565.6 13.3 740.3 316.3 41.3

Key Industry

Dynamics

Redevelopment

Pipeline

Master Lease

Legal Breakdown

Seritage Valuation

Operating Model

Seritage Liquidity

Profile

Sears Operating

Model

Letter of Credit Facility

▪ In the event of reductions of the commitments under the LC Facility or a termination of

the LC Facility prior to the six month anniversary of the effective date of the Amendment,

the Borrowers will be required to pay an early reduction/termination fee equal to the

commitment fee that would have accrued with respect to the reduced or terminated

commitments from the date of reduction or termination until the six month anniversary.

Secured Loan Facilities ▪ Must apply the net proceeds of the sale of any real property collateral for the 2017

Secured Loan Facility to repay the loan

▪ Default interest rate equal to the greater of (i) 2.5% in excess of the base interest rate

and (ii) the prime rate plus 1%

▪ Limits on ability to make restricted payments, including dividends and share

repurchases

▪ Customary covenants that restrict ability to make dispositions, prepay debt and make

investments

▪ Cash dominion requirement

▪ Fixed charge ratio at the last day of any quarter be not less than 1.0 to 1.0

▪ In the event of certain prepayments of indebtedness, for a period of one year thereafter,

the Company must maintain availability under the facility of at least 12.5%

Domestic Credit

Agreement / Second

Lien Credit Agreement

Senior Secured Notes ▪ Covenants that (1) limit the ability of the Company and certain of its domestic

subsidiaries to create liens and enter into sale and leaseback transactions and (2) limit

the ability of the Company to consolidate with or merge into, or sell other than for cash

or lease all or substantially all of its assets to, another person

▪ Default would permit or require the principal and accrued and unpaid interest to be due

and payable immediately, at a purchase price equal to 101% of the principal amount if

the borrowing base falls below the principal value

Debt Covenants

Debt Tranche Key Covenants

40

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