Warren Buffett (Trades, Portfolio) today disclosed a 2 million-share stake in Seritage Growth Properties Inc. (SRG, Financial), a real estate investment trust spun off from Sears Holdings (SHLD, Financial), giving him an 8.02% position in the company.
Seritage stock closed at $36.50 per share on Nov. 30, the date of the transaction, up slightly from an all-time low of $33.34 per share earlier in November. Shares had declined 6.6% since the company began trading in July through the day before Buffett disclosed his position, and surged 16% Thursday morning.
Sears Holdings, the struggling retailer led by guru investor Eddie Lampert, spun off Seritage Growth Properties to unlock the value of its real estate. In July, it used the proceeds from a rights offering to purchase 235 Sears and Kmart stores, and the 31 properties included in Sears’ 50% joint ventures with Simon Property Group (SPG, Financial), General Growth Properties (GGP, Financial) and The Macerich Company. Seritage then leased most of the properties back to Sears and some stores to third parties.
"We expect the creation of Seritage to enable us to accelerate many of the activities that we have been pursuing over the past several years to transform Sears Holdings into a leading integrated retail membership-focused company," Lampert, Sears Holdings chairman and CEO, said in a statement about the transaction.
Lampert also said making the deal was “substantially enhancing Sears Holdings' financial flexibility and significantly transforming our capital structure toward one that is more flexible, long-term oriented and less dependent on inventory and receivables. We expect to continue to operate most of our retail stores in each of the locations owned by Seritage and lease back the properties, just as we do at a large number of our locations."
Seritage as of third quarter-end owned more than 42 million feet of gross leasable area. It aims to add value through redevelopment projects that shift its portfolio to higher rents and more diverse tenants, President and CEO Benjamin Schall said in a statement. It was overseeing 15 retenanting and development projects as of the third quarter, funded by a reserve account from the company’s founding.
Seritage expects to pay a dividend starting by the end of 2015 to meet its obligations as a REIT, but has not yet announced the amount.
Another famed Sears investor and Buffett follower, Bruce Berkowitz (Trades, Portfolio), disclosed a 13.2% holding in Seritage in July. Berkowitz continued to buy more shares in October and throughout November, according to insider filings.
“A recent analyst report noted that ‘the demographic profile of the [Seritage] owned portfolio is surprisingly good, with 10-mile density and incomes of 692k and $77k, respectively, slightly better than the mall REIT portfolio averages of 680k and $77k.’ Berkowitz wrote in the third quarter letter for his Fairholme Fund (Trades, Portfolio).
“We are bullish also based upon our independent assessment of real estate values, recent transaction data, and expected dividend increases as the company repositions properties to command higher rents from new tenants.”
Buffett filed his purchase of Seritage shares as a single reporting person, not as part of the Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) portfolio he shares with his two investment managers, Ted Weschler and Todd Combs.
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