Buffett buys into Sears – sort of

No, the Oracle of Omaha hasn’t lost his mind investing in the failing retailer but rather he’s invested in its real estate spin-off that will live on regardless of what happens to the department store itself

Seritage Growth Properties, the real estate investment trust spun off from retailer Sears Holdings Corp., soared 17 percent after billionaire Warren Buffett disclosed an investment in the company.

Buffett reported a passive holding of 2 million shares, representing an 8 percent stake, according to a regulatory filing on Thursday. Seritage began trading this year after Sears created the business to capitalize on its real estate holdings. The REIT owns about 250 properties, which it leases back to Sears to be operated as department stores.

Sears raised $2.7 billion by creating the REIT as part of hedge-fund manager Edward Lampert’s effort to turn around the struggling retailer. The new company is partnering with mall operators including Simon Property Group Inc. and Macerich Co. as it seeks to monetize its real estate. Seritage appears to be taking its time to ensure the best outcome, said Alexander Goldfarb, an analyst at Sandler O’Neill & Partners LP in New York. 

“They are taking a thoughtful approach,” Goldfarb said. “They are trying to make sure the market isn’t flooded with a lot of inventory which could depress values.”

Biggest Gain

Seritage rose to $41.09 at the close of trading, its biggest gain since the stock’s debut in July.
Buffett didn’t return a request for comment sent to an assistant at Omaha, Nebraska-based Berkshire. The filing listed only the billionaire as the holder of the shares and didn’t mention Berkshire.

“While we don’t comment on specific investors, Seritage Growth Properties is focused on systemically unlocking the value of our real estate assets, which we expect will create significant value for all of our shareholders,” Jason Chudoba, a spokesman for the REIT, said in an e-mail.

It’s not the first time that Buffett has taken a major stake in a REIT. In 2000, he disclosed a 5.1 percent holding in Aegis Realty Inc., which at the time owned shopping centers and other property in 15 states. Buffett bought the stake for his personal holdings, rather than for Berkshire, the sprawling conglomerate he’s been building for the past five decades.

Aegis later agreed to a $203 million deal to buy a Dallas- based strip-mall developer. Then, on a 2001 conference call, Buffett criticized the terms of the transaction. Aegis ultimately canceled the acquisition, citing shareholder opposition.

Bloomberg News
Sarah Mulholland and Noah Buhayar