Shares of Seritage Growth Properties SRG gained 16.6% yesterday following Warren Buffett’s disclosure of his investment in the trust. The impact continued even after the market closed as shares gained another 2.2% in the aftermarket trading session.
According to the Securities and Exchange Commission filing, Buffett holds an 8.02% interest in Seritage Growth Properties or about 2 million shares. This translates to a holding worth $70.5 million, considering the share price of Seritage Growth Properties at Wednesday’s close. Following Thursday’s close, Warren Buffett’s investment in the trust is now worth about $80 million.
Seritage Growth Properties is a real estate investment trust that Sears Holdings Corp. SHLD formed by spinning off around 235 Sears and Kmart stores this June. Sears Holdings pursued the prudent strategy of spinning off the units to raise cash from its real estate holdings in the face of declining sales. This move helped Sears improve its financial position and have about $2.7 billion cash at its disposal. Seritage Growth Properties had started to trade on the stock exchange from July.
Following the creation of the REIT, Seritage Growth Properties purchased 235 properties and 31 joint venture properties from the retailer and subsequently leased most of them back to Sears and the rest to Lands' End LE, Walmart WMT and Dick's Sporting Goods DKS.
Warren Buffett has always eyed acquisitions or made investment in properties that remain undervalued or have potential for growth. His investment in REITs is propelled by favorable trends in the real estate industry – sturdy occupancy, low levered balance sheet and potential for higher dividends. Bruce Garrison, senior portfolio manager of REIT strategy of Chilton Capital Management projects dividend to grow 6% in the next three to four years.
Notably, this investment was made by Warren Buffett himself and not by his conglomerate Berkshire Hathaway Inc. BRK.B. Last month, HomeServices of America Inc., a wing of Berkshire Hathaway, decided to buy Allie Beth Allman & Associates, a luxury real estate broker. These moves by Buffett are sure to attract more investment in REITs as many investors keep a close watch on his investment moves for building their portfolios.
Berkshire Hathaway presently carries a Zacks Rank #3 (Hold).
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