Buffet buys 8% in Sears' REIT Seritage Growth

Billionaire investor Warren Buffett has picked 8.02 percent stake in Seritage Growth Properties. The acquired stake's value is estimated to be $70.5 million involving two million shares. Buffett's Berkshire Hathaway is in the process of buying a real estate broking firm, Allie Beth Allman & Associates.

Sears Holdings is in the transformation mode to become a leading integrated retail membership-focused company. The latest acquisition of Buffett is expected to significantly enhance Sears Holding's financial performance.

Seritage Growth Properties is listed in the NYSE while Sears Holding is a Nasdaq-listed company. Retailer Sears has established Seritage Growth Properties. Out of the spinning off of 254 Sears and Kmart stores, Seritage has been formed by Sears Holding in June.

The struggling Sears was planning to mobilize funds via spin-off. Based on Wednesday's closing price, Buffet's latest acquisition in Seritage is estimated to be $70.5 million.

REIT (Real estate investment trust) has Sears' 50 percent stake in joint ventures (JVs) with three mall operators. It has leased the stores back to Sears for operations, as reported by CNBC.

Home services of America, a unit of Buffett's Berkshire Hathaway is buying Allie Beth Allman & Associates, which is a real estate broker.

Led by Eddie Lampert, Sears Holdings is facing challenging time and took decision to spin off Seritage Growth Properties to raise cash by offloading its real estate assets. Sears Holdings used funds raised from rights offer to purchase 235 Sears and Kmart stores.

Sears Holdings has JV with Simon Property Group, General Growth Properties and The Macerich Company. It also bought 31 properties included in the JVs.

Lampert, chairman and CEO, Sears Holdings, said in a statement that the transaction "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."

According to a report by Forbes, as of the date of transaction on 30 November, Seritage stock was closed at $36.50 up from the all-time low of $33.34 recorded in the same month. Seritage shares fell 6.6 percent in July before Buffett disclosed his position. Subsequently, the stock price rose 16 percent in early trading on Thursday (10 December).

Seritage has 42 million feet of gross leasable areas as of third quarter. Seritage Holdings enhances value by redeveloping the projects that shift its portfolio to higher rents and more diverse tenants.

The company sees 15 re-tenanting and development projects as of third quarter. These re-development of projects are funded through reserve account from the company's founding.

Buffett in a regulatory filing on Thursday said that he bought two million shares in Seritage, according to Market watch. However, the filing didn't clearly reveal how he plans to do with the shares. The share price rose 12.6 percent to $39.65 in the morning trading.

The deal significantly enhances Sears Holding's financial performance. The deal will also transform the capital structure towards more flexibility. "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," said Lampert.