Ken Griffin, Bruce Berkowitz Report Big Stakes In Sears’ REIT Spinoff

The real estate spinoff of Sears Holdings Corporation raised approximately $1.6 billion of capital through its right offering. Subsequently, Seritage Growth Properties used the money to acquire 235 Sears and Kmart-branded stores from Sears, including the 50% interests of Sears in joint ventures with General Growth Properties Inc. and The Macerich Company, which together hold an additional 31 properties of Sears. The transaction amounted to $2.7 billion and will enhance Sears’ financial flexibility and unlock new growth opportunities for the company. In turn, Seritage Growth Properties will lease back the majority of the acquired properties, including the ones owned by the joint ventures, to Sears under a master lease agreement, while the remaining properties will be leased to third parties.

But why would anyone invest in this REIT? Generally, investors are investing in REITs for their high levels of steady current income and the opportunity for long-term growth. Each REIT is required by law to pay out to its shareholders at least 90% of taxable income, so REITs tend to be among the companies that distribute the highest dividends, serving as one of the main reasons investors pour capital into them. However, the risk associated with a possible investment into Seritage Growth Properties is the potential bankruptcy or insolvency of its primary tenant, Sears Holdings Corporation. However, this outcome would not mean the end of the world for Seritage as it owns all the real estate properties. Hence, it seems that a potential investment in Seritage is not associated with too many risks, while the upside potential remains very strong and positive.

Moving on to what the newly-formed REIT provides, Seritage Growth Properties (NYSE:SRG) allows Sears’ management to raise some capital to help the struggling retailer, which hasn’t generated a profit for several years, and also attract some investors who don’t see value in Sears, but are intrigued by the company’s real estate properties. Finally, the REIT cash infusion will definitely enhance Sears’ future development and assist it in becoming a member-centric integrated retailer, so it’s worth keeping a close eye on this company too. Within our database, Edward Lampert’s ESL Investment represents the largest shareholder in Sears Holdings Corporation (NASDAQ:SHLD) with 26.44 million shares. Lampert also serves as the company’s CEO.

Disclosure: None