This Buffett-Owned REIT Is Still Floundering in the Pandemic
When it was spun off from Sears Holdings a little more than five years ago, Seritage Growth Properties (NYSE: SRG) had a promising strategy. It paid $2.7 billion for Sears' interests in 266 properties, most of which were occupied by Sears or Kmart stores at the time. The idea was to redevelop those properties for higher-paying tenants as the REIT's former parent gradually closed some stores and downsized others. The business plan was so alluring that Seritage even attracted a personal investment from Warren Buffett.
Unfortunately for Seritage, Sears and Kmart fell into a rapid downward spiral following the spinoff and wound up closing stores much faster than the REIT could replace them. The situation has gone from bad to worse in 2020, as the COVID-19 pandemic has crushed a large swath of the retail sector. Seritage's recent third-quarter earnings report showed no sign of improvement.
Three months ago, Seritage reported total net operating income (NOI) of just $7.3 million for the second quarter, down from $14.6 million a year earlier. A new wave of Sears and Kmart store closures was one key driver of the NOI decline, offsetting tenant openings. The pandemic caused other tenants to fall into distress, too, including one notable bankruptcy filing: 24 Hour Fitness. Adjusted funds from operations (FFO) fell further into negative territory at minus-$27.2 million (minus-$0.49 per share).
Source Fool.com
