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Warren Buffet Backs Sears’ REIT

Billionaire investor Warren Buffett, who Bloomberg has hailed as the third richest man in the world, has bought an 8.02% stake in Seritage Growth Properties, the real-estate investment trust (REIT) of Sears Holdings.

Seritage shares, which trade on the New York Stock Exchange (NYSE) under the symbol “SRG,” jumped 17 percent after Buffet disclosed the news in a regulatory filing on Thursday.

After announcing its fourth straight year of falling profit and revenue, Sears Holdings announced its plan in April to raise more than $2.7 billion through the sale of about 235 Sears and Kmart branded properties to Seritage, along with 31 of the retailer’s joint-venture interests. All but 11 of the properties have been leased back to Sears.

Buffett’s personal stake in Seritage (it was not made on behalf of his company, Berkshire Hathaway) is worth two million shares and, according to the regulatory filing, is valued at $70.5 million based on the stock’s Wednesday close.

As CNN Money reported, one reason the REIT appealed to Buffett could be the U.S. consumer—but not necessarily Sears or Kmart shoppers. In its third-quarter operating results last month, Seritage said that 22 percent of its annual base revenue (including all signed leases) came from third-party tenants.

“Based on the robust demand from leading retailers across our portfolio and across the country, we are in the process of actively executing on our initial set of value enhancing redevelopment projects,” said Benjamin Schall, president and chief executive officer. “As we reposition our portfolio at materially higher rents with a diverse tenant base and unlock the underlying value of our vast land holdings, we expect to create significant value for our shareholders.”

Last summer, Bruce Berkowitz—founder and chief investment officer of Sears Holdings’ second-largest shareholder, Fairholme Capital Management—revealed a 13.2% stake (or 3,252,750 Class A common shares) in Seritage before selling 251,400 shares in a transaction valued at more than $5.5 million. During a teleconference with investors in February, he called the REIT a once-in-a-lifetime opportunity.