Here's Why Seritage Growth Properties Stock Is Soaring Today

The REIT got a big vote of confidence from the Oracle of Omaha.

Matthew Frankel, CFP
Matthew Frankel, CFP
Aug 1, 2018 at 3:16PM

What happened

Seritage Growth Properties (NYSE:SRG), a real estate investment trust (REIT) that was created in 2015 out of a portfolio of Sears' real estate assets, just announced that it has entered into a new $2 billion loan agreement. As of 3 p.m. EDT, the stock was up by nearly 14% -- a huge one-day move, especially for a REIT.

So what

The reason wasn't necessarily the loan itself, but where it's coming from. The provider of Seritage's new loan facility is none other than Warren Buffett-led conglomerate Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B).

Warren Buffett in a grey suit.

Warren Buffett. Image source: The Motley Fool.

Technically, the loan is from the company's Berkshire Hathaway Life Insurance Company of Nebraska subsidiary. A full $1.6 billion is being disbursed right away at closing and pays Berkshire a 7% fixed interest rate until maturity on July 31, 2018. The other $400 million is an "incremental funding facility" that can be drawn at any point.

Now what

Not only does this new loan facility give Seritage more financial flexibility to transform its properties into mixed-use destinations, but it represents a big vote of confidence from the most respected investor in the world.

Put it this way: Buffett isn't comfortable loaning Berkshire's capital out unless he's virtually 100% certain that he's going to be paid back. Berkshire extending credit goes a long way toward boosting investor confidence in Seritage's financial condition, as well as its long-term potential.