What happened
Shares of real estate investment trust (REIT) Seritage Growth Properties (SRG -0.55%) moved sharply higher as trading began on May 8, gaining 16% in the first half hour of the day. The company had reported earnings the night before, and the report was obviously well received. After the quick jump, the stock gave back some of the gain, with the advance hovering around 10% by 10 a.m. Wall Street time.
So what
If you look only at the headline numbers from Seritage's earnings results, the big stock gain doesn't make much sense. The REIT posted negative funds from operations (FFO), which is comparable to earnings for an industrial company, of $0.31 per share for the first quarter of 2020. Moreover, it was able to collect only 47% of its April rents. Those are not good numbers, and they help explain why Seritage isn't currently paying a dividend. However, some positive information was hidden underneath those figures.

Image source: Getty Images.
For example, it continues to lease out space formerly occupied by Sears and Kmart stores at rates that far exceed what those struggling retailers were paying. In the first quarter, Seritage was able to ink 12 leases with rental rates 3.6 times higher than the previous rates for those properties. That's important, because it means that the company's business plan remains largely intact, even though it may have to slow down its execution because of COVID-19-related issues.
Perhaps even more important, Seritage announced that Berkshire Hathaway (BRK.A -0.83%) (BRK.B -0.94%), which had previously provided a loan to the REIT, was giving it some breathing room. There's clearly fine print that goes with that, but the big picture is that a key lender remains supportive. In reality the loan was a pretty small investment for Berkshire, which is unlikely to bother pushing the REIT out of business due to the current COVID-19 turmoil. That said, the amendment to this debt agreement was likely why investors boosted the stock in early trading.
Now what
Seritage was really a turnaround stock from day one, as it entered public life owning a portfolio filled with Sears and Kmart stores. The goal all along has been to diversify the portfolio away from this pair. That has become a bit harder with the spread of COVID-19. But if Berkshire Hathaway is willing to work with Seritage to keep this process moving along, the final outcome here is likely to be a successful execution of the long-term plan -- even if it takes a little more time than originally hoped. Investors were right to be positive about the news here, but the REIT is still a stock best left to more aggressive investors willing to actively monitor a business turnaround.