Berkshire loans US$2b to Buffet-backed real estate firm

New York

WARREN Buffett bet his own money more than two years ago on the real estate empire that was spun out of Sears Holdings. Now, his Berkshire Hathaway is helping finance the business.

Berkshire has agreed to provide a US$2 billion loan to Seritage Growth Properties, the real estate investment trust that owns the Sears stores, as well as properties the department-store chain has vacated.

Seritage is using a portion of the money to refinance debt, while adding to capital. The two million shares Mr Buffett bought in December 2015 are now valued at about US$85 million.

David Kass, a professor of finance at the University of Maryland's Robert H. Smith School of Business, said: "I think he's expressing confidence in their future profitability and growth. Seritage gets the Warren Buffett seal of approval."

Seritage was formed as part of Edward Lampert's efforts to turn around struggling retailer Sears and now owns 249 properties across the US.

It will pay an annual rate of 7 per cent on funds drawn under the loan agreement, plus a 1 per cent annual fee on money not yet tapped, according to a company statement.

The loan facility with Berkshire Hathaway Life Insurance Co of Nebraska matures in 2023.

Seritage chief executive officer Benjamin Schall said in the statement: "This new financing is a transformational step in the evolution of our company, which we started three years ago, and positions us to further accelerate our role as a leading retail and mixed-use developer across the country."

Seritage used to focus mainly on properties occupied by Sears. But that has changed as the department store chain has shrunk.

In June, Seritage said Sears Holdings is on track to eventually account for less than 35 per cent of contractual rental income by the end of this year, down from 80 per cent when the business began.

The New York-based Reit's stock climbed 1.6 per cent to US$43 just after 5pm in New York. It slumped 5.3 per cent last year. BLOOMBERG