A class action lawsuit was filed against Seritage Growth Properties (SRG) by Levi & Korsinsky on July 1, 2024. The plaintiffs (shareholders) alleged that they bought SRG stock at artificially inflated prices between July 7, 2022 and May 10, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Seritage Growth Properties stock during that period can click here to learn about joining the lawsuit.
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Seritage engages in the ownership, development, redevelopment, management, and leasing of retail, residential, and mixed-use properties across the U.S. Most of the company’s properties were acquired from Sears Holdings Corporation in 2015.
The company operated as a REIT (real estate investment trust) until December 2021 and then changed its status to a C Corp. (Corporation) for tax purposes and its inability to pay consistent dividends to its shareholders as required by a REIT company.
SRG’s Misleading Claims
According to the lawsuit, Seritage Growth Properties and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the efficacy of certain internal controls and ancillary issues from SEC filings and related material.
Importantly, during the Class Period, the company reiterated that it was following adequate disclosure controls and procedures. For reference, in the Q1 FY23 quarterly report, Seritage stated that its management, principal executive officer, and principal financial officer had undertaken a proper review of the company’s disclosure controls and procedures and found that they were effective as of such date.
Additionally, the company failed to value its assets appropriately owing to the lack of adequate internal controls. For instance, in a press release dated November 8, 2023, Seritage stated that it held $1,016,290,000 in total assets, including $398,028,000 in real estate assets. However, the company’s subsequent disclosures revealed adjustments to these values.
Plaintiffs’ Arguments
The plaintiffs maintain that Seritage Growth Properties and the Defendants deceived investors by lying and withholding important information about the company’s business practices and prospects during the Class Period. Importantly, the defendants are accused of misleading investors about the appropriate value of Seritage’s portfolio of assets.
The information became clear in the company’s disclosures on August 14, 2023 and May 10, 2024. On August 14, 2023, Seritage cited “material weakness” in its internal control over financial reporting, specifically related to the impairment indicators for investments in real estate. Further, after the markets closed on May 10, 2024, the company stated that it was making adjustments to its pricing projections for certain assets. These led to significant reductions in the gross value of the portfolio.
Overall, in contrast to the aforementioned claims, Seritage Growth Properties failed to maintain adequate internal controls, causing an overstatement of its portfolio of assets.
It is worth noting that the company has undertaken a “Plan of Sale” for all its assets to repay the term loan taken from Berkshire Hathaway Life Insurance Company of Nebraska. After repaying the debt, Seritage will pay shareholders the remaining amount and liquidate the company. As of April 24, 2024, the outstanding term loan stood at $280 million.
Amid all these troubles, SRG stock has declined 48.9% so far this year.
