Bruce Berkowitz Invests In Shopping Malls

Bruce Berkowitz’s Fairholme Capital Management introduced one new stock into its portfolio in the first quarter, Washington Prime Group Inc. (WPG).

The money manager has not bought a new one in more than a year, staying with his higher-concentration ideas, such as troubled Sears Holdings (SHLD) and The St. Joe Co. (JOE). The portfolio contains only nine stocks, valued at $1.03 billion at quarter-end as most of the positions slumped year to date. A strong quarter for his flagship strategy, the Fairholme Fund, though, led to a one-year gain of 28.02%, helping raise his suffering long-term performance.

Shoppers carry bags while walking through the Scottsdale Quarter shopping mall in Scottsdale, Arizona, U.S., on Tuesday, April 11, 2017. Photographer: Caitlin Ohara/Bloomberg

The new position, Washington Prime Group Inc., reflects 0.29% of the portfolio at 340,500 shares and an average first-quarter share price of around $9. Shares have since declined 19% to $7.52 Tuesday afternoon.

Washington Prime Group is a spin-off of Simon Property Group (SPG), which does business with another Berkowitz holding, Seritage Growth Properties (SRG). Structured as a real estate investment trust, it owns, manages, buys and develops retail properties, particularly shopping malls – an area that has spooked investors.

Financially, the company has had one year of net losses since 2012, as well as an 8.45% year-over-year decrease in revenue in 2016. It also ended the first quarter with $94.5 million of cash and $3.49 billion in debt.

Berkowitz is often attracted to out-of-favor situations. In addition to its 62% drop in price over five years, GuruFocus tags Washington Prime Group with warning signs for poor financial strength, a bankruptcy indicator in a distress zone, issuance of new debt, operating losses and low interest coverage. On the positive side, it is trading near its three-year low stock price and has P/B and P/S ratios near respective one-year lows. In the first quarter, it also raised its guidance for earnings for 2017.

This article originally appeared here.

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