Sears moves to unlock value with US $2.5B REIT
LON DON/NEW YORK • Sears Holdings Corp. formed a real estate investment trust that will acquire about 254 of the retailer’s properties, generating more than US$2.5-billion in proceeds for the money-losing department store chain.
The REIT, Serit age Growth Properties, will lease the Sears and Kmart locations back to the retailer, Sears said in a statement Wednesday. Seritage will fund the purchase with debt and proceeds from a rights offering that’s expected to close by the end of the second quarter.
The deal marks one of the more dramatic moves chief executive Eddie Lampert has made to reshape the company after more than three years of losses. Mr. Lampert has sold and spun off assets such as the Sears Hometown & Outlet Stores Inc. chain and the Land’s End clothing brand while working to transform Sears into a leaner retailer focused on generating sales online and from loyalty-program members.
“This is the last big thing that they can do,” Matt McGinley, an analyst at Evercore ISI in New York, said in a phone interview. “It basically takes the assets of the real estate and separates them from the liability that is Sears.”
Sears has previously tried to squeeze more value out of its real estate holdings by selling locations, leasing space to other retailers and developing properties, and investors had long speculated that Mr. Lampert ultimately would form a REIT. The shares surged 31%, the most ever under Mr. Lampert, when the company announced in November that it was exploring the possibility.
The retailer said in a separate statement Wednesday that it also will form a US$330 million venture with General Growth Properties Inc. and contribute 12 properties at the landlord’s malls as part of the deal. General Growth will contribute US$165 million in cash to the venture.
“Sears Holdings is an assetrich enterprise with multiple levers to generate financial flexibility, while creating shareholder value,” Mr. Lampert, who’s also Sears chairman and its largest investor, said in the joint-venture statement. The retailer will lease back the stores it contributed.
Sears also is getting US$165 million in cash from the deal, along with its 50% stake in the venture, which it said will provide opportunities to create more value by redeveloping and re-leasing as much as half of each property.
The cash infusions come as Sears struggles to return to profitability under its new model.
The retailer’s loss last year widened to US$1.68 billion as sales slid 14%. All told, Sears has lost US$7.12 billion in its past four fiscal years.
Those losses have strained the retailer’s balance sheet. Its cash balance as of Jan. 31 was US$250 million, down 76% from a year earlier.
While the properties that Sears unloaded today are among its best, REITs that own malls with other Sears locations may be interested in similar joint-venture deals, Mr. McGingley said.