New | Sears reit may be blueprint for future deals
Newly formed trust one of the more dramatic moves chief executive Lampert has made to reshape the retailer after years of losses
Sears Holdings Corp's plan to raise more than US$2.5 billion from its real estate serves as a blueprint for future deals, helping chief executive Eddie Lampert deliver the financial returns he has long promised to investors.
A newly formed real estate investment trust, Seritage Growth Properties, will buy 254 Sears and Kmart locations and then lease them back to the retailer. As part of the plan, Sears also will contribute 12 properties to a 50-50 joint venture with mall operator General Growth Properties in exchange for US$165 million in cash.
While the company has previously sold locations, leased space to other retailers and developed properties, many investors have been waiting for Lampert to form a reit since he merged Sears and Kmart more than a decade ago. The shares surged 31 per cent when the company announced in November that it was exploring the possibility.
The credit quality of Sears is at best poor, and so buyers of the Seritage reit will look for a redevelopment angle
"For operators of high-quality malls, there have to be more deals to be done with Sears," said Cedrik Lachance, a managing director at Green Street Advisors in Newport Beach, California.
Reits composed of a single retailer are rare because investors want to spread risk among multiple tenants. Yet investors could bite if they saw the transaction as a way to wring more value from the Sears properties, most likely by breaking them up, Lachance said.
"The big challenge of the single-tenant reit is the credit quality, of course, of that tenant," he said. "In this case, I think it's universally known that the credit quality of Sears is at best poor, and so buyers of the Seritage reit will look for a redevelopment angle."
The deals announced last week mark one of the more dramatic moves Lampert has made to reshape the company after more than three years of losses. Lampert has sold and spun off assets such as the Sears Hometown & Outlet Stores chain and the Lands' End brand while working to transform the company into a leaner retailer, focused on generating sales online and from loyalty-programme members.