On Friday, Nov. 7, Bloomberg reported another turn in Sears Holdings Corp.’s story: the company has begun considering selling 200 to 300 stores to a newly formed real-estate investment trust.
According to the report, spinning off the property into a real-estate investment trust could generate $1.8 billion to $1.9 billion. Sears would then lease the properties back.
When CEO Eddie Lampert first merged Sears Roebuck & Co. and Kmart Holding Corp. in 2005, investors urged him to do make such a move. Now, after nine straight quarterly losses and a variety of fund raising tactics deployed with little or no effect, Lampert is reportedly welcome to the idea. Still, this fundraising venture would leave Sears with a hefty annual rent bill – approximately $150 million annually – and spotlight the uneven quality of its properties, according to Bloomberg.
“There is no doubt that there is underlying value in Sears real estate,” DJ Busch, an analyst at research firm Green Street Advisors in Newport Beach, Calif., told Bloomberg “Most of the value, however, is located at the higher-productivity malls. There is little to no value at the lower end of the quality spectrum.”
Bloomberg noted in its report that companies typically create real-estate investment trusts to lower taxes and boost returns to their shareholders. The trusts don’t pay federal income taxes so long as they distribute at least 90% of their taxable earnings as dividends. Real-estate investment trusts with a single retail tenant such as this one are trickier and thus have been rare.
