A Sears store in Peoria, Ill. Sears is considering a REIT to boost liquidity.
When Eddie Lampert merged Sears and Kmart nine years ago, the move was heralded less for its retail prospects than as a shrewd property play. Now, the hedge fund manager has signaled he’s ready to start cashing in.
Sears Holdings Corp. SHLD, +31.04% on Friday said it was considering whether to spin off up to 300 of its 712 company-owned stores into a separate company that would be owned by its shareholders. The move would raise much-needed cash for the struggling retailer, which warned it lost as much as $ 630 million in its most recent quarter.
It also would be a big step toward what many observers have concluded would be the endgame for the company: somehow tapping the value of its vast property holdings. Sears’s shares recently jumped 26% on the news to $ 41.18.
Lampert, Sears’s chairman and chief executive, has been slowly dismantling the company over the past three years, spinning off business lines like Lands’ End and assets like a big stake in Sears Canada to the company’s shareholders. That largely has meant spinning the assets off to himself and his hedge fund. Lampert controls about 48.5% of Sears’s stock. Another 24% is controlled by investment manager Bruce Berkowitz.
Sears has long said it would look for ways to boost value for its shareholders as it works to turn around its retail operations. The company’s retail plans include a membership program called Shop Your Way and experiments like letting customers buy online and have their purchases brought out to them in their cars. A number of companies are splitting off business lines to better focus on their core operations.
The spinoffs, however, are reducing the margin of safety for creditors in the event the company doesn’t turn around.
“We believe we have financial flexibility, particularly as we enter the holiday season, and we expect it will provide confidence to our vendors and other constituents that we can generate the liquidity needed to invest in our business,” spokesman Chris Brathwaite said.
Many of the assets Sears could use to raise cash are tied up in its real estate. In a securities filing Friday, the company said it is actively exploring a plan to sell 200 to 300 properties to a real-estate investment trust. Sears’s shareholders would have the right to buy stock in the REIT, giving them ownership of a key asset.
Analysts at Credit Suisse said the company would likely put its best-performing stores into the REIT, which would need to be strong enough to stand on its own. Sears said it would lease the stores back from the REIT and continue to operate them.