Flexibility to Redevelop
The structure of the General Growth deal resembles a $1.8 billion agreement announced in February between Hudson’s Bay Co. and Simon Property Group Inc., Green Street’s Lachance said. It gives landlords plenty of flexibility to redevelop the Sears stores.
Green Street lists 131 of Sears’s 628 mall stores as located in A, or top-quality, malls. Other landlords with Sears stores in A malls include Macerich Co. and Simon, Lachance said.
“It’s a big pool of properties where something can be done, but it can only be done with the mall owner,” he said.
Sears fell 0.1 percent to $41.33 at the close in New York after earlier rising as much as 12 percent earlier. The stock has gained 25 percent this year.
The cash infusions come as Sears struggles to return to profitability under its new model. The retailer’s loss last year widened to $1.68 billion as sales slid 14 percent. All told, Sears has lost $7.12 billion in its past four fiscal years.
Balance Sheet
Those losses have strained the retailer’s balance sheet. Its cash balance as of Jan. 31 was $250 million, down 76 percent from a year earlier. Matt McGinley, an analyst at Evercore ISI in New York, estimated the moves could fund Sears’s operations for about a year and a few months at its current cash- consumption rate.
While the properties that Sears unloaded today are among its best, McGinley said that REITs that own malls with other Sears locations may be interested in similar joint-venture deals. The company said in a filing last month that it had about 1,725 Sears and Kmart stores.
“If you’re a shareholder of Sears, would you rather own a REIT that can diversify itself over time and live on as you redevelop these sites into something different, or would you want to just own this as a consolidated entity with a failing retailer?” McGinley said. “If I was a Sears shareholder, I would want to go with the REIT.”