The company is looking to initiate a
rights offering to its shareholders, and they couldn’t be more
excited about the possibility. Once the news was made public, Sears’
stock price rose a surprising $13 per share to a price of more than
$45.50.
In recent years, Sears Holdings
Corp. has struggled to remain profitable in an evolving marketplace
and to present a format that is relevant to today’s consumers.
Despite attempts by both Kmart and Sears to improve performance by
offering product lines endorsed by celebrities like Martha Stewart,
Sears Holdings Corp. continues to flounder. Already this year, 210 of
the company’s Sears and Kmart stores have either been closed or
identified for closure. Before Christmas this year, Sears and Kmart
will lay off, at minimum, 5,450 employees and will close more than
100 Kmart, Sears and Sears Auto Center locations. Stores in all of
the company’s markets are failing to performing, but the areas hit
hardest by layoffs and store closures will be Indiana, Pennsylvania,
and Michigan.
Sears is
pursuing several different strategies to try to turn the company
around. In some markets, the company is redeveloping existing
properties into multi-use lifestyle villages that combing
entertainment, retail, dining, and office space. The proposed REIT
conversion is yet another way to return the company to profitability.
Sears is looking to improve its financial flexibility and asset
liquidity through a conversion, and it stands to realize a
significant financial gain if it is able to complete the REIT
transaction. Ideally, Sears Holdings is looking for a sale-leaseback
opportunity that would allow its stores to continue to operate while
minimizing the parent company’s financial risk in operating these
stores.
Under the terms of the proposed REIT
selloff, Sears Holdings would select a group of stores to be sold off
to a newly-created real estate investment trust. The Sears, Sears
Auto Center and Kmart locations sold to the REIT would continue to
operate under master leases. The company will distribute rights to
its shareholders, allowing them to purchase shares of common stock in
the new REIT.
While Sears Holdings Corporation has
already filed its request for a conversion with the United States SEC
and stock prices have jumped in anticipation of the proposed selloff,
the company has emphasized the fact that such a transaction is not
guaranteed at this time unless Sears can reach an agreement with a
REIT on satisfactory financial terms.
