Sears Holdings Corp (SHLD) REIT Launches $1.6B Rights Offering

Sears Holdings Corp (SHLD) REIT Launches $1.6B Rights Offering
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Sears Holdings said Tuesday that its REIT spinoff, Seritage Growth Properties, has launched a $1.57 billion subscription rights offering for common shares of its stock.

The subscription rights offering will facilitate the struggling retailer’s stockholders in buying shares in the REIT.

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Sears’ planned sale-leaseback to Seritage

As outlined by ValueWalk, last April Sears Holdings Corp unveiled its plans to raise over $2.5 billion by forming a real-estate investment trust. The struggling retailer formed the REIT to acquire close to 254 of Sears and Kmart stores. The sale proceeds from the property are anticipated to exceed $2.5 billion. The REIT, Seritage Growth Properties, will then lease the Sears and Kmart properties back to the retailer. To finance the acquisition, Seritage, a Maryland-based REIT, planned to use debt and other credit.

Sears Holdings said Tuesday that Seritage had commenced a $1.57 billion subscription rights offering for common shares of its stock, which the SEC has declared effective. The rights offering was previously targeted to launch this coming Friday, and is being made in connection with Sears’ planned sale-leaseback to Seritage.

The proceeds from the rights offering will be used to fund a portion of the purchase price of 235 Sears- and Kmart-branded stores, as well as SHLD’s 50% interests in JVs with Simon Property Group, General Growth Properties and Macerich Co.

Last April, Sears unveiled its agreement to form a real estate joint venture with Simon Property to garner $114 million as part of the retailer’s continued efforts to unlock the value of its extensive portfolio of real estate holdings.

The low-down on the rights offering

According to an amended prospectus filed with the SEC, the terms of the rights offering envisages Sears Holding’s shareholders to have the opportunity to purchase a total of 53.3 million Class A common shares at $29.58 apiece.

While unveiling the retailer’s quarterly results for the 13 weeks that ended May 2, SHLD chairman and CEO Eddie Lampert said Monday: “With the completion of the joint venture transactions with three leading shopping mall owners and operators, and the advanced formation of the Seritage REIT, we will become more productive with our physical store space”.

Underscoring the importance of the REIT transaction, Sears Holdings CFO Rob Schriesheim said, “Should both the REIT transaction and the amendment and extension of our ABL facility be successful, we will have enhanced our financial flexibility, recapitalized our balance sheet and secured a solid financial foundation to accelerate the investment in our transformation.” He added: “We expect to utilize a portion of the proceeds from the REIT transaction to pay down our existing revolver borrowings”.

Walter Loeb of Forbes, however, believes the Seritage REIT initiative sounds great in theory, but it is doubtful whether a REIT will be innovative enough in its merchandising and able to create fashion excitement to attract customers.

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