Thursday, January 05, 2012

The Sears Real Estate Play

When Edward Lampert orchestrated the buyout and merger of K-Mart and Sears back in 2004, some investors speculated that he was more interested in the real estate than in running a mass merchandising retail operation. It was easy to see why. In addition to the inventory on the shelves, the combined company owns quite a bit of real estate, retail real estate in generally good locations.

Like Columbia Town Center.

Sears owns about 11.5 acres in the middle of Town Center. They also own a two story 147,000 square foot building.

They don’t necessarily have to sell Craftsman tools in that space either. In fact, according to this letter to investors about a year ago, other retailers are now leasing out space in Sears stores. In Greensboro North Carolina, Whole Foods leased 34,000 square in an existing Sears store. Sources tell me that Sears was trying to get them to do the same in Columbia.

Unlike the other anchor stores at The Mall, Sears also owns a fair amount of the parking area around their store. This means that they are free to sell or develop that land, in accordance with the Town Center redevelopment legislation and design guidelines of course.

Look for that to happen sooner rather than later. The retailing business of Sears hasn’t been doing all that well since Mr. Lampert took the helm. According to this story by Roben Farzad and Michael Arndt in Bloomberg Businessweek “Sales are down and keep falling. Per-store sales have declined for the past five years, and total revenue has slumped to $44 billion, its lowest level since the 2005 merger.”

“His preference for buybacks over capital investment necessarily disadvantages his retail operations—yet he has insisted that he took over Kmart and then Sears because he wanted to operate them as retailing companies. Analysts have just as consistently seen a different motive. They looked at the chains and their combined count of nearly 4,000 stores as a real estate play, hard assets that Lampert bought cheaply and could flip for a fortune.”

blog comments powered by Disqus