Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/448937
have voluminous documents dictating what can and cannot be done in such spaces. Without rights to frontage property, some potential replacement tenants may balk if they are un- able to develop pad sites to help their deals make economic sense. Another hindrance is that Sears is reluctant to displace certain high-margin departments whenever it splits up a store, the broker says. Faced with declining sales and a cash crunch, Sears sold its 51 percent stake in Sears Canada to the shareholders, spun off Lands' End and Sears Hometown & Outlet Stores and other holdings and accepted a $400 million loan from Lampert himself, through his hedge fund. Lampert says he is looking at selling about 300 stores to a REIT, with Sears Holdings then retenanting them. Sears continues to be a retail-technology innovator, however, ramping up its online-layaway and multiplatform Shop Your Way programs, while introducing such novel- ties as an in-vehicle pickup service and a radio-frequency tag system that gives sales associates an up-to-the-minute count of inventory. At the ICSC New York National Deal Making convention in December, Simon Chairman and CEO David Simon praised Sears for its techno- logical advances, though he also said the company has made the mistake of letting stores deteriorate in the meantime. In September Simon told TheStreet that Sears has enough great brands to continue to support a physical environment. Nevertheless, "we are prepared for the worst," he said. "We have lots of alternatives." The firm has but one empty anchor space and a host of potential users, Simon notes. "If we get that space back, anything we do will be additive." The book value of Sears Holdings' portfolio is about $5 billion, according to Shaw. Matt McGinley, an analyst at New York City–based International Strategy & Investment Group (now called Evercore ISI Institutional Equities), estimated the value of Sears Holdings real es- tate at about $4 billion. Analysts say it is unlikely that Sears will fold up soon and dump all its real estate, an act that would depress the mar- ket, as Sears' property still represents about 2 percent of total U.S. retail space. While the average strip-center vacancy rate at year-end 2014 was 10.2 percent, the lowest since 2008, the mall vacancy rate edged up to 8 percent in the fourth quarter of 2014, from 7.9 percent in the third quarter, attributable mainly to Sears and Kmart closures, according to real estate research firm Reis. Allan Ellinger, co-founder of New York City–based MMG Advisors, says he thinks it is evident "that Lampert's been putting Sears Holdings through a slow, orderly liquida- tion." Lampert does not see it that way. "Closing nonproduc- tive stores results in reduced expenses, improved cash flow and enhanced productivity of our space — which together end up strengthening our company," he said in his remarks to employees in December. "By closing money-losing stores, we reduce future losses as well as capital needs, providing us a path to restore profitability sooner for our company, and funding our transformation." However, Hammond draws an analogy to Mervyns' store closings of late last decade. "Those Mervyns that were well positioned were quickly absorbed by replacement tenants like Kohl's and Hobby Lobby, while those in weaker locations lan- guished, and some still sit vacant today," he said. "Today's re- tailers have aggressive expansion plans, but they aren't willing to compromise." The book value of Sears Holdings' portfolio is estimated to be between $4 billion and $5 billion. S E A R S S T A R T E D O U T A S A C A T A L O G R E T A i L E R 1 3 0 y E A R S A G O . 28 S C T / F e b r u a r y 2 0 1 5 SCT r e T a i l i n g T o d a y