Sears Holdings Corp (NASDAQ:SHLD) Forms REIT Called Seritage Growth Properties

Sears Holdings Corp (NASDAQ:SHLD) may have taken over ten years to have finally form an REIT, Seritage Growth Properties, but there was immediate market reaction to it, with shares of the retailer soaring to 11% gains before settling down closer to normal.

The going for Sears Holdings Corp has been tough, since the start of the decade. From 2011, the company has been reporting negative free cash flow, with full decline in profitability.  By 2014, the free cash flow negative was as high as $1.66 billion.

The financial woes have not subsided yet, with $250 million in cash in January, and debt at $3.8 billion. Therefore, the $2.5 billion that the stores sale to the REIT will raise will be sufficient to help improve the turnaround and satisify cash needs according to both analysts and the companies.

Sears Holdings Corp (NASDAQ:SHLD), with the help of the new REIT formation, is able to sell its stores to the REIT and receive additional funding. It will then lease the stores and operate them just the same as before. Seritage Growth Properties will buy Sears stores, as well as Kmart stores, comprising a total of 254 stores.

Seritage, meanwhile, will raise funds through a rights offerings. Therefore, Sears shareholders can purchase shares based on the Sears stock they own. Chief Executive Officer, Edward Lampert, along with his other funds, will exercise the ‘pro rata portion’ of the subscription to the fullest extent possible, the press release noted. However, no agreement towards this is drawn.

The rights offer is yet to be approved by the Board of Directors of Sears Holdings Corp (NASDAQ:SHLD). The rights offering is expected to close towards the end of the second quarter, the company reported. Some of Sears Holdings operations, such as Shop Your Way®, a platform aimed at offering member rewards at Sears and Kmart too, are expected to grow, given e-commerce’s current rates of sale conversions.

Lisa Ray

Lisa Ray primarily covers Retail and Healthcare. Lisa Ray has completed her MBA (Finance) and an avid market tracker. She is a stock market analyst who closely tracks US markets along with other global markets like India. She has been expressing her views for years about markets and also advises various clients.

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