Sears Holdings Corp. formed a real estate investment trust that will acquire about 254 of the retailer’s properties, generating more than $2.5 billion in proceeds for the money-losing department store chain.
The REIT, Seritage Growth Properties, will lease the Sears and Kmart locations back to the retailer, Sears said in a statement Wednesday. Seritage will fund the purchase with debt and proceeds from a rights offering.
Sears has sold and spun off assets -- including the Sears Hometown & Outlet Stores Inc. chain and the Lands’ End clothing brand -- to raise cash amid more than three years of losses. Eddie Lampert, the hedge fund manager who’s Sears chairman, chief executive officer and largest investor, has said the moves will help fund a transformation into a leaner retailer focused on generating sales online and from loyalty-program members.
Sears has previously tried to squeeze more value out of its real estate holdings by selling locations, leasing space to other retailers and developing properties, and investors had long speculated that Lampert ultimately would form a REIT. The shares surged 31 percent, the most ever under Lampert, when the company announced in November that it was exploring the possibility.
Sears rose 3.3 percent to $42.75 at 7:17 a.m. in early trading in New York. The stock had gained 25 percent this year through Tuesday.
The retailer said in a separate statement Wednesday that it also will form a $330 million venture with General Growth Properties Inc. and contribute 12 properties at the landlord’s malls as part of the deal. General Growth will contribute $165 million in cash to the venture.
“Sears Holdings is an asset-rich enterprise with multiple levers to generate financial flexibility, while creating shareholder value,” Lampert said in the joint-venture statement.
Seritage’s rights offering is expected to close by the end of the second quarter and is subject to approval from the Sears board.
For more on how retailers are affected by real estate, see Retailers Reconsider Real Estate.