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Kohl’s real estate sale on the table after deal talks fall apart

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People walk near the entrance to the Cole department store on June 7, 2022 in Doral, Florida.

Joe Ladle | Getty Images

Coles After all, you may not be selling the business. But it’s about to sell some of its real estate now. Advance stance..

Friday retailers have announced that they have closed negotiations with vitamin shop owners Franchise groupCheck CNBC’s report from Thursday evening. Instead, Coles said it would continue to operate as an independent public company.

For months, activists, including Maselm Advisor, have pressured Coles to consider selling the company in order to unleash the value bound by Coles’ real estate.

Macellum argued that Kohl’s needed to sell part of the property and lease it back as a way to release capital, especially during difficult times. Coles, but At least have resisted such large-scale, so-called sale leaseback transactions..

The company completed a small sale / leaseback transaction early in Covid’s pandemic, according to Coles Chairman of the Board, Peter Bonnepart. Recognized a profit of $ 127 million by selling and leasing back San Bernardino’s e-commerce fulfillment and distribution center.

But on Friday, Coles explicitly noted in a press release that the board is now reassessing how retailers can monetize real estate. The franchise group planned to fund some of Cole’s acquisitions by selling some of Cole’s real estate to another party and leasing it back. This would give Kohl an idea of ​​what value it could bring to its physical stores and distribution centers.

“Now you’re in a radically changing environment for funding, and it may actually be more appealing to use real estate as a means of monetization,” Bournepart told CNBC in a telephone interview.

“If you combine that with the level of stocks and what we think of, it’s a very different move from the previous funding environment,” he explained. “It’s a well-known fact that Coles has a huge asset on the balance sheet. It’s real estate.”

As of January 29, Coles owned 410 locations, leased an additional 517 locations, and operated ground leases at 238 stores. All real estate owned was valued at over $ 8 billion at the time, annual filings show.

Pros and cons

Proponents of sale-leaseback transactions claim that as long as there are buyers of real estate, it’s a convenient way for businesses to come up with funds for future growth. But it also leaves the seller that they have to fulfill their leasing obligations, as they will just rent the property they sold.

These leases can be much more difficult to cancel and rents can fluctuate between markets. Coles states in an annual report that a typical store lease has an initial term of 20-25 years and has 4-8 5-year renewal options.

In 2020, Big Lots signed a deal with private equity real estate firm Oak Street. Raised $ 725 Million From selling and leasing back four company-owned distribution centers. It gave large retailers additional liquidity in the near future. COVID-19 Pandemic..

Also in 2020 Bed bath & beyond completion Sale / leaseback transaction Oak Street sold approximately 2.1 million square feet of commercial real estate and generated $ 250 million in revenue. Bed Bath CEO Mark Tritton at the time advertised the deal as a move to raise money to invest in the business. But now, Bed Bath is facing another cash crisis as sales have fallen and Tritton has been banished from his role earlier this week.

Oak Street was planning to provide a loan CNBC previously reported to the franchise group on the call deal, according to those familiar with the debate. The Oak Street representative did not respond to CNBC’s request for comment.

Coles reaffirmed its plans to carry out an accelerated $ 500 million buyout later this year on Friday. We have lowered our second-quarter earnings forecasts because consumer demand has recently softened amid decades of high inflation.

“Clearly, consumers are under even greater pressure today,” Cole CEO Michelle Gus told CNBC in a telephone interview. “We can’t escape it … but Coles represents value, and at times like this, it’s more important than ever to amplify that message.”

She added a partnership with Cole Amazon Sephora remains valid and is part of the company’s long-term strategy to attract new customers.

“The conclusions of the board process were absolutely correct,” she said.

Coles shares fell more than 20% on Friday, hitting a 52-week low. Franchise group stocks have recently fallen by about 9%, hitting a 52-week low.

Macellum did not respond to CNBC’s request for comment.

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