A Warren Buffett-backed company stands to get a big boost from Sears' demise. Here's a list of winners, and what they're telling investors.
- Mall operators are scrambling to point out how Sears' downfall is a positive development for their businesses.
- They include Seritage, the real-estate spin-off from Sears. The company stands to lose rental income from closed stores but says an investment from Warren Buffett would help it stay afloat.
- The 125-year-old retailer filed for bankruptcy protection on Monday, and a handful of real-estate companies were quick to point out how prepared they are to capitalize on it.
The ink on Sears' bankruptcy filing hasn't dried, but some companies are already telling their shareholders what they stand to gain.
That's partly because the news on Monday was no surprise. After years of declining sales, Sears announced it was filing for Chapter 11 bankruptcy and closing 142 stores before the end of the year. The 125-year-old company added that Eddie Lampert would step down as CEO but remain chairman.
Sears' downfall has created potential winners, notably its direct competitors: big-box retailers like JCPenney, TJMaxx, and Marshalls. Because the bankruptcy filing had been a long time coming, they'd already picked up some of the customers who had been fleeing Sears as it crumbled.
Another group of companies — mall operators — have also positioned themselves to benefit from Sears' downfall by gradually reducing their exposure to its stores.
Now that Sears has filed for bankruptcy, they're spotlighting what they stand to gain from the stores that will be emptied. In particular, Sears' departure could allow them to lease the same stores at much higher prices and to tenants that generate more sales.
But this process won't be cheap: Real-estate investment trusts (REITs) could require $100 to rebuild every square foot Sears leaves behind. This could add up to $12 million per store, according to Reuters.
Here's a rundown of what some major mall owners are telling their investors:
Seritage Growth Properties
Seritage has the most at stake.
Sears' Lampert founded the company in 2015 as a real-estate spin-off. And in August, Warren Buffett's Berkshire Hathaway agreed to lend the company up to $2 billion.
The company said in a statement on Monday that it has been working to diversify its income away from Sears-operated properties, and about 70% of its signed-lease income was from non-Sears tenants. Even Lampert owns just 2% of the company, according to a regulatory filing.
Seritage tried to assure investors that it would be able to make up for the shortfall of Sears store closings, partly because of Buffett's cash injection. It said it's been able to raise rents by up to four times on space formerly leased by Sears.
"The completion of our redevelopment projects brings our signed leased income on-line and will replace any potential lost income from Sears Holdings," Seritage CEO Benjamin Schall said.
Kimco Realty
In a statement on Monday, this REIT said it had proactively reduced its shopping centers' exposure to Kmart and Sears stores.
It added that it was able to raise rents by an average of 211% on stores that Sears and Kmart vacated.
The company said Sears and Kmart rents were among the cheapest in its portfolio — an average of $5.25 per square foot versus $15.95 overall — suggesting that it expected a minimal hit to its rental income.
"Today's announcement may afford us the long-awaited opportunity to recapture boxes with significant mark-to-market potential in our core markets, and sparks several new redevelopment opportunities within our portfolio," Conor Flynn, Kimco's CEO, said in the statement.
Washington Prime
Washington Prime Group CEO Lou Conforti did not hold back on his thoughts about Sears' bankruptcy. Conforti said in a statement on Friday:
"We've worked diligently to address unproductive department store space over the previous couple of years and recent reports of an imminent Sears bankruptcy filing shouldn't come as a surprise to any landlord unless they own a few Zayre or E.J Korvette locations trapped in a space-time continuum where the Sansabelt clad relax on shag carpeting, illuminated by the warm glow of a lava lamp while they drink Tang and vodka and listen to The Moody Blues."
He continued: "In addition, we need to disabuse the farcical notion of a Sears bankruptcy filing (whether or not it comes to fruition) will come as a surprise to us. We have taken the appropriate financial, operational and strategic measures, and as a result regard such events as an opportunity."
The company added that it had reduced its department-store exposure by half since 2015. After all, the industry hasn't fully figured out how to combat the challenges of e-commerce and Amazon.
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