Joe Raedle | Getty Images Kohl’s may not sell its business in the end. But now she is trying to sell part of her real estate, reversing her previous stance. The retailer announced on Friday that it had closed talks on a deal with the owner of The Vitamin Shoppe Franchise Group, confirming a CNBC report as of Thursday afternoon. Instead, Kohl’s said, it will continue to operate as an autonomous public company. For months, Kohl’s has been under pressure from activist companies, including Macellum Advisors, to consider selling the company, largely to unlock the value associated with Kohl’s real estate. Macellum has argued that Kohl’s should sell part of its real estate and lease it again as a way to unlock the capital, especially in difficult times. Kohl’s, however, has been resilient to so-called resale leases, at least on such a large scale. The company completed a small sale-lease agreement earlier in the Covid pandemic, according to Peter Boneparth, chairman of Kohl’s board. It made a profit of $ 127 million by selling and leasing e-commerce outlets and distribution centers in San Bernardino. On Friday, however, Kohl’s explicitly stated in its press release that its board is currently reviewing ways in which the retailer can make money from his real estate. The Franchise Group planned to finance part of Kohl’s acquisition by selling a portion of Kohl’s real estate elsewhere and then leasing it back. This probably gave Kohl’s an idea of what kind of value it could acquire for its privately owned stores and distribution centers. “Now you have an environment where funding has changed so much that it may actually be more appealing to use real estate as a revenue generator,” Boneparth told CNBC in a telephone interview. “When you combine it with what we think are stock levels, it becomes a very different exercise than it was in a previous funding environment,” he explained. “It’s no secret that Kohl’s has a very large asset on its balance sheet: real estate.” As of Jan. 29, Kohl’s owned 410 locations, leased another 517, and operated ground leases in 238 of its stores. All of her real estate was worth just over $ 8 billion at the time, according to an annual report.
Pros and cons
Proponents of her case have been working to make the actual transcript of this statement available online. But it also leaves the seller having to fulfill the lease obligations, as he would rent the property he just sold. These leases could become much harder to break and rents fluctuate between markets. Kohl’s said in its annual statement that a typical store lease has an initial duration of 20 to 25 years, with four to eight renewal options for five years. In 2020, Big Lots struck a deal with private equity firm Oak Street to raise $ 725 million from the sale and lease of four company-owned distribution centers. It gave the big retailer extra liquidity near the start of the Covid-19 pandemic. Also in 2020, Bed Bath & Beyond completed a sale-lease transaction with Oak Street, in which it sold approximately 2.1 million square feet of commercial real estate and earned $ 250 million in revenue. Mark Tritton, CEO of Bed Bath at the time, backed the deal as a fundraiser to reinvest in the business. But now Bed Bath is facing another cash crisis as sales plummet and Tritton was fired earlier this week. Oak Street planned to offer financing to the Franchise Group under a Kohl’s deal, CNBC reported earlier, according to a source familiar with the discussions. A spokesman for Oak Street did not respond to a request for comment. Kohl’s on Friday reaffirmed its plan to accelerate its $ 500 million share repurchase later this year. It cut its revenue guidance for the second quarter, citing a recent easing of consumer demand amid decades of high inflation. “Clearly the consumer is under even greater pressure today,” Kohl’s CEO Michelle Gass told CNBC in a telephone interview. “We are not immune to it … but Kohl represents value. And at times like these it’s more important than ever to reinforce that message.” “Completing the board process was absolutely the right answer,” he said. Kohl shares fell more than 20% on Friday, reaching a 52-week low. Shares of the Franchise Group recently fell about 9%, also reaching a 52-week low. Macellum did not respond to a request for comment.
