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Sears Would Face Soft Real-Estate Sector

Date: Wednesday, January 23, 2008
Author: Wall Street Journal

Wall Street Journal reports: If Sears Holdings Corp.'s plan to reshape itself into several separate operating units heralds a long-anticipated spinoff or sale of the retailer's real estate, the precedents for investors seem promising but the timing for Sears isn't. Sears, Hoffman Estates, Ill., confirmed that it will reorganize its operations into five major units in a bid to give management teams more autonomy and control over their groups. Sears identified its real-estate holdings as one of those units, but stopped short of indicating whether it will remain under the retailer's ownership, be sold or be spun off.

Even so, investors long have speculated that Sears's chairman, hedge-fund manager Edward S. Lampert, may sell some or all of the roughly 765 company-owned Sears and Kmart locations to raise capital and then lease them back from the buyer. He had indicated he might do so if the struggling company's value as a retailer fails to exceed that of its real estate.

The trouble is, the continuing credit crisis has sapped the value of residential and commercial real estate alike in recent months. Credit Suisse Securities estimates the value of Sears' real estate has "declined materially" in recent months to nearly $4.7 billion. Sears's market value was $13.74 billion as of yesterday's close. In addition to its owned stores, the retailer leases 2,032 store sites and an additional 974 stores are owned and operated by independent companies.