Sears\’ Last Gasp: In the Asset Leasing and Loan Business
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\"RRI thought I wrote the final word and all that was worth saying two weeks ago about the inevitable collapse of Sears in my article Sears: Nothing Left But its Past.  As I said then, there’s nothing left but its past. Well, “Abracadabra, fast buck, Eddie-the-magician Lampert” has once again given me reason to write another missive on his uncanny ability to squeeze even more cash out of the sinking “twin Titanics,” (for those out of the “know” – twin losers Kmart and Sears).

The cash-squeezing model Eddie is now employing is what I would call the “robbing from Peter to pay Paul (aka Eddie)” model. Essentially he is now in the asset leasing and loan business. First of all, as pointed out in my previous article, ESL Holdings loaned the retail business $400 million. However, with a premium interest rate that gets paid to you know who, the loan is secured by Sears’ most valuable real estate, which eliminates the risk for, you know who.

In 2006, Lampert devised another risk-free concept to squeeze more cash out of the business. He transferred ownership of Sears’ Kenmore, DieHard and Craftsman brands to an entity named KCD (acronym for the brands), which in turn charges Sears a royalty fee to license the brands, which are now being sold in other stores. And I would bet that somewhere in this clever deal, Eddie and his ESL Holdings are reaping some financial benefit. The model sounds like it resembles a real estate investment trust, (REIT), whereby stores’ real estate are sold to the REIT which then turns around and leases them back to the retail business (which Eddie is now considering). Hey, maybe fast buck Eddie pioneered a new instrument: brand investment trusts or BIT.

More on the leasing side of the leasing and loan business, Eddie is now leasing 520,000 square feet of Sears’ space in seven locations to Primark (Who? Most US consumers would ask). Primark is an Irish retailer that sells youthful basic merchandise at very, very low prices. And I’m told the quality is good. Regardless, the brand is all but unknown here in the most congested marketplace in the world, (read: our consumers don’t need another cheap pair of jeans or whatever). And its physical presence within the former Sears space will simply confuse the consumer and could lead them to believe this is just another Sears brand. But, hey, who really cares? This will just become another source of cash flowing to Eddie.

Finally, as mentioned above, Lampert announced a couple of weeks ago that he’s considering the option of forming a real estate investment trust (REIT), to which Sears would sell 200 to 300 company owned stores. Sears’ shareholders would own the REIT. And, of course, PauI, I mean Eddie (I mean Peter), would be the largest shareholder through ESL Holdings at 48.5%.

The cash proceeds from such a deal allow the newly anointed real estate mogul (fast buck Eddie), to tap into another revenue source, and for Sears to remain solvent for a while longer. Ah! But there’s more, as you all may know. Now the REIT turns around and charges rent to the stores. So, even though the REIT paid a sizeable sum to acquire the stores, Eddie and the REIT’s shareholders not only own the stores, they are also realizing a cash flow from leasing the stores. And, on top of this, the REIT could also acquire and lease back other retail real estate entities. Are you following all this?

Of further intrigue in the REIT option, this kind of sleight of hand maneuvering potentially defends the transaction in a bankruptcy proceeding when Sears’ creditors would be looking to lay claim on the stores. Abracadabra Eddie performs magic once again.

The REIT trick may be the final cash-squeezing move before collapse. However, as we’ve said before, it ain’t over until the fat lady sings. So is there another trick up his sleeve? One thing for sure, the “sinking of the Titanics” is like watching a TV series. The suspense builds almost weekly as we await the next episode. Plus, it gives me a lot to write about.

As the end nears, I’m anticipating spectacular fireworks. Unlike the Sopranos, closing with a whimper, Eddie’s last episode will indeed close with a bang. I will then have a final nickname for him: Eddie “big bang” Lampert. And this will send shock waves over the final sinking of two historic ships.

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