Sale talks between Kohl’s and Franchise Group are off. A sale of Kohl’s massive real estate portfolio, however, may be on.
The retailer said it is ending the exclusive negotiating period with Franchise Group for the business, instead continuing to operate as its own company. A Friday announcement on the move pointed to “reevaluating monetization opportunities for portions of the company’s real estate portfolio,” which is valued at $8 billion.
Ditching its real estate in leaseback transactions hasn’t appealed to Kohl’s in the past, CNBC reported, marking a strategic shift in how the retailer may move forward.
Kohl’s has some experience in recent leaseback deals, including e-commerce fulfillment and distribution centers in San Bernardino, which netted the company $127 million. Leaseback sales allow companies to realize funds quickly while maintaining use of its properties.
A drawback to the deal is a possible burden to companies stuck in leases with onerous terms or the chance to be left off the opportunity to lease the property at all down the road.
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Activist investors have spent more than a year pushing Kohl’s to get rid of some of its real estate. Macellum Advisors GP, Ancora Holdings, Legion Partners Asset Management and 4010 Capital called on Kohl’s last year to hire directors with retail experience and consider sale-leaseback deals while reducing inventory.
Kohl’s said at the time it was already considering some of the ideas. Macellum, the most prominent of the activist investors, didn’t respond to the outlet’s request for comment.
As of late January, when the $8 billion valuation came down, Kohl’s owned 410 locations. It was also leasing 517 locations and operated ground leases for 238 of its stores.
In addition to moving on from the Franchise Group, Kohl’s is moving forward with a $500 million accelerated stock buyback program. The company also reduced its revenue guidance for the fiscal second quarter due to diminishing demand linked to inflation.
[CNBC] — Holden Walter-Warner