Seritage terminates leases on most of its Sears, Kmart locations

REIT also reported it collected just 52% of rents in May on its 224 open stores

Seritage CEO Benjamin Schall (Scott Olson/Getty Images)
Seritage CEO Benjamin Schall (Scott Olson/Getty Images)

The real estate company that Sears spun off five years ago to shore up cash is cutting ties with most of the struggling retailer’s remaining stores.

Seritage Growth Properties is terminating the master lease covering 12 of the remaining Sears and Kmart stores in its portfolio, the company announced Thursday.

The real estate investment trust will collect a $5.3 million termination fee from Sears’ parent company, Transformco, as part of the deal. The payment is due by Sept. 30 or “the completion of going-out-of-business sales.”

A spokesperson for Transformco declined to comment and a representative for Seritage was not immediately available.

Transformco, which acquired Sears out of bankruptcy in February 2019, announced in November that it would close 96 Sears and Kmart stores across the country, leaving the retailer with 182 locations.

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Seritage owns more than 200 properties. The company said that as of Wednesday, 224 of its 280 tenants were open and operating. The REIT said it collected 52 percent of rents in May, down from 65 percent the month before.

Sears spun its real estate assets out into Seritage in 2015 in an effort to raise cash amid declining sales. Many large department stores have faced similar struggles in recent years due to competition from online retailers and changing consumer tastes. Those challenges have been compounded by the Covid-19 induced economic shutdown, which has pushed department stores like Neiman Marcus and JCPenny, as well as retailers such as J. Crew, to file for bankruptcy.

Seritage took hits to its earnings last year as Sears struggled financially. The REIT has pitched alternative uses for former Sears locations, such as redeveloping them into apartments.

Contact Rich Bockmann at rb@therealdeal.com or 908-415-5229