Pension Deal Frees Up Sears to Sell 138 Properties

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In its third quarter earnings announced this morning, Sears Holdings Corp. (NASDAQ: SHLD) reported that it has negotiated a deal with the federal government that will free up the potential sale of additional stores with a property value of more than $400 million.

Earlier this month, the U.S. Pension Benefit Guaranty Corp. and Sears reached a new agreement that calls for Sears to pay $500 million into two pension plans, including contributions already made by Sears since August 2017. The pension plans cover about 100,000 participants.

The new agreement amends a March 2016 agreement between PBGC and Sears that restricted Sears from selling 138 stores in its portfolio.

The new deal is expected to close in February 2018, after which Sears would be free to monetize the properties.

Sears said it expects to raise $407 million through a sale of properties and financing secured by the properties, with any financing to be repaid from the sale proceeds. The department store chain did not identify the properties on the call.

“The recently announced agreement with the Pension Benefit Guaranty Corp. requires an initial upfront payment to the pension plans which will be secured by 138 properties released to the company,” said Rob Riecker, CFO of Sears Holdings. “Once complete, the estimated contributions of $550 million to the pension plans in 2018 and 2019 is eliminated (with the exception of a $20 million payment in July of 2018).”

“Additionally we will be taking action in the near term with respect to certain upcoming debt maturities to provide the company with further financial flexibility and enhanced liquidity,” Riecker added.

Sears reported a net loss for the quarter of $558 million compared to a net loss of $748 million for the third quarter of 2016, an improvement of $190 million.

Total comparable store sales declined 15.3% during the quarter. Kmart comparable store sales decreased 13%, while Sears comparable store sales declined 17%.

It generated total revenues of $3.7 billion during the quarter compared with revenues of $5 billion in the prior year quarter, with store closures contributing to over half of the decline.

Revenues were also negatively impacted by reductions in the number of pharmacies in open Kmart stores, as well as the reduction in consumer electronics assortments in both its Kmart and Sears stores.

So far in 2017, Sears has closed 330 stores and announced it expects to close another 100 by the end of the fourth quarter.



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