Sears shareholders file suit against REIT

Shareholders have filed a lawsuit against Sears Holdings (NYSE:SHLD) alleging the company plans to sell its real estate holdings to a trust controlled by CEO Eddie Lampert. If true, the sale would take away one of the company's only remaining valuable assets.

The proposed $2.5 billion sale will benefit Lampert, according to the suit. The shareholders argue it would also hasten the downfall of the already flailing company, the Chicago Tribune reported. The proposal would sell 254 Sears stores to Seritage Growth Properties, a Sears Holdings real estate investment trust. Lampert, who owns 53 percent of Sears, would control both the retailer and the newly formed REIT.

The lawsuit called the proposed transaction "financially and structurally unfair." It states that Sears and its stockholders would get insufficient cash as the company covers operating losses and debt, perhaps for another year.

If the transaction finalizes at the end of the month, Seritage will lease the stores back to Sears for $150 million in the first year. The defendants in the case are Lampert, Sears Holdings, Sears board members and Seritage.

Sears has been in a downward spiral since Lampert combined Sears and Kmart in 2005. Desperate for cash, some of the retailer's latest moves include raising $625 million through an unsecured loan. The company may also raise approximately $380 million by selling off its stake in Sears Canada. Also, Lampert loaned Sears $400 million from his own hedge fund, ESL Investments, in late 2014.

Last year, Sears closed 234 stores, leaving 1,725 stores in operation, which is down from 3,949 stores in 2010. If the pending sale is finalized, some of the best-performing stores would be transferred to a REIT and could be rented to other retailers.

At last month's shareholders meeting, Lampert discussed how Sears raised billions of dollars in cash last year by spinning off assets, selling stores for investment and leasing out space in prime locations. He claimed that the proposed real estate trust would permit new tenants on a portion of the spaces, allowing Sears to operate on a smaller footprint and for more profit.

For more:
-See this Chicago Tribune article

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