Oak Street Offers Kohl's $2B Sale-Leaseback Deal

Oak Street Real Estate Capital has made an offer to acquire a portion of Kohl’s portfolio of retail stores for up to $2B in a sale-leaseback deal, Reuters has reported.

Prior to the sale-leaseback offer, Oak Street was in negotiations to finance the sale of the Kohl’s retail chain to Franchise Group—the owner of Vitamin Shoppe—for $8B, a deal that fell through in July as the department store chains balance sheet deteriorated.

Reuters said it was not certain how many of Kohl’s 1,100 stores would be involved in the proposed sale-leaseback with Oak Street. Kohl owns 410 of its store locations, leases 517 stores and operates ground leases for 238 retail facilities.

Kohl’s reported a 63% drop in net income in the second quarter, citing inflation that is cutting into retail sales. The company also dropped its revenue outlook estimate for 2022, saying it now expect annual sales to decline by 6%, revising previous estimates that sales might rise slightly or at worse be flat.

In an updated regulatory filing, Kohl’s said it was lowering its sales forecast due to “a weakening macro environment, high inflation and dampened consumer spending.”

Kohl’s stock price has plunged by more than 43% since January.

Oak Street has specialized in large sale-leaseback deals with retailers, including two transactions that closed in 2020. In January 2020, Bed Bath & Beyond sold about half of its real estate portfolio—more than 2M SF—to the Chicago-based private equity in a $250M sale-leaseback deal.

In June 2020, Oak Street closed a $725M sale-leaseback deal with Big Lots involving the retailer’s four company-owned distribution centers, in Columbus, OH; Montgomery, AL; Durant, OK and Tremont, PA,

The leaseback part of the deal included 15-year leases for the Columbus and Montgomery facilities and 20-year leases for the distribution centers in Durant and Tremont.

For some retailers, sale-leaseback may not cure all of the balance sheet issues they’re facing as sales revenue drops in a cooling economy.

Last week, Bed Bath & Beyond announced that it will close 150 stores—about 16% of its retail footprint—and lay off nearly a quarter of its workforce.

The home furnishings giant said the 150 stores it is shuttering are “lower-performing” outlets in a portfolio that totaled 955 prior to the announcement, including 769 namesake stores, 135 Buybuy Baby outlets and 52 stores under its Harmon and Face Value brands.

The retailer also said it will be laying off about 20% of its corporate and supply chain workforce. The corporate cuts include the elimination of the chief operating officer and chief stores officer positions.

Bed Bath & Beyond reported a net loss of $358M in its Q2 2022 earnings statement, more than seven times the red ink it experienced a year ago. In its most recent update, same-store sales plunged 26% for the three-month period ended Aug. 27.