Big Lots Enters Into $318M Sale Leaseback Amid Declining Economy

While many dollar stores are thriving this year, especially regarding discounted necessities, it’s been a different story for some of the big-box retailers.

Big Lots has entered into a sale and leaseback agreement with affiliates of Blue Owl Capital relating to the company’s distribution center in Apple Valley, CA, and 26 owned store locations.

Gross proceeds from the transaction are expected to be $318 million and the company expects to receive estimated net proceeds of approximately $310 million.

The retailer intends to use $100 million to fully pay down its synthetic lease on the Apple Valley distribution center and to use the remainder to pay down debt on its asset-based lending revolving credit facility.

“We are highly focused on ensuring we have plenty of liquidity to get through this period of macroeconomic challenges, and monetizing these assets is a significant step forward in ensuring such liquidity,” Bruce Thorn, President and CEO of Big Lots said in prepared remarks.

Daniel Gielchinsky, partner with DGIM Law, tells GlobeSt.com that as recently as January 2022, Big Lots announced that it would open as many as 500 new stories, including 50 new stores in 2022 and up to 80 stores per year thereafter, with a goal of reaching over 2,000 stores nationally.

At the time, amid the pandemic, Gielchinsky said Big Lots believed that its discounted goods business model was immune to the consumer shift to online shopping.

However, Big Lot’s financial performance fell in 2022 and 2023 due in part to reduced customer demand for retail goods and supply chain issues limiting the availability of products across all retail sectors, he said.

In January, Big Lots announced that it would be closing stores in and near big cities and opening them in small towns. Although Big Lots opened 50 new stores in 2022, the number of closings in 2022 was roughly the same as the openings.

Gielchinsky said the sale-leaseback is not the equivalent of store closings.

“The stores that are the subject of the sale-leaseback will remain open and operating,” he said. “Rather, it is a method of freeing up capital by selling real estate assets.”

Importantly, he noted that Big Lots’ plan to use a portion of the net proceeds to pay down debt on its asset-based lending revolving credit facility “is a forward-thinking strategy that other retailers, such as Bed Bath & Beyond and David’s Bridal, were not able to employ successfully.”

Gielchinsky said that almost all publicly traded retailers have experienced increased borrowing from their revolving credit facilities over the past two years.

“Supply chain issues, combined with reduced demand for consumer goods and rising interest rates, are forcing retailers to borrow increasingly higher amounts, leaving many retailers overleveraged,” he said.

For example, before it filed for Chapter 11 bankruptcy protection, Bed Bath & Beyond was using almost all its earnings to pay down debt, leaving no profit for its shareholders.

“As the retail segment continues to face challenges from rising interest rates, reduced customer demand, and increasing online shopping, the segment is bound to experience a ‘winnowing’ of retailers and the retail marketplace.

“Retailers who can pivot from brick-and-mortar to online or hybrid shopping experiences and who can successfully manage rising debt levels are bound to thrive over the next few years as the weaker players are forced to go out of business.”

One recent example is Christmas Tree Shops, which after filing for Chapter 11 bankruptcy in May, recently announced it was closing all its stores unless it can find a last-minute buyer.

The Massachusetts-based retail chain – which has more than 70 stores across 20 states – is liquidating its remaining stores because of worsening finances.

Christmas Tree Shops sells a variety of products including outdoor furniture, seasonal decor, bedding sets, and more.

Big Lots also announced that it had contemplated a sale and leaseback of the company’s corporate headquarters but that has subsequently been excluded from the definitive agreement.

The sale and leaseback transactions are scheduled to close within 45 days.