RENT EXPENSES
In a letter to shareholders in March defending its strategy against criticism from hedge fund Macellum Capital Management LLC, Kohl's said that a "large" sale-leaseback would "negatively impact margins by adding unnecessary rent expenses in perpetuity and risk Kohl's investment-grade rating".
It pointed to the example of retailer Big Lots Inc (BIG.N), which under pressure from Macellum and other hedge funds took on 15-year and 20-year leases for four distribution centers, raising $725 million only to see its operating margins plummet afterwards.
Big Lots did not respond to a request for comment.
In another example of sale-leasebacks adding to a retailer's financial woes, Bed Bath & Beyond Inc raised $250 million with sale-lasebacks for its stores, a distribution facility and office space, only to subsequently face a liquidity crunch and scramble to find ways to get out of leases.
Bed Bath & Beyond did not respond to a request for comment.
There are, however, examples of companies, such as Life Time Fitness and Walgreens Boots Alliance Inc (WBA.O), that carry out sale-leasebacks without burdening their finances. These tend to be smaller deals relative to their size that allow them to earn greater returns in their business than they do in real estate.
"Generally speaking, I believe a stable retailer with stable management, looking out for the long-term performance of the business, is far better off controlling its destiny than being subject to the vagaries of leaseback arrangements," said Mark Cohen, director of retail studies at the Columbia Business School.
https://www.reuters.com/business/retail-consumer/...funds-2022-11-22/
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