Sears Holdings Corp. has decided to shutter 17 underperforming Kmart stores.
The exact locations weren’t immediately available. Sears Holdings notified Seritage Growth Properties on Friday that it will close the 17 stores. The stores are part of the 235 Sears and Kmart store locations Sears Holdings sold to Seritage last year when it formed the real estate investment trust. Sears Holdings did a sale-leaseback arrangement for those sites.
Under the terms of the master lease, Sears Holdings has the option of exiting leases if a store is unprofitable under certain conditions. The agreement also provides that Sears Holdings will make a payment equal to one year of rent when it elects to exit a lease.
In a recent earnings conference call, Sears Holdings chief financial officer Rob Schriesheim said that the rent the company pays per the related REIT transactions is expected to decline over time as space in the stores is recaptured.
A spokesman for Sears Holdings confirmed that all 17 stores are Kmart sites. He also said that the ability to exit store leases, which began in July of this year for Seritage leases, gives the company the flexibility to “accelerate the transformation of our physical stores.” The stores will be closed to the public in mid-December, and then become fully vacated in January 2017, the spokesman said.
In a regulatory filing by Seritage, a Form 8-K, the REIT said the stores to be shuttered totals 1.7 million square feet of gross leasable space, and the aggregate annual base rent at the stores is $5.8 million. Seritage said in the filing that Sears Holdings would continue to pay rent until it vacates the stores. The rent payments are on top of the termination fee of one year’s rent for each terminated lease.