Two investment firms that provided the cash for Kmart Holding Corp. to emerge from bankruptcy might convert the retailer into a real estate investment trust if the company doesn't survive.
"If Kmart doesn't work as a retailer, it has 1,500 stores that are very, very valuable, and Kmart could be one of the largest REITs in the business," said Michael Winer, portfolio manager for the $930 million real estate fund run by Third Avenue Management LLC, New York.
The REIT would be launched by Kmart, which would have to change its business model from a discount retailer to a real estate investment trust. The REIT would be made up of Troy, Mich.-based Kmart's 1,500 retail stores. Benefiting from this transformation would be ESL Investments, Greenwich, Conn., which owns 52.6% of Kmart's post-bankruptcy shares, and Third Avenue, which owns 4.6%.
"Kmart, by either direct ownership or lease, controls real estate for 50 years or more," Mr. Winer explained. "These (property) interests are very, very valuable assuming the current rent is less than the current market rent at the time."