Family affair1
The Nordstrom family, along with Mexican retailer El Puerto de Liverpool, S.A.B. de C.V. (“Liverpool”) (BMV: LIVEPOL), have a signed a definitive agreement to acquire and take private fashion retailer Nordstrom Inc. (NYSE: JWN) for $24.25/share (plus a special dividend up to $0.25/share).
The announcement comes roughly nine months after initial media speculation of a potential transaction. Following the closing of the transaction, Nordstrom will be owned 50.1% by the Nordstrom Family and 49.9% by Liverpool. JWN’s stock is ~40% below its pre-pandemic value but 40% above the pre-transaction speculation pricing2.
From a real estate perspective, Nordstrom operates over 32 million square feet of retail store and supply chain network space. The company owns 8 million sq. ft. of fee simple property including 8 supply chain network locations, 24 traditional Nordstrom stores, and 1 Nordstrom Rack store.
With supply chain network properties and namesake Nordstrom stores averaging 600,000 and 175,000 sq. ft., respectively, the company likely owns $1.25 billion or more of real estate.
Will new ownership utilize sale/leasebacks to monetize these assets? The Nordstom Family has appeared to prefer some real estate ownership over the years, so the privatization alone may not induce asset sales.
However, at a $6 billion total enterprise value the real estate represents a meaningful portion of the deal and going concern. With $1.3 billion of trailing twelve-month EBITDA ($500 million of EBIT), the company appears to have cushion for additional lease obligations (particularly given a ~5x enterprise value to EBITDA multiple).
(Re)organizing the organizers3
Texas-based The Container Store Group (formerly NYSE: TSCG) file for voluntary protection under Chapter 11 of the U.S. Bankruptcy Code earlier this week. The company, founded in 1978, leases all 102 of its retail store locations as well as 1.8 million square feet across two distribution centers (Coppell, TX and Aberdeen, MD).
The Container Store carries $600 million in long-term debt and lease obligations, of which ~$240 million relates to the senior secured term loan and revolving credit facility. According to filings, “the Debtors estimate that an average of approximately $11.7 million accrues on account of lease and occupancy-related expenses each month.”
Disclosures around any definitive plans for footprint optimization are lacking; many stores are located in multi-tenant shopping centers.
Despite challenging performance, cash flow, and debt loads, the company’s CEO remains optimistic: “The Container Store is here to stay. Our strategy is sound, and we believe the steps we are taking today will allow us to continue to advance our business, deepen customer relationships, expand our reach, and strengthen our capabilities.”
Landlords likely remain as confident as Container’s CEO: According to Colliers, retail vacancy rates remain near 10-year lows “driven by a lack of tenant consolidation and moveouts, along with years of minimal new supply, leading to increasingly tight availabilities across the retail sector.”
Stay organized!
-Sean Hostert