ShopKo Stores Inc agreed to sell substantially all of its real estate assets for approximately $815.3 million to Spirit Finance Corp. The deal would include approximately 112 ShopKo properties and 66 Pamida properties including the corporate headquarters of both ShopKo and Pamida and three distribution centers.
Spirit Finance will acquire the real estate assets by purchasing 100% of the outstanding stock of ShopKo Stores Inc.
ShopKo and Pamida, affiliates of Sun Capital Partners Inc., would continue to manage the existing operations of their store locations under a long-term triple net lease agreement with Spirit Finance. The proceeds from this transaction will be used to retire the existing $700 million real estate debt and to pay down a portion of the companies' revolving credit facility.
"The sale-leaseback transaction strengthens our financial position and allows our management teams to focus on continuing to improve operations, remodeling existing stores, growing our store base, and delivering value to our customers," said Paul White, ShopKo Stores president and chief merchandising officer, and Larry Johnson, Pamida Stores president and CEO said in a joint statement.
"Accomplishing the sale and leaseback of almost all of our real estate in one transaction with flexible terms also eliminates the significant management resources that normally would be required in executing numerous separate real estate transactions involving many buyers, thereby allowing us to focus on the businesses of ShopKo and Pamida without distraction."
Spirit Finance's purchase will be partially financed through Citigroup Global Markets Realty Corp. and Barclays Capital Real Estate Inc. with long-term fixed rate debt financing secured by the real estate assets of ShopKo. The remainder of the purchase price will be funded through existing cash available and/or borrowings on the company's short-term credit facilities, which will be paid down through anticipated equity offerings in the future. The acquisition of the real estate is subject to customary closing conditions and should be completed by the end of the second quarter 2006.
"The ShopKo transaction will be our largest undertaking since the inception of Spirit Finance and is a significant milestone in our growth," said Christopher H. Volk, Spirit Finance president and CEO. "ShopKo meets our basic investment policy of having rational asset values, a strong credit history, a sound business plan and an effective strong management team."
Goldman, Sachs & Co. acted as financial advisor to ShopKo. Morgan Lewis & Bockius LLP and Klehr, Harrison, Harvey, Branzburg & Ellers LLP acted as legal advisors to ShopKo.
Citigroup Corporate and Investment Banking acted as financial advisor to Spirit Finance. Kutak Rock LLP acted as legal advisor to Spirit Finance.
ShopKo Stores based in Green Bay, WI, has stores located in 13 states throughout the Midwest, Mountain and Pacific Northwest regions. Retail formats include 135 ShopKo stores and three ShopKo Express Rx.
Pamida is a general merchandise retailer with 216 stores in small, rural communities in 16 Midwest, North Central, and Rocky Mountain states.
Spirit Finance, a real estate investment trust based in Scottsdale, AZ, provides customized, flexible sale-leaseback financing solutions. As of March 31 the company's investment portfolio totaled more than $1.6 billion and represented 719 owned or financed properties.