Stockmann raises cash with department sale-leaseback deals
Finnish retail giant Stockmann has struck a deal to sell its department store properties in Tallinn, Estonia and in Riga, Latvia to Viru Keemia Grupp (VKG).
The total sales price is around €87 million. Stockmann will use the proceeds from the sales of the properties “in full to reduce its secured restructuring debts”.
But the company will continue its department store operations in Tallinn and Riga under “long-term leaseback agreements made with the new owner”. And it said leases with Stockmann's tenants “will continue mainly with the current concept”.
Sale and leaseback is a popular option for companies aiming to generate much-needed cash from their property holdings. Such deals are often popular when businesses are taken over by private equity firms seeking to get quick returns on their investments. But sale and leaseback can also pile extra costs onto struggling companies as they need to find money for rent that wasn’t payable when they owned their stores.
Given that Stockmann hasn’t been acquired, it’s to be hoped that it can avoid any issues and that the extra costs won’t be a problem for it in future. And the move could be a good one as it appears that the new owner is prepared to invest in the stores.
Stockmann CEO Jari Latvanen said: “We are pleased to have found a stable and reliable Baltic owner for the properties, that wants to develop the properties and our department stores in cooperation with us. Our department stores will continue their operations as normal. Stockmann is a respected company with a strong position among our customers in both countries. The department stores have excellent locations in the city centres of Tallinn and Riga, which facilitated the sale of the properties.”
It’s interesting that Sten Pisang, CEO of VKG Invest, the investment arm of VKG, also said: “We are looking forward to exploring follow-on investment opportunities to support the core business of Stockmann going forward.”
The company is also selling its Helsinki flagship and said that process is proceeding as planned.
Stockmann built the Tallinn property in 1996 and expanded it from a two-storey to a five-storey location in 2000, to become the largest department store in the Baltics. The department store in Riga was built in 2003.
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