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TheStreet: Belk buyout is ‘a steal’ for Sycamore Partners

The Belk department store at SouthPark mall
The Belk department store at SouthPark mall ogaines@charlotteobserver.com

Industry analysts say after its announced acquisition of Charlotte-based Belk this week, Sycamore Partners may decide to sell some of the local department store chain’s valuable real estate.

In part because of the value of the retailer’s properties, Sycamore’s $3 billion Belk purchase is actually “a steal,” according to a report this week from TheStreet, Jim Cramer’s financial news site.

It has not yet been disclosed how much financing Sycamore secured for the deal, and how much cash the private equity firm is paying by itself. But, TheStreet notes, debt financing tends to hinge on the buyer paying for at least one-quarter of the transaction with equity.

For Belk, that would mean a spend of about $700 million for Sycamore. According to its latest quarterly financial report, Belk’s real estate is valued at almost $1.3 billion.

“With Belk’s valuable real estate ... Sycamore would likely be able to recover at least its equity in the deal,” the report read.

A sale-leaseback, in which Belk would sell its real estate, then lease the property back from the buyer “within months of the deal’s closing” would produce an early return on its investment, TheStreet reported.

This week a Belk spokeswoman told the Observer that the company owns approximately half of its 296 store locations across the Southeast.

Macy’s investors have pressured that department store to sell some of its valuable real estate, too. Its three flagship stores in New York, Chicago and San Francisco are valued at nearly $7 billion, according to the Wall Street Journal.

Another reason the Belk deal is a bargain for Sycamore, according to TheStreet, is that its valuation is low compared with other department stores.

The enterprise value of Belk, TheStreet calculates, is actually closer to $2.87 billion. The figure comes from the $86 price per share Sycamore will pay for the 39.4 million Belk shares outstanding, subtracting $240 million in cash and cash equivalents and adding $430 million in long-term debt and capital lease obligations.

The $2.87 billion is a multiple of 6.67 times the approximately $430 million in adjusted earnings before interest, taxes, depreciation and amoritization (EBITDA) that Belk made last year. By comparison, TheStreet notes, Nordstrom has an enterprise value that is nearly 8.6 times its adjusted EBITDA.

“Sycamore’s investment in Belk has tremendous potential to produce significant returns, but with little to no risk,” the report read.

Katherine Peralta: 704-358-5079, @katieperalta

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