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ShopKo's Spirit

In a watershed event for both firms, ShopKo Stores Inc. and Spirit Finance reached an $815.3 million sale/leaseback deal in early May. It positions ShopKo to pursue aggressive expansion plans while bolstering Spirit as a growing force in the net lease market.

The deal is the first major move by ShopKo management since it took the discount retailer private last year. The company, which owns 135 ShopKo stores and 216 Pamida stores in the Midwest, was taken private in a $1.3-billion deal with Sun Capital Partners Inc.

This lease transaction, which covers 112 ShopKo stores and 66 Pamida locations, gives the company the cash to explore expansions and remodels. The deal also raises the profile of Arizona-based Spirit, a net lease financer and investment firm that was formed in 2003 and went public as a REIT in late 2004. Including the current transaction, Spirit has closed $2.5 billion in deals since its formation.

“Our vision is to have $20 billion or more on our balance sheet over time,” says Christopher Volk, president and CEO of Spirit. Volk says the strategy will be to pursue large-scale corporate real estate capitalizations.

The deal is structured under two master leases — one covering ShopKo's stores, the other Pamida's. The ShopKo lease is for 20 years while Pamida's is for 15. Under the terms of the deal, ShopKo will reorganize its operations into three units — ShopKo Stores Inc., ShopKo Stores Operating Co., LLC and Pamida Stores Operating Co., LLC. Spirit will purchase 100 percent of the outstanding stock of ShopKo Stores Inc. Spirit is financing the deal through facilities provided by Citigroup Global Markets Realty Corp. and Barclays Capital Real Estate Inc.

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