Exclusive - Spirit Realty explores Shopko stores spin-off: sources

By Carl O'Donnell and Jessica DiNapoli

(Reuters) - Spirit Realty Capital Inc , a U.S. real estate investment trust (REIT), is considering spinning off some of its real estate, including its Shopko store properties, as part of its strategic review, according to people familiar with the matter.

The deliberations highlight how landlords are adapting to a wave of bankruptcies and store closings in the retail sector, as online shopping disrupts long-established brick-and-mortar shops and weighs on retailers' ability to pay rent.

Spirit is considering placing some of its retail properties, including those they lease to Shopko, into a new REIT that would then be spun off, potentially at a valuation of more than $1 billion, the sources said on Thursday.

Spirit would manage the new REIT to help hold down administrative costs, the people added.

The discussions are still in early stages, and Spirit may decide against pursuing the spin, the people said, asking not to be identified because the deliberations are private.

Spirit and Shopko did not respond to requests for comment.

Earlier this year, Spirit said it was reviewing strategic alternatives after reporting disappointing earnings, largely the result of its retail tenants failing to pay rents. Shopko is Spirit's largest tenant as a percentage of rental revenue, according to Spirit's financial statements.

"The dramatic and swift moving changes to the retail landscape in reaction to changing consumer behaviour has been well documented," said Thomas Nolan, who stepped down as Spirit chief executive in May.

"I will say the impacts are profound, and they do impact Spirit Realty."

Jackson Hsieh, Spirit's former president and chief operating officer, replaced Nolan. Hsieh remains president.

Retail bankruptcies have shaken landlords, who face a growing number of empty storefronts and declining rents in their malls and strip centres. Payless ShoeSource, children's clothier Gymboree and teen retailers Wet Seal and American Apparel are among the chains that have shuttered hundreds of stores as part of their bankruptcies.

Shopko operates over 380 stores in 26 states throughout the Central, Western and Pacific Northwest regions. It is owned by private equity firm Sun Capital Partners Inc.

REITs frequently spin off properties to streamline their portfolios and increase their appeal to investors, who often prefer a REIT to focus on a single type of real estate.

Earlier this week, office and retail REIT Vornado Realty Trust completed a spin-off of its Washington D.C.-based real estate into a separately traded REIT called JBG Smith Properties .

Last year, healthcare REIT HCP Inc completed a spin off of its skilled nursing and assisted living properties into a separate REIT, Quality Care Properties Inc .

(Reporting by Carl O'Donnell and Jessica DiNapoli in New York)