RH Aims To Generate ~$500 MM From Real Estate Sales -- Including Of Its Adaptive Reuse Galleries
RH plans to pursue the sale and leaseback of up to 30 of its owned galleries, many of which have been developed via adaptive reuse
On its Q4 2024 earnings call, RH 0.00%↑ CEO Gary Friedman announced that the Company planned to “monetize” its real estate holdings.
The majority of RH’s real estate is comprised of galleries that the Company developed from the ground up and via adaptive reuse.
Friedman indicated that RH owns ~1/3 of the 80+ galleries that the Company operates.
And that he believes its real estate could be worth ~$500 MM.
In fact, Friedman noted that RH generated $27 MM in proceeds from the sale of just one property in Colorado that it had originally acquired for ~$10.5 MM.
So can RH execute these real estate transactions — and what would it mean for the Company?
RH Galleries are some of the most unique environments in physical retail.
They are in prominent locations and designed to elevate, highlight and promote the RH product assortment as well as provide memorable customer experiences.
The RH galleries include a mix of newly constructed properties as well as adaptive reuses of historic buildings.
Like RH’s repurpose of the iconic New England Museum of Natural History in Boston.
One of the oldest buildings in Boston’s Back Bay, the Museum property was originally built in 1857.
In the 1940s the Museum was repurposed for retail use and was occupied by department store operators for decades afterward.
Until 2013 when RH completed extensive interior and exterior renovations of the historic property and repurposed it as its Boston gallery.
Two years ago RH opened a gallery in the historic Bethlehem Steel Building in San Francisco’s Pier 70 shipyard.
RH restored the 80,000 square foot, 1917-era neoclassical building and converted it into a unique retail destination.
The property not only serves as an RH gallery but also is home to The Palm Court Restaurant and a Rooftop Park with views of the San Francisco skyline and Bay Bridge.
In 2023 RH opened its Indianapolis-area gallery in the former home of residential real estate developer Christel DeHaan.
The estate home, which was built to resemble a Palladian-style villa, has over 60 rooms and overlooks a private lake on a ~150 acre property
The former residence-turned-gallery is 42,000 square feet and includes indoor and outdoor amenities as well as an on-site restaurant.
Of course RH does not plan to sell its new and refurbished galleries for others to use.
Instead they will likely be sold pursuant to a sale leaseback arrangement with the new owner.
This will enable RH to obtain upfront sales proceeds and maintain long-term control over the site, though it will require RH to pay rent to the new owner.
How much annual rent?
Well that will likely depend on how much of an occupancy expense burden that the individual gallery can tolerate yet still earn a respectable 4 wall profit.
Most RH galleries generate eight figure annual revenue and strong profit margins.
So most galleries could easily support an annual rent expense of $1 MM or more.
Could RH reasonably attain ~$500 MM for the sale of ~30 properties?
It is certainly possible — though it will, of course, be accompanied by new annual rent payments of ~$30 MM (or more) if all are sold.
But the prospective real estate sales could provide funds for RH to continue its ambitious adaptive reuse program of high profile repurposes and restorations of iconic and historic buildings.