Federated Department Stores Inc. (FD) said Thursday it has agreed to sell its famed Lord & Taylor department store chain to a property development firm for almost $1.2 billion in cash.

Federated said that its board has approved the sale to Purchase, N.Y.-based NRDC Equity Partners LLC, which is a partnership between principals of Apollo Real Estate Advisors L.P. and principals of National Realty & Development Corp. The deal is expected to close in the third quarter of 2006, pending regulatory approvals.

The $1.195 billion deal includes 48 Lord & Taylor stores, including the famous flagship store in Manhattan, and a distribution center in Wilkes-Barre, Pa. Federated will continue to operate all Lord & Taylor stores and facilities until NRDC takes ownership. NRDC plans to run Lord & Taylor as a specialty department store chain and to keep Federated's management team, Federated said.

"This agreement concludes a successful process to divest Lord & Taylor," said Terry J. Lundgren, Federated's chairman, president and CEO, in a statement. "While Lord & Taylor does not fit with Federated's strategic focus on building the nationwide Macy's and Bloomingdale's brands, it is a well-known niche specialty retailer with a great name, many outstanding locations and an experienced management team."