Sears Holdings Corp Nets $114M From Real Estate Pact With Simon

By Mani
Updated on

Sears has unveiled its agreement to form a real estate joint venture with Simon Property to garner $114 million as part of the retailer’s continued efforts to unlock the value of its extensive portfolio of real estate holdings.

To offset falling sales, the retailer announced its second deal of this month intended to extract value from its sizeable real estate holdings.

Sears’ plans to raise $2.5 billion

As reported by ValueWalk earlier this month, Sears unveiled plans to raise over $2.5 billion by forming a real estate investment trust. The retailer has announced its intention to form the REIT to acquire close to 254 of the retailer’s properties. The REIT, Seritage Growth Properties, will lease the Sears and Kmart properties back to the retailer. Once the Seritage REIT is finalized, the retailer will eventually sell its 50% stake in the joint venture to Seritage.

In a statement Monday, Sears and Simon Property disclosed that Sears will transfer 10 properties valued at $228 million to a company that it will own jointly with Simon. A leaseback arrangement will enable Sears to continue to operate stores at the locations. Simon separately agreed to buy another Sears property at the La Plaza Mall in McAllen, Tex. As part of Monday’s agreement, Simon will contribute $114 million to the joint venture. Moreover, Simon also will invest about $33 million in Seritage shares through a private placement.

As part of Monday’s joint venture, the master lease for the stores will have a ten-year initial term and two five-year options to renew. The struggling retailer said it expects to pay an initial base rent of $13.4 million.

Sears’ efforts to rebuild war chest

Less than two weeks ago, Sears disclosed a similar joint venture with Chicago’s General Growth Properties. The deal included 12 properties and was valued at $330 million.

The retailer has been rebuilding its war chest by selling off assets, cutting down inventories and closing stores. Sears closed about 234 underperforming Kmart and Sears stores last year and garnered about $2.3 billion in liquidity.

Exuding confidence in today’s agreement, Edward S. Lampert, Chairman and CEO of Sears, said: “We are pleased to reach this agreement with Simon Property Group, which is an important step in Sears Holdings’ continued transformation to a membership company, without the significant asset intensity of its traditional retail business.”

David Simon, Chairman and CEO of Simon Property, said the latest agreement is a natural, forward-thinking partnership that will provide Simon with the ability to potentially redevelop certain locations that will create value for its customers and investors.

Reacting to today’s announcement, Sears stock rose 4.7% to $44.95 in early trading. The stock had gained 30% this year through the end of last week after experiencing a sharp fall last year.

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