Sears Continues Store Lease-Back Initiatives

Today, Sears Holdings Corp. and Simon Property Group, Inc., announced that they have created a joint venture under which Sears Holdings has contributed 10 properties located at Simon malls, including property leased to outside parties. Sears Holdings will lease back and continue to operate existing Sears Holdings stores at the properties contributed to the joint venture, the companies stated, with Simon contributing cash and the lease arrangements.

In addition, according to the parties, the joint venture can create additional value through re-developing the contributed properties and re-leasing space at each property to third-party tenants.

The parties, in the transaction, noted that they value the properties contributed to the joint venture at $228 million in total, with Sears Holdings’ part being $114 million and a 50% interest in the joint venture.

In another element of the transaction, Sears Holdings expects Seritage Growth Properties to purchase its 50% joint venture interest for a price equal to that paid by Simon for its interest in the entity. On April 1, Seritage Growth Properties, a real estate investment trust formed by Sears Holdings, filed a registration statement form with the United States Securities and Exchange Commission, providing for a planned distribution of subscription rights to purchase Seritage shares to Sears Holdings stockholders. Simon also has agreed to invest about $33 million in Seritage common shares through a private placement, at a purchase price equal to the subscription price of the rights offering, subject to the completion of the rights offering and other conditions, the parties maintained.

The joint venture will lease back existing stores to Sears Holdings under a triple-net master lease agreement with a 10-year initial term and two five-year renewal options. Sears Holdings would pay initial base rent of $13.4 million under the master lease, the parties related.

In addition to the JV transaction, the parties added, Simon has agreed to acquire a Sears Holdings property at the La Plaza Mall in McAllen, TX, in a separate initiative.

“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,” Edward Lampert, chairman and CEO of Sears Holdings, said in announcing the deal. “This transaction, taken together with our other initiatives to create shareholder value through our vast real estate portfolio, enhances Sears Holdings’ financial flexibility to invest in longer-term strategies such as our membership and integrated retail platforms. Sears Holdings will continue to operate these 10 stores and there will be minimal impact on their day-to-day operations or the overall shopping experience for our members.”