HOFFMAN ESTATES AND CHICAGO, ILL. — Sears Holdings Corp. (NASDAQ: SHLD) and General Growth Properties Inc. (NYSE: GGP) have entered into a real estate joint venture under which Sears Holdings has contributed 12 of its properties located at GGP-owned malls for approximately $330 million. The properties include both existing Sears Holdings stores and certain properties leased to third parties occupying former Sears Holdings stores.
As part of the transaction, GGP has contributed $165 million in cash to the joint venture, and the joint venture has leased back the existing Sears Holdings stores. The joint venture has the opportunity to create additional value through redevelopment and re-leasing of up to 50 percent of each property.
In exchange for the 12 assets, a subsidiary of Sears Holdings will receive the $165 million in cash. A subsidiary of GGP made the cash contribution in exchange for a 50 percent interest in the joint venture. The contribution has been distributed to Sears Holdings, which will own the other 50 percent interest upon consummation of the transaction.
“Today’s announcement demonstrates our ability to unlock a small portion of Sears Holdings’ vast and valuable real estate portfolio, and represents an important step in the continued transformation of Sears Holdings,” says Edward Lampert, chairman and CEO of Sears Holdings. “Importantly, we will continue to operate these 12 stores and there will be minimal impact on the day-to-day operations of our stores or the overall shopping experience for our members.”
Sandeep Mathrani, CEO of General Growth Properties, stated, “Our new partnership with Sears Holdings is consistent with our investment strategy of acquiring interests in high-quality retail properties located in the U.S. This transaction provides an opportunity to potentially redevelop certain Sears Holdings locations within our portfolio and further strengthen each mall within its trade area. We look forward to working with Sears Holdings to maximize the value of these locations for our shareholders.”
Seritage Growth Properties
In addition to the joint venture, in a separate transaction, Sears Holdings plans to sell approximately 250 other Sears Holdings properties to Seritage Growth Properties, a new real estate investment trust (REIT).
Sears Holdings has also filed a registration statement on Form S-11 relating to its plans to distribute rights to acquire Seritage common shares to all Sears Holdings stockholders. If the rights offering is completed, Sears Holdings expects to sell its 50 percent interest in the joint venture (for a purchase price equal to that being paid by GGP for its interest in the joint venture) to Seritage.
As part of the transaction, GGP has also agreed to invest approximately $33 million to acquire Seritage common shares in a private placement at a purchase price equal to the subscription price for the rights offering.
Lease Terms
Sears Holdings has agreed to lease back the contributed properties from the joint venture entity under a triple-net master lease agreement. The master lease will extend for a period of 10 years, with two five-year renewal options. The initial amount of aggregate base rent under the master lease will be $17.3 million. The joint venture entity has the ability to recapture up to 50 percent of the space leased to Sears Holdings and then re-lease this space to other tenants.
The provisions of the master lease (including various termination rights) allow Sears Holdings to continue to rationalize its operating footprint and reduce expenses while driving additional traffic to the remaining retail space through the proximity of new tenants in the recaptured areas. In addition, these provisions provide the joint venture with the opportunity to re-configure and redevelop its properties.
The joint venture will be governed by an executive committee on which Sears Holdings and GGP have equal representation. An affiliate of GGP will be the leasing manager and property manager for the properties.
Chicago-based General Growth Properties owns, manages, leases and redevelops high-quality malls through the United States. GGP’s stock price closed on Tuesday, March 31 at $29.57 per share, up from $22.02 per share at this time last year.
Headquartered in Hoffman Estates, Sears Holdings Corp. has operated through its subsidiaries such as Sears, Roebuck and Co. and Kmart Corp. The company’s proprietary brands include Kenmore, Craftsman, DieHard, Kardashian Kollection, Joe Boxer, The Country Living Home Collection and Sofia by Sofia Vergara.
Sears Holdings’ stock price closed on Tuesday, March 31 at $41.38 per share, down from $48.62 per share at this time last year.
— Danielle Everson