Sears Holdings, Simon Form $228M JV for Sale-Leaseback at 10 Simon-Owned Malls
HOFFMAN ESTATES, ILL. AND INDIANAPOLIS — Sears Holdings Corp. and Simon Property Group Inc. have created a 50/50 joint venture valued at $228 million whereby Sears will sell and lease back several of its stores in Simon-owned malls. Sears Holdings has contributed 10 properties, including properties leased to outside parties, in exchange for $114 million in cash and a 50 percent interest in the joint venture. The deal is similar to the $330 million joint venture agreement that Sears Holdings Corp. and General Growth Properties announced on April 1.
Sears Holdings (NASDAQ: SHLD) will subsequently lease back and operate the existing Sears Holdings stores at those malls. The triple-net master lease agreements have a 10-year initial term and two five-year renewal options. Sears Holdings expects to pay initial base rent of $13.4 million under the master lease.
“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,” says Edward Lampert, chairman and CEO of Sears Holdings. “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.”
Simon (NYSE: SPG) has contributed $114 million in cash to the joint venture, and the lease arrangements between Sears Holdings and Simon allow the partnership to redevelop the contributed properties and lease the space at each property to third-party tenants.
“The creation of this joint venture represents an exciting new chapter in our long and successful relationship with Sears Holdings,” says David Simon, chairman and CEO of Simon Property Group. “This is a natural, forward-thinking partnership that will also offer us the ability to potentially redevelop certain locations that will create value for our customers and investors.”
In addition to the joint venture transaction, Simon has separately agreed to acquire a Sears Holdings property at the La Plaza Mall in McAllen, Texas.
On April 1, 2015, Seritage Growth Properties, a REIT formed by Sears Holdings, filed a registration statement on Form S-11 with the Securities and Exchange Commission. The rights offering would allow Sears Holdings stockholders to purchase shares in the Seritage REIT. Sears Holdings expects Seritage to purchase its 50 percent joint venture interest for $114 million.
Simon has also 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.
Headquartered in Hoffman Estates, Sears Holdings Corp. operates 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 Friday, April 10, at $42.93 per share, up from $31.71 per share at this time last year.
Indianapolis-based Simon Property Group is a global leader in retail real estate ownership, management and development. The company owns or has an interest in 228 retail properties comprising 189 million square feet in North America, Europe and Asia. Tenants in Simon properties generate annual retail sales of more than $60 billion.
Simon’s stock price closed Friday, April 10, at $191.29 per share, up from $168.08 per share at this time last year.
— John Nelson