Sears, Simon Form 50/50 JV

HOFFMAN ESTATES, IL—In its second joint venture with a shopping center landlord in as many weeks, Sears Holdings Corp. said Monday it had created a partnership with Simon Property Group in a sale-leaseback arrangement. The 50/50 JV is part of the financially straitened retailer's efforts to monetize its real estate.

Under terms of the JV, which is valued at $228 million, SHLD has contributed 10 properties at Simon malls, including property leased to third parties. It will lease back the properties from the JV under a triple-net master lease, and will continue operating the existing SHLD-branded stores at these locations.

Simon has contributed $114 million in cash, which was then distributed to SHLD in accordance with the agreement. The JV will have the ability to redevelop and re-lease a portion of the space at each property. Separately, Simon has agreed to buy a SHLD property at the La Plaza Mall in McAllen, TX; deal terms were not disclosed. 

Eddie Lampert, SHLD's chairman and CEO, calls the JV with Simon “an important step” in the company's continued transformation to “a membership company, without the significant asset intensity of its traditional retail business. 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.”

SHLD began the month of April by announcing a similar JV with General Growth Properties, this one involving the sale-leaseback of 12 properties at GGP malls. The company also announced that it had filed a registration statement to spin off 254 of its properties into a REIT that would be known as Seritage Growth Properties.

After it completes a rights offering to help finance its acquisition of the 254 stores, a sale that's expected to bring $2.5 billion in proceeds to SHLD, Seritage would then buy its 50% interest in the JV for a price equal to that paid by Simon. The Indianapolis-based Simon has also agreed to invest about $33 million in Seritage common shares through a private placement.