Sears Holdings (SHLD) and Simon Property Form Joint Venture
Shares of Sears Holdings Corporation (SHLD) were up +0.92 or +2.14 percent to $43.85 in Monday's premarket trading after the company announced forming a joint venture with Simon Property Group Inc. (SPG). Sears Holding stock closed at $42.93 per share, down -0.49 or -1.13 percent in Friday's regular trading session.
Hoffman Estates, Illinois based Sears Holdings Corporation is an international holding company and the owner of Sears and Kmart.
Indianapolis, Indiana based Simon Property Group, Inc. is a fully integrated real estate company and the number one ranked real estate investment trust in the United States. The company operates through five retail real estate platforms which include international properties, regional malls, community lifestyle centers, Premium Outlet Centers and The Mills. Simon Property Group has an interest or owns about 241 million square feet of leasable real estate in Asia and North America and employs over 5,000 people.
The joint venture has Sears Holdings contribute 10 properties located at Simon Malls, which includes property leased to third parties. Sears Holdings will then lease back the properties from the joint venture and continue to operate the existing Sears Holdings stores at the properties provided to the joint venture. Simon Property Group has contributed cash to the joint venture, and through the lease arrangements will provide the joint venture the ability to enhance the value of the properties through re-development and re-leasing the properties to third party tenants.
Edward S. Lampert, Chairman and Chief Executive of Sears Holdings Corp. said in the company's press release that, "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. 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.
The deal values the properties contributed by Sears Holdings at a total of $228 million. In exchange for a cash contribution of $114 million made by Simon Properties, and a 50 percent interest in the joint venture, Sears has contributed the 10 properties, which are located at Simon malls. In addition to the joint venture transaction, Simon Properties has agreed to acquire a Sears Holdings property located at the La Plaza Mall in McAllen, Texas.
The joint venture will lease back existing stores to Sears Holdings under a triple net master lease agreement. The agreement has a ten year initial term, in addition to two five year renewal options with Sears Holdings expected to pay $13.4 million in initial base rent under the master lease. Sears Holdings stock is reacting favorably to the news of the transaction and is a major step for the company in taking advantage of its extensive portfolio of real estate holdings.
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