Apr 13, 2015
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Value in new Sears JV with Simon is redevelopment of mall space

Apr 13, 2015

Sears Holdings Corp and Simon Property Group Inc on Monday announced that they would form a 50-50 joint venture to boost the value of 10 Sears properties at Simon-managed malls, similar to the retailer's April 1 announcement with mall operator General Growth Properties.

As part of the agreement, up to half of the space Sears sold will be available for redevelopment for new tenants who will pay higher rents. The deal is part of the retailer's effort to get value out of its extensive land holdings.

"The way they struck that deal made a lot of sense to us," Daniel Busch, a senior analyst at Green Street Advisors in Newport Beach, California. "Sears can work with these partners, with the mall landlords, to come up with a better use for their space."

The retailer has been trying to shore up its finances after posting losses in the last four fiscal years.

The option to redevelop parts of the Sears footprint in the malls was a major driver of why General Growth and Simon Property agreed to the joint ventures, Busch said. Sears does not need as much space as it has and it can capitalize on releasing space, he said.

The Sears properties sold in the joint ventures is considered A Class because of their location, the quality of tenants and little, if any, vacancy.

Sears obtained $114 million from Simon Property in exchange for its 50 percent interest.

Two weeks ago it received $165 million from GGP for its sale of 12 mall locations, part of wider Sears plans to raise $2.5 billion in a real estate investment trust to be called Seritage Growth Properties.

Sears shareholders will have the right to buy shares of the Seritage offering, which is expected to buy and lease back 254 Sears and Kmart stores when it closes at the end of the second quarter. Plans to form a REIT were first floated in November.

The GGP transaction suggested Sears is more motivated to sell off assets. Busch said both GGP and Simon Property probably cherry-picked Sears holdings, however, leaving the question of how much value is left in the remaining properties.

$1 = £0.68

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