Sears Holdings Corp (SHLD) Inks A $114 Million Joint Venture With Simon Property Group Inc (SPG)

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Sears Holdings Corp (NASDAQ:SHLD) has confirmed the formation of a joint venture with Simon Property Group Inc (NYSE:SPG) as the embattled retailer moves closer to improving its financial position. Under the terms of the joint venture, Sears Holdings is to transfer ten properties valued at $228 million to the joint venture and continue to operate the leased stores.

Joint Venture Terms

Simon Property Group Inc (NYSE:SPG) on its part has agreed to buy some of Sears’ property located at the La Plaza in McAllen Texas and contributed cash for the exchange of its 50% stake in the joint venture. The joint venture should give Sears Holdings CEO, Edward Lampert, the ability to raise the much-needed cash after a string of losses in the recent quarters. The CEO also affirms that the deal will enhance the company’s flexibility giving it a clear framework for investing in long-term strategies in integrated retail platforms.

The joint venture is to lease back the existing stores back to Sears Holdings under a triple-net master lease agreement. The agreement is to run on a ten year initial term with the options of it being extended on a two five-year renewal options. Under the master lease agreement, Sears is confident it will be able to pay an initial lease base rent of $13.4million.

Recapture Provisions

The joint venture has also been given the rights to re-capture specified portion of the assets leased to Sears Holdings in instances of leasing them to other third parties for higher rents. The recapture provisions essentially gives Sears Holdings Corp (NASDAQ:SHLD) an opportunity to let go of some of the real estate’s portfolios as it seeks to be an asset-lighter retailer with less dependence on physical stores.

Sears Holdings Corp (NASDAQ:SHLD) has been looking for ways to spin off most of its properties into separate real estate investment trusts as one of the ways of becoming lean and generate more sales online from loyalty program members.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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