Sears cashes in on Stores with a REIT and a Venture with General Growth

Sears Holdings Corp. is getting serious about squeezing some cash out of its considerable real estate holdings. The retailer is forming a REIT, called Seritage Growth Properties, and launching a rights offering to back its $2.5 billion purchase of 254 Sears and Kmart stores. Sears Holdings plans to lease the stores back from Seritage. The rights offering is expected to close by the end of the second quarter.

In a separate deal, Sears Holdings will team up with General Growth Properties to redevelop 12 of its stores at General Growth’s malls. Sears Holdings has contributed 12 properties where it currently operates department stores (or leases former stores to third party tenants), and General Growth has contributed $165 million in cash. The transaction values these properties at $330 million in the aggregate. Sears Holdings will then lease back the stores for 10 years with two five-year renewal options. General Growth will have the right to re-develop and re-merchandise up to 50 percent of each property.

The transaction will raise cash for Sears Holdings and allow General Growth to boost the value of its malls, says Edward S. Lampert, chairman and CEO of Sears Holdings.

"This transaction provides an opportunity to potentially redevelop certain Sears Holdings locations within our portfolio and further strengthen each mall within its trade area,” said Sandeep Mathrani, CEO of General Growth Properties, in a prepared statement.

Sears Holdings expects to eventually sell its half of the General Growth venture to Seritage upon the successful formation of the REIT. General Growth has also agreed to invest approximately $33 million in Seritage when the REIT is formed.

As of Jan. 31, Sears Holdings owned or leased 1,725 Kmart and Sears stores combined. The retailer is transitioning from “a store-focused network to a more asset-light, member-centric retailer,” that will require less square footage of selling space than in past years, Lampert said in a prepared statement.


The information contained herein was obtained from sources deemed to be reliable. However, Salzman Real Estate Advisors makes no guarantees, warranties, or representations as to the completeness or accuracy thereof.
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