Sears Holdings, Simon Property Form Joint Venture -- Update

By Chelsey Dulaney 

Sears Holdings Corp. said Monday that it has formed a joint venture with mall owner Simon Property Group Inc., the latest move by the struggling retailer to cash in on the value of its real estate.

Sears, which earlier this month announced a similar deal with General Growth Properties Inc. , said it has contributed 10 properties valued at $228 million to the venture. Sears will lease back the properties, which are located at Simon malls, from the joint venture. Simon, meanwhile, has contributed $114 million in cash to the venture.

Sears' shares gained 2% in premarket trading, while Simon's shares were inactive.

The move comes as Sears looks to raise more than $2.5 billion by spinning off 254 of its best properties into a separate real-estate investment trust called Seritage Growth Properties. Sears plans to lease back the stores from Seritage.

The move allows shareholders like Sears CEO Edward Lampert to buy valuable company assets to raise much-needed cash, after a long string of losses rattled the company's suppliers and investors.

As part of this effort, Sears agreed earlier this month to partner with General Growth Properties, the nation's second-largest mall owner behind Simon, on a joint venture. Sears contributed 12 properties located at General Growth malls in exchange for half ownership of the joint venture and $165 million in cash. Sears is continuing to operate the 12 stores.

In both cases, Sears expects to sell its stake in the ventures to Seritage Growth.

Simon, for its part, is moving forward after its $16.8 billion offer to buy smaller rival Macerich Co. was rejected in late March , its largest and boldest takeover campaign yet. Simon was eager to acquire Macerich, the nation's third-largest mall owner, because the combined company would have had a bigger slice of the thriving high-end retail real-estate market.

Macerich said the offer undervalued the company and its growth prospects.

Write to Chelsey Dulaney at [e-mail]

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