Sears Holdings (SHLD), Macerich (MAC) Enter 50/50 Property Joint Venture

Sears Holdings (NASDAQ: SHLD) and The Macerich Company (NYSE: MAC) announced that they have formed a joint venture (the "JV") as part of Sears Holdings' continued efforts to enhance its financial flexibility and generate value from its real estate portfolio.

Sears Holdings contributed nine properties where Sears currently operates stores located at Macerich malls to the JV, including property with space leased to third parties. Sears Holdings will lease back from the JV and continue to operate existing Sears Holdings stores at the properties contributed to the JV. Macerich contributed $150 million in cash to the JV, which has been distributed to Sears Holdings. The lease arrangements between Sears Holdings and the JV provide the JV with the ability to create additional value through recapturing certain space leased to Sears Holdings in the contributed properties and re-leasing that space to third-party tenants.

"Since the filing of the registration statement for Seritage Growth Properties a few weeks ago, we have entered into JV agreements with the leading mall operators in the U.S., demonstrating the value of Sears Holdings' real estate portfolio," said Edward S. Lampert, Chairman and CEO of Sears Holdings. "We are pleased to be in a position to unlock substantial value for Sears Holdings shareholders and further facilitate the company's transformation. Through these transactions, we have additional capital to invest in our membership and integrated retail platforms. We will continue to operate these nine stores and there will be minimal impact on their day-to-day operations or the overall shopping experience for our members."

Arthur Coppola, Chairman and CEO of Macerich, stated, "This new joint venture with Sears Holdings is in line with our overall strategy of reinvesting capital into our portfolio of proven, highly profitable locations. The nine properties being contributed to the JV are located at centers with average in-line sales of $680 per square foot and include some of our top centers including Washington Square, Los Cerritos Center, Arrowhead Towne Center, Vintage Faire Mall, Danbury Fair Mall, Chandler Fashion Center, Freehold Raceway, Deptford Mall and South Plains Mall. Through ongoing space optimization, we expect this transaction to create significant value for shoppers, tenants and shareholders alike."

Transaction Structure

The total purchase price for the 9 properties in the transaction is $300 million. In exchange for $150 million and a 50% JV interest, Sears Holdings contributed to the JV the 9 properties located at Macerich malls where Sears Holdings currently operates stores. Macerich contributed $150 million in cash for its 50% JV interest, which has been distributed to Sears Holdings in accordance with the terms of the agreements between the parties.

Proposed Relationship with Seritage Growth Properties

On April 1, 2015, Seritage Growth Properties ("Seritage"), a real estate investment trust formed by Sears Holdings, filed a registration statement on Form S-11 with the Securities and Exchange Commission, providing for a planned distribution of subscription rights to purchase Seritage shares to Sears Holdings stockholders. Shortly following the consummation of the rights offering, Sears Holdings expects Seritage to purchase its 50% JV interest for a price equal to that paid by Macerich for its JV interest.

Other Terms

The JV will lease back existing stores to Sears Holdings under a triple-net master lease agreement (the "Master Lease"), with a ten year initial term and two five-year renewal options. Sears Holdings' initial base rent under the Master Lease will be approximately $14.8 million.

Under the Master Lease, the JV has the ability to recapture a specified portion of the space leased to Sears Holdings. Following such recapture, the JV will be able to re-lease this space to other parties at potentially higher rents. The recapture provisions and termination rights within the Master Lease will enable Sears Holdings to continue its transformation into a more asset-light retailer with less dependence on physical store locations, and will allow the JV to create additional value through the re-configuration and re-development of its properties.

Sears Holdings and Macerich will have equal representation on the executive committee that will govern the JV.

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