NEW YORK ( TheDeal) – Department store operator Sears Holdings and mall operator Simon Property Group have formed a joint real estate venture, the two companies announced Monday. Hoffman Estates, Ill.-based Sears Holdings will contribute 10 properties located at malls operated by Indianapolis-based Simon Property to the partnership valued at $228 million. Must Read: 10 Stocks George Soros Is Buying In return, Sears Holdings will receive $114 million in cash and a 50% stake in the joint venture, while Simon Property will pay $114 million in cash to the newly formed entity and receive the other 50% stake. Sears will lease back the 10 stores from the partnership for an initial 10-year period and continue to have retail operations in those locations. Space at the locations could also be re-leased to third-party tenants. Separately, Simon Property will acquire a Sears Holdings' location located at the La Plaza Mall in McAllen, Texas. The deal is part of Sears Holdings' plan to transition to a more asset-light model. "We are pleased to reach this agreement with Simon Property Group, which is an important step in Sears Holdings' continued transformation to a membership company, without the significant asset intensity of its traditional retail business," said Edward Lampert, chairman and CEO of Sears Holdings, in a statement. Seritage Growth Properties, the real estate investment trust formed by Sears Holdings, will also acquire the parent's 50% stake in the joint venture with Simon Property. The REIT will buy the stake following the completion of its own planned rights offering. The price Seritage will pay will be equal to what Simon Property paid for its 50% stake, or about $114 million. Simon Property will also invest $33 million in Seritage common shares through a private placement at a price equal to the subscription price of the rights offering. The deal is similar to one Sears Holdings struck with Chicago-based mall operator General Growth Properties announced on April 1. Sears Holdings will contribute 12 properties and General Growth will sink $165 million in cash into a joint venture between the two. Must Read: 10 Stocks Carl Icahn Loves in 2014 The two joint ventures are coupled with the formation of Seritage, a REIT to which Sears Holdings plans to sell 254 of its locations and that it expects to raise more than $2.5 billion, also announced April 1. The purchase of the properties will be partially financed by Seritage through a subscription rights offering, in addition to debt, according to regulatory filings. The real estate is viewed by industry sources as Sears Holdings' last valuable asset. The department store operator of both Sears and Kmart also owns inventory, store fixtures and intellectual property in addition to operating an e-commerce site that would have some value. Sears Holdings is burning through more than $1 billion of cash a year, and is in need of more funds. Robert Schriesheim, Sears' CFO, wrote in a Dec. 5 blog post on the retailer's website that the company's cash burn might be reasonably pegged at about $1.06 billion. In an April 13 report, Gimme Credit analyst Evan Mann noted that Sears Holdings had a free cash flow shortfall (cash flow from operations less capital spending) of $1.7 billion. "This suggests that the funds from these transactions could fund cash flow shortfalls for up to 18 months. Troubling from a credit perspective is that the company's real estate assets are being stripped out to fund operating losses, not to repay debt," the report said. The retailer has about $250 million in cash on its balance sheet and approximately $800 million available on its revolver, as well as long-term debt of $3.2 billion and unfunded pension obligations of $2.3 billion. Read More: Warren Buffett's Top 10 Dividend Stocks Read more from:
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