NEW YORK (TheStreet) -- Sears Holdings Corporation (SHLD) has a newfound desire to form a real estate investment trust that would hold hundreds of stores. Meanwhile, it faces ongoing challenges just being a good old-fashioned retailer.
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Friday Sears announced that it is actively exploring a REIT transaction involving 200 to 300 owned properties, through a rights offering to shareholders. Its shares soared 26% higher in premarket trading.
Moving to a REIT structure, the company would sell certain properties to the trust but continue to operate stores in those locations by leasing them back from the REIT. In such a transaction, called a "sale-leaseback," Sears believes that it would realize "substantial proceeds," to "further enhance its liquidity."
A REIT by definition has to generate at least three quarters of its income from rents or interest on mortgage financing. One big advantage is they pay no corporate income tax in exchange for paying out 90% of their taxable income to shareholders through dividends.
Sears is nurturing the expectation among investors that, by raising cash in this manner, it can prevent a bankruptcy as a result of years of sales and profit declines.
The catch is that Sears has not currently secured its partial REIT status, only offering a signal to investors that it could raise cash from its asset base in this type of approach.
"There can be no assurance that the company will pursue such a transaction, nor can there be any assurance that, even if pursued, such a transaction could be entered into and consummated on satisfactory financial and other terms," pointed out the company in today's Securities and Exchange Commission filing.
The news comes on the heels of further cash-raising efforts by Sears ahead of the holiday season, including a $400 million short-term loan with its largest shareholder Edward Lampert and securing $380 million as part of a rights offering from an interest in Sears Canada. Further, in early October, Sears announced that it has entered into lease agreements with overseas fashion retailer Primark at seven stand-alone stores, essentially bypassing landlords in order to become a rent collector.Must Read: Malls Aren't Dead, Long Live the Mall!