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Sears Shares Spike As Company Seeks To Raise Cash Through A REIT

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That Sears is desperate for cash is hardly news: the struggling retailer took out a $1 billion loan in October of last year and, less than a year later, hit up CEO Eddie Lampert for another $400 million. Now, the company has a new plan for cash generation: it is considering the sale of as many as 300 of its stores to a real estate investment trust (REIT) and then leasing back those stores. Even though the retailer did not say how much money this maneuver could generate, investors are cheering the idea, sending Sears stock for a more-than 30% gain in early Friday trading.

In a document filed with the SEC Friday morning, Sears provided a financial and performance update, saying that it projects third quarter adjusted EBITDA to fall between a loss of $275 million and $325 million, a loss consistent with the $310 million loss reported during the third quarter of 2013. The retailer also said that in the 13-week period ending on November 1, company-wide same store sales declined 0.1%, with Kmart’s 0.5% growth in comparable store sales offset by an 0.7% decline in Sears domestic comparable store sales.

Sears also said that as of November 1, it had approximately $330 million in total cash and $234 million available under its credit facility; its debt, meanwhile, was $6.3 billion but the company expects its year-end balance to be “materially lower” than the $5.9 billion in debt it had at year-end 2013.

In an effort to decrease that balance and bolster its financial standing, Sears said that it is evaluating the monetization of 200 to 300 of its stores through a sale-leaseback transaction. Specifically, such a maneuver would involve selling these stores to a newly-formed REIT but then leasing them back (and operating them) under one or more master leases. Sears did not detail how much it stands to gain from such a transaction, saying only that “the company would realize substantial proceeds from such sale, which would further enhance its liquidity.”

Sears went on to say that if it does pursue a sale-leaseback transaction — and there can be no guarantee that it will — it would distribute to its shareholders the rights to purchase shares of common stock or other equity interests of the REIT.

Even though this move is far from set and the precise financial gain is as yet unknown, investors cheered the announcement, sending Sears shares for a more-than 20% gain in Friday’s pre-market trading session. The stock improved upon this gain in the early hours of Friday’s regular trading session: it opened nearly 25% higher than its Thursday close and is currently trading to a 33% gain. Year-to-date, the stock is down 5.3%.

Sears Shares Spike As Company Seeks To Raise Cash Through A REIT

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