In the face of stubbornly negative free cash flow, real estate sales have been Sears Holdings' (NASDAQ:SHLDQ) preferred method of raising cash to fund its operations. Between April 2016 and February 2018, the company generated $1.7 billion of proceeds from the sale of real estate and related assets.

Recently, the biggest stumbling block to further asset sales has been that most of Sears Holdings' remaining properties were being used as collateral to secure various obligations. However, a deal to permit the sale of 138 properties in exchange for more than $400 million in incremental pension funding is now enabling a new round of asset sales for Sears Holdings.

Several new deals come to light

On Monday afternoon, mall REIT Washington Prime Group (NYSE:WPG) announced plans to buy four Sears stores and adjacent auto centers from Sears Holdings for $28.5 million. The stores are located at Longview Mall in Longview, Texas; Polaris Fashion Place in Columbus, Ohio; Southern Hills Mall in Sioux City, Iowa; and Town Center at Aurora in Aurora, Colorado. This deal is set to close next quarter.

Washington Prime considers these malls to be higher-performing "Tier One" properties. For the moment, Sears will lease all four stores back from Washington Prime, for a total annual rent of approximately $1.25 million. That's well below market rate. However, the ultimate goal is to redevelop these properties. When Washington Prime is ready to do so, it will be permitted to terminate the leases, except during the holiday season.

The exterior of a Sears full-line store

Sears has agreed to sell four full-line stores to Washington Prime Group. Image source: Sears Holdings.

At least two other Sears property sales have already closed this month. First, Sears sold its store at Tampa's University Mall for $7 million to mall owner RD Management, which plans to redevelop the mall as an open-air mixed-use center.

Sears Holdings also recently sold an 8.7-acre parcel at Regency Square Mall in Richmond, Virginia, to the mall owner for $3 million. Sears closed its full-line store at this location last September. Negotiations are continuing for a smaller adjoining parcel that previously held an auto center.

Squeezing blood from a stone

While Sears Holdings remains active in selling properties to raise cash, it's noteworthy that the sale amounts are steadily decreasing. Indeed, the proceeds from the six real estate sales announced this week averaged less than $7 million per property. For comparison, stores in top-tier malls typically fetch tens of millions of dollars.

This probably isn't a fluke. Earlier this year, management noted that the 138 properties set to be released from a "ring-fence" arrangement designed to backstop the company's pension liability had an aggregate appraised value of $985 million, just $7.1 million per property. This rate highlights how Sears Holdings is finally running out of valuable real estate to sell.

Time is quickly running out

Sears Holdings bulls often note that pundits have been predicting the company's demise for years, but that it's still standing. However, it's important to recognize that Sears has only survived this long because it had so many assets to sell.

Aside from the $1.9 billion of real estate sold in the past two years, Sears Holdings also sold the Craftsman brand for cash proceeds of $525 million in early 2017. The company had previously generated approximately $5.6 billion in proceeds from a series of spinoffs and real estate sales between 2012 and 2015.

Sears' remaining assets are worth a fraction of the roughly $8 billion the company reeled in over the past six years. This is why Sears Holdings is so desperate to restructure its debt and reduce its cash interest payments: It is running out of room to raise cash through asset sales.

Sears Holdings Chairman and CEO Eddie Lampert -- who is also the largest shareholder -- has vowed that adjusted earnings before interest, taxes, depreciation, and amortization will turn positive again in fiscal 2018. That seems like an extremely ambitious target. But unless Sears Holdings reaches it, a bankruptcy filing will be virtually inevitable sometime in 2019.

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