Real Estate Bulls Continue To Battle Retail Analyst Bears On Sears Holdings

There is no getting around it, Sears Holdings Corp SHLD is one of the most controversial stocks on Wall Street.

There are no shortage of bearish analysts, negative headlines and colorful quotes touting Sears' retail woes and deteriorating cash situation.

SHLD Retail Analysts - Bears

Here are a few analyst quotes that may sound familiar:

• ISI Group's Matt McGinley memorable quote, Sears "…burning the furniture to stay warm."
• Credit Suisse Gary Balter, Sears "was buying sales through discounts and free delivery."
• Belus Capital Advisors Brian Sozzi was recently quoted in a Bloomberg interview, "Sears doesn't get it… it's just a zombie that operates at the end of many malls."

SHLD Hedge Funds - Bulls

Meanwhile, on the bullish side of the ledger, there is a September 2013 Baker Street Capital Management 139 page report which makes the case for Sears as a real estate asset play.

The other consistently bullish voice has come from Bruce Berkowitz of Fairholme Capital Management, a large investor in Sears Holdings. In fact, Fairholme owns a variety of SHLD securities, including: common shares, corporate notes and warrants.

Fairholme - 'Sears, a complex sum-of-parts story'

Here are three bullish takeaways from the Fairholme annual report letter for the year ended December 31, 2014, as reported by ValueWalk:

1. "Sears' management has acknowledged that recent performance must improve, and the pace of transformation from a traditional store-based retailer to a membership company offering an integrated retail platform appears to have accelerated."
2. "…recent corporate actions (including tax efficient distributions of Lands' End and Sears Canada) have already created significant shareholder value. Notably, at one point during 2014, the market cap of newly independent Lands' End almost rivaled the market cap of its former parent Sears Holdings."
3. [SHLD] recently announced that it is “actively exploring means to monetize a portion of our owned real estate portfolio (potentially in the range of 200 to 300 stores), through a sale-leaseback transaction, with the selected stores to be sold to a newly-formed REIT.” "Given our longstanding focus on the company's vast real estate portfolio (including site visits to over 100 locations in 2014 alone), we believe that any such transaction would be accretive for long-term shareholders."

Tale Of The Tape

During the same time period, the S&P 500 has gained just over 38 percent.

Time Is Of The Essence

Redeveloping real estate isn't something that happens either easily or quickly. During the past few years Sears has announced several real estate initiatives. There does not seem to have been any significant progress made on data centers, cell towers, or mixed use developments following these announcements.

Recently, The Blackstone Group L.P. BX and former DDR Corp DDR CEO Dan Hurwitz announced a new partnership focused on shopping centers. There were no details forthcoming on the strategies that this partnership will utilize to create value.

Does Blackstone's Latest Shopping Center Announcement Raise More Questions Than Answers?

However, the Blackstone access to patient capital, and real estate mantra of "Buy It, Fix It, Sell It," along with Hurwitz proven abilities to reposition real estate portfolios, would seem to be an ideal combination to tackle the Herculean task of creating long-term value from legacy Sears and Kmart real estate assets.

Bottom Line

At the end of the day, Sears Holdings shareholders are about even for the past two years, (plus spun-out Lands' End and Sears Canada shares). However, investors would have made far more money with far less angst just by owning an S&P index fund or ETF.

On the other hand, both long and short investors who like to trade the news have had plenty of opportunities to make money trading the spikes and dips.

Because Sears CEO Eddie Lampert, and various hedge funds own the vast majority of Sears shares, there is very little float. This makes it difficult for shorts to cover, and tends to exacerbate the upward spikes.

The wildcard is whether or not Lampert will announce a credible plan, or joint venture, Mr. Market believes will actually create long-term real estate value for shareholders.