This, photo shows a Sears store in Hialeah, Fla. Sears Holdings Corp. reported earnings on Thursday, May 25, 2017. Sears' extended decline in sales continued during the first quarter and the storied retailer vowed additional spending cuts to offset its slowing businessEarns-Sears Holdings, Hialeah, USA - 11 May 2017

Investor Bruce Berkowitz, once one of the biggest supporters of Edward S. Lampert’s Sears Holding Corp., has grown much more critical, cut back his investment in the company and is just plain tired.

“Although markets reached new highs in 2017, there was not much to celebrate as the securities of Sears Holdings Corp. and Sears Canada wrecked the Funds’ performance,” wrote Berkowitz in the annual report of Fairholme Funds Inc., which he leads as chief investment officer. “Sears realized billions of dollars from asset sales, as we predicted, but I did not foresee the operating losses that have significantly reduced values.”

Berkowitz is a contrarian investor who seeks to find value where others don’t see it and has been willing to wait until his thesis plays out. But the long decline of Sears, which this week revealed more layoffs, appears to have worn on him.

“Getting the asset values largely correct, but missing the company’s inability to stop retailing losses, has been hugely frustrating and fatiguing for me to watch,” he said. “Today Sears is a much diminished position [at Fairholme Funds] and nowhere as relevant to our financial position.”

Shares of Sears fell 61 percent to $3.58 in 2017 and declined 3.1 percent to $2.49 on Thursday. Sears Canada went bankrupt last year.

The investor’s flagship vehicle, The Fairholme Fund, fell 6 percent last year while the S&P 500 gained 21.8 percent.

It ended the year with 6.6 percent of its money invested in Sears and 27.1 percent of its holdings in cash. At the end of 2016, the fund dedicated 9.5 percent of its money to Sears and only 14.4 percent to cash.

Berkowitz noted that his family is heavily invested in the funds. “I eat my own cooking and I feel the same recent disappointments as you, but I also want to share my strong belief in future outperformance,” he said, adding that the firm voluntarily waived its annual management fees “in recognition of the elevated levels of cash and cash equivalents currently held in the Funds’ portfolios as we await attractively priced investment opportunities.”

Berkowitz remains more supportive of Seritage Growth Properties, which was spun off of Sears and in which Lampert also has a significant stake.

“Seritage is a simple redevelopment story clouded by a complex tenant relationship with Sears,” he said. “Seritage owns 40 million square feet of retail space and surrounding parking lots; Sears occupies 75 percent of its retail space. When Sears closes stores at Seritage locations, the real estate is rerented at market rates three times higher to tenants such as Whole Foods and Nordstrom Rack. Proportionally higher cash distributions to owners then follow. I believe this opportunity to recapture valuable real estate is why Warren Buffett personally became one of the largest shareholders of Seritage.”

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