Updated from 10:57 a.m. EDT

Kmart

(KMRT)

continued to make progress squeezing cash out of real estate Monday, completing an agreement to sell 18 stores to

Home Depot

(HD) - Get Report

for $271 million.

The deal, which originally encompassed 24 stores when announced June 6 before being cut to a maximum of 19 two weeks ago, is another feather in the cap of Ed Lampert, the hedge fund manager who brought Kmart out of bankruptcy in 2003. It is also more cash for Lampert to play with, and could give Kmart further ammunition against a large short population that has argued Lampert's real estate strategy works better on paper than it does in practice.

Ulysses Yannas, a retail analyst with Buckman Buckman & Reid, said the transaction is a great deal for Kmart, conjuring money that would have taken years for it to make through operations. He also said this is more evidence that Kmart's real estate assets were grossly undervalued in the bankruptcy process.

"I'm not saying there was anything funny done in the bankruptcy process. But there is no doubt that the value of these properties has always been there," said Yannas. "The state of the economy does help some now, compared to the time they were in bankruptcy, but the values were always there."

Kmart even spun the paring of the original $365 million deal.

"The stores we are retaining from the originally announced transaction have been operating profitably and better than planned for this year," Julian Day, the company's president and chief executive, said in a statement.

Kmart said it expects proceeds of $259 million for 17 of the stores to be released from escrow by the end of its current quarter, including $54.6 million received last quarter. It expects to receive the remaining sales proceeds during the fourth quarter.

Kmart's shares were recently down 67 cents, or 0.9%, to $75.88, pressured by reduced sales guidance at

Wal-Mart

(WMT) - Get Report

, but the stock is still trading at more than three times its 52-week low of $22.41, hit around the turn of the year. Investors have been steadily bidding up the shares, betting Lampert can spin gold from a discount chain that many had once believed would have to be liquidated.

With one major deal done, can Lampert sustain the magic?

"Kmart won't get these kinds of values for the rest of their real estate," said Howard Davidowitz, chairman of Davidowitz & Associates. "I've been involved in several real estate plays like this in retail, and I can tell you that you always get the best value in the beginning."

In late July, Deutsche Bank published a research note that estimated Kmart's real estate could be worth as much as $150 a share. The firm noted that the average Kmart lease has 17 years remaining and an average rent of $2.03 per square foot. That compares with the average of $10.07 per square foot for the total retail group, and many of the leases have options to renew.

Davidowitz, however, sees the deal as part of the continuing "liquidation" process at Kmart. He believes the company's management is touting its operational turnaround efforts as a front to drag out the process and get the most value for its real estate.

"When you get a free lunch, sometimes you have to buy dinner," Davidowitz said. "Kmart's dinner tab could be coming up. To take these values and extend them Kmart's other stores is just off the chart. That's not going to happen, and the analysts have left all the eventual liabilities out of their analysis. This whole thing is going to unravel eventually."

Kmart has another deal pending to sell up to 54 stores for $621 million to

Sears

(S) - Get Report

, another company in which Lampert has a significant stake.

In its last 10-Q, Kmart revealed that it will allow the cash on its balance sheet to be invested by Lampert, leading to speculation that the hedge fund manager will attempt to turn the company into a publicly traded investment vehicle like Warren Buffett's

Berkshire Hathaway

.

Davidowitz doesn't think Lampert believes Kmart can be restructured.

"In my 40 years in the retail business, I have never seen a successful retailer sell off their stores like this," Davidowitz said. "I have never seen a successful retailer not invest one penny into their stores. I have never seen a retailer continue to slash their assortments, their inventory, and have sales down double-digits and announce that they have a brilliant strategy. I'm sorry. I'm confused, because in the history of retailing, that has never happened."

If Davidowitz is right, then the fortunes of Kmart shareholders could lie in the investing strategies of Lampert.

"Now we get to see what Eddie Lampert will do with this money," Yannas said.