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Starboard Pushes Macy's to Pursue Real Estate Initiatives

Shareholder Asks the Department Store Chain To Pursue Multiple CRE JVs
January 11, 2016
Starboard Value, a New York investment advisor led by managing member Jeffrey C. Smith, estimated the Cincinnati-based retailer’s real estate assets at $21 billion.
Starboard Value, a New York investment advisor led by managing member Jeffrey C. Smith, estimated the Cincinnati-based retailer’s real estate assets at $21 billion.
Frustrated with Macy’s Inc. recent stock and operating performance, major shareholder Starboard Value LP sent a letter today calling for the department store chain to make even more of a push to unlock the potential of value of its real estate.

Starboard Value, a New York investment advisor led by managing member Jeffrey C. Smith, estimated the Cincinnati-based retailer’s real estate assets at $21 billion. Macy’s current market capitalization is about $9 billion less than that amount.

In its letter to Macy’s senior management, Starboard urged them to pursue real estate joint ventures.

"We believe that a JV, or series of JVs, can crystallize the value of Macy’s real estate while bringing in a partner with substantial capital and real estate expertise that will enable the JVs to grow and diversify their real estate holdings,” Smith wrote.

Macy’s should split its real estate assets into two or more JVs in order to attract the appropriate partners who will pay the most for different types of assets, Starboard said.

“While the exact properties that are placed in the JVs will depend on what certain partners are willing to pay for each type of asset, we believe it makes sense for Macy’s to initially create two separate JVs, one for its iconic stores and one for its mall locations,” Starboard wrote.

The first step would be to split off it highest quality locations - its iconic stores and its best mall locations.

A second step would be to explore JVs for its remaining $4 billion of real estate, which includes its owned mall stores in “C” locations, Portland, Brooklyn, Seattle, ground leased mall locations, and its owned distribution centers.

Brooklyn and Seattle are currently undergoing redevelopment that Starboard said it believes will make them substantially more valuable over the next few years, and can be placed into a JV or otherwise monetized in the future.

Starboard acknowledged in its letter that Macy’s has already begun to move in the right direction regarding its real estate.

Last week, Macy's Inc. launched a series of cost-efficiency measures following same store sales declines of 5.2% in November and December. Among the cost-reduction actions the department store chain is implementing include closing 40 stores and a call center and laying off up to 4,800 employees.

Macy's said the measures will reduce expenses by approximately $400 million. In addition, Macy’s has already started moving forward with pursuing joint venture structures.

It has hired Eastdil Secured to pitch partnerships or joint ventures for the company's mall-based properties, as well as Macy's flagship real estate assets in Manhattan, San Francisco, Chicago and Minneapolis. Tishman Speyer has expressed interest in pursuing partnerships on the four flagship locations.

The retailer is also looking to hire a senior-level real estate executive to oversee and manage its real estate, including any partnerships or joint ventures it forms with outside investors.

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