Starboard urges Macy's to strike real-estate deals

Mon Jan 11, 2016 3:52pm EST
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By Sneha Teresa Johny and Sruthi Ramakrishnan

(Reuters) - Hedge fund Starboard Value LP urged department store chain Macy's Inc (M.N: Quote) to enter into joint ventures for its stores, including its flagship Herald Square store in New York, to realize greater value from its real estate assets.

The activist investor said on Monday it supported Macy's cost-cutting plans, but wants the company to follow through with real-estate deals to add more cash to its reserves.

"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," Starboard managing member Jeffrey Smith wrote in a letter.

The letter suggested two separate joint ventures - one for Macy's landmark properties including Herald Square, Union Square, State Street and Downtown Minneapolis, and a second for its hundreds of mall-based stores.

Macy's shares were up 2.5 percent at $36.79 in premarket trading on Monday.

Starboard valued the real estate portfolio at about $21 billion, and said separating it could create $10 billion of shareholder value.

Wall Street Journal reported the news first.

The bulk of Macy's market value - $11.28 billion as of Friday's close - comes from its prized real estate asset holdings. Starboard has estimated that the Herald Square store alone is worth nearly $4 billion.   Continued...

People pass by the Macy's flagship department store in midtown Manhattan in New York City, November 11, 2015. REUTERS/Brendan McDermid