Macys real estate portfolio is estimated at around $21bn

Macy's real estate portfolio is estimated at around $21bn

Starboard Value, an activist shareholder in Macy's, is urging the US retail giant to pursue potential joint venture deals for its stores in order to unlock greater value from its real estate.

In an open letter to CEO Terry Lundgren yesterday (11 January), the hedge fund said it supported Macy's ongoing cost cutting plans but said the retailer should find additional opportunities to improve efficiencies, such as pursuing joint venture structures to add more cash to its reserves.

"We believe that a joint venture, or series of joint ventures, can crystallise the value of Macy's real estate while bringing in a partner with substantial capital and real estate expertise that will enable the joint ventures to grow and diversify their real estate holdings," said Starboard managing member Jeffrey Smith.

Separating the real estate portfolio, it said, could create $10bn of shareholder value from a real estate portfolio it estimates is worth around $21bn or more. It would also allow Macy's to "maintain significant flexibility, including control over remodels and rebranding, while maintaining minimal risk of getting 'stuck' in underperforming stores", Starboard added.

The letter suggests two separate joint ventures – one for Macy's landmark properties including Manhattan's Herald Square – and a second for its mall-based stores.

"Despite what is clearly a challenging retail environment, we believe the execution of the real estate strategy can create meaningful and lasting value for shareholders," said Smith. "When matched with an operational turnaround plan that includes hundreds of millions in cost reductions and margin improvement, we believe Macy's is an extremely attractive investment."

Macy's last week announced plans to lay off thousands of workers as part of its cost reduction plans, designed to save around $400m a year after a "disappointing" holiday performance. The company is to consolidate the grouping of existing stores into five regions and 47 districts (down from seven regions and 58 districts currently). This will include, as previously announced, the closure of 40 Macy's stores.

The letter from Starboard isn't the first to Macy's. Following pressure last July, the company hired advisers to study its real estate portfolio and began exploring possible joint ventures and other deal structures with third parties to redevelop some of its flagship stores.

Macy's to axe thousands of jobs in cost-cutting move