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Jul 16, 2015
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Macy's underpriced, real estate assets could be spun off

By
Reuters
Published
Jul 16, 2015

U.S. retail chain Macy's is a cheap stock trading more than 70 percent below value, and its highly-prized real estate assets could be spun off, investment firm Starboard Value said on Wednesday after announcing it had taken a stake in the company.

Macy's was trading at just over $70 a share when it should be above $125 given the high value of its enterprise, Starboard Chief Executive Jeffrey Smith told the CNBC Institutional Investor Delivering Alpha Conference in New York.


Shares of Macy's jumped more than 5 percent after Smith disclosed for the first time Starboard's holding in the retailer, outlining the company's hidden value.
Smith said on the surface Macy's looked "fairly valued", appearing like its peers with respect to valuation, operating margins and performance.

But closer scrutiny reveals the company has a sizable real estate portfolio that currently makes up more than 70 percent of its $29 billion enterprise value.

Macy's flagship Herald Square store in New York alone was worth $4 billion, by Starboard’s estimate, while properties in San Francisco and Chicago were worth more than $1 billion. With another 400 mall locations worth about $13 billion, Macy's had a real estate value of about $21 billion, Smith said.

"We believe there is an opportunity to create two companies - the Macy's operating business as well as the real estate company," Smith said. "We believe you can accomplish this goal while maintaining the dividend, and actually making it safer, and maintaining the credit rating."

Macy's credit card earnings was another huge positive for the company, bringing in earnings of $8.5 billion, Smith said.

"We think Macy's should be worth more than $125 a share, and buying it is a cheap proposition," Smith added.

By early afternoon, Macy's stock traded at $72.14, up 5.4 percent.
Asked if he would take an activist role in pushing for change at Macy's to boost shareholder value, Smith said his first choice was to work with the retailer's management.

"We are willing to do whatever is necessary to increase value for shareholders. Of course, it's a lot easier to work with the management, especially if you start seeing them make changes in the right direction."

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