Free returns?

15 July 2015 By Richard Beales Follow @richardbeales1

Activist fund Starboard has bought into the $23 bln U.S. department store chain, earmarking the company’s property holdings as a source of value. Spinning off buildings is a hot trend, and the numbers add up for Macy’s. The long-term risks, though, shouldn’t be discounted.

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Shares of U.S. department store chain Macy’s jumped more than 8 percent by 2:20 p.m. Eastern on July 15 after Starboard Value Chief Executive Jeffrey Smith said his firm had taken a stake and might play an activist role to boost the company’s worth.

Smith said that on the surface Macy’s was “fairly valued,” appearing a lot like its peers with respect to valuation, operating margins and performance. But according to Smith, closer scrutiny reveals a sizable real estate portfolio that currently makes up more than 70 percent of its $29 billion enterprise value.

The Macy’s flagship Herald Square store in New York alone is worth $4 billion, by Starboard’s estimate, while properties in San Francisco and Chicago are worth over $1 billion. Smith said he thinks Macy’s should be worth more than $125 a share – almost double the closing price on July 14.

Smith was speaking at the CNBC Institutional Investor Delivering Alpha Conference in New York.

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