fareastwarriors Posted January 12, 2016 Share Posted January 12, 2016 Is Your Macy’s Closing? Macy’s has released the list of stores that will be closed http://www.wsj.com/articles/is-your-macys-closing-1452116178 Link to comment Share on other sites More sharing options...
Mungerish Posted January 12, 2016 Share Posted January 12, 2016 I have looked at this closely for a few months now. Although I generally admire much of what Starboard has done and Jeff Smith in a general way..... There is definitely a sense of financial engineering going on when you consider that the original proposal was to spin out the real estate into a REIT structure. In that case shareholders would've been getting current income taxed in a preferential way from the distributions, direct ownership of the real estate and future appreciation thereof. A JV structure does not seem to afford those same benefits of ownership. StarBoard's latest proposal says that Macy's can still control the property, can still keep all their cash flow and the only real difference is that your swapping out debt at the operating company level for debt at the real estate JV level. Hudson Bay Company is basically the model for this transaction based on what they did with Saks Fifth Avenue properties and some other real estate in Canada. They then did a follow-on transaction and sold a portion of their interest in the JV to outside institutional investors in June of this year. While they got a nice pop out of both of those announcements and transactions, the stock is basically right back down to where it was prior to the first transaction. This may be due to other acquisitions they're making and so forth….. But the reality is that it was more of a trade and investment. Retail has been under attack for some time and the enemy is gaining ground. Since I don't have any long term faith in the department store model as being a good business with any kind of competitive advantage…. I think I'm going to pass. Macy's may be around for a long time and I think many women would miss it if it closed tomorrow. That being said, I don't feel like owning something that is in decline and will require constant vigilance to see if the inevitable train is now coming through the other end of the tunnel so I can get out of the way in time. The idea of monetizing the credit card operation and separating out the real estate from the retail business was very intriguing and a good one I believe. However, the most current proposal seems a bit weak based on the way they talk about executing the plan, and I'm sure that has to do with management not wanting to go along with the REIT before the window closed by the IRS for single-purpose transactions like this. It's hard to pass because it looks like money lying in the street….. But much of the real estate is in malls and we have me way more malls we need. Once you monetize a few of the top floors of the iconic locations I don't see how any value is created by doing JVs…. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted January 12, 2016 Share Posted January 12, 2016 I have looked at this closely for a few months now. Although I generally admire much of what Starboard has done and Jeff Smith in a general way..... There is definitely a sense of financial engineering going on when you consider that the original proposal was to spin out the real estate into a REIT structure. In that case shareholders would've been getting current income taxed in a preferential way from the distributions, direct ownership of the real estate and future appreciation thereof. A JV structure does not seem to afford those same benefits of ownership. StarBoard's latest proposal says that Macy's can still control the property, can still keep all their cash flow and the only real difference is that your swapping out debt at the operating company level for debt at the real estate JV level. Hudson Bay Company is basically the model for this transaction based on what they did with Saks Fifth Avenue properties and some other real estate in Canada. They then did a follow-on transaction and sold a portion of their interest in the JV to outside institutional investors in June of this year. While they got a nice pop out of both of those announcements and transactions, the stock is basically right back down to where it was prior to the first transaction. This may be due to other acquisitions they're making and so forth….. But the reality is that it was more of a trade and investment. Retail has been under attack for some time and the enemy is gaining ground. Since I don't have any long term faith in the department store model as being a good business with any kind of competitive advantage…. I think I'm going to pass. Macy's may be around for a long time and I think many women would miss it if it closed tomorrow. That being said, I don't feel like owning something that is in decline and will require constant vigilance to see if the inevitable train is now coming through the other end of the tunnel so I can get out of the way in time. The idea of monetizing the credit card operation and separating out the real estate from the retail business was very intriguing and a good one I believe. However, the most current proposal seems a bit weak based on the way they talk about executing the plan, and I'm sure that has to do with management not wanting to go along with the REIT before the window closed by the IRS for single-purpose transactions like this. It's hard to pass because it looks like money lying in the street….. But much of the real estate is in malls and we have me way more malls we need. Once you monetize a few of the top floors of the iconic locations I don't see how any value is created by doing JVs…. Thanks. I think this is a very balanced and lucid view. Link to comment Share on other sites More sharing options...
ccplz Posted January 13, 2016 Share Posted January 13, 2016 Did anyone take a look at the Starboard presentation? http://www.starboardvalue.com/publications/Starboard_Value_LP_Presentation_M_01.11.16.pdf Where did they get their number for M's credit card earnings from? (Slide 6, $776) Link to comment Share on other sites More sharing options...
BG2008 Posted January 13, 2016 Share Posted January 13, 2016 Did anyone take a look at the Starboard presentation? http://www.starboardvalue.com/publications/Starboard_Value_LP_Presentation_M_01.11.16.pdf Where did they get their number for M's credit card earnings from? (Slide 6, $776) In the 10-K, it's is presented as a reduction of G&A expenses if I recall correctly. This is actually a topic that I'm trying to dig into a bit deeper. Link to comment Share on other sites More sharing options...
BG2008 Posted January 13, 2016 Share Posted January 13, 2016 http://www.wsj.com/articles/big-lease-play-in-flushing-1452478260 Crown Acquisition bought the ground lease of Macy's in Flushing. This is one of those prized assets. The location is right outside of the subway station at the end of the 7 train. Demographic trends is phenomenal as Flushing is a Mecca for young and older Chinese in the Tri-State area. Macy's leases this space. However, this maybe one of these long duration leases which in essence makes it "ownership like" If anyone else has detail, please do share. Link to comment Share on other sites More sharing options...
Phaceliacapital Posted January 19, 2016 Share Posted January 19, 2016 Let the games begin: Macy’s Could Be Bought by PE Firm and REIT: Greenlight 2016-01-19 15:44:56.320 GMT By Janet Freund (Bloomberg) -- In 4Q letter, Greenlight reports new position in Macy’s, at avg price of $45.69/shr. * "Wouldn’t surprise us if a private equity firm teamed up with a REIT to buy the company and unlock the value privately’’ * Even still, shrs are cheap at 5x Ebitda, 7x equity FCF * M up as much as 5.6% to highest intraday since Nov. 30 * NOTE: Jan. 11, Macy’s Worth $70/Shr in JV Transaction Plan, Starboard Says Link Link to comment Share on other sites More sharing options...
ccplz Posted March 20, 2016 Share Posted March 20, 2016 This worked out poorly Stock price is down. Starboard made little/no progress. I sat on a decent paper loss and now sold to deploy capital elsewhere. This was not a massively expensive mistake, but it was a mistake, still. So let's deconstruct. Lessons learned: 1. 'Financial engineering'-led activist theses are faulty. There's only so much value that can be created through conversions to REITs, etc etc. When activists come and say that you have to move some assets around, change the signposts on some things and - voila - the stock price will double, then beware. 2. 10x earnings is not enough for a secularly challenged business, all else equal. Maybe it's the environment, maybe' its me being hasty, maybe it's the Jeff Smith magic, but I ended up lowering my standards and buying this anyway at 10x earnings. I probably subconsciously knew that 10x P/E is not cheap enough here but I ignored that. 3. The drop from $50 to $40 made me think 'there could be a bargain here'; it's a case of the 'reversion-to-the-mean fallacy'. Overall - I get the feeling that activism in general is about to hit a significant speed-bump. 2010-2014 was probably a bubble for activism. Looking back, I wonder if the mistake you made was in buying the stock or selling it at that time. Maybe you should do your own homework next time so you would have the conviction to hold (or buy more) if the stock does go down, rather than just blindly follow others into a trade. Link to comment Share on other sites More sharing options...
BG2008 Posted July 19, 2016 Share Posted July 19, 2016 Stock massively down today, and I started nibbling. I originally got interested in M after Starboard Value engaged with the company during the summer. Some details of Starboard's thesis (which sees value north of $100/sh) is here: http://video.cnbc.com/gallery/?video=3000401003 Current price is around 10x earnings; the multiple is more modest depending on your outlook for 2016. Reasonably shareholder-friendly management, with significant buy-backs and a shrinking share count. Does anyone have a copy of the original presentation that Starboard used during this presentation? Does anyone have more information on Macy's credit card processing? Link to comment Share on other sites More sharing options...
xtreeq Posted July 20, 2016 Share Posted July 20, 2016 Does anyone have a copy of the original presentation that Starboard used during this presentation? Does anyone have more information on Macy's credit card processing? Did you mean this one? http://www.starboardvalue.com/publications/Starboard_Value_LP_Presentation_M_01.11.16.pdf http://www.starboardvalue.com/publications/Starboard_Value_LP_Letter_to_M_01.11.16.pdf Link to comment Share on other sites More sharing options...
BG2008 Posted July 20, 2016 Share Posted July 20, 2016 Not these. When Starboard presented at the delivering Alpha event, they used a presentation in the video. Link to comment Share on other sites More sharing options...
BG2008 Posted November 14, 2016 Share Posted November 14, 2016 Details on expected use for Macy's Men's store in Union Square in SF http://www.sfchronicle.com/bayarea/article/Former-Macy-s-Men-s-Store-likely-to-host-mix-10609750.php#photo-11795071 Link to comment Share on other sites More sharing options...
DTEJD1997 Posted February 3, 2017 Share Posted February 3, 2017 Hey all: Macy's has spiked up today on rumors of a takeover by Hudson's Bay of Canada. Seems kind of unusual in that M has 5X the market value of Hudson's Bay? Hudson's Bay would also have line up a ton of debt...and probably liquidate a bunch of the real estate. Of course, Hudson's Bay is pretty good at this type of move... Anybody have any thoughts? Link to comment Share on other sites More sharing options...
Gregmal Posted February 3, 2017 Share Posted February 3, 2017 IMO and mine only this is the new SHLD and a great trading vehicle to keep an eye on for the next few years. The company clearly has some immensely valuable assets. Personally I don't see how a larger PE shop doesnt swallow this if it is truly up for grabs, but nonetheless like SHLD was for many years, this will likely provide the keen observer many opportunities to swing rather out-sized trades in short periods of time. Link to comment Share on other sites More sharing options...
Guest cherzeca Posted February 4, 2017 Share Posted February 4, 2017 IMO and mine only this is the new SHLD and a great trading vehicle to keep an eye on for the next few years. The company clearly has some immensely valuable assets. Personally I don't see how a larger PE shop doesnt swallow this if it is truly up for grabs, but nonetheless like SHLD was for many years, this will likely provide the keen observer many opportunities to swing rather out-sized trades in short periods of time. this is a RE play for RE investors and a turnaround play for retail investors. if a consortium of RE/retail can get involved, this could be interesting...or another toys r us Link to comment Share on other sites More sharing options...
lemsinge Posted March 29, 2017 Share Posted March 29, 2017 Thinking it's pretty oversold at this point (most of the retail market is). Yield over 5%, strong ratios. I also find it interesting that two new board members (last two years) are specifically real estate experts. However, might be a more short term play for me. Anyone else have an opinion on its current price? Link to comment Share on other sites More sharing options...
DTEJD1997 Posted March 30, 2017 Share Posted March 30, 2017 Hey all: I've been doing a little thinking about Macy's.... A). If you are buying as a real estate play, I would temper my expectations about that just a bit...In my area of the country, several Macy's have shut down. The stores that closed have been around for a long, long time. I think the one near me had president Kennedy attend it's opening in the early 60's. It is a very dated building. It kind of looks like it was from the "Fuhrer Bunker school of architecture". The building is 4 stories high...It is a solid concrete box. There is not a single window in it...Obviously the doors are made mainly of glass and you can see through those, and the area immediately around the entrance, but other than it, it literally a concrete box. Looks like it is designed for an impending atomic attack. Who would want to buy it? How would it be re-purposed? The land it sits on is not at all valuable. The cost to tear it down would probably be greater than the value of the land. B). Macy's is a pretty decent retailer I think. If they can't make a go of these locations, who can? The interwebs are making a lot of retail spaces obsolete. Macy's is not the only retailer shutting stores and putting real estate up for sale. A couple of other retailers are doing this. That is going to put further pressure on the market. C). Here in the Detroit area, houses are selling, and some people have money burning a hole in their pockets. If Detroiters have money, the end is nigh, and the end of the cycle is approaching... Of course, Detroit is a weird spot, and I'm sure they have valuable properties in other spots of the country...but don't expect their whole portfolio to work out. Link to comment Share on other sites More sharing options...
negative alpha Posted March 30, 2017 Share Posted March 30, 2017 I think it's a distraction to think about Macy's as a real estate play, because it shifts the focus away from the operating business. Even if the real estate is successfully monetized, the resulting cash has to be invested back into the retail business where customers are showing a strong preference for the cheap and/or convenient. If mall real estate is your thing, why not just invest in a Seritage or CBL and forget about trying to make a department store work? Link to comment Share on other sites More sharing options...
DTEJD1997 Posted July 29, 2017 Share Posted July 29, 2017 Hey all: Anybody have any interest in Macy's? I've been doing a little poking around....There was a writeup on VIC recently, showing some interesting possibilities: A). Certainly a lot of M's property is worthless, or just one step away. THIS IS A CERTAINTY. In my area, "Eastland" and "Northland" had Macy's that shutdown. There is a distinct possibility that the real estate on these locations is worthless, OR just one step away from it. Harris Kupperman of "Adventures in Capitalism" has an interesting blog posting about this very thing. There is a Macy's listed for sale outside of Cleveland at a FUNCTIONAL mall (probably "C" class?) at under $10/sq. ft. to PURCHASE IT! It is attached to a mall that is still open. You also get some amount of acreage that mainly consists of parking spaces. If somebody had an idea & the capital, they could probably make a lot of money! There is NO WAY that you could come any where close to building this property for what it is listed at. I would strongly suspect that the empty locations in Michigan are similarly priced. SO A GOOD AMOUNT OF THEIR PROPERTIES ARE WORTH NOTHING. B). SOME PROPERTIES ARE WORTH A LOT. The VIC article speculates that the Herald Square mall location is worth $4BB. That the Downtown Macy's is worth $3BB and the remainder of their CLASS A malls ware worth $6.2BB. If Herald Square and Downtown are truly worth $7BB, they could come close to paying off all their debt...OR it is close to the market cap of the company. If that is true, OR being close to true, I would posit that it is IMPERATIVE that M sell those properties...Maybe get a provision that they can conduct retail operation through the Christmas selling season. Then, over the upcoming year, just get rid of the closed locations. They could pay off their debt, pay a huge dividend, or some combination. If these values are correct, and I were a "activist" investor, I would tell management that their job is to sell those two properties, pay down debt, pay a "special" dividend, and retrench the business. If they can't/won't do this...they can hit the road and find employment elsewhere.... Any thoughts? Link to comment Share on other sites More sharing options...
atbed Posted July 29, 2017 Share Posted July 29, 2017 Hey all: Anybody have any interest in Macy's? I've been doing a little poking around....There was a writeup on VIC recently, showing some interesting possibilities: A). Certainly a lot of M's property is worthless, or just one step away. THIS IS A CERTAINTY. In my area, "Eastland" and "Northland" had Macy's that shutdown. There is a distinct possibility that the real estate on these locations is worthless, OR just one step away from it. Harris Kupperman of "Adventures in Capitalism" has an interesting blog posting about this very thing. There is a Macy's listed for sale outside of Cleveland at a FUNCTIONAL mall (probably "C" class?) at under $10/sq. ft. to PURCHASE IT! It is attached to a mall that is still open. You also get some amount of acreage that mainly consists of parking spaces. If somebody had an idea & the capital, they could probably make a lot of money! There is NO WAY that you could come any where close to building this property for what it is listed at. I would strongly suspect that the empty locations in Michigan are similarly priced. SO A GOOD AMOUNT OF THEIR PROPERTIES ARE WORTH NOTHING. B). SOME PROPERTIES ARE WORTH A LOT. The VIC article speculates that the Herald Square mall location is worth $4BB. That the Downtown Macy's is worth $3BB and the remainder of their CLASS A malls ware worth $6.2BB. If Herald Square and Downtown are truly worth $7BB, they could come close to paying off all their debt...OR it is close to the market cap of the company. If that is true, OR being close to true, I would posit that it is IMPERATIVE that M sell those properties...Maybe get a provision that they can conduct retail operation through the Christmas selling season. Then, over the upcoming year, just get rid of the closed locations. They could pay off their debt, pay a huge dividend, or some combination. If these values are correct, and I were a "activist" investor, I would tell management that their job is to sell those two properties, pay down debt, pay a "special" dividend, and retrench the business. If they can't/won't do this...they can hit the road and find employment elsewhere.... Any thoughts? I just worry that this is a value trap. There is a flood of space coming and it has been accelerating. Valuations are weakening. Sellers want to package the good and the bad together, but it makes more sense for buyers to cherry pick the best assets with the best demographics and competitive market dynamics. You've pointed out a few examples that add to my worry. If they sell as is, I fear the property is worth way less than the estimates in Starboard's estimate. Their presentation was published before retail apocalypse became a buzz word. Much has happened since. In NYC for example, I think Herald Square is worth 25% less than 4B. Cap rates are up since the presentation. There is also a significant amount of retail supply in that sub-market. In addition, the property is a landmarked property and I think that increases the difficulty to redevelop. Plus the property is overbuilt. Recent zoning changes above Herald Square also gives capital a bigger opportunity set. Anyway, I think RE is worth low-teens in an as is basis. On a SOTP basis (including OpCo), EV definitely trades at a discount. But that was the case according to Starboard's presentation two years ago. I get we want to buy a dollar for less, but where is that dollar heading at the present? (Both retail and property) Does Macy's retail have to be turned for there to be value? There could be. If Macy's OpCo can't be turned, it will push a ton of supply onto the market that needs to be developed. Are there enough top golf's, Dave and Buster's, Floor & Decors, restaurants, Trader Joe's, and Kushners (condos) to absorb the space? Link to comment Share on other sites More sharing options...
DTEJD1997 Posted July 31, 2017 Share Posted July 31, 2017 Hey all: I spent the other night staying home studying real estate & the Macy's situation. I am a LOT less enthusiastic about M than I was the other day. It turns out that Starboard value sold their position in M. I am somewhat skeptical about the value of the real estate...Maybe it is there, maybe it isn't...Another problem is that IF the value is there today, will it be there tomorrow? There is no question that retail is going to be under pressure. There also might be severe problems with their lower value locations. These locations have absolutely NO value as retail locations. I mean none at all...actually LESS than zero. The only value they could possibly have is to be re-purposed to call centers or storage, or warehouse/interweb operations. HOWEVER, a goodly number of these locations are hemmed in by agreements/deed restrictions with the mall operators. Then you've got to consider the absolute flagship locations. TONS of value there, no doubt...but these might make up goodly amount of sales. Even more importantly, there is probably a psychological attachment that management has to these locations. They will not sell these locations under any reasonable circumstance. THUS, management is there to simply run the business, not return value to shareholders or maximize capital. They are there to sell shoes, purses, clothing, and so on AND to get PAID themselves. You've got a huge agency problem here. I am going to do some more research & scuttlebutt, but I'm leaning towards this being a value trap. Value is there, but is likely going to shrink, and management is hostile towards shareholder interest. Link to comment Share on other sites More sharing options...
atbed Posted July 31, 2017 Share Posted July 31, 2017 In my opinion, Macy's had under 1B in free cash flow last year. I believe the real estate is worth ~$12B only if there is a lease attached. If OpCo had to pay fair market rents, it would soak up a substantial amount of last year's FCF. So by my calculation, there's ~400M in FCF after accounting for taxes. Since there are a lot of retailers out there trading at 10%+ FCF yields, I chose a 13% FCF yield which I think reflects Macy's relative value. Overall, that gets me a ~$15B SOTP. Obviously, there will be opportunities to develop their real estate. In addition, there is a chance they turn around retail. I just have a hard time seeing them turn things around. And if they are doing poorly when the economy is okay, I wonder how they will do when we actually get a recession. Link to comment Share on other sites More sharing options...
atbed Posted August 3, 2017 Share Posted August 3, 2017 https://www.bloomberg.com/news/articles/2017-08-03/retail-shakeout-forces-mall-owners-to-rework-development-plans Expectations are for another step-up in store closures in 2018, to ~13K. Link to comment Share on other sites More sharing options...
BG2008 Posted October 20, 2017 Share Posted October 20, 2017 Oh the Irony Amazon moves into the Macy's retail location that it sold to Starwood. So there is literally an Amazon office above the Macy's store in Downtown Seattle. Ouch Link to comment Share on other sites More sharing options...
DTEJD1997 Posted August 15, 2018 Share Posted August 15, 2018 Hey all: Macy's down 14% today on a small earnings beat? Sure, the stock has done very well lately, but this seems to be a bit of an over reaction? Earnings should be about $4/share for the year. Any thoughts? Link to comment Share on other sites More sharing options...
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