Dillard’s Faces Pressure to Monetize its Real Estate

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Big department store chains have been insistent recently that their physical stores are their biggest assets. And their investors agree.

Unfortunately, the investors are sometimes looking to monetize these brick-and-mortar locations differently than the retailers.

Rather than using them as showrooms or destinations where consumers can pick up their online purchases (plus a few extras, ideally), investors are becoming quite vocal with their opinions that these chains should sell or lease the space to generate cash flow.

Such is the case for Dillard’s.

CNBC reports Snow Park Capital Partners, which holds 2 percent of Dillard’s stock, has issued a statement calling for the retailer to lease out its 48 million square feet of real estate.

“Dillard’s is essentially an unleveraged real estate company that is masquerading as a low productivity retailer,” Jeff Pierce, Snow Park’s managing director, told CNBC.

The investor said the retailer’s property is valued at about $200 per share, compared to the $76 share price of the company’s stock.

The statement calculated the value of Dillard’s locations in A malls, which comprise about a quarter of its fleet, at $650 per square foot in sales, while Dillard’s stores bring in about $125 in average sales per square foot.

“It’s fair to say that Dillard’s may not be getting the highest and best use for some or all of their owned space,” Pierce told the publication. “In fact, our estimated rental value to more productive retail tenants exceeds the company’s entire current income as a retailer.”

[Read about the future of stores: Report: Most Retailers Think Their Physical Stores Will be Gone in the Next 10 Years]

Dillard’s is just the latest retailer to face pressure along these lines.

In June, Land & Buildings Investment Management published a public letter to Hudson’s Bay, which operates its namesake stores plus Saks Fifth Avenue and Lord & Taylor, saying essentially, enough with retail, focus on real estate. The investor, which owns about 4.3% of the company’s stock, expressed displeasure at the company’s efforts to go deeper into retail with potential deals for Macy’s and Neiman Marcus when it’s sitting on property it estimates to be worth four times HBC’s share price.

Macy’s resistance to pressure from Starboard Value, which held 1 percent of the company’s stock, culminated in Starboard selling its shares. The investor was insistent that Macy’s should sell more of its real estate and lease it back. The retailer held firm to its belief that to do so would add debt.


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