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Macy’s Closes Brooklyn Real Estate Transaction

Sharon Bailey

Macy’s Completes Brooklyn Store Deal, Trims Outlook Again

Brooklyn store redevelopment

On January 29, 2016, Macy’s (M) announced the completion of its transaction with Tishman Speyer for the redevelopment of its Brooklyn, New York, store on Fulton Street. Macy’s initially announced this transaction in August 2015.

Macy’s has been under pressure from activist investors to monetize its real estate. In its 3Q15 conference call, the company ruled out the possibility of forming an REIT, as it would not result in enough value creation. But the company is exploring several other alternatives to enhance the value of its real estate, including the redevelopment of certain properties and selected real estate dispositions.

Terms of the transaction

According to the transaction, Macy’s will continue to own and operate the first four floors and lower level of its existing Fulton Street retail store in Brooklyn. Macy’s portion of the building will be remodeled in a $100 million project scheduled to begin in the spring of 2016. The project will continue over the next three years.

Tishman Speyer now owns the remaining portion of the store site, which it will redevelop into office space. Tishman Speyer has also purchased Macy’s Hoyt Street parking facility, which could be used for a future mixed-use development.

Under the transaction, Macy’s will receive $270 million from Tishman Speyer, of which $100 million will be used to renovate the Brooklyn store. Macy’s lowered its 4Q15 and fiscal 2015 guidance due to a change in the timing of the accounting for the $250 million gain from the transaction. We’ll discuss this in the next part of the series.

Stock price movement

On January 29, 2016, Macy’s stock price rose 2.1% to $40.41. Overall, Macy’s stock rose 12.9% in January 2016. In contrast, the Consumer Discretionary Select Sector SPDR ETF (XLY) and the S&P 500 Index fell 3.5% and 3.6%, respectively, on a year-to-date basis. Macy’s makes up 0.6% of the holdings of XLY. Kohl’s (KSS), Dillard’s (DDS), and JCPenney (JCP) have risen 0.4%, 6.8%, and 4.2%, respectively, since the start of 2016.

Macy’s stock rose in January following the announcement of its planned restructuring and the news of the purchase of a stake in the company by David Einhorn’s Greenlight Capital. Macy’s constitutes 0.2% of the iShares Russell Mid-Cap ETF (IWR). The company’s stock price fell 46.7% in 2015, primarily due to its dismal performance in the first three quarters of fiscal 2015.

As of January 29, the 12-month price target for Macy’s stock price was $43.20. That reflects a return potential of 6.9% from the current stock price of $40.41.

Continue to Next Part

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