Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

How serious is Macy's about selling off its real estate? 

I've written a lot about how slow Macy's has been trying to wring cash out of the hundreds of properties it owns. It's gotten to the point where the brick-and-mortar buildings housing Macy's stores are worth more than the company's entire retailing business. And while the beleaguered department store chain has talked and talked about it -- herehere and here -- all that chatter hasn't amounted to much action. 

Falling Behind
Macy's shares have underperformed the broader market
Source: Bloomberg

Now, the Securities and Exchange Commission is getting involved.

In correspondence between the SEC and Macy's released late Friday, the agency asked why the company keeps talking about the importance of monetizing real estate but doesn't think any such gains are big enough to sufficiently detail real-estate sales in its financial filings. The SEC noted that, instead of counting property sales as real-estate gains in a separate line item on its income statement, Macy's has been accounting for such sales by cutting its selling, general and administrative expenses. That could give investors the impression Macy's is reducing its overhead, when it's really just selling off real estate.

Macy's response: The company will "consider" breaking out gains on real estate transactions "to the extent material or appropriate." In other words, the real-estate gains aren't all that big yet, and when we have something to say, we'll let you know. Hmm. 

The SEC tussle is the latest sign Macy's is dragging its feet on promises to meaningfully make money from its real estate.

Activist investor Starboard Value has argued Macy's brick-and-mortar buildings are worth at least $21 billion -- or a few billion more than Macy's $18 billion in enterprise value. Starboard reckons Macy's can take half its 870 stores and form a separate joint venture with a mall operator like General Growth Properties, keeping majority ownership of the real-estate entity and using cash from property sales to buy back stock, pay down debt, or reinvest in its business. Sears and Hudson's Bay have recently made similar moves. 

Building Blocks
Starboard estimates Macy's real estate is worth $21 billion
Source: Starboard Value

Macy's has hired real-estate experts to explore options, but hasn't pulled the trigger on anything yet. It's been more than a year since Starboard first suggested the JV. Since then, Macy's stock has fallen by 44 percent. Starboard has shaved its own stake by nearly 40 percent. There's a new CEO at Macy's, and investors are growing impatient.

Down for the Count
Macy's recently said it would close about 14 percent of its stores -- and more closures could be coming
Source: Bloomberg

Macy's did get a bit of a reprieve earlier this month, when it pleasantly surprised investors with plans to close 14 percent of its store fleet, or 100 stores. That's more than the total amount of locations Macy's has shuttered over the past six years combined. It's likely Macy's will wrest cash out of some of those locations. But the moves, while necessary, just scrape the surface of what the department-store chain can get for its buildings. The clock is ticking.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net