Dillard’s Targeted by Snow Park to Unlock Property Value

Activist investor Snow Park Capital Partners has built a position in department-store chain Dillard’s Inc. and is planning to push for changes at the company, including unlocking the value of its real estate portfolio.

“Dillard’s is essentially an underleveraged real estate company that is masquerading as a low productivity retailer,” Snow Park Managing Partner Jeffrey Pierce said in an email.  

A quarter of Dillard’s real estate is located in top-tier malls, which typically fetch about $650 per square foot in sales, according to Pierce.

Shares in the Little Rock, Arkansas-based company rose as much 5.8 percent in New York trading to $83.44 apiece, before falling to trade at $75.28 at 10:56 a.m., giving Dillard’s a market value of about $2.2 billion.

“We believe the value of Dillard’s vast real estate holdings is well north of $200 per share. With an average sales per square foot of approximately $125, 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 said. “In fact, our estimated rental value to more productive retail tenants exceeds the company’s entire current income as a retailer.”

Store Closures

Snow Park currently holds about 2 percent of Dillard’s outstanding Class A stock, according to a person familiar with the matter, who asked not to be identified discussing private information.

A representative for Dillard’s didn’t immediately return a call and email seeking comment.

Dillard’s operates 268 Dillard’s locations and 25 clearance centers spanning 29 states, according to its website. The company owns about 90 percent of its store square footage. Dillard’s has strategically closed about 50 stores since 2008, according to its 2016 annual report. Snow Park wants it to accelerate those closures or to repurpose its locations so that they maximize returns.

Brick-and-mortar retailers have become a popular target for activists as they come under intense pressure from online competition like Amazon.com Inc. 

Stock Buybacks

Hudson’s Bay Co., the owner of Saks Fifth Avenue, has been targeted by activist Land & Buildings Investment Management, which is pushing for the retailer to explore ways to unlock its real estate portfolio. Sandell Asset Management Corp. said last week it had taken a position in bookseller Barnes & Noble Inc. and is agitating for the company to explore a sale.

This isn’t the first time Dillard’s real estate portfolio has been targeted by an activist. 

In 2014, Marcato Capital Management, the activist fund run by Mick McGuire, took a position Dillard’s and urged the company to spin off its property assets into a real estate investment trust. David Einhorn’s Greenlight Capital disclosed in June that it held almost 10 percent of Dillard’s Class A shares.

Dillard’s has been buying back company shares under a $500 million repurchase plan that was authorized by the board in February 2016. The buyback has created a scarcity of available shares, with short positions accounting for about 64.6 percent of the free float of Dillard’s outstanding common shares as of July 28, according to Markit data.

The Dillard family maintains control of the company through a separate set of Class B shares that entitle it to elect two-thirds of the board.

Snow Park has run activist campaigns at Monogram Residential Trust Inc. and FelCor Lodging Trust Inc., both of which were subsequently sold. Pierce started the New York-based firm after working on real estate investments at Luxor Capital and Farallon Capital Management.