With investors speculating about the ability of Kohlberg Kravis & Roberts to acquire Macy's Inc., trading leveled off as Citigroup put the largest U.S. department store operator on its list of companies with undervalued real estate.
NEW YORK — With investors speculating about the ability of Kohlberg Kravis & Roberts to acquire Macy's Inc., trading leveled off as Citigroup put the largest U.S. department store operator on its list of companies with undervalued real estate — saying it sees a 25 percent upside to the current share price.
In a research note Thursday, Citigroup analyst Jonathan Litt valued Macy's at $25.57 billion, or $53.66 a share. The fi gure is a 26.6 percent premium over the stock's Thursday closing price of $42.40, and $1.66 more than the $52 a share, or $24 billion, which KKR is said to have offered.
WWD reported Thursday that KKR wants to close on a deal for Macy's, formerly known as Federated Department Stores Inc., but that turmoil in the debt fi nancing markets might get in the way. Neither KKR nor Macy's has commented.
In his report, Litt said that Macy's operations, independent of real estate asset sales, could be worth $20.5 billion. Asset sales might boost that fi gure to $43.75 billion. Subtracting debt and liabilities would leave the net asset value at $25.57 billion.
Litt noted that Macy's inclusion on the Citigroup list wasn't connected to recent speculation about the retailer's future.
He said Macy's could capture its real estate value three ways. First, it could execute a series of sale leasebacks, in which Macy's could sell its property and lease it back from the buyer for a fi xed amount of time. Second, it could split the company in two, with its operations and real estate as separate entities. Finally, Litt said Macy's could sell off its individual real estate assets one by one.
"We estimate there is $9.3 billion in real estate value for the owned stores and $2.6 billion in real estate value for the leased stores," Litt wrote. "There could be another $2 billion to $3 billion in value for the most valuable stores depending on their ownership or lease structures."
The analyst estimated that Macy's owns 54 percent of its stores, or 463 units; leases 32 percent, or 273 stores, and has ground leases on 14 percent, or 122 of its stores.Litt's estimates were based on assumed rent of 4.5 percent of sales, which he noted is "well below the level of in-line mall tenants of around 10 percent to 13 percent, but well above the levels department stores paid when they initially leased the space."
In another research note, Morgan Stanley analyst Michelle Clark valued Macy's owned real estate at $9.2 billion, $6.4 billion after debt, liabilities and other costs.
"If a leveraged buyout is not announced over the near-term, we see a downside risk to Macy's shares back to the $38 level — similar to previous price action following LBO speculation — as the focus shifts back to fundamentals," Clark wrote. "We continue to believe the issues at the converted May Co. locations are structural in nature and could take longer than two to three years to fix."
Breaking News: @louisvuitton's men's artistic director @mrkimjones is leaving the French fashion house after nearly 7 years. Jones joined Louis Vuitton in 2011, following a three year tenure as creative director of British luxury goods brand Alfred Dunhill. Jones is to exit Louis Vuitton after showing his fall 2018 collection for the brand in Paris on Thursday. Read the full exclusive story on WWD.com. Link in bio. #wwdnews #wwdfashion
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews