Macy’s Inc. said it has wrapped up its real estate deal with Tishman Speyer, which enables “the re-creation of its Brooklyn store on Fulton Street.”
But the financials of the deal are forcing the retailer to lower its earnings guidance.
Macy’s receives $270 million in the deal from Tishman Speyer. Of that, $100 million is earmarked for renovating the site. Macy’s said as a result of the transaction, it is expected to post a gain of $250 million. “Approximately $86 million of the gain will be recognized in the fourth quarter of 2015 and the remaining $164 million expected to be booked in fiscal 2016 and fiscal 2017 with specific amounts dependent on the construction schedule,” the retailer said, adding that it received $68 million in cash during the fourth quarter of 2015. The remaining $202 million in cash is expected to be realized in fiscal 2016 and 2017.
As a result, Macy’s revised its earnings guidance for the fourth quarter as well as the full-year 2015, “which previously has assumed the entire gain would be booked in the fourth quarter of 2015.” Subsequently, the retailer lowered its earnings-per-share guidance for the full-year period to between $3.54 and $3.59, which excludes expenses “related to cost efficiencies announced earlier in January and asset impairment charges associated primarily with spring 2016 store closings.” The downward revision compares to a prior range of $3.85 to $3.90 a share.
For the fourth quarter, earnings per share are now expected to range between $1.85 and $1.90, which compares to a prior estimate of $2.18 to $2.23. Shares of Macy’s Inc. on Friday closed at $40.41.
As previously reported, Macy’s will continue to own and run the first four floors as well as the lower level of its existing nine-story Fulton Street retail store, “which will be reconfigured and remodeled in a $100 million project that is beginning this spring and will continue over the next three years,” the retailer said this morning.
Tishman Speyer said that, following the closing of the deal, the rest of the building will now “redevelop into approximately 10 floors of distinct, first-class office space.” The real estate firm also bought Macy’s Hoyt Street parking facility, which the company said will be reconfigured for a “future mixed-use development.”
Terry J. Lundgren, chairman and chief executive officer of Macy’s, said the “collaboration with Tishman Speyer is a great example of how our company can create significant additional value by strategically exploring the potential of our real estate assets while maintaining a robust store presence that is being upgraded to drive future growth.”
Fourth-quarter results are due to be released on Feb. 23.