While Macy’s Inc. could pursue a real estate investment trust, doing so would curtail its financial flexibility.

That’s the word from Scott Tuhy, vice president and senior credit officer at ratings agency Moody’s Investors Service. Tuhy said Thursday that possible REIT scenarios could have the retailer maintaining its credit metrics, but it would come at the expense of its financial flexibility mostly because the move would create a “potentially long-term burden for Macy’s rental obligations.”

Tuhy noted that Macy’s is different from other retailers that have gone the REIT route: Macy’s is in a position of operational strength and has no need to raise cash.” Yet, as more retailers have pursued the REIT option, Macy’s management, which has considered the step in the past, “may find itself under pressure to look more closely” now that activist firm Starboard Value has taken an undisclosed position in the retailer’s shares, the credit analyst said.

Tuhy also considered four hypothetical scenarios regarding Macy’s sale of certain real estate assets, looking at netting possibly between $1.7 billion and $4.4 billion after debt payment on gross sales ranging between $2.5 billion and $10 billion. Specifically, he said that Macy’s could maintain its current “Baa2” senior unsecured rating, but only provided it took a meaningful portion of the cash proceeds to pay down its funded debt, referring to funds raised through the issuance of bonds.

The credit analyst said Macy’s owns 447 of its 823 department stores.

Starboard last week said it believes in the creation of two businesses, one for the real estate and the other for the operating business. Such a structure wouldn’t necessarily benefit all of Macy’s investor constituencies.

According to one hedge fund manager, who spoke generally about these financial maneuvers, “While a company’s obligation is to its equity stockholders, bondholders might not be so pleased.” He explained that monetization of the real estate can be done provided that there’s enough value in the assets left in place to protect the bondholders.

Gary Albrecht, the cochair of the real estate department at the Cole Schotz law firm, noted that the push to monetize real estate assets moves in cycles. “Real estate is a hot market, so that is the trend for now. If you go back to 2005, you’ll see there were sale and leaseback transactions, although not necessarily on this scale. During a recession, you don’t see much activity on this front.”

Which avenue to take isn’t so clear when it comes to the options a company faces. “There are potholes in the road,” Albrecht said. Moving property into a REIT means giving up control over the asset, while owning a property outright gives one the option to use it as a financing vehicle later on. And while he echoed Tuhy’s point about rental obligations for owned assets that are moved into a REIT with an eye toward a sale-leaseback structure, Albrecht also said that joint ventures aren’t without their own problems. One risk involves a dispute with the joint venture partner down the road, he said.

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