Macy’s Billion-Dollar Question: What’s More Valuable, Real Estate or the Business?

livemint.com:

A potential buyout of Macy’s by an investor group revives an old theory: that much of the value in retail lies in real estate. Macy’s shares surged Monday after a Wall Street Journal report that Arkhouse Management and Brigade Capital Management submitted a buyout proposal Dec. 1 valued at $5.8 billion.

The investors proposed to acquire Macy’s stock they didn’t already own for $21 a share, a roughly 32% premium to where shares closed the day before. The retailer’s stock closed at $20.77, gaining more than $926 million in market value in a single day. Arkhouse typically focuses on real-estate investments, having bid in the past for office-space developer Columbia Property Trust and Preferred Apartment Communities, which manages multifamily housing.

Brigade Capital Management is more retail-focused, with investments that have included J.C. Penney, Sears and Neiman Marcus. The bidders are almost certainly interested in Macy’s for its real estate, although they haven’t publicly spelled out their intentions.

Macy’s declined to comment. As of January, Macy’s owned more than 300 of its roughly 783 stores, which include Bloomingdale’s and the Bluemercury beauty chain. It owned an additional 102 locations, but leases the land the stores sit on.

Four more locations are partly owned and partly leased, according to securities filings. Neil Saunders, a managing director with research firm GlobalData, estimates that the real estate that Macy’s owns is worth about $6 billion, more than its market capitalization as of Friday of about $4.8 billion. “When you look at the value of Macy’s, the real estate is the jewel," he said.