Author Topic: M - Macy's  (Read 37258 times)

Spekulatius

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Re: M - Macy's
« Reply #10 on: November 15, 2015, 09:47:22 AM »
Any examples of a quick realization of real estate assets in retail. I recall efforts in JCP, TGT and Sears. TGT and JCP did not happen at all, Sears took a long time and in a way did not separate at all yet.
Life is too short for cheap beer and wine.


BG2008

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Re: M - Macy's
« Reply #11 on: November 15, 2015, 11:11:56 AM »
Macy's more than JCP, has more exposure to the recent years of tourist spending.  I was in there 34th st Herald square location a couple of weeks ago.  The place is gigantic and certainly worth a ton of money.  Obviously, the most important is the first floor.  Macy's in the last few years has turn the first floor into a bit of a flashy luxury boutique, i.e. Louis Vuitton, Burberry, etc.  It's a bit of a weird experience shopping for luxury in that building.  It was kind of built for the newly rich of China.  The shopping experience isn't pleasurable in the same way as 5th Ave or a Nordstrom.  There is also a suffocating musk of perfumes and cologne on the first floor that makes me want to vomit.

What does all of this mean?  Well, there's $4 billion that is tied to the 34th St real estate and in recent years they have set up this type of luxury, but in some ways tacky, shopping experience that may or may not work with luxury fading a bit.  Just thinking out loud. 

BG2008

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Re: M - Macy's
« Reply #12 on: November 15, 2015, 11:18:25 AM »
Any examples of a quick realization of real estate assets in retail. I recall efforts in JCP, TGT and Sears. TGT and JCP did not happen at all, Sears took a long time and in a way did not separate at all yet.

Look at what Hudson Bay has been doing.  They bought Saks and then took out a mortgage on SAKs Fifth Ave location at 35% LTV.  Saks paid $2.9 billion for the entire Saks enterprise and the appraisal of the building was for $3.7 billion.  They took out a $1.25 billion mortgage at 4% interest rate.   

http://dealbook.nytimes.com/2014/11/24/a-deal-mortgaging-the-store-values-saks-at-3-7-billion/?_r=0

Big picture, very hard to extract real estate value when the operation is struggling, Sears, JCP, Ruby Tuesday etc.  Easier when the operations is steady and cashflowing. 

JayGatsby

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Re: M - Macy's
« Reply #13 on: November 15, 2015, 12:06:27 PM »
Some details of Starboard's thesis (which sees value north of $100/sh) is here: http://video.cnbc.com/gallery/?video=3000401003
The way Starboard valued the real estate seemed suspect to me. They said they valued most of it based on the rent stream Macy's could support and attached a ~6% cap rate to that. Based on that method aren't you basically just manufacturing a number? I'd want to know what the real estate could fetch in an open market transaction. If I own a house, my house is worth what the next guy will pay for it, not the annual mortgage I can pay / .06.

ccplz

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Re: M - Macy's
« Reply #14 on: November 17, 2015, 01:31:03 PM »
There's been a lot of focus on the value of the real estate, but I think the market is overlooking the quality of the underlying business.  They are the only main player in the mid-market segment (Kohls, JCP, Sears etc competing for the lower end, Saks, Nordstrom etc competing for the high end), and they are the also largest department store out there, which gives them a lot of purchasing power over vendors as well as access to the top brands. This results in consistently higher gross margins compared with competitors. They also have one of the most far sighted management teams out of all the old-school retailers, and I think they've invested something like 3 bn into their online business over the last few years. Currently 15% of their sales comes from online sales (estimate; they don't break out online sales any more because of what I think is a pretty bad reason), and this should be growing every year. So I don't think this is a business that is going extinct by any means. 9x I think is a very good price for this caliber of business.

The real estate is just the icing on the cake.

Mephistopheles

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Re: M - Macy's
« Reply #15 on: November 17, 2015, 02:11:18 PM »
There's been a lot of focus on the value of the real estate, but I think the market is overlooking the quality of the underlying business.  They are the only main player in the mid-market segment (Kohls, JCP, Sears etc competing for the lower end, Saks, Nordstrom etc competing for the high end), and they are the also largest department store out there, which gives them a lot of purchasing power over vendors as well as access to the top brands. This results in consistently higher gross margins compared with competitors. They also have one of the most far sighted management teams out of all the old-school retailers, and I think they've invested something like 3 bn into their online business over the last few years. Currently 15% of their sales comes from online sales (estimate; they don't break out online sales any more because of what I think is a pretty bad reason), and this should be growing every year. So I don't think this is a business that is going extinct by any means. 9x I think is a very good price for this caliber of business.

The real estate is just the icing on the cake.

+1

On the topic of real estate, what is the best way to search for and research individual properties? I know people do it with tax assessment, is that the correct way? I just want to get a feel for all the trophy Macy's properties starting with Herald Square. Thanks


rkbabang

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Re: M - Macy's
« Reply #16 on: November 17, 2015, 03:35:57 PM »
There's been a lot of focus on the value of the real estate, but I think the market is overlooking the quality of the underlying business.  They are the only main player in the mid-market segment (Kohls, JCP, Sears etc competing for the lower end, Saks, Nordstrom etc competing for the high end), and they are the also largest department store out there, which gives them a lot of purchasing power over vendors as well as access to the top brands. This results in consistently higher gross margins compared with competitors. They also have one of the most far sighted management teams out of all the old-school retailers, and I think they've invested something like 3 bn into their online business over the last few years. Currently 15% of their sales comes from online sales (estimate; they don't break out online sales any more because of what I think is a pretty bad reason), and this should be growing every year. So I don't think this is a business that is going extinct by any means. 9x I think is a very good price for this caliber of business.

The real estate is just the icing on the cake.

I agree.  Given that there isn't a lot a big department store expansion going on, and Macy's is pretty much the cream of the crop when it comes to department stores at this time, most of the real estate that Macy's owns is far more valuable with Macy's occupying it than otherwise.  There are always exceptions however.  The Macy's in my town just closed because it was a stand alone store located literally 3 miles from a mall location with a larger footprint.  Also a developer gave Macy's $12M for the property, not to put another big department store, but to build a mixed-use center with offices, retail, cinema, hotel, parking garages, & restaurants.  I think these types of locations have more value than mall/stripmall type real estate.

Bedford Macy's to close its doors
« Last Edit: November 18, 2015, 05:55:04 AM by rkbabang »

ccplz

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Re: M - Macy's
« Reply #17 on: November 17, 2015, 08:38:44 PM »
What is the bear case? E-commerce?

krazeenyc

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Re: M - Macy's
« Reply #18 on: November 18, 2015, 06:48:23 AM »
I'm on the fence with Macys. I definitely see value. I would think the bear case in the short and long term are as follows:

Short Term:
Macys has outsized exposure relative to other retailers to tourists and the strong dollar and the weakening global economy hurts Macys more than other domestic retailers. 
A lot of these semi luxury names -- handbags and other fashion names have been struggling mightily recently and Macys is exposed to this market in a big way.
(Very short term) The mild winter in the NE will definitely hammer the quarterly profits as they will have a hard time selling coats.

Long Term:
Death of the Mall
Death of the Department Store Model

While Macys may not be killed off in these scenarios the economics are going to be uncertain.


ccplz

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Re: M - Macy's
« Reply #19 on: November 18, 2015, 02:26:58 PM »

Long Term:
Death of the Mall
Death of the Department Store Model


Where are people going to shop if this actually happens?

Or is the thesis that people just aren't going to shop any more?
« Last Edit: November 18, 2015, 03:43:59 PM by ccplz »