Marcato Capital Urges Dillard’s to Pursue REIT Spin Off – ValueWalk Premium

Marcato Capital Urges Dillard’s to Pursue REIT Spin Off

Marcato Capital Management, the activist hedge fund headed by Mick McGuire, urged the board and management of Dillard’s, Inc. (NYSE:DDS) to spin off its real estate assets into a real estate investment trust (REIT).

Marcato Capital Management owns 4.9% of the outstanding shares of Dillard’s, Inc. (NYSE:DDS). The activist hedge fund believed that pursuing a REIT spin off would significantly increase value for shareholders.

In a statement, McGuire praised Dillard’s, Inc. (NYSE:DDS) for effectively executing its business plan, improving its inventory and gross margins. The company also reduced excess SG&A and unproductive advertising expenses and closed underperforming stores.

McGuire also emphasized, “While the company has utilized its capital efficiently to repurchase a substantial percentage of its outstanding shares, we believe there is more that can be done to create substantial long-term shareholder value.”


Marcato Capital’s analysis on Dillard’s value

Marcato Capital Management analyzed the underlying value of the real estate assets of Dillard’s, Inc. (NYSE:DDS) and the compelling case for the creation of a stand-alone REIT.

If Dillard’s, Inc. (NYSE:DDS) creates a stand-alone REIT, the activist hedge fund estimated that  the combined value of the companies would increase by 75% to $193 per share.

Marcato Capital Management pointed out the several major companies with significant real estate assets already announced their desire to explore a REIT spin off.  The activist hedge fund is encouraging the leadership of Dillard’s, Inc. (NYSE:DDS) to do the same.

Dillard’s stock price surges

The stock price of Dillard’s, Inc. (NYSE:DDS) surged more than 11% to $123.13 per share after Marcato Capital Management released its analysis on the company.

Over the past 52-weeks, the shares of the department store operator traded between $82.75 per share to as much as $125.17 per share.  Dillard’s, Inc. (NYSE:DDS) has a market value of approximately $5.2 billion.

Last week, Dillard’s, Inc. (NYSE:DDD) reported that its earnings for the third quarter increased to $55.2 million or $1.30 per share from $50.9 million or $1.13 per share in the same period last year.  Its net sales were $1.46 billion.

The company completed its remaining $224.5 million shares repurchase authorization during the quarter. CEO William Dillard II expressed confidence that the company is well-positioned for the holiday season.

See the full presentation here Marcato


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