Macy's Sells Pittsburgh Location: What's It Mean For Shareholders?

Macy's, Inc. (NYSE: M) recently announced it has sold its 19th century, 1.2 million square feet, 13 stories tall, downtown Pittsburgh building to Core Realty for $15 million. The store will be closed and converted into a mixed-use property.

In a report issued Tuesday, analysts at Cowen provide some comments on the sale, which they believe evidences the management’s willingness to let go of the company’s properties for the right price.

According to the note, several floors of the building were unused, and the company had been considering a sale for some time. However, it was only last year that the plans really intensified, when Core Realty decided to turn the building into a mixed-use property comprising residential, hotel and retail areas.

However, the analysts do not expect a big loss in sales, given that the company operates 13 more stores in Southwestern Pennsylvania, five of which are located in a 10-mile radius from downtown Pittsburgh. Thus, customers will be able to buy at some of the Macy’s stores nearby, or via macys.com.

The analysts at Cowen think this sale is not an isolated event. They see Macy’s selling more of its attractive properties in the future, given its 68 percent ownership of its stores.

In recent report about “the impact of real estate monetization due to recent deals, high real estate values & shareholder activism,” Cowen concluded that Macy’s has great potential to unlock real estate value (about $19 billion). The firm outlined a few scenarios from a REIT structure, "extracting value from select trophy properties, or conducting outright sales (as evidenced by the announcement of the Pittsburgh building sale).” Ultimately, the analysts believe “a large-scale event is unlikely given complexity, control loss & higher rents and see smaller, bespoke deals as the likely alternative for M.”

Cowen maintains an Outperform rating and $75.00 price target on shares of Macy’s.