Will Dillard's Join the REIT Party This Holiday Season?

Wall Street Journal

Maureen Farrell

Nov 20, 2014

For activist investors, the hottest trend in retail ahead of the holiday season: REITs.
The activist hedge fund Marcato Capital Management LP wants Dillard’s Inc. to join the REIT party and said the retailer’s stock could jump by 75% if put its real estate into this structure.
Dillard’s stock, of which Marcato owns just under 5%, rose 9% Thursday after Marcato made its announcement. The stock is down roughly 2% Friday after Dillard’s reported third-quarter earnings and announced plans to buy back nearly 10% of its stock.
The list of companies seeking to split off their real-estate assets into a REIT this year is crowded with retailers like Sears Holdings Corp. as well as non traditional REIT candidates including a telecom company.
Dillard’s wouldn’t comment on the possibility and doesn’t host analyst calls, so management didn’t field any questions publicly on the topic Friday.
Investors, though, should keep an eye out for who it picks as its next CFO. “If it reaches outside the company for a real estate specialist, it might foreshadow a future REIT move,” the research firm  Gordon Haskett Research Advisors wrote in a report Friday.
A REIT wouldn’t be new territory for Dillard’s, which used a REIT in 2011 for some of its real estate to take more tax deductions, Gordon Haskett noted.
Still investors question whether the Dillard family, which effectively controls the board through its Class B shares, would consider this move now, during a year when its stock is up nearly 20%, more than many of its peers.
Some investors say that the founding family would prefer to use REIT as a backstop should the company ever run into trouble.