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Article Discussing the Value of Department Stores as REITs


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Captive REITs are not uncommon among retailers. Penney, for example, holds the majority of its owned real estate in a captive REIT formed by the company in 1999, says Deborah Weinswig, an analyst with Citi Investment Research. And retailers can gain other advantages by forming REITs. Dillard’s, for one, aims to improve its overall liquidity and win more access to the markets for debt and preferred stock. Under the arrangement, Dillard’s will transfer properties to its wholly owned REIT subsidiary and then triple-net lease them back. Dillard’s shares jumped 18 percent following the Jan. 19 announcement. Likewise, Weinswig says, analysts and investors have been buzzing about the nearly 27 percent ownership stake—widely seen as a real estate play—taken in Penney by Vornado Realty Trust and Pershing Square Capital Management.


These moves have helped put a spotlight on the holdings, not only of Penney and Dillard’s, but also of land-owning anchors like Nordstrom, Kohl’s, Macy’s and Saks. Another factor is the rising valuation of REITs themselves. According to National Association of Real Estate Investment Trusts (NAREIT), REITs were up about 39 percent for the 12-month period that ended Jan. 31, outpacing a 22 percent gain for the S&P 500. They have also been raising a lot more money. Since early 2009, when Simon Property Group and other REITs began tapping equity and debt markets at impressive cost-to-capital rates, investor confidence in REITs has gradually returned, explains NAREIT’s Mike Grupe, executive VP of research and investor outreach. “REITs demonstrated that, in fact, they did have access to capital, both equity and debt, and this put to rest investor fears that REITs would be unable to refinance or repay their debts,” Grupe says.

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