Friday, January 21, 2011

Dillard's (NYSE:DDS) REIT Probably Precursor to Share Buyback Strategy

The announcement by Dillard's (NYSE:DDS) that they're going to form a wholly-owned REIT has generated a lot of buzz and speculation, with an interesting one proffered by Credit Suisse (NYSE:CS), which believes the company could be setting it up for a major share repurchase.

Canaccord commented saying, "Dillard’s got a boost on news it intends to form a wholly-owned real estate investment trust subsidiary as well as a wholly-owned insurance subsidiary. Currently, the retailer owns 78% of its real estate and plans to transfer “certain properties” to the REIT while leasing them back under 'triple net leases.' The company said it 'believes the formation of a REIT may enhance its ability to access debt or preferred stock and thereby enhances its liquidity.' While Dillard’s has yet to comment beyond the initial press release and filing, Credit Suisse speculates the company may be seeking to enter a more aggressive share buy-back program, after consistently buying stock through the downturn. The brokerage also believes Dillard’s may be looking to take advantage of favourable conditions in the REIT sector and that the development will likely lead to speculation around any retailer that owns a material amount of their real estate. Given recent negative sentiment in the department store group, this news may also provide some relief to the group in the near term. Credit Suisse continues to believe Macy's (NYSE: M) represents the best value in the department store space without any speculation of a real estate transaction."

Dillard's was trading at $41.23, down $0.73, or 1.74 percent, as of 2:08 PM EST.

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