Dillard's, Inc. DDS
Dillard's trades at 6.2x EBITDA despite owning ~50mm sq. ft. of real estate; separating into OpCo/PropCo as peers have done implies ~$193/share vs. $109.
Thesis
Dillard's (NYSE: DDS) trades at 6.2x 2015E EBITDA and a 10% free cash flow yield despite owning ~50.5 million square feet of real estate that is structurally mispriced inside the retail operating company. Marcato argues the fix is an OpCo/PropCo separation: capitalize a PropCo at a 2.25x 4-Wall EBITDAR-to-rent coverage ratio, implying $456mm of rent (~$9.04/sq. ft., in line with $10.72 median comparable transactions). The template is well-trodden — Sears, Hudson's Bay, Loblaw, Canadian Tire, Penn National, Lifetime Fitness, MSG, Pinnacle, Boyd, Red Lobster and Caesars are all pursuing or have completed similar structures. At peer multiples, the combined entity is worth ~$193/share in the base case, versus $109 current, a ~77% rerating.
SCQA
Dillard's is a department store with ~50 million sq. ft. of owned real estate, trading at 6.2x 2015E EBITDA and generating $841mm of EBITDA on $6.8bn of revenue.
The real estate sits inside a low-multiple retail OpCo, so investors ascribe no credit to the property value even as peers like Sears, HBC and Loblaw pursue REIT separations.
Execute an OpCo/PropCo split: spin the owned real estate into a REIT PropCo charging ~$456mm of rent (2.25x 4-Wall EBITDAR coverage, ~$9/sq. ft.) and run OpCo as an asset-light retailer.
Applying peer REIT and OpCo multiples produces a base-case total value of ~$193 per share versus $109 today — roughly 77% upside — with a sensitivity range of $158–$229.
The three reasons
- 1
4-Wall EBITDAR of $1,027mm supports $456mm PropCo rent at 2.25x coverage
- 2
Retail peers Sears, HBC, Loblaw and Canadian Tire validate the OpCo/PropCo playbook
- 3
Sum-of-parts points to ~$193/share base case vs. $109 current — roughly 77% upside
Primary demands
- Separate Dillard's real estate into a publicly traded REIT via an OpCo/PropCo transaction
- Capitalize PropCo with market rent (~$456mm total; ~$9.04/sq. ft.) to unlock standalone valuation
- Rerate OpCo and PropCo at peer multiples to realize the sum-of-parts upside
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- Sears Holdings REIT exploration (Nov 2014)
- Hudson's Bay Company (HBC) real estate review
- Loblaw / Choice Properties REIT IPO (2013)
- Canadian Tire / CT REIT IPO (2013)
- Penn National Gaming / GLPI REIT spin (2013)
- Lifetime Fitness OpCo/PropCo
- Madison Square Garden venue spin-off
- Pinnacle Entertainment OpCo/PropCo
- Boyd Gaming REIT evaluation
- Red Lobster / ARCP $1.5bn sale-leaseback (2014)
- Caesars Entertainment OpCo/PropCo
Notable slides (5)
Notes
Short 11-page pitch deck arguing for a Dillard's OpCo/PropCo REIT separation. No named human author on cover — branded to Marcato Capital Management (Mick McGuire's firm). No explicit closing ask slide in the pages reviewed; deck ends with a valuation sensitivity matrix rather than a shareholder-vote call to action. Stake not disclosed in this document. CEO quotes appear supportively from analogue companies (Sears, HBC, Loblaw, CTC, etc.) — not as contradiction of Dillard's management. Tone is collaborative/analytical rather than adversarial; no villain named. Marcato had publicly pushed this REIT thesis at Dillard's since ~2013, so treating this as follow_up rather than initial_thesis.