Why Is Dillard's Skyrocketing? (DDS)

Dillard's DDS ahares are spiking today, up almost 15% after the company announced yesterday that it was forming a subsidiary to become a REIT, as it sees the value in retail real estate, and is seeking to capture the value. "This is a very positive development for the shares given DDS's significant -- and under-valued -- real estate ownership," says Deutsche Bank analyst Bill Dreher. Similar names, like J.C. Penney JCP and Sears Holdings SHLD are up sharply on the back of this news as well. Many have speculated that these two companies may eventually go this route as well, with real estate legends Bill Ackman and Eddie Lampert on board, respectively. By turning the company into a REIT, it would allow Dillards to borrow extra money, to the tune of $1.7 billion to fund different things like, dividend purchases, stock buybacks, and enhance shareholder value. “Their real estate holdings are just part of the company,” said Craig Johnson of Customer Growth Partners. “They are taking the ownership interest and housing the ownership in REIT that can be publicly traded. The valuation subscribed to REITs is rising for six to eight months. Now it can get full valuation. The sum of the parts can be greater than the sum of the whole.” "This announcement could force a reappraisal of the negative stance that many of the department stores have been viewed by the investment community over the last 2 months," wrote Credit Suisse analyst Michael Exstein. "If the transaction were to be completed, significant attention will be placed on the value of retail real estate going forward." There has been speculation right after the announcement by Dillard's that others, like Macy's M, Home Depot HD and Lowe's LOW would do the same thing as well. “The development will likely lead to speculation around any retailer that owns a material (percentage) of their real estate,” says Exstein. “Given recent negative sentiment around the department store group, it may also provide some relief to the group in the near term.” If these companies can unlock the value of the real estate that they are sitting on, as many of these names own a hefty percentage of the stores operated by them, then there could be a wave of shareholder value about to be unlocked. Disclosure: no position in names mentioned