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New Catalyst for Department Stores Stocks?

Thursday, 20 Jan 2011 | 5:39 PM ET

The traders were closely watching action in retail on Thursday, after Dillard’s said they were forming a REIT subsidiary. The news sent shares to a 52-week high and lifted rivals on speculation other companies could make a similar move.

Why do this?

According to CNBC’s Bob Pisani, because for some retailers, the value is not in the brand or the merchandise, or the CEO vision — it's in the real estate.

Dillard's, whose stores are concentrated in the U.S. Southeast, owns 88 percent of the space occupied by its 309 stores – and as a REIT it can more easily borrow against the value of the property it owns.

So who may be next?

Finerman's Fine Print
Dillards files to become a REIT.

When activist investor William Ackman's Pershing Square Capital took a 16.5 percent stake in JC Penney in October, the shares rose on the assumption he would try to get the company to create a REIT to take advantage of its real estate. Penney owns 37.5 percent of the 1,108 department stores it runs.

And Ackman tried unsuccessfully to get discount retailer Target to create a REIT in 2008.

How should you trade?

Karen Finerman admits that the move unlocks value and could even put a floor under retailers.

However, she doesn’t think this should be your catalyst to establish a new position. “Don’t jump in on this,” she says. “It’s probably a one-off.”




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Trader disclosure: On Jan. 20, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova Owns (GLD) Puts; Terranova Owns (UPL); Terranova Owns (VRTS); Terranova Owns (PVH); Terranova Owns (GM); Terranova Owns (CVI); Terranova Owns (CNQ); Terranova Owns (LTD); Terranova Owns (C); Terranova Owns (PEP); Terranova Owns (CPX); Terranova Owns (ARUN); Terranova Owns (MS); Terranova Owns (RSH); Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman's firm is short (IJR); Finerman's firm is long S&P puts; Finerman's firm is long Russell 2000 puts; Finerman owns (AAPL); Finerman's firm owns (AAPL); Finerman owns (BAC); Finerman's firm owns (BBY); Finerman owns (BP); Finerman's firm owns (BP); Finerman owns (C); Finerman's owns (GOOG); Finerman owns (HPQ); Finerman's firm owns (HPQ); Finerman's firm owns (IBM); Finerman owns (JPM) and (JPM) leaps; Finerman's firm owns (JPM) and (JPM) leaps; Finerman's firm owns (MCD); Finerman owns (MSFT); Finerman's firm owns (MSFT); Finerman's firm owns (TGT): Finerman's firm owns (WMT)

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