Target investor seeks real estate spinoff

A major shareholder in Target Corp. pitched a plan to Wall Street on Wednesday that would spin off the discount retailer’s real estate holdings as a separate entity as a way to increase the value of the company and its shares.

Separating the real estate into a publicly traded real estate investment trust would create long-lasting value for the retailer, William Ackman told several hundred people at a meeting in Manhattan.

Ackman runs hedge fund Pershing Square Capital Management, which owns just under 10% of Target’s common stock and has long been pushing the company to do more with its assets. Target owns most of its buildings as well as the land underneath, he said.

Under his proposal, the new tax-free spinoff would own the land under Target’s stores, while the retailer would retain ownership of the buildings and would rent the land under a 75-year lease on attractive terms.

“There is a very large real estate company, one of the largest in the country, inside the business,” Ackman said.

Target issued a statement in response that it had been evaluating similar proposals by Pershing but had “serious concerns” about the potential transaction. It believes the proposed structure would hurt its debt rating, borrowing costs and liquidity, especially given the current tightness in the credit market.

Ackman said he approached Target’s board with the proposal in May and had another meeting in September. Target had seen most components of the plan before it was shared with the public Wednesday -- a move Ackman said he made to create a dialogue among shareholders.

Target shares rose $2.21, or 5.7%, to $40.72 on Wednesday.