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Pershing Square pitches Target land leaseback  

New York – Activist investor William Ackman mounted a public presentation here this afternoon as his firm Pershing Square Capital Management proposed a tax-free spin-off to create a new owner of the land under the stores and warehouses owned by Target.

Target owns about 95% of its buildings and about 85% of the land under them, Ackman estimated. By spinning off the land it owns to a specialized real estate investment trust (REIT) and then renting it in a 75-year master ground lease, Ackman projected that Target would cut its debt and capital outlays, free up significant cash, boost its return on capital, and improve its valuation and stock price.

Both Target and the new entity, dubbed Target Inflation Protected REIT or TIP REIT, would earn more on their invested capital – enough to effectively double the value of shares within a year, Pershing Square predicted.

The transaction would also increase the dividend paid to Target shareholders – who would also participate as shareholders of the TIP REIT – from 60 cents per share this year to $1.86 in 2009, Ackman suggested.

The presentation estimated that Target owns some $39 billion in buildings and land – but the market only assigns that asset a value perhaps a third of that. The challenge, said Ackman, is for Target to tap that value fully, while maintaining control over its physical base.

Prior to the event, Target management had issued a statement, in which it quoted Gregg Steinhafel, ceo and president, as saying, “We respect the spirit with which these ideas were presented, and will share our perspective with the financial community in the near future.”

The statement also noted, “Target has been evaluating these ideas with the assistance of outside advisors, including Goldman Sachs.”

Ackman’s earlier prompting was instrumental in moving Target to sell about half its credit-card receivables to JPMorgan Chase this year in a deal valued at $3.6 billion.

Pershing Square reported in July 2007 it had acquired 9.6% of Target common shares, and affirmed that his has “beneficially acquired slightly less than 10% of the company's outstanding common stock.”

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