Check out the latest Macy’s earnings call transcript.

At the beginning of the current fiscal year, Macy's (NYSE:M) management projected that 2018 would be another big year for asset sales. Former CFO Karen Hoguet stated on the fourth-quarter 2017 earnings call that Macy's would likely book $300 million to $325 million of asset-sale gains this year, with cash proceeds coming in even higher at $340 million to $370 million.

Most of the expected windfall would come from selling part of Macy's downtown San Francisco flagship store. But thanks to some smaller deals along the way, Macy's could potentially exceed its forecast for asset-sale gains (and total cash proceeds) during fiscal 2018.

Asset sales have been a key source of earnings and cash

For the past two fiscal years, Macy's has been quite active on the asset-sale front. The company booked $209 million of real estate gains in fiscal 2016 and $544 million in fiscal 2017. Cash proceeds from asset sales peaked at $673 million in fiscal 2016 and retreated to $411 million in fiscal 2017. (The discrepancies between the real estate gains and the cash proceeds are driven by the book value of the properties being sold, as well as accounting rules that determine when the gains can be booked.)

A substantial chunk of Macy's asset-sale gains have come from selling parts of its downtown flagship locations. At the end of fiscal 2015, Macy's struck a deal to sell the upper floors of its Brooklyn store for $270 million, in a deal that was structured for the buyer to pay over a three-year period; $100 million of the proceeds was used to fund a multiyear renovation that has substantially improved the rest of the store.

The men's store in downtown San Francisco was sold a year later for $250 million. Macy's also sold the upper floors of its downtown Seattle store in two phases for a total of $115 million. In smaller moves, the company has unloaded its stores in downtown Portland and Minneapolis for a total of $113 million.

The exterior of the Macy's San Francisco flagship store

Macy's has sold a lot of downtown real estate in the past few years. Image source: Macy's.

These city-center real estate deals have grabbed most of the headlines. However, Macy's has also sold numerous mall-based stores: a mix of underperforming stores, valuable locations in high-traffic malls, and stores that are very close to other Macy's locations.

More success in fiscal 2018

During the first three quarters of fiscal 2018, Macy's booked $111 million of gains from selling real estate. Cash proceeds totaled $121 million.

Since the end of the third quarter, Macy's has sold at least three more properties. It has unloaded two massive stand-alone furniture stores in the Chicago suburbs for $26 million and a full-line store in Nanuet, New York, for $11.5 million. Both furniture stores are less than a mile from large full-line Macy's stores that could easily be reconfigured to accommodate furniture sections. Meanwhile, the Nanuet location is just three miles from a newer Macy's store.

That said, Macy's biggest deal of the year -- if it can be completed -- will come in the final month of fiscal 2018. Having reaped a massive windfall from selling its San Francisco men's store two years ago, Macy's is now looking to sell the I. Magnin building, a 240,000-square-foot piece of its San Francisco flagship store.

If Macy's gets a similar price per square foot as it received in the men's-store sale, the proceeds would exceed $240 million. Including its other asset sales since the beginning of fiscal 2018, this would push the company's total cash proceeds for the year to $400 million or more -- ahead of management's guidance.

There's more to come

While Macy's won't be able to come up with $400 million in asset-sale proceeds every year, the company does have a long pipeline of opportunities ahead of it. It is currently marketing its long-term ground lease for the Medinah Temple in Chicago's River North neighborhood. The building currently houses a 130,000-square-foot Bloomingdale's Home store, which Macy's plans to consolidate into its full-line Bloomingdale's store, just half a mile away. Macy's also may sell its Boulder, Colorado, store, which could be converted to office space.

Macy's has dozens of other stand-alone home or furniture stores that could be sold in future years. It also may begin to redevelop some of its excess parking lot space (in partnership with Brookfield Asset Management) to build restaurants, hotels, apartments, or offices near its stores.

Lastly, Macy's massive Herald Square flagship store in Manhattan remains its most valuable asset. The company is moving very deliberately to figure out how best to capture the value of this prime real estate while enhancing the productivity of its most important store.

With all of these opportunities, asset sales should continue to make a meaningful contribution to Macy's bottom line and its cash flow for the foreseeable future.