ACTIVIST TARGETS HUDSON’S BAY CO.
Land & Buildings wants struggling firm to monetize ‘crown jewel’ real estate
Hudson’s Bay Co. jumped the most in two years after activist investor Land & Buildings Investment Management took a position in the retailer, urging the parent of Saks Fifth Avenue to unlock the value of its real estate portfolio and explore a take-private transaction.
Shares in Hudson’s Bay rose about 15 per cent in Toronto Monday, closing at $10.22, after surging as much as 18 per cent, the biggest intraday jump since February 2015.
Stamford, Conn.-based Land & Buildings, which said it owns 4.3 per cent of Hudson’s Bay, called the retailer a “diamond in the rough,” in a letter to the board Monday. It encouraged HBC to focus on monetizing its real estate portfolio rather than concentrating its efforts on failed mergers with rivals such as Neiman Marcus Group Inc. or Macy’s Inc.
“The path to maximizing the value of Hudson’s Bay lies in its real estate, not its retail brands,” Jonathan Litt, co-founder of Land & Buildings, said in the letter. “In our view, the whole time the company’s management has been struggling to navigate this complicated maze of M&A options, the answer lies in its own real estate portfolio.”
The Saks Fifth Avenue location in New York could be valued at $5 billion alone, Litt said. He estimates the real estate is valued $35 a share, or four times HBC’s close Friday. He argues the company should also evaluate a takeprivate transaction led by current management, given about 20 per cent of the company is held by insiders. He has called for a meeting with the board to discuss the issues.
In a separate statement, Toronto-based Hudson’s Bay said it was reviewing the letter from Land & Buildings and would respond in due course.
“Hudson’s Bay is a real estate company, full stop,” Litt writes. “If there is a smarter and better use of any or all of the locations, stores should be closed and redeveloped and put towards their optimal use,” he added.
“The next logical step is to aggressively move to monetize and redevelop the company’s real estate, including some of its irreplaceable crown jewel locations.”
Shares of the Toronto-based retailer had dropped by a third this year, for a market value of $1.6 billion, before Land & Buildings revealed its position. Even if its real estate is worth half of the company’s estimates, shares would be worth twice as much as they are, Litt said. He also noted that shares have fallen since Hudson’s Bay tried to merge with another company and announced a $350 million restructuring.
“We do not know Richard Baker – the chairman and chief visionary at Hudson’s Bay – very well. However, other real estate executives speak highly of him,” Litt said. “That said, the jury still appears out in our view, if for no other reason that during his tenure, the company’s shares have declined from a high of nearly $30 to the current $8.88.”
Last week, at the company’s annual general meeting, Baker said that the company “will continue to strive to highlight the value” of its real estate assets, whether that be a sale or potentially engaging in a public listing.
Baker cautioned, though, that a decision would only be made with the consideration of current market conditions.
The path to maximizing the value of Hudson’s Bay lies in its real estate, not its retail brands.