Hud­son’s Bay fac­ing heat from in­vestors

National Post (National Edition) - - FINANCIAL POST - Reuters

PROP­ERTY SALES

NICHOLA SAMINATHER TORONTO • As Hud­son’s Bay Co. steps up the pace of ex­tract­ing value from its $5-bil­lion prop­erty port­fo­lio, share­hold­ers want it to re­duce debt, re­turn cash to them and not in­vest the pro­ceeds in tra­di­tional re­tail oper­a­tions.

HBC is not new to sell­ing real es­tate, but its ac­tions are un­der greater scru­tiny amid ris­ing ten­sions be­tween the com­pany and ac­tivist hedge fund Land & Build­ings, which says it holds about five per cent of the com­pany.

The fund wants the owner of Saks Fifth Av­enue and Lord & Taylor to sell or con­vert stores to al­ter­nate uses and trans­form it­self into a real es­tate play. It val­ues HBC’s real es­tate at about $35 a share, three times more than the com­pany’s cur­rent level.

“The per­cep­tion, and in some cases, the real­ity, is that (Ama­zon.com Inc.) is speed­ing bricks and mor­tar re­tail­ers into sub­mis­sion,” said Jonathan Nor­wood of Macken­zie In­vest­ments, HBC’s eighth-big­gest share­holder.

“If they sell the real es­tate, we want to see the money used to re­duce debt and re­turned to share­hold­ers,” added Nor­wood. “We don’t want it go­ing to re­vi­tal­ize or grow the re­tail oper­a­tions.”

HBC is ex­plor­ing the sale of its Van­cou­ver flag­ship store, es­ti­mated at about $800 mil­lion, af­ter sell­ing its Lord & Taylor prop­erty in Man­hat­tan for US$850 mil­lion last month.

Sell­ing prop­er­ties will fur­ther ex­pose HBC to a bru­tal re­tail mar­ket but has not de­terred the com­pany from open­ing new stores in the Nether­lands this year.

“It’s hard for an in­vestor to get ex­cited about new store open­ings when ex­ist­ing stores are on rocky ground,” said Joshua Vargh­ese, port­fo­lio man­ager at CI In­vest­ments, HBC’s sixth-largest share­holder.

The com­pany should “se­ri­ously con­sider” a 3-bil­lioneuro ($4.5 bil­lion) of­fer from Signa Hold­ings for its Ger­man stores, Vargh­ese said, not­ing HBC shares are un­likely to see sig­nif­i­cant gains with­out clar­ity on strat­egy.

HBC’s net debt was 4.7 times earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion af­ter the Lord & Taylor sale, com­pared with an in­dus­try av­er­age of 2 times, ac­cord­ing to Royal Bank of Canada.

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