Heat on HBC to cut debt, boost pay­outs with real es­tate sales


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.

Hud­son’s Bay 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 ... 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 three-bil­lion-euro of­fer from Signa Hold­ings for its Ger­man stores, Vargh­ese said, not­ing HBC shares are un­likely to see sig­nif­i­cant gains with­out clar­ity on the com­pany’s strat­egy.

An HBC spokes­woman de­clined to say whether the com­pany has iden­ti­fied ar­eas to de­ploy the pro­ceeds from any fu­ture as­set sales.

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