HBC in­vestors push for pay­outs, debt re­duc­tion

The Globe and Mail (Alberta Edition) - - REPORT ON BUSINESS - NICHOLA SAMINATHER TORONTO Hud­son’s Bay (HBC) Close: $11.45, down 30¢

As Hud­son’s Bay Co. steps up the pace of ex­tract­ing value from its $5-bil­lion prop­erty port­fo­lio, the depart­ment-store chain’s 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 5 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.

HBC is ex­plor­ing the sale of its Van­cou­ver flag­ship store, es­ti­mated at about $800-mil­lion, af­ter sell­ing its Lord & Tay­lor prop­erty in Man­hat­tan for $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-bil­lion ($4.5-bil­lion) of­fer from Signa Hold­ings for its Ger­man stores, Mr. 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. It will use funds from the Lord & Tay­lor sale to pay down debt, which to­talled $3.4-bil­lion as of July 29, ex­clud­ing its two joint ven­tures.

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, ac­cord­ing to Royal Bank of Canada.

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