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The Hudson's Bay Company store on Bloor St, Toronto April 11 2013.The Globe and Mail

As Hudson's Bay Co. faces renewed pressure to squeeze value from its real estate holdings, the company's investors can take solace in knowing it's been a winning formula for other Canadian retailers.

Real estate investment trusts spun off from Canadian stores including Loblaw Cos. and Canadian Tire Corp. have consistently outperformed the retail parent when dividends are factored in, according to data compiled by Bloomberg.

Activist investor Land & Buildings Investment Management LLC, which has acquired a 4.3-per-cent stake in HBC, sent a letter to the retailer's board Monday urging it to follow suit by unlocking the value of its properties, which include the Saks Fifth Avenue location in New York and stores across Canada.

"The path to maximizing the value of Hudson's Bay lies in its real estate, not its retail brands," Jonathan Litt, founder and chief investment officer of Land & Buildings, wrote in the letter. Litt estimates the real estate is worth $35 per share, quadruple the stock's closing price on Friday. The stock rallied 15 percent Monday after Litt published his letter.

HBC, owner of the Saks and Lord & Taylor brands, has been receptive to tapping its real estate holdings for cash ever since Richard Baker became chairman of the retailer in 2008. As recently as two months ago Baker told analysts he wanted to do an initial public offering of the U.S. and Canadian real estate portfolios "as quick as possible."

The Toronto-based firm has already formed two real estate joint ventures with Simon Property Group Inc. and RioCan REIT that include a portfolio of many of HBC's key properties. CIBC analyst Mark Petrie said HBC could either sell additional equity in the ventures or spin them off into separate publicly traded entities. Either way, the holdings have a significant amount of debt and demand from investors "is tepid at best," Mr. Petrie wrote in a recent note.

REIT Trend

Real estate spinoffs have become a bit of a trend for Canadian retailers including Canadian Tire, Loblaw and Empire Co. Ltd., owner of the Sobeys grocery store brand. All three have spun off their store portfolios into separately publicly traded real estate investment trusts in recent years.

Still, HBC may have a more difficult time monetizing its real estate than its peers, said National Bank of Canada analyst Matt Kornack. HBC has plunged by a third in the past 12 months, joining other department store chains that are struggling to win business against specialized retailers and online competitors.

"HBC is a weaker retailer so the street would have concern over its ability to remain a going concern," Mr. Kornack said in an email, pointing to the underperformance of Empire's Crombie REIT versus its peers when the grocery retailer was struggling to integrate its acquisition of Safeway Canada in 2016. "Real estate is worth less if there is a material re-tenanting risk."

Crombie REIT, which was spun off from Empire in 2006, has seen a total return including dividends of 37 percent over the past five years compared to just 15 per cent for the parent company.

Canadian Tire's spin-off, CT REIT, has generated a total return of 77 per cent since its debut in 2013 versus 66 per cent for the Toronto-based sports, automotive and hardware retailer.

And investors in Choice Properties REIT have seen a return of 72 per cent since it started trading in July 2013, compared with 66 per cent for Loblaw, the Toronto-based grocer.