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A man walks through the doors at the Hudson's Bay Company (HBC) flagship department store in Toronto in this file photo. A U.S. activist investor is said to believe the retailer’s real estate is valued at several times more than HBC shares would suggest. (MARK BLINCH/REUTERS)
A man walks through the doors at the Hudson's Bay Company (HBC) flagship department store in Toronto in this file photo. A U.S. activist investor is said to believe the retailer’s real estate is valued at several times more than HBC shares would suggest. (MARK BLINCH/REUTERS)

Retail

HBC pushed to revamp real estate portfolio by activist investor Add to ...

A U.S. activist shareholder increased the pressure on Hudson’s Bay Co. to sell, spin off or redevelop parts of its vast real estate portfolio as the Canadian retailer struggles with deepening losses.

Land & Buildings Investment Management LLC said it had accumulated a 4.3-per-cent stake in HBC and urged the company to explore all options, including taking the company private or turning some of its prime retail locations – including its flagship Saks Fifth Avenue store in Manhattan – into something other than department stores.

HBC shares, which were worth nearly $30 two years ago, have lost two-thirds of their value as it becomes clear to investors that its retail stores are failing to get traction with consumers.

The company plans to slash 2,000 jobs in North America and has repeatedly talked about “monetizing” its real estate holdings.

It has also been in talks to acquire other department store chains, including luxury retailer Neiman-Marcus Group Inc. and Macy’s Inc., though no deal has come to fruition.

But Land & Buildings, a Connecticut-based investment firm that specializes in real estate, disparaged HBC’s acquisition efforts and said the stock has lost 25 per cent since the deal talks surfaced.

“The path to maximizing the value of Hudson’s Bay lies in its real estate, not its retail brands,” Jonathan Litt, the founder of Land & Buildings, said in a letter to HBC’s board of directors. Hudson’s Bay said it was reviewing the letter.

HBC’s own estimates peg its real estate at $6.4-billion or $35.24 a share – quadruple the price of HBC shares before Mr. Litt’s letter was made public Monday morning. HBC ended the day up 15 per cent at $10.22 a share.

However, some analysts believe HBC’s real estate is worth less than that. Royal Bank of Canada’s capital market unit prices the company’s real estate at $18 a share, while Veritas Investment Research assesses HBC’s owned real estate at $23 a share. Analysts at both firms place a negative value on the money-losing retail operations.

“We believe the value of the commercial real estate is only supported by the strength of tenants’ operations,” Veritas said in a research note last week. “The higher the market value of the real estate leads to higher market rent, which would reduce the value of the retail operation. Therefore, the only way to realize the full value of HBC’s real estate is to close the stores and find a buyer for the real estate.”

Of HBC’s estimated $6.4-billion real estate portfolio, $1.9-billion is associated with its global properties and $1.3-billion with its joint venture with RioCan Real Estate Investment Trust, according to HBC’s spring investor presentation. Most of the remainder, about $3-billion, is related to the Saks Fifth Avenue store that is across from the Rockefeller Center in New York, and is likely one of the most valuable locations not only in Manhattan, but in the United States,” Mr. Litt said in his letter.

“Is the best use of this location truly a department store? What about a hotel? Or office? Or boutique retail stores the likes of Apple and Gucci? Or an Internet retailer looking to go upscale through a bricks and mortar presence as Amazon appears to be doing with its purchase of Whole Foods?

“The point is that with real estate this valuable, there are a myriad options for value creation, all of which must be explored.”

John Williams, of retailing consultancy J.C. Williams Group, said Land & Building will put pressure on HBC to act. “It’s a large stake,” he said.

A spokesman for Mr. Litt would not comment on whether the investor planned on boosting his HBC stake or whether he was seeking board representation.

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