Activist Litt eyes Hudson's Bay real estate, stock soars

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(TSX:HBC) is facing investor pressure to get more value from its real estate assets, even if that means closing stores including its "crown jewel" locations.

Credit Suisse Group downgraded shares of Hudson's Bay Co from an outperform rating to a neutral rating in a research report on Friday, April 21st. National Bank Financial reduced their price objective on Hudson's Bay Co from C$15.00 to C$12.00 in a research report on Thursday, April 6th.

"The board's responsibility is to maintain and grow the long-term value of the company".

It estimates that the Saks flagship location would be worth $16 per share, after debt, compared with HBC's recent stock price of $8.88 at the close of trading on Friday.

"This drastic public markets mispricing is why Hudson's Bay should evaluate all strategic options to maximize value for shareholders, including monetization or repurposing of real estate or the company being taken private by management", Land & Buildings said. Hudson's Bay Co has a 52-week low of $8.08 and a 52-week high of $18.60. "HBC spinning off its real estate could be at the expense of its retail business at a time where traditional bricks and mortar retail companies are suffering".

Hudson's Bay, which owns Saks Fifth Avenue and Lord & Taylor, has unsuccessfully explored the purchase of Macy's (M) and Nieman Marcus this year. HBC's portfolio today includes formats ranging from luxury to premium department stores to off price fashion shopping destinations, with more than 480 stores and over 66,000 employees around the world.

"Hudson's Bay is a real estate company, full stop", the letter, signed by Land & Buildings founder and CIO Jonathan Litt, reads.

Shoppers visit the redesigned designer boutique at the Saks Fifth Avenue flagship store, in New York City in this September 2016 photo.

"HBC spinning off its real estate assets has been a discussion among analysts since other retailers such as Canadian Tire and Loblaws have done the same thing in the past few years", said Rebecca Teltscher, portfolio manager, Leon Frazer and Associates Investment Counsel.

It says real estate executives speak highly of Richard Baker, a real estate mogul who is HBC's chairman and one of its main investors.

But success provides activist investors with more capital, which makes it possible for them to go after bigger companies such as HBC, said Powers.

The investor said it has amassed a 4.3 per cent stake - and it's urging the company to review options to capitalize on the value of its real estate holdings.

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