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Activist Investor Urges HBC to Redevelop Retail Real Estate

Hudson’s Bay is getting pushback from an activist investor over its recent attempted buying spree and subsequent restructuring plan.

The retailer, which through its brands Saks Fifth Avenue, Lord & Taylor and Hudson’s Bay, has been suffering much of the same fate as its peers. The company reported an increased net loss and lackluster footfall in its first quarter results, which were released earlier this month.

Rather than continuing to slog away in retail, Land & Buildings Investment Management, which owns about 4.3% of the company’s stock, is pushing the retailer to capitalize on its retail holdings.

The investment company submitted a public letter to HBC’s board Monday blaming the company’s attempts to expand the nameplates through acquisitions of Macy’s and Neiman Marcus for the 25 percent decline in stock value over the last few months.

Those actions, plus the restructuring, are a clear sign that a retail play is not the right direction, according to Land & Buildings’ founder and CEO Jonathan Litt. “In our view, the whole time the company’s management has been struggling to navigate this complicated maze of M&A options, the answer lies in its own real estate portfolio,” Litt said in the letter.

(Read about HBC’s plans to transform its retail business: Hudson’s Bay Company Restructuring to Include 2,000 Lost Jobs)

Calling the retailer a diamond in the rough, Litt says that unlike its competitors, HBC owns the majority of its real estate. And if company estimates that appraise the holdings at $35 Canadian per share are accurate—or even close, those holdings alone are worth as much as 4x the current $8.88 Canadian share price.

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,” the letter continues (emphasis Litt’s).

The Land & Buildings founder calls out the Saks Fifth Avenue flagship in New York City as a particular misuse of space, given that estimates place its value at $16 Canadian per share, making it one of the most valuable pieces of real estate in the country. “Is the best use of this location truly a department store? What about a hotel? Or office?” Litt asks. And if it were to continue as a retail location, he says surely Apple or even Amazon with its push into brick and mortar would make more sense.

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Litt goes onto say the company could easily be taken private with the approximately 20 percent insider ownership plus a sale of the Saks flagship and interests in HBC’s joint ventures.

Ultimately Litt said HBC is a real estate company that needs to optimize its locations by closing them or redeveloping them. Just as the company is being aggressive with its plan to reduce expenses by $350 million Canadian, it is Litt’s opinion that it should be equally aggressive with monetizing and redeveloping the prime real estate.