(Adds comments from Baskin Financial portfolio manager, updates
By Solarina Ho and Michael Flaherty
TORONTO/NEW YORK, June 19 U.S. activist investor
Jonathan Litt on Monday called for Canada's Hudson's Bay Co
to consider going private and to monetize its vast real
estate holdings, sending shares in the owner of Saks Fifth
Avenue up 15 percent.
The company, also known as HBC, said it would review the
letter from Litt, whose activist real estate hedge fund Land &
Buildings Investment Management disclosed it had bought 4.3
percent of Hudson's Bay.
HBC stock had lost about a third of its value this year amid
declining sales at its retail stores, which include Saks, Lord &
Taylor and the 347-year-old Hudson's Bay brand.
The company this month said it would cut 2,000 jobs as part
of a restructuring of its retail business.
The stock fell to a record low on Friday, partly due to
investor frustration that the company has yet to announce plans
to monetize its more than $10 billion in real estate assets.
They include its Saks on Fifth Avenue in New York City, which is
valued at $3.7 billion.
Shares peaked just shy of C$30 two years ago but investors
have since complained the value of its real estate holdings are
not reflected in the price of its stock, which has a market
capitalization of C$1.6 billion ($1.21 billion).
Litt called on the board to focus on that issue, saying he
estimates the real estate holdings are worth C$35 per share,
nearly four times HBC's closing price on Friday.
"The path to maximizing the value of Hudson's Bay lies in
its real estate, not its retail brands," said Litt, a former
Citigroup real estate analyst. "If there is a smarter and better
use of any or all of the locations, stores should be closed and
redeveloped and put towards their optimal use."
In addition to its North American operations, HBC owns
European department store Galeria Kaufhof. It also holds
majority stakes in joint ventures worth over C$8.1 billion ($6.1
billion) for its property holdings in North America and
HBC shares closed up C$1.34 at C$10.22 in Toronto after
reaching a high of C$10.45.
AN AGGRESSIVE ACTIVIST
Litt is known as an aggressive activist investor who
pressures his targets through public letters, often pushing
companies to sell themselves if they are unable to institute the
changes he suggests.
In the last year, Litt has pushed for the sale of Brookdale
Senior Living Inc, Forest City Realty Trust Inc
and FelCor Lodging Trust Inc.
Litt took on Taubman Centers Inc this spring and
waged an unsuccessful proxy fight to replace two directors on
the board, including CEO Bobby Taubman.
In 2015, Land and Buildings launched a proxy fight against
Macerich Co that resulted in the mall owner adding two directors
and making corporate-governance changes.
Joshua Varghese, a portfolio manager with CI Investments,
one of HBC's biggest shareholders, said he would like the
company to close some stores, stop opening new ones and focus on
finding ways to get the value of its real estate holdings
reflected in the stock price.
CI Investments is the company's sixth-largest shareholder
with a 4.1 percent stake, according to Thomson Reuters data.
"I hope it will force the management team to address these
issues in more detail with its shareholders," Varghese said.
Founded in 1670, HBC began as a fur trader and once owned
more than 40 percent of what is now Canada and much of what
became North Dakota and Minnesota.
U.S. real estate developer Richard Baker bought the firm in
2008 and took it public in 2012, retaining its name and Toronto
Barry Schwartz, portfolio manager at Baskin Financial
Services, said the company should gradually pull the plug on its
struggling stores and sell the real estate.
"Their retail is finished," said Schwartz, whose firm does
not hold any HBC stock.
($1 = 1.3218 Canadian dollars)
(Reporting by Solarina Ho and John Tilak in Toronto and Michael
Flaherty in New York; Additional reporting by John Benny in
Bengaluru; Editing by Lisa Shumaker and Bill Trott)