Ostensibly, Hudson's Bay is a department store company, but unlike its peers that may own some of their real estate and whose values may approach or slightly exceed their share prices, Hudson's Bay owns the vast majority of its real estate.
Shares of Hudson's Bay Co (TSE HBC) opened at 8.88 on Friday. The firm estimates that Hudson's Bay's real estate assets have a value of C$35 (US$26.48) per share. In late 2014, the real estate at that store was valued at $3.7 billion.
"The board's responsibility is to maintain and grow the long-term value of the company".
It points to the Saks Fifth Avenue location across from the Rockefeller Center in New York City as an example of HBC's prime real estate, describing the spot as "likely one of the most valuable locations not only in Manhattan, but in the United States", and asks whether the best use of the property is as a store. Hudson's Bay Co has a 52-week low of $8.08 and a 52-week high of $18.60. The Company's retail portfolio includes approximately 10 banners, in formats ranging from luxury to better department stores to off price fashion shopping destinations, with over 460 stores.
Land and Buildings has recently targeted family-owned real estate firms. Selling the Fifth Avenue Saks location and additional interests in the Company's joint ventures with Simon and RioCan, as well as with participation from other institutional real estate investors such as Abu Dhabi Investment Council or Ontario Teacher's Pension Fund, who are current investors, could round out the capital needed for the move.
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Land & Buildings Investment Management - which now owns about 4.3 per cent of Hudson's Bay equity - says in its letter to HBC's board that the "jury is still out" on Baker, given that the company's shares peaked two years ago at $28.80. It urged Hudson's Bay to monetize its real estate portfolio, saying that it owns "rare diamonds in the rough that a real estate investor occasionally finds in its career".
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.
Last week, at the company's annual general meeting, HBC chairman Richard Baker said that the company "will continue to strive to highlight the value" of its real estate assets, whether that be a sale or potentially engaging in a public listing.
Hudson's Bay is a real estate company, full stop.
"I hope it will force the management team to address these issues in more detail with its shareholders", Varghese said.