Jonathan Litt’s activist hedge fund manager Land and Buildings has called on Canada’s Hudson’s Bay retailing giant to consider taking itself private and/or monetizing its massive real estate assets for the benefit of shareholders.
In a letter sent to the company’s board of directors, Litt said he believes the highest value and best use of Hudson’s Bay’s “one-of-a-kind” real estate was likely not as department stores. Litt values the company’s real estate assets at C$35 per share, nearly four times the company’s current stock price.
As is often the case when a well-known activist targets a company with a public letter to management outlining why the stock is worth a multiple of its current price, Hudson’s Bay’s stock skyrocketed on news of Litt’s letter, closing up 15% to C$10.22.
Among other brands, Hudson Bay owns the famed Saks Fifth Avenue store in New York City, a property Litt said has been independently valued at some C$5 billion, or C$16 per share. Other brands include Lord & Taylor, Galeria Kaufhof and Hudson’s Bay.
In the letter, Land and Buildings disclosed a 4.3% stake in Hudson’s Bay and expressed frustration that despite compelling value in the firm’s real estate holdings, the share price has fallen sharply from its mid-2015 levels above C$28.
Morover, Litt writes, the company’s recent plans to execute a major restructuring plan in the face of retailing missed the core fact that “the path to maximizing the value of Hudson’s Bay lies in its real estate, not its retail brands.”
“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. As such, it is one of those rare diamonds in the rough that a real estate investor occasionally finds in a career,” Litt wrote in the letter.
Hudson’s Bay said will review the letter from Lands and Buildings, while Litt’s letter stressed his team’s willingness to discuss the its findings with management.
Hudson’s Bay traces its lineage back to a fur trader formed in 1670.
Prior to founding Lands and Buildings in 2008, Litt was a top gaming and lodging analyst for Citigroup. He started the company in the immediate aftermath of the financial crisis to take advantage of distressed pricing in the industry. Aptly-named Land & Buildings specializes in publicly traded real estate and real estate related securities.