June 19, 2017 / 12:58 PM / in 4 months

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

TORONTO/NEW YORK (Reuters) - U.S. activist investor Jonathan Litt on Monday called for Canada’s Hudson’s Bay Co (HBC.TO) to consider going private and to monetize its vast real estate holdings, sending shares in the owner of Saks Fifth Avenue up 15 percent.

U.S. flags fly outside of Saks Fifth Avenue in New York, U.S., June 19, 2017. REUTERS/Lucas Jackson

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 Europe.

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 (BKD.N), Forest City Realty Trust Inc (FCEa.N) and FelCor Lodging Trust Inc FCH.N. [nL1N1JA0ZZ]

Litt took on Taubman Centers Inc (TCO.N) 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 headquarters.

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

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