Sunday, 17 December, 2017

The Hudson's Bay Co (HBC) Earns "Outperform" Rating from BMO Capital Markets

Bloomberg The Hudson's Bay Co (HBC) Earns "Outperform" Rating from BMO Capital Markets
Nellie Chapman | 20 June, 2017, 01:53

Hudson's Bay Co (hbc) is facing pressure from an activist investor to either go private or redevelop some of its best real estate to prop up a stock that has taken a beating among chronically weak sales at the department store operator.

HBC shares soared more than 15 per cent on the news, closing at $10.22.

Hudson's Bay shares on the Toronto Stock Exchange surged almost 15 percent to $10.17 Canadian in mid-day trades Monday. 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. The letter highlights the substantial untapped real estate value embedded in the Company. In late 2014, the real estate at that store was valued at $3.7 billion.

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 owner of Saks Fifth Avenue is in the crosshairs of an activist investor.

Hudson's Bay's portfolio of assets is truly unique. Is the best use of this location truly a department store?

The Toronto-based retailer's shares hit a record low on Friday, having lost a third of their value so far this year, amid the disappointing results and after it announced a major restructuring plan earlier this month that includes 2,000 job cuts.

Shoppers visit the redesigned designer boutique at the Saks Fifth Avenue flagship store, in New York City in this September 2016 photo. "HBC spinning off its real estate could be at the expense of its retail business at a time where traditional bricks and mortar retail companies are suffering".

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. To date, the only result of these efforts has been the stock declining almost 25 per cent since the deal talks surfaced, and the company announcing last Thursday that it would be undertaking a massive $350 million restructuring to realign its own business 'to get ahead of the challenging retail landscape, ' " according to the letter.

Litt said he's looking to be collaborative with the company in unlocking the real estate value. Two years later it formed joint ventures with retail real estate investment trust Simon Property Group and RioCan Real Estate Investment Trust.

HBC said it is reviewing the letter and will issue a response later.