Activist Investor Urges Saks Parent to Consider Ditching Retail Stores

Saks Fifth Avenue
Saks Fifth Avenue at The Galleria in Houston.
Courtesy of ECB.

After taking a 4.3 percent in Hudson’s Bay Co., Land & Buildings Investment Management LLC is urging the owner of several luxury department stores to “evaluate all strategic alternatives to maximize value.”

In a letter addressed to HBC, Stamford Conn.-based Land & Buildings told the Canada-based company — which owns Saks Fifth Avenue, Lord & Taylor, Galeria Kaufhof and Hudson’s Bay — that its “highest value and best use” is tied to its “one-of-a-kind real estate” and not its department stores.

“Hudson‘s Bay is a real estate company, full stop,” the letter, signed by Land & Buildings founder and CIO Jonathan Litt, reads. “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.”

Litt urged HBC to consider monetization or repurposing of its real estate or taking the company private by management.

“Hudson’s Bay’s portfolio of assets is truly unique: Consider that the Saks Fifth Avenue store between 49th Street and 50th Street, across from Rockefeller Center, was recently appraised at C$16 per share net of debt, and is likely one of the most valuable locations not only in Manhattan, but in the United States,” he argued. “Is the best use of this location truly a department store? What about a hotel? Or office? Or boutique retail stores the likes of Apple and Gucci? Or an internet retailer looking to go upscale through a bricks and mortar presence as Amazon appears to be doing with its purchase of Whole Foods? The point is that with real estate this valuable, there are a myriad options for value creation, all of which must be explored.”

Regarding it’s a possible go-private transaction, Litt noted that with “a modest market cap of $1.2 billion, and insider ownership of 20 percent,” such a transaction could be “readily financed.”

HBC, which has seen comparable sales declines across much of its department store fleet for the past few quarters, last week announced its plans to restructure and eliminate about 2,000 jobs in North America to “create a flatter, more nimble organization,” and reduce expenses by $350 million CAD.

Litt noted that following the layoffs, “the next logical step is to aggressively move to monetize and redevelop the company’s real estate, including some of its irreplaceable crown jewel locations.”

HBC’s stock, which has been under pressure over the past year or more, has spiked on news of Litt’s letter and Land & Building’s 4.3 percent stake. As of 12:30 p.m. ET, HBC shares remained up nearly 13 percent, to $10.01 CAD.

In a press release today, HBC acknowledged receipt of the letter from Land & Buildings and said that it is reviewing the letter and will respond in due course.