Activist investor Land & Buildings Investment Management LLC sent a letter Dec. 12 to Hudson's Bay Co. shareholders, noting that the per-share value of the department store operator's real estate assets is "substantially" higher than its current share price, after the company posted disappointing earnings results.
The activist investor said that Hudson's Bay real estate is valued at C$31 per share, while the company's shares are trading at about C$10 per share. The letter comes after Hudson's Bay reported fiscal third-quarter earnings Dec. 6, which the company's CFO Edward Record said "did not meet our expectations."
Land & Buildings said that Unibail-Rodamco SE's Dec. 12 announcement of its deal to buy Australian retail real estate company Westfield Corp. shows that "high quality retail real estate is in high demand."
Land & Buildings said the earnings results have led it to further view and value Hudson's Bay as a real estate company. In the letter, Land & Buildings said the department store operator could generate a cash hoard of more than C$3 billion from its real estate, which could fund a go-private transaction. Land & Buildings has previously urged Hudson's Bay to consider going private, along with selling off other parts of the company.
In the week of Nov. 27, Hudson's Bay and Land & Buildings reached an agreement where the activist investor withdrew its appeal of the Toronto Stock Exchange's decision to conditionally approve a $500 million investment from Rhône Capital. Hudson's Bay said the company would issue a prospectus or other rights offering to all its shareholders on a pro rata basis if the company decides to issue equity in a transaction that triggers a one-year price protection feature. Hudson's Bay said it does not anticipate that it will trigger the price protection provisions.
The Rhône investment is part of a series of transactions including the sale of the company's Lord & Taylor flagship store in New York City to real estate startup WeWork for C$1.08 billion. Hudson's Bay announced that it closed on the Rhône investment Dec. 6, appointing at the same time a managing director of Rhône and a managing partner of WeWork Property Investors to its board. The investment is in the form of eight-year mandatory convertible preferred shares.
