Activist Land & Buildings Takes 4.3% Stake in Hudson's Bay

An activist investor is pushing the parent of Saks Fifth Avenue to consider strategic alternatives, including possibly taking the company private or redeveloping its vast real estate holdings, in the latest sign of the challenges facing the department-store industry.

Land & Buildings Investment Management LLC, which has accumulated a stake of roughly 4.3% in Hudson's Bay Co., said in a letter that is expected to be delivered to the company's board Monday that its real estate is worth four times the stock price. The Wall Street Journal viewed a copy of the letter.

"This drastic public markets mispricing is why Hudson's Bay should evaluate all strategic options to maximize value for shareholders," Jonathan Litt, founder and chief investment officer of Land & Buildings, wrote in the letter.

He noted that over the past several months, as Hudson's Bay has taken abortive looks at acquiring Macy's Inc. and then at Neiman Marcus Group -- as reported by the Journal, the company's stock has fallen 25%.

The Macy's talks were preliminary and never progressed far, and the discussions with Neiman Marcus fell apart over price, people familiar with the situation have said. Last week, Neiman Marcus confirmed that any conversations it had been having about selling itself had terminated and it planned to remain independent.

A Hudson's Bay spokesman had no immediate comment late Sunday.

Land & Buildings could face an uphill battle since insiders own a large chunk of the company's stock, possibly making it difficult to force their hand.

This month, Mr. Litt lost a shareholder vote to force change at mall owner Taubman Centers Inc. -- largely because of the controlling family's large voting block. He continues to push for change there. Mr. Litt has also been urging change at real-estate empire Forest City Realty Trust Inc. and Brookdale Senior Living Inc.

Either way, the campaign is the latest sign of the upheaval roiling the department-store and broader retail industry as shopping habits evolve. Hudson's Bay recently said it would eliminate 2,000 jobs in North America, part of an effort to save $350 million annually.

Hudson's Bay Chairman Richard Baker is a real estate executive who grew up building shopping centers with his father Robert, founder of National Realty & Development Corp.

He began stitching together a department-store conglomerate a decade ago with the acquisition of Lord & Taylor, followed by Saks Fifth Avenue in 2013. The company also owns the Hudson's Bay chain in Canada, and Galeria Kaufhof in Germany.

To highlight the value of Hudson's Bay's real estate, Mr. Baker has formed joint ventures with several mall owners and obtained an independent appraisal of the Saks Fifth Avenue flagship in Manhattan that values the store at more than the $2.9 billion Hudson's Bay paid for the whole company.

"Retail and department stores are at a crossroads," Mr. Baker told shareholders gathered for the company's annual meeting earlier this month. But he added that the retailer is taking decisive actions to position the company to adapt, including cost reductions, a relocation of capital spending and bolstering the balance sheet.

Mr. Litt, a well-known real estate investor, wants Hudson's Bay to go further, arguing that it could generate better returns for shareholders by redeveloping its prime department-store space into office towers, hotels or boutiques. Alternatively, Hudson's Bay could go private, given its modest market capitalization of roughly $1.2 billion and insider ownership of roughly 20%, Mr. Litt argues.

Nordstrom Inc. recently said it was considering going private as a way to wait out the changes roiling the retail industry as more shoppers migrate online. On Friday, Amazon.com Inc. said it was buying Whole Foods Market Inc. as the online juggernaut ramps up its grocery business.

As the share prices of large retail companies have plummeted, investors are eyeing their real estate as a way to unlock value from the chains. Starboard Value LP took a stake in Macy's for this reason, but sold its shares earlier this year.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

June 18, 2017 22:35 ET (02:35 GMT)