Hudson's Bay (Toronto Stock Exchange: HBC-CA) describes itself as a global retailer, best known as the parent company to Lord & Taylor and Saks Fifth Avenue. In fact, the company has been focused on selling garments for the last 350 years.
Then, on Monday, an investor who has amassed a 4.3 percent stake, sent a letter to Hudson's board arguing that the best use of Hudson's Bay's real estate was not as department stores, sending the stock more than 16 percent higher.
That investor is Jonathan Litt. He's better known in real-estate circles than retail ones. His firm, Land and Buildings Investment Management, does what the name implies: it takes stakes in real-estate companies and sometimes pushes for strategic changes.
In the case of Hudson's Bay, Litt said in the letter Monday that the company's real estate is worth four times what the trading value of the entire company was before he disclosed his letter. He describes Hudson's Bay as "one of those rare diamonds in the rough that a real estate investor occasionally finds in a career."
Litt has spent nearly three decades focused on the real-estate industry – beginning his career at BrookHill Properties in 1988 and then moving to the sell side six years later to become an analyst. Ultimately he became a managing director and senior property analyst at Citigroup.
In 2008, Litt left the research world to make his own bets. He raised a fund and started targeting publicly traded real estate and real estate-related securities in an activist fashion. He currently serves as Land and Buildings' chief investment officer.
His playbook has largely focused on finding ways to monetize real estate to enhance shareholder value. That was the case at BRE Properties, which sold to Essex Property Trust for $4.3 billion in 2013, as well as Associated Estates, which sold itself to Brookfield for $2.5 billion in 2015. It was also the case at MGM Resorts, which spun off some of its real estate through an initial public offering in 2016.
Litt had been pushing Taubman Centers, a shopping-mall operator, to explore strategic alternatives as well, and that ultimately turned into one of the most contentious proxy battles of the 2017 season. Despite receiving support from the proxy advisory services ISS and Glass Lewis for nominating himself and Charles Elson of the University of Delaware to Taubman's board, Litt did not receive enough shareholder votes at the company's annual meeting earlier this month.
Land and Buildings has called for a special meeting to de-stagger Taubman's board and add three new independent directors before next year's meeting. The firm has also filed a complaint to limit the family's voting power, which amounts to about 30 percent.
With Hudson's Bay, Litt is urging the company to consider being taken private by management or consider other uses for its real estate.
He points to Saks Fifth Avenue's building across the street from Rockefeller Center in Manhattan and questions whether its best use is as a department store.
He asks: "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 bricks and mortar presence as Amazon appears to be doing with its purchase of Whole Foods?"
Hudson's Bay confirmed that it received the letter from Litt and said that it is "reviewing the letter and will respond in due course."
"Hudson's Bay is a real estate company, full stop," Litt wrote. "If there is a smarter and better use of any or all of the locations, stores should be closed and redeveloped and put toward their optimal use."
Watch: Hudson's Bay to cut 2,000 North American jobs
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