Shares of Hudson's Bay Company jumped 15 per cent on Monday after a minority shareholder said the retailer should consider selling its real estate holdings or consider a privatization by management.
HBC shares rose by $1.34 to close at $10.22 on the TSX.
The shareholder, Stamford, Conn.-based Land & Buildings Investment Management, LLC, which has a 4.3 per cent stake in HBC, issued a letter Monday stating there is "substantial untapped real estate value embedded in the company."
Land & Buildings founder and chief investment officer Jonathan Litt said the firm has watched HBC's efforts to strike a merger deal with Neiman Marcus or Macy's, and has seen the company recently announce a restructuring as it tries to deal with changes forces in the retail market.
"We believe this sequence of events underscores a core fact: the path to maximizing the value of Hudson's Bay lies in its real estate, not its retail brands," Land & Buildings said in its letter. "In our view, the whole time the company's management has been struggling to navigate this complicated maze of [mergers and acquisitions] options, the answer lies in its own real estate portfolio."
The shareholder said HBC, which owns the majority of its real estate, is "one of those rare diamonds in the rough" whose properties could be worth four times its share price, HBC closed Friday at $8.88 on the TSX. Land & Buildings said HBC has pegged the value of its real estate at $35 a share.
The investor went on to say that even if the real estate is worth half the HBC estimate, the retailer's shares would still be worth double its Friday closing share price.
"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," Land & Buildings said.
The activist investor said HBC's Saks Fifth Avenue flagship store in New York City was recently appraised at $16 per share, net of debt.
HBC said it is reviewing the letter and will issue a response later.