Hudson’s Bay Co.: Buy for the Real Estate

Hudson’s Bay Co. (TSX:HBC) has legacy retail brands, but the real play here is real estate.

The Motley Fool

Being an investor in a company that appears to be on a constant downward spiral can be a frustrating prospect. And yet, that’s the situation when it comes to Hudson’s Bay Co. (TSX:HBC). Year-to-date, the stock has given up 17% and investors are unsure where that drop is going to end.

The big driver of the stock price decline is that it’s a retail company. Investors are concerned that the retail sector is declining, so they’re moving away from any company focused on that space.

Hudson’s Bay hasn’t been doing all that well from a retail perspective; indeed, it’s struggling to make money on that front. Investor concern is therefore warranted.

So why, then, am I excited about Hudson’s Bay?

Because not only does Hudson’s Bay run a series of retail brands, but it also owns the buildings that those stores operate from. And that real estate has significant value.

According to Land & Buildings, a Connecticut-based hedge fund, the net asset value of Hudson’s Bay real estate is upwards of $35 per share. With shares under $10 right now, it’s easy to understand why the hedge fund purchased close to 5% of the company.

There’s just one problem …

Hudson’s Bay needs to figure out how to extract that value. One approach is to spin the real estate out into a separate business, which is a distinct possibility. Hudson’s Bay hired the former CFO from Empire Company, who helped repackaged its physical locations as a REIT in 2006.

Hudson’s Bay investors would then receive shares of that REIT, which they could either sell or hold onto. Land & Buildings would likely dump their shares in Hudson’s Bay and simply hold the REIT, as that’s their focus.

There’s just one problem with this approach. Part of the reason the real estate has value is that Hudson’s Bay has its stores in them. If you’re ignoring the retail side of Hudson’s Bay and merely focusing on the real estate, your investment could still fall into ruin because the retail business could collapse.

Hudson’s Bay has a creative approach to this, however. It sold the Lord & Taylor building between 38th and 39th street to WeWork Cos. Inc. and Rhone Capital LLC for US$850 million. It is then leasing back some space to operate its store, but with a smaller footprint.

This is a win for two reasons. First, the all-in investment for Lord & Taylor was a little over US$1.6 billion when accounting for the purchase price and debt back in 2006. Therefore, getting half of that back for the sale of one building is incredibly lucrative. Second, WeWork employees and customers will now walk past Lord & Taylor on a regular basis, which creates an opportunity for drive-by shopping.

Ultimately, I expect to see Hudson’s Bay do this with other locations. It will either sell like it did with WeWork or it’ll make the properties multi-purpose, such as adding residential space above the retail, which could add even more customers to its retail business.

Real estate is the play here. Hudson’s Bay may not be the perfect company given the retail space, but there’s a great opportunity here.

Fool contributor Jacob Donnelly has no position in any of the stocks mentioned.

More on Investing

top TSX stocks to buy
Stocks for Beginners

How to Turn a $15,000 TFSA Into $150,000

Here's how you can optimize your TFSA to ensure your capital is generating the highest returns possible without taking on…

Read more »

An investor uses a tablet
Investing

TD vs. Royal Bank: Which Stock Offers Investors More for 2026?

Investors looking to decide between Royal Bank of Canada (TSX:RY) and Toronto-Dominion Bank (TSX:TD) should consider these key factors.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Beyond Telus: These Dividend Heavyweights Look Like Better Buys Today

Bank of Nova Scotia (TSX:BNS) stock might be a safer, steadier bet than the higher-yielding telecom titans.

Read more »

four people hold happy emoji masks
Dividend Stocks

My Favourite Dividend Stocks for Canadians to Buy in 2026

Make 2026 your year for investing in stocks. Find out how to create a profitable investment strategy for optimal returns.

Read more »

a person watches stock market trades
Stocks for Beginners

Invest in This TSX Stock Today for More Wealth Tomorrow

Dollarama rarely looks cheap, but its steady “trade-down” demand and relentless execution have made it one of the TSX’s best…

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Wednesday, December 31

Despite recent softness, the TSX remains on track to finish 2025 with nearly 29% gains, with today’s session expected to…

Read more »

A worker drinks out of a mug in an office.
Investing

Where Will Dollarama Stock Be in 3 Years?

Here's how high Dollarama stock could climb over the next three years, and whether it's worth buying in the current…

Read more »

3 colorful arrows racing straight up on a black background.
Stocks for Beginners

3 Monster Stocks to Hold for the Next 3 Years

These three Canadian stocks combine real growth drivers with the kind of execution long-term investors look for.

Read more »