Several Hudson's Bay Co (HBC.TO) shareholders are backing an activist's call to unlock value in the retailer's estimated US$10 billion-plus real estate portfolio, piling pressure on the company to act swiftly to consider its options.

Activist investor Jonathan Litt and his company Land & Buildings, who last month disclosed a 4.3-per-cent stake in HBC, called the Saks Fifth Avenue owner "a real estate company, full stop," asking the company board in a June letter to consider monetizing or repurposing its real estate, shuttering stores, or taking the company private.

Four shareholders, who jointly own more than seven per cent of HBC and include two top-10 investors in terms of percentage of holdings, told Reuters they support Litt's efforts. But a fifth investor with about a 1.4 per cent holding supported the board, saying it does not need an activist investor to push it. About 50 per cent of HBC shares are held by insiders and investors close to the company.

Litt's efforts could force HBC to shift its focus away from retail and more into real estate, the area where Richard Baker, the architect behind taking the company public in 2012, made his name.

Many of Litt's supporters say they bought into HBC for its premium real estate holdings, which include two iconic Fifth Avenue buildings in New York City with a combined 1.33 million square feet of space and a total appraised value close to US$4.4 billion. HBC also holds majority stakes in two joint ventures for its other global properties.

The push from Litt taps into shareholder frustration over the company's share price not reflecting the value of its real estate holdings, and comes at a time when it is struggling to revive sales amid a fundamental downturn in the broader retail industry. Department stores, with their cavernous shopping spaces, have been particularly hard hit by changing consumer preferences and growing online competition.

"Because of the environment we're in, the company should be open to dramatic change," said Joshua Varghese, a fund manager at CI Investments with a 4.6-per-cent stake according to Thomson Reuters data. HBC should reinvest any real estate proceeds into flagship stores and pay down debt, not open more locations, he said.

Litt has not yet engaged with HBC's board or management in person to discuss his plan, a person familiar with the matter said. Litt's public relations firm declined to comment.

Jonathan Norwood, a fund manager at Mackenzie Investments, a top-10 shareholder with 2.5-per-cent ownership, would prefer HBC focus on its property assets over its retail operations.

"If they can right the retail business, that's just icing on the cake for us," said Norwood.

Litt and some shareholders say HBC should lease its marquee real estate to other retailers or companies seeking prime office space, or add a hospitality or residential component.

HBC has said it is reviewing Litt's letter and would respond in due course, and declined to comment further.

To be sure, HBC has said it would look to monetize its real estate portfolio including a possible initial public offering (IPO) for one or both of the joint ventures.

IMPROVING EFFICIENCY

HBC's average sales per square foot, a retail metric that measures productivity, is within range of its department store peers, at US$365 for Saks and Off 5th and US$170 at HBC's Lord & Taylor stores, the latest data from eMarketer Inc show. Neiman Marcus stood at US$466, Nordstrom Inc, including Nordstrom Rack, was at US$373, and Macy's Inc at US$150.

Apple Inc, which Litt suggested could be an ideal candidate for HBC's landmark Manhattan properties, brought in an industry-leading US$5,060 in sales per square foot.

Even as HBC plans to open new stores under its growth plan, Lee Matheson, a partner at Ewing Morris, said the company should close some 20 Lord & Taylor stores and 40 to 50 Hudson's Bay stores in smaller markets, arguing the cost benefit would outweigh losses in sales revenue and economy of scale.

"None of these assets today are killing them. But it's death by a thousand cuts," Matheson, whose firm owns about 250,000 shares, said.

But some say the board is already 100 per cent focused on creating shareholder value and does not need activist pressure. "The board is very strong and capable," said Geoff Barratt, a managing director at Sprott Asset Management, who has previously dealt with HBC's board. "They are completely aligned with shareholders."

Still, shareholders point to Litt's reputation and connection to director William Mack as a sign HBC could take some action sooner than later. Litt was on the Mack-Cali Realty Corp board, where Mack serves as Chairman.

Benjamin Halliburton, Chief Investment Officer at Traditional Capital Management, welcomed Litt's move, saying it was making the stock more attractive and the firm could again purchase shares at the right price.

"There's still a lot of value to be squeezed out," said Halliburton, whose firm retains a modest holding.