HBC TAKE-PRIVATE BID SIGNIFICANTLY UNDERVALUED AND OPPORTUNISTIC

June 19, 2019 DISCLAIMER

The author of this report has a long position in Hudson’s Bay Company (TSX:HBC). Positions can change at any time without notice.

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2 OVERVIEW

• HBC recently received a proposal from a group of HBC shareholders for the privatization of the company at a price of C$9.45 per share, payable in cash. • In our opinion, this proposal significantly undervalues HBC and is highly opportunistic: • We believe the offer meaningfully undervalues HBC based on our view that the assets that are readily visible [proceeds from the sale of European business, the real estate joint ventures (“JV’s”), the Saks Flagship store, the stake in the Lord & Taylor New York Flagship, and the retail business] alone are worth more than the offer price. Moreover, this valuation fails to take into account the possibility of significant value embedded – but largely hidden – in HBC’s leased properties outside of the JV’s. • The take-private bid also fails to consider the possibility of selling the entire retail operations to a strategic acquirer – an action that we believe is possible given our expectation that an acquirer would benefit from significant synergies through consolidation of technology, logistics, advertising & marketing, any other infrastructure, as well as the possibility of store consolidation. • The take private offer comes at a time when HBC is suffering from depressed earnings due to (i) self described merchandising missteps at Hudson’s Bay while trying to cater to past Sear’s customers(see recent conference call transcripts); and (ii) construction related headwinds at Saks Fifth Avenue’s flagship New York store. We expect earnings to improve through 2019 (which corresponds with Management’s view) as the company benefits from improved merchandising, less construction related disruptions, and the commencement of operations of the Queen Street WeWork location. In addition, initiatives at Lord & Taylor could drive earnings improvement. • Notably, the proposing shareholders expressly reject any alternative proposal, writing in their letter to the Board: Finally, we would like to take this opportunity to confirm that, while we are interested in continuing to pursue the privatization transaction that we have outlined to you, none of the Continuing Shareholders are, in their capacity as shareholders, interested at this time in an alternative transaction which would result in the sale of our interest in HBC or the acquisition by a third party of HBC or any of its material assets, and that we are not supportive of any alternative distribution to shareholders of the proceeds from the European transaction. • The proposing shareholder group includes individuals and entities who are very familiar with the company, including Richard Baker (Governor and Executive Chairman of HBC); Rhône Capital L.L.C.; WeWork Property Advisors; Hanover Investments (Luxembourg) S.A.; and Abrams Capital Management, L.P., These shareholders are refusing to even consider an alternative to their proposal! Moreover, they expressly refuse to sell their interest in HBC but are asking minority shareholders to do just that. In our view, this is because they understand the proposal meaningfully undervalues HBC. • We believe HBC should consider a Dutch Auction buyback that would enable existing shareholders to tender their shares if they wish while allowing those who wish to remain shareholders the opportunity to do so. However, we acknowledge the possibility the company will pursue this route is low given the wording in their letter to the Board.

3 HBC’S ASSET OVERVIEW

• We estimate HBC’s assets including its owned real estate (comprised of its JV’s, Saks Fifth Avenue flagship store and stake in the Lord & Taylor flagship location, proceeds from the sale of its European assets, and related retail operations) are worth meaningfully more than the current C$9.45 bid, even while utilizing assumptions that are significantly more conservative than the third-party valuations/transactions that have previously underpinned the previous real estate values provided by HBC in past investor presentations (such as http://investor.hbc.com/static-files/911a35cc-48ce-4fa3-a82e-29fffebdef9a; our estimate has been adjusted for dispositions). We acknowledge that the liabilities associated with the Netherlands business are difficult to quantify without additional information; however, our estimate assumes a large charge to restructure these operations in an attempt to achieve EBITDA break-even. • Importantly, our estimate does not incorporate any value for HBC’s leased properties outside of the JV’s, many of which are in truly exceptional transit-connected locations which can benefit from residential densification. Previous Management presentations also exclude any value for these leased locations. • As of the date of the date of HBC’s fiscal 2017 Annual Information Form, the company’s average years of lease control for its leased and ground leased properties was 65 years and 45 years for Hudson’s Bay and Saks Fifth Avenue, respectively. This includes JV leases. Given their long tenure, these leases effectively represent quassi-ownership claims. • We believe HBC’s exceptional real estate assets that are outside of the JV’s provide it with considerable leeway to repurpose, right-size and/or monetize its store base. • The amendment to HBC’s lease highlights the tremendous value embedded in some of these leased store locations. HBC received C$151.5 million plus C$21 million in store outfitting incentives in exchange for, among other things, agreeing to relocate the store to a new location within the redeveloped Oakridge Centre. Importantly – like so many shopping mall redevelopment projects – the Oakridge Centre redevelopment will see an influx of residential buildings, leading to increased population density and hence more potential shoppers. • The value of HBC’s leased real estate outside of the JV’s is difficult for an outsider to quantify because it is dependent on (i) the degree to which the property owner desires to recapture the space; and (ii) the duration and terms of the leases on individual properties. These attributes are not generally available to outsiders. However, while difficult to quantify, we believe these leases have very significant value – which is not factored into the current proposal, in our view. • On the following slides, we provide additional information on some of these leased locations outside of the JV’s.

4 HUDSON’S BAY OAKRIDGE CENTRE, BC

• Oakridge Centre is a large, (28.4 acre) transit-connected mall in close proximity to downtown Vancouver (approximately 20 minute transit ride). • The mall was purchased by QuadReal Property Group from Ivanhoe Cambridge in a transaction that closed in June 2017.(1) • Ivanhoe Cambridge planned to redevelop the property as per the illustration on the next slide; however, the unexpected discovery of a shallow aquifer necessitated project revisions(1). • QuadReal has announced that it has chosen a development partner and intends to move forward on a project that retains many of the features of the 2014 plan including a nine-acre public park, 70,000-square-foot civic centre with a new library, daycare, seniors centre, and community centre, and 290 affordable homes(2). • On October 9, 2018 HBC announced that it entered into an agreement to amend the lease at Oakridge. HBC received C$151.5 million plus C$21 million in store outfitting incentives in exchange for, among other things, agreeing to relocate the store to a new location within the redeveloped Oakridge Centre(3). Importantly – like so many shopping mall redevelopment projects – the Oakridge Centre redevelopment will see an influx of residential buildings, leading to increased population density and hence more potential shoppers.

(1) http://dailyhive.com/vancouver/oakridge-centre-redevelopment-redesign-quadreal (2) https://www.quadreal.com/design-work-under-way-for-oakridge/#gref (3) https://business.financialpost.com/pmn/press-releases-pmn/business-wire-news-releases-pmn/hbc-agrees-to-amend-hudsons-bay-lease-at-oakridge-centre

5 HUDSON’S BAY CENTRE TORONTO

• Prime 342,000 square foot location in the heart of Toronto at Yonge & Bloor. Transit connected. • Lease may be long-term and could serve as an impediment to redevelopment of this site: there may be the potential to monetize lease and right-size/modernize store footprint should property owner Brookfield choose to redevelop. The site would also likely work well as a WeWork location. • Kingsett Capital recently submitted a proposal to redevelop 2 Bloor Street West (1) – the building across the street – meaning that the Hudson’s Bay Centre would be the sole legacy building remaining at the corner of Yonge and Bloor. • Recent precedent transactions underscore land value: • First Capital Realty announced in August 2016 that it had purchased the 85,000 square foot retail podium and 52 parking stalls at the southeast corner of Yonge and Bloor for C$189 million(2). • One Bloor West – developer spent C$227 million(3) to assemble land for proposed 82 storey condo, hotel, and retail development at the southwest corner of Yonge and Bloor.

(1) https://urbantoronto.ca/news/2018/09/new-rezoning-application-submitted-cumberland-square (2) http://www.marketwired.com/press-release/first-capital-realty-announces-toronto-investments-and-150-million-equity-offering-tsx-fcr-2148259.htm (3) https://beta.theglobeandmail.com/news/toronto/inside-the-struggle-to-finance-torontos-tallest-condotower/article35334918/?ref=http://www.theglobeandmail.com&

6 SAKS FIFTH AVENUE, SAN FRANCISCO

• 126,000 square foot leased location in the prime Union Square area of San Francisco. • The Tiffany building directly beside this Saks location was sold for US$135 million in 2016(1). • Depending on the tenure of this lease, this San Francisco location may have significant value. There is also the possibility of using this location as a WeWork space depending on the terms of the lease.

(1) https://www.bizjournals.com/sanfrancisco/blog/real-estate/2016/09/tiffanys-building-sold-union-square-san-francisco.html

7 HUDSON’S BAY , BC

• In 2013, Sears announced the sale of 50% of its 9 acre site on and around its Metrotown location to Concord Pacific for approximately C$140 million(1). • On July 24, 2017 Burnaby Council adopted the Metrotown Downtown Plan – meaning the Metrotown Hudson’s Bay site is slated, in time, to be redeveloped into a section of downtown Burnaby(2). • HBC’s lease on its store (and any applicable parking pursuant to the lease) at Metrotown are likely extremely valuable. • In our opinion, HBC should be able to monetize this site while obtaining the option to build a modern, right-sized store in a high density neighbourhood.

(1) http://www.newswire.ca/news-releases/sears-canada-names-concord-pacific-as-developer-for-burnaby-metrotown-513095231.html (2) https://www.burnaby.ca/City-Services/Policies--Projects---Initiatives/Community-Development/Community-Plans/Metrotown-Downtown-Plan.html

8 HUDSON’S BAY LOUGHEED MALL, BURNABY BC

• Shape Properties Corporation, the owner of the Lougheed shopping mall, has proposed building 23 residential buildings at this transit- connected location(1). • Likely opportunity for HBC to participate in development by virtue of its lease on the Hudson’s Bay store (and any applicable parking pursuant to this lease) as Master Plan appears to show Lougheed site being largely redeveloped with retail blended into the neighbourhood(2). • We believe there may be an opportunity to monetize this lease (and any related parking) given the scale of the redevelopment. In addition, residential intensification should lead to higher foot traffic and sales at Hudson’s Bay Lougheed, should the company choose to stay at the location. • The City of Lougheed has a good synopsis of this redevelopment: https://thecityoflougheed.com/vision-and-masterplan/

(1) http://www.vancitybuzz.com/2016/03/lougheed-town-centre-redevelopment-2/ (2) https://www.burnaby.ca/City-Services/Policies--Projects---Initiatives/Community-Development/Community-Plans/Lougheed-Town-Centre-Core-Area-Master-Plan.html

9 HUDSON’S BAY , RICHMOND BC

• Cadillac Fairview - the owner of Richmond Centre - in partnership with developer SHAPE. plans to begin a large redevelopment of CF Richmond Centre in 2019. The redevelopment plan calls for 12 mid-rise towers and the demolition and redevelopment of significant amounts of new retail space(1). • The Bay location has a large footprint that looks well-suited for intensification. Store is surrounded by residential buildings and planned redevelopment will bring additional more than 2,000 additional residential units. • Richmond Centre is in close proximity to transit, with rail transit into Vancouver (Waterfront Station) about 30 minutes. • Nearby Landsdowne Centre (~5 minute drive) is also slated for a major mixed-use redevelopment(1). • There is likely the potential to monetize this lease (and any related parking spaces pursuant to the lease) at this location. Further potential to develop a modern store in a high density neighbourhood.

(1) http://www.richmond-news.com/news/weekly-feature/city-centre-surges-on-development-tidal-wave-1.9800571

10 HUDSON’S BAY CENTRE, COQUITLAM BC

• Mall manager, Morguard, has started initial redevelopment discussions with a focus on redeveloping into a large mixed-use district(1). Morguard plans to submit a formal Official Community Plan amendment and rezoning application for Phase One to the City of Coquitlam in summer 2019. • We believe there is the potential for HBC to participate in redevelopment of this well-located, transit-connected site that is located approximately 40 minutes by transit from Vancouver.

(1) https://dailyhive.com/vancouver/coquitlam-centre-redevelopment-consultation-concept-november-2018

11 HUDSON’S BAY FAIRVIEW MALL, TORONTO ON

• Well located, transit-connected (subway and major highway access) shopping mall. • One of Canada’s most productive malls with sales approaching $1,000 per square foot(1). • Cadillac Fairview (CF) is in the process of redeveloping the former Sears location at Fairview Mall and CF and TD Greystone are in discussions with the City of Toronto to rezone the property to accommodate additional density(2). • Hudson’s Bay store at Fairview looks tired and requires modernization. Likely potential to monetize, right-size and modernize this store if CF pursues redevelopment.

(1) https://www.retail-insider.com/retail-insider/2017/9/sears-canada-announces-11-store-closures (2) https://www.retail-insider.com/retail-insider/2019/3/cf-fairview-mall-announces-significant-investment-including-sears-box-redevelopment

12 HUDSON’S BAY CENTREPOINT MALL, TORONTO ON

• Site located at highly trafficked Yonge and Steeles. • Possible future site of Yonge subway line extension. • Favorable future redevelopment potential, particularly if Yonge line station is situated at Centrepoint Mall.

13 HUDSON’S BAY CENTRE , VICTORIA BC

• Well-located 229,000 square foot location in downtown area of fast- growing Victoria, BC • Potential to monetize and/or right size store through the repurposing of a portion of the space, perhaps as a WeWork location.

14 HUDSON’S BAY EDMONTON, ICE DISTRICT

• 168,000 square foot location in Edmonton’s rapidly growing Ice District. The site has a very large car parkade attached though it is unclear if the Bay has a lease on this facility. • We believe this location has strong potential for redevelopment (possibly as towers with a retail podium) or for alternative uses (sublet for more productive ground level retail, WeWork location, etc.) given its very good location. • Likely that HBC could monetize or right-size this space, in our view.

15 HUDSON’S BAY PARK ROYAL, VANCOUVER BC

• 172,000 square foot location in . • Park Royal is at 99 percent occupancy and is in the process of adding 200 rental residential units as well as commercial space, a daycare, and public plaza(1). • Given the high occupancy rate at Park Royal and the development of residential units, we believe there is an opportunity to monetize and/or right-size the store footprint.

(1) https://www.retail-insider.com/retail-insider/2019/5/park-royal-center-continues-to-add-retailers-and-tenants-amid-rapid-revenue-growth

16 HUDSON’S BAY SHERWAY GARDENS, ETOBICOKE ON

• 223,000 square foot location in Etobicoke. • Area is seeing increased densification and already has residential towers adjacent to it. • We believe there is likely potential to right size and/or monetize the space the Bay is currently on and any associated parking/right of way provisions in the lease.

17 HUDSON’S BAY EGLINTON SQUARE, SCARBOROUGH ON

• 115,000 square foot location on rapidly densifying Eglinton Avenue, which will benefit from the Crosstown light rail transit line scheduled for completion in 2021. • Proposals are currently underway to undertake a major redevelopment of the area, which will see significantly increased residential density(1). • We believe there is likely potential to right size and/or monetize the space the Bay is currently on and any associated parking/right of way provisions in the lease. Moreover, increased residential density should support higher foot traffic at the mall.

(1) https://www.toronto.com/news-story/8704700-scarborough-residents-ask-city-to-keep-eglinton-square-in-golden-mile/

18 LORD & TAYLOR, CHEVY CHASE MD

• 148,000 square foot ground leased location in developing Chevy Chase, MD. • The site has a large, underutilized parking lot which could benefit from development(1). • We believe there is likely potential to right size and/or monetize this location to facilitate redevelopment on this large, relatively well located real estate footprint.

(1) https://planning.dc.gov/sites/default/files/dc/sites/op/publication/attachments/Friendship%2520Heights.draft%2520final.pd

19 THANK YOU

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