TORONTO, NEW YORK—Hudson's Bay Company has just signed agreements with Indianapolis-based Simon Property Group Inc. and Toronto-based RioCan Real Estate Investment Trust to form two joint ventures focused on real estate growth opportunities in the US and Canada, respectively. HBC operates hundreds of stores throughout the US and Canada under the brands Hudson's Bay, Lord & Taylor, Saks Fifth Avenue and Saks Fifth Avenue OFF 5TH.
“This is a transformational step for HBC,” Richard Baker, governor and executive chairman of the Toronto-based company, said on a conference call today, “one that follows our strategy of unlocking the long-term value from our unique real estate portfolio to better position our company for growth in both the retail and real estate businesses.”
The joint ventures are the fourth major step in that strategic process. In 2011, HBC sold its Zellers leases for C$1.8 billion. And last year it sold and leased back its flagship Queen Street property in Toronto for C$650 million. Most recently, in November HBC announced plans for a US$1.25 billion, 20-year, interest-only mortgage on the ground portion of its Saks Fifth Avenue flagship store at 611 5th Ave. in New York.
“Looking ahead, we will continue assessing value surfacing opportunities including REIT IPOs of the joint ventures, opportunities stemming from our ownership of the Saks and Lord & Taylor flagship buildings in New York City and other opportunities related to our remaining real estate assets,” Baker added.
“By forging joint ventures with two real estate experts,” he said, “we are providing a third-party marker on the value of our real estate. This is a powerful endorsement of the true value of our real estate portfolio.” He estimates the value of HBC's total real estate portfolio at C$9.2 billion, with about 90% supported by these two transactions and the independent valuation of the Saks Fifth Avenue flagship commissioned in connection with its November mortgage financing.
As reported in GlobeSt.com, the independent appraiser valued the entire property at US$3.7 billion based on the assumption that the entire property is net leased by Saks Fifth Avenue at an estimated current fair market rent. The company also plans a US$250 million renovation of the store that officials say will further grow its value.
“A stronger balance sheet and enhanced financial position will enable us to invest in growth initiatives across our retail business, including strengthening the connection between our store and digital businesses, expanding our off-price channel and investing in our world-class store base,” said Jerry Storch, HBC's chief executive officer.
HBC expects about C$1.1 billion in cash proceeds from the transactions and will use it to reduce debt on its balance sheet. Officials add that “indebtedness at the joint ventures will not be consolidated on HBC's balance sheet and there will be limited impact on cash flow. The company's retail operations will enter into long-term lease arrangements with the joint ventures with average lease terms of 20 years, plus renewal options.”
The companies expect the transactions to close in about 90 days.
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