Bloomberg News

Hudson’s Bay to Sell Toronto Complex; REIT Still Possible (3)

January 27, 2014

Hudson’s Bay Co. (HBC), Canada’s oldest company, said it’s still committed to creating a real estate investment trust after agreeing to sell its main store and adjoining office tower in downtown Toronto for C$650 million ($585 million).

“We continue to actively work on it,” Tiffany Bourre, a Hudson’s Bay spokeswoman, said today in an e-mail. “This transaction gives the company more flexibility with respect to REIT timing, REIT size, and REIT structure in that the cash component of such a transaction has diminished importance in light of the Queen St. transaction.”

Hudson’s Bay said earlier today it would sell the retail and office complex to Cadillac Fairview Corp., a Canadian real estate company owned by the Ontario Teachers Pension Plan Board, and lease it back for 25 years. The building is next to the Toronto Eaton Centre, a shopping mall and tourist attraction in the downtown core.

The Toronto-based retailer plans to open a 150,000-square-foot (46,000-square-meter) Saks inside the current store in the fall of 2015. The announcement comes two weeks after Nordstrom Inc. (JWN:US), another luxury retailer, said it would take over Sears Canada Inc. (SCC)’s Eaton Centre location in 2016, the latest in an influx of U.S. retailers into Canada.

The 750,000-square-foot store is the company’s largest.

‘Insatiable Appetite’

“This sale-leaseback provides HBC with resources to deleverage and accelerate investment in our growth initiatives,” Hudson’s Bay Chief Executive Officer Richard Baker said in the statement. “We continue to explore other options to create additional value through the power and potential of our real estate assets.”

Saks also has agreed to lease space in Toronto’s Sherway Gardens for a full-line Saks store, according to the statement.

“It’s a great example of the insatiable appetite that Canadian pension funds” have for property, John Crombie, national retail director for real estate-services firm Cushman & Wakefield Inc., said by phone.

Proceeds of the deal, expected to close about Feb. 25, will be used to reduce debt and for growth, Hudson’s Bay said. The shares rose 1.2 percent to C$16.89 at the close in Toronto.

The two Saks stores announced today are the first of six or seven that Hudson’s Bay said it would open after announcing it was buying the New York-based luxury retailer for $2.4 billion in July. The Toronto-based company, descended from a 350-year-old beaver pelt trading monopoly, also said it plans to open as many as 25 Saks Off 5th discount luxury stores.

Nordstorm Plans

Hudson’s Bay is facing pressure as Nordstrom, a high-end retailer based in Seattle, begins opening stores in major Canadian urban centers such as Vancouver, Montreal and Calgary and as Target Corp. (TGT:US) and Wal-Mart Stores Inc. (WMT:US) expand in Canada.

Baker said in April the company was looking at following other Canadian retailers in creating a real estate investment trust. Sporting-goods retailer Canadian Tire Corp. last year raised C$263.5 million in an initial public offering after creating a REIT from about 72 percent of its real estate portfolio and grocer Loblaw Cos. raised C$400 million in its REIT offering.

Splitting the store into separate Saks and Hudson’s Bay sections will increase its appeal, Crombie said.

“It’s going to be different customers at the end of the day, but drawing a wider variety of customers will benefit both properties,” he said.

Cadillac Fairview

Cadillac Fairview CEO John Sullivan approached Baker about buying the store and opening a Saks, Cadillac spokeswoman Janine Ramparas said in an e-mail.

“The acquisition of the property and addition of Saks will extend and significantly enhance the Toronto Eaton Centre customer experience,” Ramparas said. Company executives in the deal are at a retail conference in Whistler and unavailable to comment.

The deal means Cadillac Fairview will be able to market the Hudson’s Bay store as part of the Eaton Centre, which Cadillac Fairview already owns. All the stores in the Eaton Centre will benefit as customers walk between Nordstrom and Saks at either end of the mall, Crombie said.

“We believe there is significant and untapped opportunity for retailers such as Saks in Canada,” Sullivan said in the statement.

To contact the reporter on this story: Gerrit De Vynck in Toronto at gdevynck@bloomberg.net

To contact the editors responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net; David Scanlan at dscanlan@bloomberg.net


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Companies Mentioned

  • JWN
    (Nordstrom Inc)
    • $70.01 USD
    • -0.20
    • -0.29%
  • TGT
    (Target Corp)
    • $60.79 USD
    • 0.09
    • 0.15%
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