What does a giant retailer with over three centuries of history behind it do when its real estate assets are worth more than the company itself? It separates its assets from its operations, of course. In the case of Canada’s iconic Hudson’s Bay Company (HBC), whose extensive real estate holdings are reportedly worth $9.2 billion, the retailer enters into joint ventures with two of the biggest real estate investment trusts (REITs) in Canada and the US, creating two new companies worth $3.4 billion, in the process bringing in about $1.1 billion in cash to reduce debt. The announcement of this arrangement was delightful enough to investors to lift HBC’s share price 22 per cent to a record high of $27.03, according to Bloomberg, though the deal will not close for three months.
In the US part of the deal, HBC contributes forty-two properties to a retail venture with Simon Property Group Inc. The HBC properties include some very high-profile stores, such as Saks Fifth Avenue of Beverly Hills, and several Lord & Taylor stores in New York State. HBC owns both Saks and L&T chains. The Manhattan Saks Fifth Avenue store alone, not included in the present deal, is now valued at $4.6 billion. That is nearly twice as much as HBC paid for the entire Saks chain in 2013.
The Canadian joint venture is with Toronto-based RioCan Real Estate Investment Trust and will focus on growth opportunities in Canada. In its announcement concerning the joint venture, RioCan said that its real estate contribution would consist of Georgian Mall and Oakville Place. It is also contributing $325 million, part of which will be raised by selling a 50 per cent interest in the two malls. HBC’s contribution to the joint venture in Canada includes ten of its stores across Canada, including the Bay at Yorkdale Shopping Centre in Toronto.
The Bay’s executive chairman, Richard Baker, called today’s move a “transformative step” for the company, one that positions it for growth in both the retail and real estate businesses. By partnering with two real estate leaders, HBC will be able to diversify its real estate holdings and create its own REITs in future, if it so chooses. The joint ventures will lease back the properties to HBC, as was done earlier with the flagship Bay store on Queen Street in Toronto.
What does it mean for HBC customers? According to its CEO, Jerry Storch, the “enhanced financial position” the deal brings about will let HBC invest in improving the retail business, with emphasis on the digital platform, and the “off-price channel.” A dedicated management team will be put together to oversee the properties contributed to the joint venture (the “JV Entity”), and grow the real estate portfolio.
The Hudson’s Bay Company is the oldest continually operating company in North America. It received its royal charter in 1670 from King Charles II, pictured above.