Hudson's Bay to sell and rent back Toronto store
Hudson's Bay Company (HBC), Canada's oldest company, said it will sell its main store and adjoining office tower in downtown Toronto for C$650m ($441m) and turn part of it into a Saks Fifth Avenue luxury retail store.
An affiliate of Cadillac Fairview Corp, a Canadian real estate company owned by the Ontario Teachers Pension Plan Board, will buy the retail and office complex and rent it back to Hudson's Bay for 25 years, Hudson's Bay said in a statement today.
The building is next to the Toronto Eaton Centre, a shopping mall and tourist attraction in downtown Toronto.
Toronto-based Hudson's Bay said it will open a 150,000-square-foot (46,000sqm) Saks inside the current 750,000-square-foot store – the company's largest – in the fall of 2015.
The announcement comes two weeks after Nordstrom, another luxury retailer, said it would take over Sears Canada's Eaton Centre location in 2016, the latest in a wave of US retailers into Canada.
"This sale-leaseback provides HBC with resources to deleverage and accelerate investment in our growth initiatives," Hudson's Bay chief executive 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 has also agreed to lease space in Toronto's Sherway Gardens for a full-line Saks store.
"It's a great example of the insatiable appetite that Canadian pension funds have for property," said John Crombie, national retail director for real estate-services firm Cushman & Wakefield.
Proceeds of the deal, expected to close on about February 25, will be used to reduce debt and for growth, Hudson's Bay said.
Hudson's Bay shares fell 2.1pc in Toronto.
The two Saks stores announced are the first of six or seven Hudson's Bay said it would open after announcing it was buying the New York-based luxury retailer for $2.4bn last 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.
Hudson's Bay is facing pressure as Nordstrom, a high-end retailer based in Seattle, begins opening stores in major Canadian urban centers like Vancouver, Montreal and Calgary and as Target and Wal-Mart Stores 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$263.5m in an initial public offering after creating a REIT from about 72pc of its real estate portfolio and grocer Loblaw raised C$400m in its REIT offering.
Splitting the store into separate Saks and Hudson's Bay sections will increase its appeal, said Crombie. "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.
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,'' John Sullivan, CEO of Cadillac Fairview, said. (Bloomberg)