This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Deal: REIT Plans Underlie Hudson's Bay $2.9B Saks bid

Stocks in this article: SKS RUE

NEW YORK ( The Deal) -- Once it acquires luxury department store chain Saks (SKS) in a deal valued at $2.9 billion, Hudson's Bay Co., plans to place all of the newly combined company's real estate into a publicly held real estate investment trust, or REIT, according to a source.

The cash generated by selling shares in the new public company would be a way to pay down the debt financing the deal, the source said.

Cutting into long-term profitability, however, will be all the rent Hudson's Bay would then have to pay once it starts leasing the store locations both it and Saks currently own.

Hudson's Bay declined to comment on its post-acquisition plans.

Hudson's Bay's stores sit on some of the most expensive real estate in the world, including Lord & Taylor's Fifth Avenue location in New York City and Toronto locations. Now, it would be adding another top-of-the-line locale: Saks' own Fifth Avenue flagship location.

In a REIT structure, the owned real estate is separated from the operating company, and then leased back to the operating company, pays rent at market rates. The rent the REIT collects is how it makes its money, and how it pays not only shareholders, but also affords to pay the property taxes, which are no longer on the operating company's books.

Still, making it a more reasonable deal economically is the fact that retailers these days also tend to be landlords.

At the Fifth Avenue location, for example, Saks can sublet space to high-end boutiques such as Louis Vuitton. Or alternatively, the high-end boutique would rent from the REIT, so that Saks would not have to lease the entire department store space.

It would then be those high-end boutiques that would have the headaches of managing and moving inventory, not Saks or Hudson's Bay, the source suggested.

The $2.9 billion Hudson's Bay is paying for luxury department store chain Saks Inc. is nearly 11.2 times its estimated $260 million in forward EBITDA for fiscal 2014, ending Jan. 31, 2014.

The purchase price is also about 10.7 times the $271 million in trailing EBITDA it generated in fiscal 2013 ended Feb. 2.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs