Hudson's Bay Studies Its Real Estate Options

NEW YORK ( The Deal) -- Hudson's Bay's pursuit of either creating a real estate investment trust for its properties or considering other options such as additional sale-leaseback agreements still appear to be in the works even though the Canadian retailer completed the sale of some of its Toronto properties on Wednesday.

"The Company remains committed to using our significant real estate holdings to unlock additional value for our shareholders and are exploring alternatives to help accomplish that goal," Hudson's Bay spokeswoman Tiffany Bourre said in a Feb. 26 email. "The Toronto sale-leaseback was a one-off transaction and does not change that commitment."

Founded in 1670 as a fur trading business, Toronto-based Hudson's Bay represents the longest continually run company in North America. The company currently operates department store chain Hudson's Bay and kitchen, bed and bath superstore Home Outfitters in Canada, along with Saks Fifth Avenue and Lord & Taylor in the U.S.

Through the sale of its Queen Street store and downtown Toronto complex to The Cadillac Fairview Corp. Ltd., Hudson's Bay garnered C$650 million ($584.7 million) that it said will be used to reduce a debt load that includes loans that were used to support its $2.9 billion acquisition of Saks.

Specifically, Hudson's Bay will pay down all of its $300 million second-lien term loan due in 2021 that was bearing interest at 8.25% and $150 million of the $2 billion first-lien term loan due in 2020 bearing interest at 4.75%. The remaining proceeds will be used to pay down the company's revolver.

In connection with the transaction, Hudson Bay has leased both properties from Cadillac Fairview for at least 25 years. Canada's first Saks Fifth Avenue store, which the company anticipates will be launched in the fall of 2015, will be located at the Queen Street property.

The Deal first reported on July 29 that Hudson's Bay intended to place all of its real estate into a public company after acquiring Saks.

Hudson's Bay completed the acquisition of Saks on Nov. 4. It then announced the sale of its Toronto real estate assets on Jan. 27.

After the Jan. 27 announcement, analysts began floating the idea that additional sale-leaseback arrangements for Hudson's Bay's other locations could follow.

The completion of the Saks acquisition and the sale of the Toronto assets came before management changes at Hudson's Bay. On Feb. 10, the company disclosed the resignation of Michael Culhane as CFO. The company has yet to name a replacement for Culhane, who joined Hudson's Bay in 1997 and took over as CFO in 2009. Hudson's Bay president Donald Watros will fill in as acting CFO, with assistance from Douglas Scovanner.

For the third-quarter ended Nov. 2, Hudson's Bay posted C$984.1 million in revenue, up from C$930 million a year earlier. Its loss narrowed to C$124.2 in the period from C$287.2 the year before, while normalized Ebitda slid to C$64.3 million in the third quarter, from C$153.3 million for the same timeframe in 2012.

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