BUSINESS

HBC forms new real estate joint ventures to 'fatten up' its property portfolios

02/25/2015 08:06 EST | Updated 04/27/2015 05:59 EDT
TORONTO - Hudson's Bay Co. is launching separate joint venture partnerships with two major North American real estate companies as it looks to unearth value from its vast collection of stores and scours the market for attractive retail assets.

HBC chief executive Richard Baker, head of Hudson's Bay, Lord & Taylor and Saks Fifth Avenue, said Wednesday that the new agreements will help shareholders finally recognize the value of properties in the company's portfolio, which he believes are worth $9.2 billion overall.

"Often companies have real estate hidden inside the operating company and the shareholders can't understand what they own," he said in an interview.

"We thought it was our responsibility to make it clear."

Share in Hudson's Bay (TSX:HBC) closed up $4.38 or 19.74 per cent at $26.57 on the Toronto Stock Exchange.

The partnerships don't include the Saks Fifth Avenue flagship store in Manhattan, which HBC says is worth an estimated C$4.6 billion on its own — more than it paid to acquire the entire Saks retail business in 2013. That Saks takeover deal was worth US$2.9 billion, including debt that HBC assumed to acquire Saks Fifth Avenue stores and affiliated businesses.

However, the partnerships do shuffle most of HBC's other properties, worth $3.8 billion, under the umbrella of the separate agreements. RioCan REIT (TSX:REI.UN), based in Toronto, will partner for the Canadian properties and Simon Property Group (NYSE:SPG), located in Indianapolis, will be responsible for U.S. and global assets.

Together, the two real estate companies will put in $670 million of cash and property.

Through the ventures, HBC and its partners will look to acquire more top-tier retail properties, which could include department stores in urban centres or some of the best malls around the world with price tags ranging from $25 million to as much as "a couple hundred million dollars," Baker said.

"Our goal is to opportunistically acquire properties that are of quality, that can diversify our portfolio," he added.

Baker has frequently insisted HBC's real estate is underappreciated by the market and last summer pledged to find ways to unlock its value.

The new joint ventures are worth about $4.2 billion in total, and HBC estimates it will get $1.1 billion in cash from the transactions over time, which will be used to reduce debt.

Eventually, the retailer hopes to "fatten up" the real estate portfolios to a level where they can be listed on stock markets, John Caplice, senior vice-president of treasury at HBC, said during a conference call with analysts.

"If we had done an IPO (now), we wouldn't create as much value as we will when we have a more mature . . . diversified portfolio," he said.

"We have no immediate rush to do an IPO on either of these transactions and there is no nothing that limits us from doing them expeditiously. We just wanted to go through this transition first."

Across Canada, the company has 90 Hudson's Bay department stores and two outlet locations as well as 69 Home Outfitters locations.

It also has 50 Lord & Taylor department stores and four outlets under the brand, as well as 38 Saks Fifth Avenue locations in addition to 79 Off 5th discount stores.