Hudson’s Bay Forms Joint Ventures With Simon Property and RioCan REIT

Toronto-based department store conglomerate Hudson’s Bay Co. announced today that it has formed two joint venture agreements with major real estate companies to target growth opportunities in the U.S. and Canada, as well as other global markets. The partnerships, valued in excess of 4.2 billion Canadian dollars (or $3.4 billion at current exchange), are with major U.S. mall owner Simon Property Group Inc. and Canadian retail powerhouse RioCan Real Estate Investment Trust.

Richard Baker, executive chairman of Hudson’s Bay, spelled out the details in a statement, noting that the real estate companies have committed property and cash contributions of more than CA$670 million ($538 million) to the joint ventures, while HBC’s property contributions are valued at more than CA$3.8 billion ($3.1 billion). “By partnering with [Simon and RioCan], we have created two tremendous real estate vehicles for growth,” said Baker, who added that the entities are structured to facilitate an IPO at a later date.

As part of the arrangement, HBC will enter into long-term lease agreements with the joint ventures, with average lease terms of 20 years. The department store operator also expects to realize CA$1.1 billion in cash proceeds from the joint venture transactions (net of expenses), to be used to reduce debt on HBC’s balance sheet.

“I am truly excited by these partnerships and what they mean for the future of HBC,” said CEO Jerry Storch, who joined the company in December. “A stronger balance sheet … will enable us to invest in growth initiatives across our retail business, including strengthening the connection between our store and digital businesses, expanding our off-price channel and investing in our world-class store base.”

In recent years the retailer — which operates Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue and Saks Off 5th — has been working hard to solidify its financial position. In November, HBC completed a $1.25 billion, 20-year mortgage on the ground portion of the Saks flagship in New York. And last year, it initiated the sale and lease-back of the Hudson’s Bay Queen Street property in Toronto for CA$650 million ($523 million).

All told, HBC’s real estate portfolio is estimated to be worth roughly CA$9.2 billion ($7.4 billion).

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