(Reuters) – Canadian department store operator Hudson’s Bay Co outlined a US$1.25 billion refinancing plan on Monday, in a move to reduce debt taken on when it acquired U.S. rival Saks last year.
The retailer said it would take out a 20-year mortgage on the ground portion of its flagship Saks Fifth Avenue store in New York City after an appraiser valued the property at $4.1 billion (US$3.65 billion).
The mortgage transaction would allow it to capitalize on the value of its flagship asset now and also give it flexibility to capture additional value in the future.
HBC acquired Saks for US$2.4 billion in cash last year, and assumed about US$500 million of Saks debt as part of the deal. At the time, it said it was mulling creating a real estate investment trust, or REIT, to monetize its real estate holdings and help it pay down debt.
Early in 2015, HBC will begin a US$250 million renovation at its flagship Saks Fifth Avenue store to boost productivity and the value of the asset. HBC said all the refinancing proceeds will be used to repay about US$1.2 billion of loans.
“Critically, the transaction allows us to retain tremendous flexibility and control over our most important flagship property,” said HBC Chief Executive Richard Baker in a statement, adding that HBC could still sell the property into a REIT, or secure additional leverage on the leasehold interest.
The move to refinance using the value in HBC’s real estate holdings is the latest by Baker, who with his father Robert is part of a group that owns National Realty & Development Corp, a private developer of U.S. retail and shopping centers.
The family is one of the largest private owners of shopping centers in the United States, with a portfolio of over 20 million square feet, consisting primarily of Wal-Mart, Target and Kohl‘s anchored properties.
HBC said it continued to work to extract value from the rest of its real estate portfolio, which includes the Lord & Taylor Fifth Avenue store, the Saks Beverly Hills store and 59 other owned and ground leased locations in the United States, together with 19 locations in Canada. It will announce details on this process in the spring of 2015.
HBC sold its flagship retail complex in downtown Toronto this year to an affiliate of Cadillac Fairview for $650 million, in a sale and leaseback deal.
HBC was acquired by NRDC Equity Partners, an affiliate of National Realty & Development Corp, in 2008. The company went public in late 2012.
(Reporting by Euan Rocha; Editing by Chizu Nomiyama and Bernadette Baum)
(This story has been edited by Kirk Falconer, editor of peHUB Canada)
Photo courtesy of Reuters/J.P. Moczulski