The Bay mortgages Saks to pay for $250m reno
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Nov 24, 2014  |  Vote 0    0

The Bay mortgages Saks to pay for $250m reno

The $1.25 billion, 20-year mortgage on the ground portion of the Fifth Avenue store allows HBC ‘to retain tremendous flexibility and control,’ the company said this morning

OurWindsor.Ca

Hudson’s Bay Company on Monday announced plans for a $1.25 billion, 20-year mortgage on the ground portion of its flagship Saks Fifth Avenue store in New York City.

The store, at 611 Fifth Ave. in midtown Manhattan, was valued by an independent appraiser at $4.1 billion according to a press release issued by the company early Monday.

“As we advance our efforts to create and realize value from our substantial real estate portfolio, it became obvious to us that our Saks Fifth Avenue New York flagship was unique and we should treat this very special asset differently than our other properties,” according to a statement from Richard Baker, HBC’s governor and chief executive officer.

HBC is planning a $250 million U.S. renovation of the store on Fifth Ave., which is the most productive store in the chain, and the money made available by the mortgage will help finance that, according to the release. The renovation is set to start in the first half of 2015.

“This financing also highlights the significant value embedded in our owned real estate and strengthens our financial position by providing long-term, fixed-rate capital on highly attractive terms,” Baker said in the company statement.

“This transaction, which follows the 2011 sale of our Zellers leases for $1.825 billion and the February 2014 sale and leaseback of our Queen Street property in Toronto for $650 million, continues the pattern of opportunistically utilizing the company’s substantial real estate holdings to surface shareholder value while strengthening our operating business.”

“Critically, the transaction allows us to retain tremendous flexibility and control over our most important flagship property including, for example, the ability to vend the property into a REIT or secure additional leverage on the leasehold interest. The appraisal values this one asset at $4.1 billion, which we believe is less than half of the estimated value of our real estate portfolio,” he went on to say.

All proceeds from the financing, net of associated cash expenses, will be used to permanently pay down approximately $1.2 billion U.S. of debt.

The transaction will result in approximately $76 million U.S. of one-time expenses, according to the release.

“Following this transaction, approximately 80 per cent of HBC’s debt will be backed by high-quality real estate, inventory and receivables, allowing it to benefit from attractive debt pricing, with limited or no recourse to HBC’s other retail operations. Additionally, the company’s capital structure is greatly enhanced through securing 20 year money,” according to the release.

Hudson’s Bay cut its loss by nearly half to $36 million in the second quarter, boosted by strong sales from U.S. luxury retailer Saks Inc., Canadian Press reported previously

That loss of amounted to 23 cents per diluted share from continuing operations, compared with a loss of $66 million, or a loss of 55 cents per diluted share, in the same quarter last year.

Retail sales were $1.76 billion, an increase of $821 million, or 86.6 per cent, from $948 million for the previous year, primarily because of sales from Saks. Hudson’s Bay acquired Saks for $2.9 billion in 2013.

HBC operates Saks Fifth Avenue and Lord & Taylor in the United States, and Hudson’s Bay in Canada. HBC also operates Home Outfitters.

With files from Canadian Press

Toronto Star

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