Indianapolis-based Simon Property Group Inc. (NYSE:SPG) is part of a $1.8 billion deal with Hudson's Bay Co. in Canada. The joint venture involves RioCan Real Estate Investment Trust in Toronto and could evolve into an Initial Public Offering. February 25, 2015
TORONTO & NEW YORK – Hudson's Bay Company (“HBC”) (TSX:HBC) and Simon Property Group Inc. (“Simon”) (NYSE:SPG) announced today that they have agreed to form a joint venture focused on credit tenant, net-leased and multi-tenanted retail buildings in the United States and internationally. The joint venture will build on the strength of HBC's existing real estate assets and identify new real estate growth opportunities, with a focus on credit tenant, net-leased and multi-tenanted retail buildings, including department stores. The transaction is structured to facilitate an IPO or other monetization of the joint venture at a future date.
“By partnering with Simon, the leading REIT in the US market, we are taking an important step forward in HBC's next chapter of growth,” stated Richard Baker, Governor and Executive Chairman of Hudson's Bay Company. “This joint venture will benefit from a strong foundation of HBC properties, whose tremendous value has been recognized by our best-in-class partner. This structure will also unlock additional long-term value for HBC shareholders by positioning the joint venture to transition to a more valuable and sustainable publicly traded REIT than HBC could create today.”
“In HBC, we have found a unique partner with a proven track record of creating value from retail properties, as well as a strong portfolio of banners that serve as attractive tenants for a range of retail opportunities,” said David Simon, Chairman and Chief Executive Officer of Simon. “Together, we will leverage our combined expertise to significantly expand and diversify the joint venture assets and increase its value for the benefit of our two companies and our shareholders.”
U.S. Joint Venture Structure
Under the agreement with Simon, HBC will contribute forty-two owned or ground-leased properties to a newly established joint venture entity (the “JV Entity”) with an estimated 5,417,286 in square footage, including the Saks Fifth Avenue Beverly Hills flagship and the Westchester and Manhasset Lord & Taylor stores. The JV Entity will lease back its properties under triple-net operating leases to HBC. The transaction values the properties contributed by HBC at US$1.7 billion (C$2.1 billion). In addition to an eventual pro forma 80% equity stake in the JV Entity, HBC is expected to receive approximately US$600 million (C$750 million) in cash proceeds from third-party debt issued by the JV Entity, which HBC will use to reduce existing indebtedness.
Simon has committed to contribute up to US$278.5 million (C$348 million) for an eventual pro forma equity stake of 20.0%. Simon will make US$100 million (C$125 million) of contributions available for improvements to HBC properties contributed to the JV Entity; US$50 million (C$63 million) upon closing and US$50 million (C$63 million) on the first anniversary of the closing date. The balance of Simon's contribution will be used to fund future property acquisitions to increase the value and diversify the tenant base of the JV Entity. In addition to pursuing attractive credit tenant, net-leased and multi-tenanted retail buildings in the US, the JV Entity will have a mandate to explore similar international opportunities and will be entitled to exclusivity on select retail property acquisition opportunities identified by HBC, as well as certain select opportunities identified by Simon.
The JV Entity will establish a dedicated management team focused on overseeing the contributed properties and growing the portfolio, with support from both HBC and Simon. HBC director Lee Neibart, who has extensive real estate experience, will be significantly involved in the joint venture.
The transaction is currently expected to close in approximately 90 days, subject to securing acceptable debt financing for the JV Entity and other customary closing conditions.
US dollar amounts have been converted to Canadian dollars at a rate of US$ 1.00 = C$ 1.25.
BofA Merrill Lynch acted as financial advisor to HBC on the transaction.
About Hudson's Bay Company
Hudson's Bay Company, founded in 1670, is North America's longest continually operated company. Today, HBC offers customers a range of retailing categories and shopping experiences primarily in the United States and Canada. Our leading banners – Hudson's Bay, Lord & Taylor, Saks Fifth Avenue and Saks Fifth Avenue OFF 5TH – offer a compelling assortment of apparel, accessories, shoes, beauty and home merchandise. Hudson's Bay is Canada's most prominent department store with 90 full-line locations, two outlet stores and thebay.com. Lord & Taylor operates 50 full-line locations primarily in the northeastern and mid-Atlantic U.S., four Lord & Taylor outlet locations and lordandtaylor.com. Saks Fifth Avenue, one of the world's pre-eminent luxury specialty retailers, comprises 38 U.S. stores, five international licensed stores and saks.com. OFF 5TH offers value-oriented merchandise through 79 U.S. stores and saksoff5th.com. Home Outfitters is Canada's largest kitchen, bed and bath specialty superstore with 67 locations. Hudson's Bay Company trades on the Toronto Stock Exchange under the symbol “HBC”.
About Simon Property Group Inc.
Simon is a global leader in retail real estate ownership, management and development and a S&P100 company (Simon Property Group, NYSE:SPG). Our industry-leading retail properties and investments across North America, Europe and Asia provide shopping experiences for millions of consumers every day and generate billions in annual retail sales. For more information, visit simon.com.
Source: Hudson's Bay Co.
February 25, 2015
TORONTO & NEW YORK – Hudson's Bay Company (TSX:HBC) (“HBC” or the “Company”) announced earlier today that it has entered into agreements with each of Simon Property Group Inc. (“Simon”) (NYSE: SPG) and RioCan Real Estate Investment Trust (“RioCan”) (TSX:REI.UN) to form two joint ventures focused on real estate growth opportunities in the United States and Canada, respectively. These joint ventures will enable HBC to leverage the expertise of market leading real estate companies to build on the strength of its existing real estate assets and identify new real estate growth opportunities. The transactions are structured to facilitate an IPO or other monetization transaction of each joint venture at a future date.
“I am very pleased to announce that we have partnered with Simon and RioCan to create joint ventures with mandates to grow our real estate presence and strengthen our retail banners,” said Richard Baker, Governor and Executive Chairman of Hudson's Bay Company. “By partnering with industry leaders, we have created two tremendous real estate vehicles for growth. Importantly, we have retained the flexibility to create REITs at a future date of our choosing. Collectively, our partners have committed property and cash contributions in excess of C$670 million to the joint ventures, which value our property contributions at more than C$3.8 billion based on a blended capitalization rate of approximately 5.67%. We believe that the value of HBC's total real estate portfolio is worth C$9.2 billion, with approximately 90% of that estimate supported by these two transactions and the independent valuation commissioned by the lenders in connection with the November 2014 mortgage financing of the Saks Fifth Avenue flagship.”
“I am truly excited by these partnerships and what they mean for the future of HBC,” said Jerry Storch, Chief Executive Officer, Hudson's Bay Company. “A stronger balance sheet and enhanced financial position will enable us to invest in grow