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Hudson's Bay plans $1.25 billion debt refinancing, shares jump

Reuters
A woman walks through the doors at the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014. REUTERS/Mark Blinch

By Euan Rocha and Solarina Ho

TORONTO (Reuters) - Canada's Hudson's Bay Co (Toronto:HBC.TO - News) outlined a $1.25 billion refinancing plan Monday, in a move to reduce interest payments on debt it took on after it bought U.S. rival Saks last year, sending its shares up more than 9 percent in midday trading.

The department store operator 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 C$4.1 billion ($3.65 billion), significantly more than it paid to buy all of Saks.

HBC shares jumped 9.4 percent in Toronto trading on Monday.

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RBC analyst Sabahat Khan said the transaction "highlights the substantial value of HBC's owned real estate portfolio," reduces its interest expenses and extends its debt maturities.

HBC acquired Saks for $2.4 billion in cash last year, and assumed about $500 million of Saks debt. The deal included 13 owned and ground-leased properties.

At the time, it said it was mulling creating a real estate investment trust, to monetize its real estate holdings and help it pay down debt.

HBC said all the refinancing proceeds will be used to repay about $1.2 billion of loans.

"What we announced today just represents the value of one of those 13 properties. So, more goodies to come," said HBC Chief Executive Richard Baker in an interview, adding that the retailer 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, controlling more than 20 million square feet, anchored largely by Wal-Mart, Target and Kohl's.

Baker said he does not expect any further real estate deals until HBC announces plans for the balance of its real estate portfolio, which includes Lord & Taylor Fifth Avenue and a Saks in Beverly Hills, 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.

($1 = C$1.1239)

(Editing by Bernadette Baum)