Hudson’s Bay Company Partners with Industry-Leading Real Estate Companies to Create Joint Ventures Valued at C$4.2 Billion

Management Values HBC’s Total Real Estate Portfolio at More Than C$9 Billion

Structures Unlock Long-Term Value from Real Estate Portfolio and Position Company to Capitalize on Future Growth Opportunities

Increased Financial Flexibility Better Positions Company for Growth in Retail and Real Estate Businesses

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 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.”

“These transactions are another example of HBC opportunistically utilizing the Company's substantial real estate assets to surface shareholder value and strengthen our operating business,” said Paul Beesley, Chief Financial Officer. “They provide additional transparency enabling our shareholders to benefit from the recognition of the true value of Hudson’s Bay Company’s unique assets, including our two new joint ventures, the iconic Saks Fifth Avenue flagship and, our strong operating company and remaining real estate assets.”

Financial Rationale

The transactions position HBC’s retail business for continued growth, while providing increased financial flexibility. The approximately C$1.1 billion in expected cash proceeds from the joint venture transactions, net of expenses, will be used to reduce debt on HBC’s balance sheet. It is expected that the joint ventures will be accounted for using the equity method of accounting. As a result, indebtedness at the joint ventures will not be consolidated on HBC’s balance sheet and there will be limited impact on cash flow. The Company’s retail operations will enter into long-term lease arrangements with the joint ventures with average lease terms of 20 years, plus renewal options.

History of Value Creation

The announcement of these joint venture arrangements continues the Company’s pattern of executing on its strategy to surface shareholder value from its extensive real estate holdings, while strengthening HBC’s balance sheet and operating business. Previous initiatives include the 2011 sale of the Company’s Zellers leases for C$1.8 billion, last year’s sale and lease back of the Queen Street property in Toronto for C$650 million and, most recently, the mortgage financing of the Saks Fifth Avenue flagship in New York. Collectively, these transactions support management’s belief that the real estate assets of HBC, including debt, are worth C$9.2 billion, summarized as follows:

 
HBC Real Estate Assets  

Value in C$ Billions

(US$ 1.00 = C$ 1.25)

US JV   C$ 2.1
Canadian JV   C$ 1.7
Saks Fifth Avenue NYC Flagship   C$ 4.6

Lord and Taylor 5th Avenue Flagship and
other real estate (company estimate)

  C$ 0.8
Total   C$ 9.2
 

It is important to note that more than 90% of the C$9.2 billion estimate is supported by the transactions announced today and the independent appraisal commissioned by the lenders of the mortgage financing of the Saks Fifth Avenue flagship in New York.

Closing

Each transaction has been approved by HBC’s board of directors. Both transactions are expected to close in approximately 90 days, subject to securing acceptable debt financing for each joint venture and other customary closing conditions and consents, as applicable.

US dollar amounts have been converted to Canadian dollars at a rate of US$ 1.00 = C$ 1.25.

Conference Call to Discuss Transaction

Richard Baker, HBC’s Governor and Executive Chairman, Jerry Storch, Chief Executive Officer, and Paul Beesley, Chief Financial Officer, will discuss the transaction during a conference call on February 25, 2015 at 8:30 am EDT.

The conference call will be accessible by calling the participant operator assisted toll-free dial-in (877) 852-2926 or international dial-in (253) 237-1123. A live webcast of the conference call and presentation will be accessible on HBC’s website at: http://investor.hbc.com/events.cfm. An audio instant replay will be available via this link until March 25, 2015.

Additional information is also available in a joint press release issued today by HBC and RioCan and a joint press release issued today by HBC and Simon. The joint press releases issued with RioCan and Simon are accessible on HBC’s website at: http://investor.hbc.com/releases.cfm.

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".

Forward-Looking Statements

Information in this press release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws, such as information with respect to the contemplated strategic joint ventures including their objectives, anticipated benefits, growth opportunities, governance structures, related debt financings, required consents, and timing for closing, as well as the impact of such joint ventures on HBC’s real estate value, growth initiatives, balance sheet, financial position and future monetization transactions. This information is based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While the Company considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking information is subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what the Company currently expects. These risks, uncertainties and other factors include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates, the timing and market acceptance of future products, competition in the Company's markets, the growth of certain business categories and market segments and the willingness of customers to shop at the Company's stores, the Company's margins and sales and those of the Company's competitors, the Company's reliance on customers, risks and uncertainties relating to information management, technology, supply chain, product safety, changes in law, regulations, competition, seasonality, commodity price and business disruption, the Company's relationships with suppliers and manufacturers, changes to existing accounting pronouncements, the ability of the Company to successfully implement its strategic initiatives, changes in consumer spending, managing our portfolio of brands and our merchandising mix, seasonal weather patterns, economic, social, and political instability in jurisdictions where suppliers are located, increased shipping costs, potential transportation delays and interruptions, the risk of damage to the reputation of brands promoted by the Company and the cost of store network expansion and retrofits, compliance costs associated with environmental laws and regulations, fluctuations in currency and exchange rates, commodity prices, the Company's ability to maintain good relations with its employees, changes in the law or regulations regarding the environment or other environmental liabilities, the Company's capital structure, funding strategy, cost management programs and share price, the Company's ability to integrate acquisitions and the Company's ability to protect its intellectual property.

For more information on these risks, uncertainties and other factors the reader should refer to the Company's filings with the securities regulatory authorities, including the Company's annual information form dated May 2, 2014, which is available on SEDAR at www.sedar.com. To the extent any forward-looking information in this press release constitutes future-oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future-oriented financial information and financial outlooks, as with forward-looking information generally, are based on assumptions and subject to risks, uncertainties and other factors. Actual results may differ materially from what the Company currently expects. Other than as required under securities laws, the Company does not undertake to update any forward-looking information at any particular time. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. All forward-looking information contained in this press release is expressly qualified in its entirety by this cautionary statement.

Statements Related to the Value of HBC’s Real Estate Assets

Statements in this press release related to management’s belief regarding the value of HBC’s real estate assets are based on, and take into account, assumptions made by the Company’s management in light of its experiences, current conditions as well as other factors. Although management believes in good faith such assumptions to be appropriate and reasonable in the circumstances as of the date hereof, there can be no assurances that such estimates and assumptions are entirely accurate or correct. Readers should not place undue reliance on such belief statements.

Caution should also be exercised in the evaluation and use of the independent appraisal results. The appraisals are an estimate of value at a specific date and are not a precise measure of value, being based on a subjective comparison of related activity taking place in the real estate market. The appraisals are based on various assumptions of future expectations, including the assumption that the entire flagship property is net leased by Saks Fifth Avenue at an estimated current fair market rent. While the appraiser’s assumptions are considered to be reasonable at the current time, some of the assumptions may not materialize or may differ materially from actual experience in the future.

Contacts

Hudson's Bay Company
Investor Relations, 416-256-6745
investorrelations@hbc.com
or
Media Relations:
Andrew Blecher, 212-391-3179
Senior Vice President, Public Relations
Andrew.blecher@hbc.com

Contacts

Hudson's Bay Company
Investor Relations, 416-256-6745
investorrelations@hbc.com
or
Media Relations:
Andrew Blecher, 212-391-3179
Senior Vice President, Public Relations
Andrew.blecher@hbc.com