TORONTO & NEW YORK--(BUSINESS WIRE)--Hudson’s Bay Company (“HBC”) (TSX:HBC) and RioCan Real Estate Investment Trust (“RioCan”) (TSX:REI.UN) announced today that they have closed the second tranche of their joint venture (the “RioCan-HBC JV”) focused on real estate growth opportunities in Canada. The joint venture will enable HBC and RioCan to build on the strength of existing real estate assets and identify new real estate growth opportunities. Unless otherwise indicated, all amounts are expressed in Canadian dollars.
As part of the second tranche closing:
- HBC indirectly contributed three ground-leased properties consisting of Yorkdale Shopping Centre, Scarborough Town Centre and Square One (collectively the “YSS Properties”) totaling 735,926 square feet to the RioCan-HBC JV.
- The transaction values this second tranche of the HBC real estate contribution at approximately $379 million based on a capitalization rate of 5.26%. As part of the transaction, the HBC mortgage on the Yorkdale ground lease of approximately $48 million was assumed by an entity related to the RioCan-HBC JV, resulting in a total HBC equity stake of $1,281 million or 89.7% in the RioCan-HBC JV.
RioCan has committed to contribute a total of $325 million to the RioCan-HBC JV for an eventual pro forma equity stake of approximately 20%. The balance of these contributions will consist of $52.5 million in tenant allowances, and $125.4 million to be used to fund future property acquisitions to increase the value and diversify the tenant base of the RioCan-HBC JV. These contributions will be made by the third anniversary of the first tranche closing date.
On August 4, 2015, HBC obtained a favourable court declaration and order from the Superior Court of Justice-Ontario which permits the indirect contribution of the three ground-leased YSS Properties to RioCan-HBC JV. This court order has been appealed by the related landlords. If the landlords’ appeal is successful, HBC and RioCan have agreed to unwind HBC’s capital contribution of these ground leases, in whole or in part, if required to protect the value of these assets.
About Hudson’s Bay Company
Hudson’s Bay Company is one of the fastest-growing department store retailers in the world, based on its successful formula of driving the performance of high quality stores and their all-channel offerings, unlocking the value of real estate holdings and growing through acquisitions. Founded in 1670, HBC is the oldest company in North America. With the recent completion of its acquisition of GALERIA Kaufhof Group, HBC’s portfolio today includes nine banners, in formats ranging from luxury to better department stores to off price, with more than 460 stores and 65,000 employees around the world.
In North America, HBC’s leading banners include Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue and Saks OFF 5TH, along with Find @ Lord & Taylor and Home Outfitters. In Europe, its banners include GALERIA Kaufhof, the largest department store group in Germany, Belgium’s only department store group Galeria INNO, as well as Sportarena.
HBC has significant investments in real estate joint ventures. It has partnered with Simon Property Group Inc. in the HBS Global Properties Joint Venture, which owns properties in the United States and Germany. In Canada, it has partnered with RioCan Real Estate Investment Trust in the RioCan-HBC Joint Venture.
RioCan is Canada's largest real estate investment trust with a total enterprise value of approximately $15.1 billion as at September 30, 2015. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 354 retail properties containing approximately 78 million square feet, including 49 retail properties containing 13 million square feet in the United States as at September 30, 2015. RioCan's portfolio also includes 16 properties under development in Canada. For further information, please refer to RioCan's website at www.riocan.com.
Forward-Looking Statements – Hudson’s Bay Company
Certain statements made in this news release, including, but not limited to, statements relating to the strategies, objectives and benefits of the RioCan-HBC joint venture, and RioCan’s commitment to make future contributions to the RioCan-HBC JV, and other statements that are not historical facts, are forward-looking. Often but not always, forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology.
Although HBC believes that the forward-looking statements in this news release are based on information and assumptions that are current, reasonable and complete, these statements are by their nature subject to a number of factors that could cause actual results to differ materially from management's expectations and plans as set forth in such forward-looking statements for a variety of reasons. Some of the factors - many of which are beyond HBC’s control and the effects of which can be difficult to predict – include, among others: (a) the risk that the anticipated benefits from the RioCan-HBC joint venture cannot be realized, (b) the risk that the RioCan-HBC JV is unable to make future acquisitions and diversify its tenant base, (c) the risk that RioCan fails to satisfy its future contribution commitments, (d) the risk that the purchase price paid by the RioCan-HBC JV to acquire the properties is greater than the accounting fair market value of such properties that will be determined by third party appraisals; (d) the risk that the landlords of the YSS Properties will be successful in their appeal of the August 4, 2015 court order and HBC will have to unwind all or a part of the contribution of the YSS Properties; and (e) the risk that the RioCan-HBC JV is unable to complete a future monetization transaction.
HBC cautions that the foregoing list of important factors and assumptions is not exhaustive and other factors could also adversely affect its results. For more information on the risks, uncertainties and assumptions that could cause HBC’s actual results to differ from current expectations, please refer to the "Risk Factors" section of HBC’s Annual Information Form dated April 30, 2015, HBC's second quarter Management Discussion & Analysis dated September 10, 2015, as well as HBC's other public filings, available at www.sedar.com and at www.hbc.com.
The forward-looking statements contained in this news release describe HBC’s expectations at the date of this news release and, accordingly, are subject to change after such date. Except as may be required by applicable Canadian securities laws, HBC does not undertake any obligation to update or revise any forward-looking statements contained in this news release, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements.
Forward-Looking Statements – RioCan Real Estate Investment Trust
This news release contains forward-looking statements within the meaning of applicable securities laws. These statements include, but are not limited to, statements made in this News Release relating to the strategies, objectives and benefits of the RioCan-HBC joint venture, RioCan’s commitment to make future contributions to the RioCan-HBC JV, and other statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe", "should", "plan", "continue", or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. All forward-looking statements in this News Release are qualified by these cautionary statements.
These forward-looking statements are not guarantees of future events or performance and, by their nature, are based on RioCan’s current estimates and assumptions, which are subject to risks and uncertainties, including those described under “Risks and Uncertainties” in RioCan’s Management’s Discussion and Analysis for the period ended September 30, 2015, which could cause actual events or results to differ materially from the forward-looking statements contained in this News Release. Those risks and uncertainties include, but are not limited to, those related to: liquidity and general market conditions; tenant concentrations and related risk of bankruptcy or restructuring (and the terms of any bankruptcy or restructuring proceeding), occupancy levels and defaults, including the failure to fulfill contractual obligations by the tenant or a related party thereof; lease renewals and rental increases; the ability to re-lease and find new tenants for vacant space; retailer competition; access to debt and equity capital; interest rate and financing risk; joint ventures and partnerships; the relative illiquidity of real property; unexpected costs or liabilities related to acquisitions and dispositions; development risk associated with construction commitments, project costs and related approvals; environmental matters; litigation; reliance on key personnel; management information systems; unitholder liability; income and indirect taxes; U.S. investments, property management and foreign currency risk; and credit ratings.
RioCan currently qualifies as a real estate investment trust for tax purposes and intends to continue to qualify for future years. The Income Tax Act (Canada) contains provisions which potentially impose tax on publicly traded trusts which qualify as specified investment flow-through entities (the SIFT Provisions). However, the SIFT Provisions do not impose tax on a publicly traded trust which qualifies as a real estate investment trust (REIT). Should RioCan no longer qualify as a REIT under the SIFT Provisions, certain statements contained in RioCan's MD&A may need to be modified. RioCan is still subject to Canadian tax in their incorporated Canadian subsidiaries.
The Trust’s U.S. subsidiary qualifies as a REIT for U.S. income tax purposes. The subsidiary expects to distribute all of its U.S. taxable income (if any) to Canada and is entitled to deduct such distributions for U.S. income tax purposes. The subsidiary’s qualification as a REIT depends on the REIT’s satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements on a continuing basis. The Trust anticipates that the subsidiary will continue to qualify as a U.S. REIT in the future. The Trust's U.S. subsidiary is subject to a 30% or 35% withholding tax on distributions to Canada.
Other factors, such as general economic conditions, including interest rate and foreign exchange rate fluctuations, may also have an effect on RioCan’s results of operations. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include, but are not limited to: a stable retail environment; relatively low and stable interest costs; a continuing trend toward land use intensification, including residential development in high growth and urban markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable the Trust to refinance debts as they mature; and the availability of investment opportunities for growth in Canada and the U.S..
For a description of additional risks that could cause actual results to materially differ from management’s current expectations, see “Risks and Uncertainties” in RioCan’s Management’s Discussion and Analysis in its 2014 Annual Report, and for the period ended September 30, 2015, and in “Risks and Uncertainties” in RioCan’s AIF. Although the forward-looking information contained in this News Release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with this forward-looking information. Certain statements included in this News Release may be considered “financial outlook” for purposes of applicable Canadian securities laws, and as such the financial outlook may not be appropriate for purposes other than this News Release. The forward-looking information contained in this News Release is made as of the date of this News Release, and should not be relied upon as representing RioCan’s views as of any date subsequent to the date of this News Release.
Management undertakes no obligation, except as required by applicable law, to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.