TORONTO--(BUSINESS WIRE)--Hudson’s Bay Company (“HBC”) (TSX:HBC) and RioCan Real Estate Investment Trust (“RioCan”) (TSX:REI.UN) announced today that they have agreed to form a joint venture 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. The transaction is structured to facilitate an IPO or other monetization of the joint venture at a future date.
“By partnering with RioCan, Canada’s largest REIT, 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. “The joint venture will benefit from a strong foundation of HBC properties, whose tremendous value has been endorsed 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.”
“This joint venture represents an exciting opportunity for RioCan and HBC to combine our collective retail real estate acumen, and a strong collection of banners which serve as highly desirable anchor tenants in order to create a one-of-a-kind real estate portfolio with excellent potential for future urban mixed use redevelopment,” said Edward Sonshine, Chief Executive Officer of RioCan. “RioCan’s expertise in the Canadian retail real estate market will enable the joint venture to significantly expand and diversify its portfolio, as well as position HBC and RioCan shareholders to benefit from the long-term value creation opportunity this structure creates. These two significant retail entities, with an incredible amount of collective retail real estate and development experience and expertise, will seek ways to improve upon and, in some cases redevelop, some of Canada’s most prominent urban retail locations into landmark mixed-use urban developments.”
Canadian Joint Venture Structure
Under the agreement with RioCan, HBC will contribute 10 owned or ground-leased properties with an estimated 3,286,703 in square footage to a newly established joint venture entity (the “JV Entity”), including Hudson’s Bay flagship properties in downtown Vancouver, Calgary, Ottawa, and Montreal. The transaction values the HBC real estate contribution at approximately C$1.7 billion based on a capitalization rate of 5.08%. In addition to an eventual pro forma 79.8% equity stake in the JV entity, HBC is expected to receive approximately C$352 million in cash proceeds from third-party debt to be arranged in advance by HBC and assumed by the JV Entity, and the JV Entity is expected to assume approximately C$48 million of existing debt secured against one of the properties contributed by HBC.
RioCan has committed to contribute C$325 million to the JV Entity for an eventual pro forma equity stake of 20.2%. RioCan’s initial equity contribution will be in the form of a 50% interest in two mall properties in Ontario (Oakville Place and Georgian Mall) at a gross sales price of C$296.6 million based on a capitalization rate of 5.15%, net of existing debt, and capital lease obligations aggregating to C$152.3 million, resulting in an initial equity stake of C$144.3 million or 10.1% in the JV Entity. RioCan is expected to contribute C$52.5M in the form of improvements for HBC properties contributed to the JV Entity. The balance of RioCan’s contributions, being approximately C$128.1 million, will be used to fund future property acquisitions to increase the value and diversify the tenant base of the JV Entity. RioCan’s contributions will be made by the third anniversary of the closing date. The JV Entity will be entitled to exclusivity on select enclosed regional mall acquisition opportunities in Canada identified by RioCan, and retail property acquisition opportunities identified by HBC.
The JV Entity will establish a dedicated management team focused on overseeing the contributed properties and growing the portfolio, with support from HBC and RioCan. The JV Entity will have a board that is comprised of four directors, two of whom are appointed by each partner. Unanimous Board consent is required for all major operating decisions, except for certain HBC ground leases, which will remain controlled directly by HBC. RioCan will continue to act as manager for the enclosed malls that it will contribute to the JV Entity’s portfolio.
The transaction is currently expected to close by the end of June, subject to securing acceptable debt financing for the JV Entity and other customary closing conditions and consents.
Scotiabank acted as financial advisor to HBC on the transaction.
HBC 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.
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".
RioCan is Canada's largest real estate investment trust with a total capitalization of approximately $15.1 billion as at December 31, 2014. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 340 retail properties containing more than 79 million square feet, including 48 grocery anchored and new format retail centres containing 13 million square feet in the United States as at December 31, 2014. RioCan's portfolio also includes 15 properties under development in Canada. For further information, please refer to RioCan's website at www.riocan.com.
Hudson’s Bay Company
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 venture transaction, including its objectives, anticipated benefits, growth opportunities, governance structure, related debt financing, required consents, and timing for closing. 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.
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 (including the sections entitled "Canadian Joint Venture Structure", "Governance", and "Closing"), 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 year ended December 31, 2014, 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, occupancy levels and defaults; lease renewals and rental increases; 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. 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 in high growth markets; access to equity and debt capital markets to fund, at acceptable costs, the future growth program to enable the Trust to refinance debts as they mature; and the availability of purchase opportunities for growth in Canada and the U.S.. 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 these forward-looking statements. Certain statements included in this News Release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this News Release.
The Income Tax Act (Canada) contains provisions which potentially impose tax on publicly traded trusts (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"). RioCan currently qualifies as a REIT and intends to continue to qualify for future years. Should this not occur, certain statements contained in this News Release may need to be modified.
Except as required by applicable law, RioCan under takes no obligation to publicly update or revise any forward- looking statement, whether as a result of new information, future events or otherwise.