Saks, Lord & Taylor Owner Sheds Real Estate Assets in Challenging Retail Climate

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Hudson’s Bay Co. (TSX: HBC), which owns retailers Saks Fifth Avenue and Lord & Taylor, is selling part of a stake in real estate joint venture HBS Global Properties to three investors for $533 million, as e-commerce and other industry shifts drive retailers to reevaluate real estate holdings.   For more on the factors prompting retail real estate restructuring, read American Apparel's Bankruptcy Underscores Challenges for Retailers.

Montreal-based real estate company Ivanhoe Cambridge is investing $250 million; Madison International, another real estate firm based in New York is putting $150 million; and an undisclosed U.S. pension fund is picking up a portion valued at $133 million.

Hudson’s Bay will use the sale proceeds to reduce debt from about $1 billion to around $500 million. HBS Global is a joint venture between Hudson’s Bay and mall operator Simon Property Group. After the sale is completed, Hudson’s Bay will have a 63 percent stake in HBS.

The rise of Internet shopping has forced retailers collectively to take a look at their real estate holdings. Several, including Abercrombie & Fitch Co. (NYSE: ANF), now-bankrupt American Apparel Inc. and Sears Holdings Corp. (Nasdaq; SHLD), have opted to close stores or restructure their real estate portfolios.

Hudson’s Bay, based in New York, owns large department store retailers Lord & Taylor and Saks Fifth Avenue, which also have headquarters in New York. The company paid $2.4 billion in Saks in 2013.

The news comes one day after Saks announced plans to open a Saks Fifth Avenue Off Fifth store (the brand’s off-price segment), in New York in 2016. 

Hudson’s Bay “has made huge strides on our strategy to grow our off-price business in the U.S., and has aggressive growth planned moving forward, including expansion beyond the United States,” says Jonathan Greller, president of outlets at Hudson’s Bay. The target is not only company looking to open discount stores in an effort to boost traffic and sales. Kohl’s Corp. (NYSE: KSS) and Macy’s Inc. (NYSE: M) have either opened or are scheduled to open off-price stores as well.

RBC Capital markets and Willkie Farr & Gallagher LLP are advising Hudson's Bay.

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