Hudson’s Bay takes out $1.25 billion mortgage on Saks store

With the value of its flagship store on New York City’s Fifth Avenue appraised at an astonishing $3.7 billion, Saks parent Hudson’s Bay Co. has taken out a $1.25 billion loan to pay down debt and finance a $250 million renovation in 2015.

The deal “continues the pattern of opportunistically utilizing the company’s substantial real estate holdings to surface shareholder value while strengthening our operating business,” said Richard Baker, governor and CEO of Hudson’s Bay Co. “The transaction allows us to retain tremendous flexibility and control over our most important flagship property including, for example, the ability to vend the property into a REIT or secure additional leverage on the leasehold interest.”

HBC said all proceeds from the refinancing deal on the property at 611 Fifth Ave. will be utilized to pay down approximately $1.2 billion of HBC’s First Lien Term Loan, which currently bears interest at a floating rate of 4.75% and matures in 2020.

Early next year, HBC will begin a $250-million renovation at the flagship Saks Fifth Avenue store to boost productivity and the value of the asset.

“We have embarked on a significant project to improve and renovate this, our most productive store. This renovation is intended to significantly enhance the store productivity and we believe will lead to material value creation in the asset. This mortgage transaction allows us to capitalize on the value of this asset today, but also provides structural flexibility to capture additional value creation in the future,” Baker said.

Following this transaction, approximately 80 percent of HBC’s debt will be backed by high-quality real estate, inventory and receivables, allowing it to benefit from attractive debt pricing, with limited or no recourse to HBC’s other retail operations, the company said.

Hudson's Bay Co. operates 170 Lord & Taylor, Saks Fifth Avenue and Saks Fifth Avenue OFF 5TH stores in the United States.