Saks’ NYC flagship valued at $3.7 billion—more than Hudson’s paid for entire company
New York - It appears that Hudson’s Bay Co. got itself quite a deal when it purchased Saks Fifth Avenue in 2013 for the sum of $2.9 billion, including debt. Saks’s signature Fifth Avenue flagship has recently been appraised at an whopping $3.65 billion—significantly more than Hudson’s Bay paid for the entire chain. As much as anything, however, the appraisal reflects the strength of Manhattan’s retail real estate market.
The appraised value of the Fifth Avenue emporium came out when Hudson's Bay on Monday outlined a $1.25 billion refinancing plan in a move to reduce debt taken on when it acquired the U.S. brand. The Canadian giant said it would take out a 20-year mortgage on the ground portion of the Fifth Avenue flagship Saks Fifth Avenue store in New York City after an appraiser valued the property at C$4.1 billion ($3.65 billion).
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 (HBC). “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.
HBC is schedueled in early 2015 to begin a $250-million renovation at the flagship Saks Fifth Avenue store to boost productivity and the value of the asset.
“As previously disclosed, we have embarked on a significant project to improve and renovate this, our most productive store,” Baker said. “This renovation, which will commence in the first half of 2015 and is expected to cost approximately US$250 million, 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.”
Following this transaction, approximately 80% 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.