HBC takes out 20-year mortgage on Saks Fifth Avenue store in New York

TORONTO – Hudson’s Bay Company (TSX:HBC) says it is taking out a US$1.25 billion, 20-year mortgage for the ground floor of its Saks Fifth Avenue flagship store in New York City.

The mortgage has an expected interest rate of less than 4.4 per cent, with the transaction anticipated to close in early December.

“What we love about it is that we have locked in these historic low interest rates for the next 20 years, which is going to be substantial cash savings to the company,” HBC governor and chief executive Richard Baker told analysts during a conference call Monday.

Shares in HBC were up $1.78 or nearly nine per cent at $21.98 in trading on the Toronto Stock Exchange after the announcement.

The Canadian retailer said the building at 611 Fifth Ave. has been appraised at approximately $4.1 billion (US$3.7 billion), leased at current market rates.

The mortgage is expected to save the company at least $5 million in annualized cash interest expenses. The transaction will incur approximately US$76 million of one-time expenses.

HBC said it also plans to spend US$250 million to renovate the New York store in the first half of 2015.

Baker said the deal gives the company flexibility and control over its most important flagship property, including the possibility of setting it up as part of a potential real estate investment trust.

“It allows us to maintain all the options of doing other things with the building over time as we decide if it’s something that should be or needs to be done,” he added.

Baker said in June that the company was “committed to surfacing the value of our real estate, which we believe is unappreciated by the market.”

Last year, the company signed a $650-million deal to sell and lease back its Queen Street store and Simpson Tower office complex in Toronto.

Across Canada, the company has 90 Hudson’s Bay department stores and one outlet location as well as 69 Home Outfitters locations.

It also has 50 Lord & Taylor department stores and 39 Saks Fifth Avenue locations in addition to 80 Off 5th discount stores.

In 2011, Hudson’s Bay sold more than 200 Zellers locations in Canada to U.S. discounter Target as part of a $1.8-billion deal.