Photo: Darrell Bateman — Photo: Darrell Bateman

The Toronto Eaton Centre is now officially Canada's second-largest mall. Yesterday, The Hudson's Bay Company (HBC) completed the sale of its Toronto Queen Street flagship store (and adjacent office tower) to Cadillac Fairview for $650 million. A 150,000 square foot Saks Fifth Avenue store and a reconfigured 700,000 square foot Hudson's Bay flagship will be located on-site as part of the deal. This addition of 850,000 square feet to its current 1.2 million square feet of retail space technically makes the Toronto Eaton Centre Canada's second-largest shopping centre with about 2.05 million square feet of retail space, surpassing Burnaby BC's Metropolis at Metrotown (with close to 1.8 million square feet of retail space).

Canada's largest mall continues to be West Edmonton Mall with approximately 3.8 million square feet of retail area. With completion of the deal, Toronto's Eaton Centre would have been about 2.5 million square feet if it wasn't for the loss of its 816,000 square foot Sears store. Sears will be replaced by a 213,000 square foot Nordstrom store and a further 140,000 square feet of Sears' retail space is currently available for one or more tenants.

HBC has leased both the Queen Street retail space as well as the adjacent Simpson Tower back from Cadillac Fairview for a base term of 25 years, with renewal terms available at the Hudson's Bay Company’s option. The Queen Street property will feature Canada’s first Saks Fifth Avenue store location, expected to open in the fall of 2015.

“We are thrilled to have completed this transaction, which clearly demonstrates the tremendous value of our real estate portfolio,” stated Richard Baker, HBC’s Governor and Chief Executive Officer. “This sale-leaseback allows HBC to establish a benchmark valuation for one of our many flagship assets, reduce the debt on our balance sheet and accelerate our strategic investments. We remain committed to using our significant real estate holdings to unlock further value for our shareholders and are exploring a broad range of alternatives to help us accomplish this goal.”

According to HBC's press release, "Net of associated fees, all proceeds from the sale initially will be utilized to reduce HBC's debt. Specifically, HBC will retire in entirety its US$300 million Second Lien Term Loan, currently bearing interest at a rate of 8.25%, and permanently pay down US$150 million of its US$2 billion First Lien Term Loan, currently bearing interest at a rate of 4.75%. The balance of the net proceeds will be used to reduce the outstanding balance on the Company’s Canadian revolving credit facility. Over time, a portion of the proceeds will provide ample liquidity to fund the Company’s strategic investments including the expansion of Saks Fifth Avenue into Canada and growth initiatives such as our HBC Digital and OFF 5TH businesses."

Source: HBC press release