Retail real estate investment trust (“REIT”) – Simon Property Group Inc. (SPG) – has agreed to team up with Canada’s firm, Hudson’s Bay Company (“HBC”), to form a U.S. Joint Venture (JV) valued at $1.8 billion.
The deal is structured to facilitate an initial public offering or other monetization of the JV in future. As per the terms of the deal, Hudson’s Bay would eventually hold an 80% stake in the JV entity, Simon Property would get the rest. Hudson’s Bay would contribute 42 owned or ground-leased properties, valued at $1.7 billion, to the JV. That includes Saks Fifth Avenue Beverly Hills flagship as well as the Westchester and Manhasset Lord & Taylor stores.
On the other hand, Simon Property would contribute up to $278.5 million and eventually enjoy 20% pro forma stake. While $100 million will be offered for the improvement of Hudson’s Bay properties, the balance would be used for future asset acquisitions and tenant diversification of the JV entity.
Notably, the properties of the JV would be leased back to Hudson’s Bay under triple-net operating leases. The company is expected to receive around $600 million in cash proceeds from third-party debt issued by the JV Entity, which it intends to use for repaying current debt. Importantly, the deal is expected to close within 90 days.
Notably, Hudson’s Bay is also partnering with RioCan Real Estate Investment Trust to form a Canadian JV. That deal would involve contribution of 10 owned or ground-leased Hudson’s Bay properties.
The move is a strategic fit for both Hudson’s Bay and Simon Property. While Hudson’s Bay would be able to unlock value from its real estate holdings and enjoy financial flexibility, Simon Property would benefit from the presence of Canada’s iconic department store – Hudson’s Bay – as its lead tenant.
Simon Property currently has a Zacks Rank #3 (Hold). Investors interested in REITs may consider stocks like Acadia Realty Trust (AKR), Agree Realty Corp. (ADC) and Regency Centers Corp. (REG). All these stocks carry a Zacks Rank #2 (Buy).
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