The possible liquidation of Hudson’s Bay is also bringing into question the future of its huge retail footprint, and highlighting the exposure other companies have to its potential downfall.
RioCan Real Estate Investment Trust is especially exposed to Hudson’s Bay’s financial woes because the two companies co-own 12 store properties, including some of the most prominent downtown locations, through a joint venture.
On Tuesday, RioCan said in a release that the retailer’s creditor protection filing is “disappointing.”
Hudson’s Bay is awaiting court permission to start liquidating all of its stores after it filed for creditor protection on March 7.
As part of its creditor protection requests, it has asked to put a stay on lease payments to the joint venture, something RioCan opposes.
“RioCan understands that restructuring can be a necessary step for companies to stabilize their operations and financial position; however, it is essential that any restructuring steps are on fair and balanced terms,” the company said in its release.
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Hudson’s Bay has a 78 percent ownership of 10 store locations including flagship stores in Montreal, Vancouver, Calgary and Ottawa, with RioCan owning the other 22 percent.
The companies however also have hundreds of millions of dollars worth of mortgages on the properties.
The joint venture also owns a 50 percent stake in stores in Oakville and Barrie, Ont., with RioCan owning the other half, and RioCan has a 50 percent ownership of an HBC location on the outskirts of Ottawa that isn’t part of the joint venture.
All together, RioCan says it owns about 842,000 square feet of net leasable area related to the Hudson’s Bay stores.
RioCan has also provided credit support totalling $88.7 million to HBC through loan guarantees and mezzanine loans.
The company said it remains committed to protecting the interests of its unitholders, and plans to use all available business and legal avenues, as well as its leasing and development capabilities, to get the best outcome for the properties.
RioCan chief executive Jonathan Gitlin said in a statement that the locations include prime real estate that have value either as retail centres or redevelopment opportunities.
“Our team has a proven track record of finding solutions for vacant space and will work to protect the value of the real estate in the JV,” Gitlin said. “This process will take time, expertise and collaboration among all stakeholders.”
Other companies exposed include Cadillac Fairview, which in 2014 agreed to pay $650 million for Hudson’s Bay’s Toronto flagship store and the adjoining Simpson’s Tower across from the Toronto Eaton Centre.
As part of the deal, Hudson’s Bay leased back the properties for 25 years with an optional extension.
Other landlords across Canada are also potentially on the hook as Hudson’s Bay is reliant on leases for all of its 80 stores.
Some had already taken action as the financial strains started to show, including a landlord in Sydney, N.S., that locked the retailer out of its store, said Jennifer Bewley, the chief financial officer for Hudson’s Bay’s parent company, in a court filing.
The retailer is looking for court permission to start liquidating all of its stores, though Hudson’s Bay says it could remove some from the fire sale if it secures enough financing.
Joseph Pasquariello, a lawyer for RioCan, spent Monday advocating for an Ontario court not to let Hudson’s Bay suspend rent payments to the stores his client owns.
He questioned whether Hudson’s Bay waited too long to seek “unprecedented relief“ and said the retailer’s approach so far “doesn’t scream out a well-organized restructuring opportunity.”
As did lawyers representing employees, Pasquariello warned Ontario Superior Court judge Peter Osborne about granting all that the company is seeking.
“We don’t want to set up a system that is doomed to fail from the get go.”
