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People walk by the Hudsons Bay store at the corner of Yonge st and Queen St. in Toronto on April 14, 2008. (Jim Ross for The Globe and Mail)
People walk by the Hudsons Bay store at the corner of Yonge st and Queen St. in Toronto on April 14, 2008. (Jim Ross for The Globe and Mail)

HBC eyes spinoff for real estate holdings Add to ...

Hudson’s Bay Co., whose third-quarter loss widened, will consider spinning off its valuable real estate into a real estate investment trust, borrowing a page from the playbook of grocery giant Loblaw Cos. Ltd.

“We’ve always believed that some time in the future we could have the opportunity ... to create a REIT, similar to what Loblaw is proposing,” Richard Baker, the U.S. real estate magnate who controls HBC and is its governor (chairman) and chief executive officer, told an analysts’ conference call on Tuesday morning.

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“It’s nice to be invested in a retailer that owns a lot of real estate and the type of real estate we own would fit very nicely into a REIT.”

HBC isn’t working on a REIT plan currently, he added. “But it is something we often talk about and foresee some day in the future getting more involved in. “ Last week, Loblaw unveiled its intention to unlock its real estate value by setting up a REIT by mid-2013, prompting the grocer’s share price to surge. Loblaw will keep a more than 80-per-cent stake in the real-estate company, which is expected to own about $7-billion worth of property, most of it housing its supermarkets.

HBC owns or leases 11 million square feet of “spectacular” real estate, Mr. Baker said.

In reporting its first quarterly results as a born-again public company on Tuesday, HBC said its third-quarter loss from continuing operations grew almost 1 per cent to $8.5-million or 8 cents a share compared with a loss of $7.5-million or 7 cents a share a year earlier. Those operations, which are mainly department stores the Bay (now being called Hudson’s Bay) and Lord & Taylor in the United States, were pinched by inventory shortage issues and price markdowns. Overall sales grew 3.8 per cent to $930.4-million from $896.7-million, helped by promotional events.

The company also unveiled a quarterly dividend of just over 9 cents a share, to be paid on Dec. 27 to shareholders of record at the close of business on Dec. 19.

The results mark an historic moment for HBC, which went public last month after operating as a private company for seven years. Today, under Mr. Baker’s control since 2008, the retailer is comprised mainly of the Bay (which it is renaming Hudson’s Bay), Lord & Taylor in the United States and the Canadian Home Outfitters superstore chain. It sold most of its leases of its discounter Zellers to Target Corp for $1.8-billion, and will close remaining Zellers stores by next year.

The retailer’s overall third-quarter loss , including its “discontinued” operations which is principally its Zellers chain, stood at $2-million, or 2 cents a share, compared with a profit of $1.2-million or $11.83 a share a year earlier.

Third quarter same-store sales at outlets open a year or more picked up by 3.5 per cent, driven mainly by such promotions as “Bay days.” Those sales are considered a key measure in retail. Those critical sales at Hudson’s Bay rose 4.5 per cent and, at Lord & Taylor, 5.2 in U.S. dollars. (The company also owns the smaller Home Outfitter specialty superstore chain.)

“Hudson’s Bay and Lord & Taylor continued to deliver solid mid-single digit same store sales increases for the third quarter of 2012, including an 8 per cent same-store sales increase in October at both banners,” Mr. Baker said in a release. “This continued strong performance has allowed the company to approve an initial quarterly dividend of $0.09375 per share.”

The retailer also warned that because of disruptions in its operations as a result of Hurricane Sandy, its November’s sales were flat. At Lord & Taylor, those sales dropped 12.4 per cent in U.S. dollars, while those sales rose 9 per cent (in Canadian currency) at Hudson’s Bay in Canada.

Adjusting for the roughly $20-million (U.S.) impact of the hurricane, same-stores sales at Lord & Taylor would have increased 3.7 per cent, it said, and consolidated same-store sales would have risen 5.7 per cent.

Both chains enjoyed an uptick in sales as a result of promotions and discounts during Black Friday, which is the day after the American Thanksgiving in late November when retailers kick off the holiday selling season with major sales.

“We welcome our new shareholders,” said Michael Culhane, chief financial officer at HBC. As a result of the retailer’s initial public offering, “we have reduced our net debt and we are in a strong position to continue growing our business.”

Since going public in late November, HBC shares have traded slightly below the company’s asking price of $17. On Monday, they closed at $16.81, up 9 cents on the day.

The company had plans to sell a total 21 million shares, about one-fifth of its stock, raising about $365-million through the initial offering. It consists mainly of a treasury offering of 14.7 million common shares, grossing about $250-million before expenses. Proceeds from that portion of the IPO go to HBC, which will use the money to pay down its debt.

Follow on Twitter: @MarinaStrauss

 
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