A key hearing with the Ontario Superior Court of Justice was held on Monday, March 17 regarding the future of the Hudson’s Bay Company.
However, the judge presiding over the creditor protection and restructuring case did not make a decision over triggering the liquidation, instead opting for more time to process the information presented by the retailer, creditors, landlords and other stakeholders.
At the time of writing, no decision by the court has been made, but it could come quickly at any time, perhaps later this week.
Hudson’s Bay has been unable to pay leases, vendors and loan obligations, and is just days away from missing payroll.
Liquidation has been identified as the only major way for the company to secure the interim financing it needs, with the company potentially closing at least half of its 80 department stores. A full closure of all locations is also possible.
Monday’s meeting was the first since Hudson’s Bay submitted its federal Companies’ Creditors Arrangement Act (CCAA) filing on March 7 to seek protection from creditors from seizing the company’s assets and properties. This initial protection for a period of 10 days was granted by the court.
But in addition to mall landlords seeking unpaid rent, some of Hudson’s Bay’s largest stakeholders are lashing back against the company’s restructuring due to their deep exposure to the retailer’s financial situation.
RioCan Real Estate Investment Trust has gone as far as calling the CCAA filing “disappointing,” and is now looking to provide their own stakeholders with some confidence in recouping their investments with Hudson’s Bay. They suggest Hudson’s Bay’s strategy to move forward must be on “fair and balanced terms.”
Some of Hudson’s Bay’s largest locations of greatest historical significance and at prime foot-traffic locations are tied up in a 2015 joint venture (JV) with RioCan. This joint venture is largely controlled by Hudson’s Bay, which owns 78 per cent of the partnership. RioCan owns the remaining 22 per cent.
In a statement, Jonathan Gitlin, president and CEO of RioCan, highlighted a potential strategy of securing new retailers for vacated Hudson’s Bay locations or pursuing redevelopment.
“The HBC locations in the JV include prime real estate within Canada’s major markets, that have value either as operating retail centres or redevelopment opportunities,” said Gitlin.
The company emphasized it will use its extensive leasing and development capabilities to achieve the best possible outcome for each Hudson’s Bay property held by the joint venture.
“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. This process will take time, expertise and collaboration among all stakeholders. With a strong core business, team and balance sheet, RioCan is well-positioned to navigate this situation. We will provide updates as we progress,” continued Gitlin.
This joint venture owns 12 Hudson’s Bay locations in total comprising five freehold stores (downtown Vancouver, downtown Montreal, downtown Calgary, downtown Ottawa and Devonshire Mall in Windsor) and five head leasehold stores (Yorkdale Shopping Centre and Scarborough Town Centre in Toronto, Square One Shopping Centre in Mississauga, and Carrefour Laval and Promenades St. Bruno near Montreal).
There are also two stores jointly owned by the joint venture and RioCan (Oakville Place and Georgian Mall in Ontario), each holding a 50 per cent stake.
Prior to the Hudson’s Bay existential crisis, redevelopment plans were hatched for the downtown Vancouver flagship store.
In 2022, the retailer announced its proposal to achieve a high-density, mixed-use redevelopment that preserves the existing heritage building facade, provides a 12-storey vertical expansion, generates about one million sq. ft. of office space, and provides space for a downsized Hudson’s Bay department store, along with space for other retail, restaurant and public space uses.
However, a rezoning application has yet to be submitted, and since the redevelopment plans were first announced, the downtown Vancouver store has deteriorated due to extreme deferred maintenance.
Currently, all elevators and escalators are inoperable and blocked off, leaving the single emergency stairwell as the only way for customers and staff to access the seven retail levels.
2022 artistic rendering of the redevelopment of Hudson’s Bay’s Vancouver flagship store at 674 Granville St. (Perkins & Will/Streetworks Development/Hudson’s Bay Company)
Some revisions to the proposed redevelopment design were expected to reduce the size of the office space component for the introduction of some secured purpose-built rental housing uses.
But while that is a long-term solution, RioCan is looking to stop the short-term bleed through legal means.
As of the end of 2024, the RioCan-Hudson’s Bay joint venture had a carrying value of $249 million or 3.3 per cent of equity. Furthermore, RioCan has provided credit support totalling $88.7 million in various loans to Hudson’s Bay through the joint venture.
It also provided a 100 per cent guarantee on the $75 million first mortgage on the joint venture’s Yorkdale Shopping Centre, a loan of $24.5 million for refinancing the Georgian Mall store location, and a loan of $14.2 million for refinancing the downtown Ottawa store.
According to RioCan’s motion filing to the court on March 14 in a bid to protect itself from the retailer’s CCCA filing, Hudson’s Bay’s continued occupation and use of the joint venture’s leased locations is worth about $10 million per month in lease revenue.
RioCan is particularly concerned as it believes Hudson’s Bay is only prepared to honour about 15 per cent of such monthly contractural rent obligations.
RioCan’s lawyers have asked the court to remove the suspension of rent payment from Hudson’s Bay’s restructuring plan, as well as have the retailer pay other obligations it owes to the joint venture and RioCan.
RioCan warns that without these rent payments, the joint venture will struggle with making its debt servicing payments for various mortgages related to these properties. Several properties will see their mortgages mature soon this year, and the “ability to refinance such mortgages will be negatively impacted if they are not receiving the contractually agreed rent payments owing.”
Fast approaching is the maturity of a $202-million mortgage for the downtown Vancouver store on April 30, 2025, followed by the maturities of a $105-million mortgage for the downtown Calgary store in August 2025, a $87.4-million mortgage for the Oakville Place Shopping Centre store also in August 2025, and a $161-million mortgage for the downtown Montreal store in October 2025.
“It is RioCan’s view that the Rent Suspension should not be approved based on all of the facts and circumstances, including because, among other things, the Rent Suspension causes material prejudice to RioCan, the Joint Venture (JV) Entities, and the creditors and other stakeholders of the JV Entities,” reads RioCan’s motion.
“The Rent Suspension terms are not fair or reasonable treatment in respect of the JV Entities. The JV Entities are not debtors in the CCAA proceeding, and should be treated as any other landlord in the case,” it continues.
“The fact is that HBC has contractual obligations to the JV Entities in respect of its lease or sublease of the 12 properties in the JV portfolio. HBC should be required to honour these contractual obligations while it has occupation and use of such properties.”
Conversely, Hudson’s Bay argues that rent suspension is a strategic measure to help protect the 354-year-old company from irreparable collapse.
