TORONTO & NEW YORK–(BUSINESS WIRE)–HBC (TSX:HBC) today announced a series of strategic transactions with WeWork Companies, Rhône Capital and an affiliate of WeWork Property Advisors, a joint venture between WeWork and Rhône, which will create a multi-faceted strategic relationship designed to maximize the productivity and value of HBC’s global real estate assets and position HBC at the forefront of experiential retailing.
Transaction Summary
An equity investment by Rhône of U.S.$500 million (C$632 million) in the form of 8-year mandatory convertible preferred shares, initially convertible into the Company’s Common Shares at U.S.$9.82 (C$12.42) per share, which conversion price is subject to adjustment from time to time in accordance with the terms of the Preferred Shares.
The sale of the Lord & Taylor Fifth Avenue building to WeWork Property Advisors in a transaction valued at U.S.$850 million (C$1.075 billion).
The Lord & Taylor flagship store is currently expected to continue operations in the entire building through the 2018 holiday season. Thereafter the building is intended to be converted into WeWork’s New York headquarters, WeWork office space, and a redesigned Lord & Taylor store of approximately 150,000 sq. ft.
Agreements with WeWork to lease retail space within select HBC department stores, beginning with the upper floors of the Hudson’s Bay locations on Queen Street in Toronto and Granville Street in Vancouver and Galeria Kaufhof in Frankfurt. HBC currently anticipates minimal impact on the earnings from these locations.
HBC Benefits
The transaction is expected to result in an aggregate of C$1.6 billion of debt reduction and/or incremental cash on the Company’s balance sheet and an increase in total liquidity of approximately C$1.1 billion.
HBC currently anticipates minimal impact on its earnings from the sale of the Lord & Taylor Fifth Avenue building, which, in comparison is many times less productive than the Saks Fifth Avenue flagship building, and the sale of the building further demonstrates the value of HBC’s global real estate and the Company’s commitment to maximize productivity.
The formation of a strategic alliance is expected to produce future real estate transactions and monetizations, consistent with HBC’s strategic objectives.
WeWork & Rhône Benefits
For WeWork, the relationship provides an opportunity to partner with HBC across its 61 million sq ft global real estate portfolio and an opportunity to attract new members through desirable locations associated with premium retail.
HBC corporate offices in New York, Toronto, Cologne, Dublin and Bengaluru will be early adopters of “Powered by We” – an operating platform that allows WeWork to combine physical spaces with digital systems to more efficiently and effectively design, build and operate office space.
The acquisition of the Lord & Taylor Fifth Avenue building by WeWork Property Advisors presents a significant opportunity to position WeWork as a viable option in prime retail locations, utilizing premium space effectively and efficiently.
The companies intend to implement a reciprocal benefits program to enhance their respective product offerings. The program is expected to allow the rapidly growing global membership of WeWork to participate in exclusive HBC sales online and in store, and HBC customers to have access to WeWork’s We Membership platform.
Positions HBC for Significant Long-term Shareholder Value Creation
“HBC and WeWork have been working together to reimagine retail environments for current and future generations. This is a transformative partnership that rethinks how retailers create exciting environments and leverage less productive space, while substantially improving the value proposition,” said Richard Baker, HBC’s Governor, Executive Chairman and interim CEO. “Immediately upon closing, these transactions are expected to significantly strengthen HBC’s balance sheet, enhance our liquidity, and advance our core strategies by monetizing the Lord & Taylor Fifth Avenue building and increasing the productivity of key locations, which taken together, is expected to enable us to drive ongoing value creation.”
HBC Takes Leadership Role in Redefining Retail
Baker continued, “This partnership places HBC at the forefront of dynamic trends reshaping the way current and future generations live, work and shop: the sharing economy and urban and suburban mixed-use real estate planning. WeWork’s business goes beyond offering modern, shared office space to creators, leaders and self-starters, by building robust communities. Our partnership with the WeWork team creates new opportunities for HBC to redefine the traditional department store by extending those communities and drive additional traffic to our stores, particularly as we add co-working and community space to existing, vibrant retail locations.”
“We look forward to working with WeWork and Rhône, two highly regarded organizations, and creating long-term value for our shareholders,” concluded Baker.
Purchase of Lord & Taylor Fifth Avenue Building is a Testament to WeWork’s Commitment to New York
Adam Neumann, CEO and Co-Founder of WeWork, said, “WeWork could not be what it is today if it wasn’t for our New York roots. The WeWork of today is a testament to the energy and hustle of this great city and it permeates everything we do. The acquisition by WeWork Property Advisors of the Lord & Taylor flagship building on Fifth Avenue is a statement of intent and commitment by WeWork to New York City. As a business with an emphasis on human connections in physical spaces, we will continue to create jobs within this city while simultaneously re-energizing the traditional retail experience.”
Retail is Changing; Strategic Relationship Reflects a Fresh Approach to Efficient Space Utilization in Big Cities
Neumann continued, “The trend of urbanization is something we must all recognize and understand. People from every walk of life are seeking spaces in big cities that allow for human connections. There is no reason why retail space should not be part of that movement. WeWork’s role in this big trend will be to reimagine and reshape places so as to foster collaboration, innovation and creativity. Retail is changing and the role that real estate has to play in the way that we shop today must change with it. The opportunity to develop this partnership with HBC to explore this trend was too good to pass up. We are excited to work with HBC, a leader in retail, and for what comes next.”
Strategic Relationship to Redefine Retailing and Reactivate Less Productive Space
M. Steven Langman, Managing Director of Rhône, said, “We are excited about our investment in HBC, and we look forward to partnering with Richard and his team to recognize the long term value potential of this amazing company and their strong global brands. We believe the partnership with WeWork to redefine retailing and reactivate less productive space throughout the Company’s global real estate portfolio will put us in a leadership position and add significant value to HBC shareholders.”
About HBC
HBC is a diversified global retailer focused on driving the performance of high quality stores and their all-channel offerings, growing through acquisitions, and unlocking the value of real estate holdings. Founded in 1670, HBC is the oldest company in North America. HBC’s portfolio today includes formats ranging from luxury to premium department stores to off price fashion shopping destinations, with more than 480 stores and over 66,000 employees around the world.
HBC’s leading banners across North America and Europe include Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue, Gilt, Saks OFF 5TH, Galeria Kaufhof, the largest department store group in Germany, and Belgium’s only department store group Galeria INNO.
HBC has significant investments in real estate joint ventures. It has partnered with Simon Property Group Inc. in the HBS Global Properties Joint Venture, which owns properties in the United States and Germany. In Canada, it has partnered with RioCan Real Estate Investment Trust in the RioCan-HBC Joint Venture.
About WeWork
WeWork is a community for creators, providing more than 150,000 members around the world with space, community, and services through both physical and virtual offerings. WeWork’s mission is to help create a world where people work to make a life, not just a living. WeWork currently has more than 170 physical locations in over 56 cities and 18 countries around the world. WeWork was founded in New York City in 2010 by Adam Neumann and Miguel McKelvey. Follow us @WeWork on Twitter, Instagram, and Facebook or visit www.wework.com to find out more.
About Rhône
With over 20 years of investing experience, Rhône is a global alternative investment management firm with approximately $5.5 billion in assets under management. In addition to its real estate joint venture with WeWork, the firm focuses its private equity investments in market leading businesses with a pan-European or transatlantic presence and global growth opportunities. Rhône, which is currently investing capital from its fifth private equity fund, has invested in a diversified portfolio of companies including those in the chemical, consumer product, food, packaging, specialty material, business services and transportation sectors.
