TORONTO (Reuters) - Canadian department store operator Hudson's Bay Co (HBC.TO) outlined a $1.25 billion refinancing plan on Monday, in a move to reduce debt taken on when it acquired U.S. rival Saks last year.
The retailer said it would take out a 20-year mortgage on the ground portion of its flagship Saks Fifth Avenue store in New York City after an appraiser valued the property at C$4.1 billion ($3.65 billion).
The mortgage transaction would allow it to capitalize on the value of its flagship asset now, and give it structural flexibility to capture additional value in the future.
HBC acquired Saks for $2.4 billion in cash last year, and assumed about $500 million of Saks debt as part of the deal. At the time, it said it was mulling creating a real estate investment trust, or REIT, to monetize its real estate holdings and help it pay down debt.
Early in 2015, HBC will begin a $250 million renovation at its flagship Saks Fifth Avenue store to boost productivity and the value of the asset.
Refinancing proceeds will be used to repay about $1.2 billion of loans.
"Critically, the transaction allows us to retain tremendous flexibility and control over our most important flagship property," said HBC Chief Executive Richard Baker, in a statement.
Baker said HBC could still sell the property into a REIT, or secure additional leverage on the leasehold interest.
($1 = $1.1239 Canadian)
Reporting by Euan Rocha; Editing by Chizu Nomiyama and Bernadette Baum