The Saks Fifth Avenue flagship isn’t worth nearly as much as it was around the time Hudson’s Bay Co. bought Saks in 2013.
That’s according to appraisals on HBC’s 79-owned properties, including the Saks flagship, HBC’s most valuable property, disclosed Tuesday to help shareholders evaluate the company in advance of the Dec. 17 vote on taking the company private. The vote will be held in Toronto at the Arcadian Loft.
The Saks flagship has been appraised at $1.6 billion dollars representing a huge drop from an appraisal in 2014 at $3.7 billion. At the time, HBC boasted that the value of the flagship far exceeded the $2.9 billion that HBC paid for all of Saks Fifth Avenue in 2013. That no longer appears true.
The lower valuation of the Saks flagship can be attributed to a declining performance by the store and the retail landscape overall, particularly the department store channel, as well as the rise of e-commerce and the drop in market rents on Fifth Avenue.
The flagship is in the final stages of a dramatic $276 million multiyear modernization. Initially, the cost of the transformation was put at $250 million.
Lower real estate appraisals lessens the overall value of the company. In HBC’s case, the real estate represents the lion’s share of the stock price, or 8.75 a share in Canadian dollars, according to the appraisal. HBC is trading at $9.01 on the Toronto Stock Exchange.
Richard Baker, HBC’s executive chairman and governor and his group of key HBC shareholders, which collectively own 57 percent of the company, have offered to purchase the remaining 43 percent of the shares for 10.30 Canadian dollars per share in cash. A special committee of HBC’s board has approved the privatization offer.
Baker’s offer represents a 62 percent premium of the unaffected stock price on June 7. It’s his second offer. The first was for 9.45 Canadian dollars per share. Baker believes he’s making a good offer considering the company’s performance and outlook remains challenging and its share price has continued to decline.
Baker and his group would be purchasing 100 million shares, bringing the cost for the remaining minority stake to 1.03 billion Canadian dollars. That would value the whole of HBC, operator of Saks Fifth Avenue and Saks Off 5th in the U.S. and Hudson’s Bay department stores in Canada, at approximately 2.5 billion Canadian dollars.
CBRE appraised Saks flagship, and Cushman & Wakefield did the other 78 properties.
HBC also indicated Tuesday that an independent planning and consulting firm was engaged to complete a planning assessment of 59 properties to identify redevelopment opportunities. Possibilities include leasing space to tenants and adding new uses to sites. HBC could also consider sale lease-backs or selling and vacating properties. In many cases, properties are jointly owned so changes would require the approval and participation of HBC’s real estate partners.
The appraisals support the independent valuation of the common shares of HBC prepared by TD Securities Inc. under the supervision of the special committee as part of its evaluation of the proposed privatization of Hudson’s Bay Company,” the company said Tuesday.
The real estate appraisers provided two values on each property, an “as-is” value based on continued use as a department store and rents, and “alternative use” values based on potential redevelopment of a property with one or more new tenants.
The Saks Fifth Avenue flagship, as is, was evaluated at $1.6 billion. Hypothetically, if vacated, it would be valued at $250 million, or $1.18 billion if subdivided with some new tenants.
The flagship, on Fifth Avenue between 49th and 50th Streets in the heart of Midtown Manhattan, opened Sept. 15, 1924. A 36-floor office and retail complex directly behind the store was completed in spring 1990 enabling the store to expand with a nine-story annex.
HBC said its modernization of the flagship, begun in 2015, has a total budgeted capital investment of approximately $278.8 million. The strategy is to optimize the in-store experience and improve operating performance. HBC initially put the cost of the project at $250 million.
The Saks store at 9600 Wilshire Boulevard in Beverly Hills was valued at $179.9 million as is, and from $152.1 million to $200.2 million under different scenarios.
The Hudson’s Bay flagship on Granville Street in Vancouver was evaluated at 348 million in Canadian dollars, as is, and from $200 million to $221 million if subdivided.