Three stores in each of Canada’s two biggest cities are the only outlets of the 96 operated by the Hudson’s Bay chain to avoid closing after a court granted the retailer's request to hold liquidation sales as part of its financial restructuring.
The standalone store at 176 Yonge St. in downtown Toronto, and at 585 Sainte Catherine St. in downtown Montreal will remain in operation following the judgment from the Ontario Superior Court of Justice.
The other outlets that avoided liquidation due to the court ruling are in the Yorkdale Shopping Center and Hillcrest Mall, in the Toronto area, and the Carrefour Laval and CF Fairview Pointe Claire locations, both in suburban Montreal.
Aside from the three stores in Toronto and three in Montreal, the retailer said the inventory in 74 Hudson’s Bay stores will be sold off and liquidated, along with the that of Hudson Bay's three Saks Fifth Avenue locations and 13 Saks Off 5th shops in Canada.
Hudson's Bay said the decision to keep the six locations operating for the moment was prompted by strong sales after the chain filed for protection from its debtors and announced plans to restructure its finances.
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“Canadians have shown extraordinary support for Hudson’s Bay over the last two weeks and overwhelmed us with their encouragement and endearment for the brand,” Hudson’s Bay President and CEO Liz Rodbell said in a statement.
Cadillac Fairview owns the Yonge Street location, Oxford Properties owns the Yorkdale outlet, and Hillcrest Mall belongs to Oxford Properties and Montez Corp. In Montreal Hudson’s Bay owns its downtown property as part of a joint venture with RioCan REIT, and Cadillac Fairview owns the Pointe Claire outlet as well as Carrefour Laval.
The ruling increases the likelihood of the other 29 Hudson’s Bay outlets in Ontario closing permanently as well as 10 others in Quebec and all 16 in British Columbia. The other outlets expected to close are the 13 in Alberta and two each in Nova Scotia, Saskatchewan and Manitoba, as well as all 16 of the Saks-branded outlets across Canada.
While the magnitude of the closures could result in the loss of recurring revenue from rent for some landlords, some owners have expressed optimism that they will be able to fill the empty retail outlets.
Some Bay Street analysts said the market's might have overreacted to the HBC bankruptcy proceedings.
"While a sell-off was warranted, the degree of relative under-performance is starting to feel overdone," said Michael Markidis, an analyst with BMO Capital Markets, in a note.
Markidis pointed out that RioCan, the real estate investment trust with the most significant exposure to Hudson's Bay Co., saw its units drop 10.5% after the bankruptcy filing, while the overall REIT index was down just 1.5% during a similar period of five trading days.
The analyst lowered his 12-month target price on RioCan to $20 from $21.50 but said the REIT offers a one-year return potential of 23%.
Markidis said RioCan's leases at Georgian Mall and Oakville Place have net rents of about $3 per square foot and $11 per square foot respectively, both rates being well below market prices.
"The average rental rate for the remaining locations is significantly higher," said Markidis.
However, analysts at TD Securities said the improved performance by some Hudson's Bay outlets since the bankruptcy announcements likely is not sustainable.
"All this raises the prospect of some scaled-down version of HBC potentially emerging from" its filing under the Companies' Creditors Arrangement Act, said the TD analysts.
The 90 outlet closures would represent the biggest mass retail exodus since the 133 outlets of the Target chain closed in Canada, prompting some institutional investors, such as Ivanhoé Cambridge to attempt to seek to sell their retail properties.