Hudson’s Bay properties in focus as RioCan calls creditor filing ‘disappointing’

People cycle past the Hudson's Bay department store in downtown Montreal on Monday, March 17, 2025. THE CANADIAN PRESS/Christinne Muschi

TORONTO — The possible liquidation of Hudson’s Bay is also bringing into question the future of its huge retail footprint, and highlighting the hit other companies could take as part of its downfall.

But while in the short-term there will be heightened pressure on property owners, experts say the loss shouldn’t create long-term problems for the sector and as always, well-placed properties will fare the best.

RioCan Real Estate Investment Trust is especially exposed to Hudson’s Bay’s financial woes because the two companies co-own 12 store properties, including some of the most prominent downtown locations, through a joint venture.

The trust outlined its exposure to Hudson’s Bay in a news release Tuesday while also calling the retailer’s creditor protection filing “disappointing.”

Along with asking court permission to start liquidating all of its stores, Hudson’s Bay has also asked to put a stay on lease payments to the joint venture, something RioCan opposes.

“RioCan understands that restructuring can be a necessary step for companies to stabilize their operations and financial position; however, it is essential that any restructuring steps are on fair and balanced terms,” the company said in its release.

RioCan owns a 22 per stake in the joint venture that owns 10 Hudson’s Bay stores, including flagship locations in Montreal, Vancouver and Calgary, with Hudson’s Bay owning the other 78 per cent, though the properties also have hundreds of millions of dollars worth of mortgages.

It’s because of the co-ownership structure that Hudson’s Bay has pushed to halt lease payments, saying they’re not the same as conventional rent payments.

The joint venture also owns a 50 per cent stake in stores in Oakville and Barrie, Ont., with RioCan owning the other half, and RioCan has a 50 per cent ownership of an HBC location on the outskirts of Ottawa that isn’t part of the joint venture.

All together, RioCan says it owns about 842,000 square feet of net leasable area related to the Hudson’s Bay stores.

While it’s sad to see Canada’s last and oldest department store go bankrupt, it does create opportunities going forward, said Kate Camenzuli, vice-president of retail at commercial real estate company CBRE.

“From a Canadian retail real estate perspective, it might have some challenges in the short term, but I think that in the medium and long term, this is a phenomenal win.”

Especially malls like Yorkdale in Toronto where there’s high demand and low supply, the opening of the space allows them to either divide the space up into more, smaller stores or add entertainment and grocery options.

“They can figure out what they want to do for the rest of their centre, and there’s an enormous amount of tenants that want to get into that shopping centre.”

More third-tier shopping centres that were maybe already struggling could be more challenged to fill the space, but more successful malls don’t really need the old sense of an anchor tenant anymore, she said.

Instead it’s retailers like Apple, Sephora, and Lululemon that bring in customers, along with the other amenities and developments that owners add.

RioCan chief executive Jonathan Gitlin said in a statement that the company’s locations include prime real estate that have value either as retail centres or redevelopment opportunities.

“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,” he said.

RioCan, which has also provided credit support totalling $88.7 million to HBC, says it plans to use all available business and legal avenues to do what’s best for the company.

Other companies exposed include Cadillac Fairview, which in 2014 agreed to pay $650 million for Hudson’s Bay’s Toronto flagship store and the adjoining Simpson’s Tower across from the Toronto Eaton Centre.

As part of the deal, Hudson’s Bay leased back the properties for 25 years with an optional extension.

Other landlords across Canada are also potentially on the hook as Hudson’s Bay is reliant on leases for all of its 80 stores.

So many properties coming on to the market will likely lead to lower rent prices in the short-term, but that still doesn’t mean a substantial risk to operators like RioCan, said Shalabh Garg, an analyst at Vertias Investment Research.

“I think it depresses overall prices because you have lots of space coming,” he said.

But he doesn’t expect it will be hard to fill most spaces, because investment trusts like RioCan have occupancy rates in the high 90s, while the HBC properties only represent about three per cent of its overall holdings.

He said Nordstrom’s departure has lots of parallels, and in that case it took a year or two to find new tenants, but often those tenants paid higher rents than the discounts major retailers had secured.

Certain locations, like outlet malls though, will be harder pressed to find replacements as categories like groceries don’t work well there, said Garg.

It’s not clear how the next steps in the company’s future will play out. The retailer is still waiting to get court permission to start liquidating all of its stores, though Hudson’s Bay says it could remove some from the fire sale if it secures enough financing.

Some observers though aren’t placing much faith in the retailer’s ability to navigate a turnaround.

Joseph Pasquariello, a lawyer for RioCan, questioned whether Hudson’s Bay waited too long to seek “unprecedented relief” and said the retailer’s approach so far “doesn’t scream out a well-organized restructuring opportunity.”

Much as lawyers representing Hudson’s Bay employees did, he warned Ontario Superior Court judge Peter Osborne about granting all that the company is seeking.

“We don’t want to set up a system that is doomed to fail from the get-go.”

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Ian Bickis, The Canadian Press

-- With files from Tara Deschamps in Toronto.

This report by The Canadian Press was first published March 18, 2025.