Hudson's Bay Company has announced plans for a U.S.$1.25 billion, 20-year mortgage on the ground portion of its Saks Fifth Avenue flagship in New York City, located at 611 Fifth Avenue (the “Saks Ground Mortgage”). This transaction is expected to close in early December. In connection with this transaction, lenders Bank of America, N.A., Morgan Stanley Bank, N.A., Goldman Sachs Mortgage Company and The Bank of Nova Scotia, independently commissioned a leading international appraiser to provide appraisals of the land and the building. The independent appraiser valued the entire property at C$4.1 billion (U.S.$3.7 billion) based on the assumption that the entire property is net leased by Saks Fifth Avenue at an estimated current fair market rent.

Transaction Highlights:

• Independent appraisal values Saks Fifth Avenue flagship property at C$4.1 billion
• Allows HBC to capitalize on value today while preserving flexibility to realize additional value in the future
• Fixed rate 20-year debt with an expected interest rate of less than 4.40%   

After giving effect to the transaction:

• Weighted-average term to maturity of funded debt extended to 11.5 years;
• Exposure to floating interest rates significantly reduced – only 45% of funded debt will be floating compared with 89% prior to transaction

All proceeds from the financing, net of associated cash expenses, will be utilized to permanently pay down approximately U.S.$1.2 billion of HBC’s First Lien Term Loan, which currently bears interest at a floating rate of 4.75% and matures in 2020. With an expected fixed interest rate of less than 4.40% on the Saks Ground Mortgage, this transaction will result in a reduction to annualized cash interest expense of at least C$5 million. The Saks Ground Mortgage is interest-only and does not require any principal amortization over its 20 year term. The transaction will result in approximately US$76 million of one-time expenses, including approximately US$33 million that are non-cash and will be reflected in finance costs in the fourth quarter of fiscal 2014. The remaining US$43 million of expenses, which includes a mortgage recording tax of US$35 million, are expected to be capitalized and amortized as finance costs over the term of the loan.

Following this transaction, approximately 80 percent of HBC’s debt will be backed by high-quality real estate, inventory and receivables, allowing it to benefit from attractive debt pricing, with limited or no recourse to HBC’s other retail operations. Additionally, the Company’s capital structure is greatly enhanced through securing 20 year money. Prior to this transaction, the weighted-average term to maturity of HBC’s funded debt was 5.3 years compared to 11.5 years pro forma this transaction. As well, a reduction in the amount of floating rate debt from 89 percent to 45 percent of funded debt is extremely beneficial from a risk management perspective.

The company continues to make progress in its work to surface value from the balance of its real estate portfolio which includes the Lord & Taylor Fifth Avenue flagship, the Saks Beverly Hills flagship and 59 other owned and ground leased locations in the United States, together with 19 locations in Canada, including flagship properties in many of Canada’s major urban centers. As previously announced, HBC expects to be in position to communicate details of this review by the release of its fiscal 2014 annual financial statements in the spring of next year.

Hudson's Bay Company, founded in 1670, is North America's longest continually operated company. Today, HBC offers customers a range of retailing categories and shopping experiences primarily in the United States and Canada. Our leading banners – Hudson's Bay, Lord & Taylor, Saks Fifth Avenue and Saks Fifth Avenue OFF 5TH – offer a compelling assortment of apparel, accessories, shoes, beauty and home merchandise.