Toronto real estate giant's valuation loss over $200M in Hudson's Bay joint venture

RioCan Real Estate Investment Trust (REIT) has reported a quarterly loss and revised its annual earnings forecast downward due to the financial strain caused by its significant exposure to the dissolution of the Hudson's Bay Company (HBC), which recently sought creditor protection.

In its first-quarter fiscal report for 2025, RioCan reported total valuation losses of $208.8 million in its property-based joint venture (JV) with Hudson's Bay, stemming from HBC's filing under the Companies' Creditors Arrangement Act (CCAA) earlier this year — an action the REIT formally opposed in a court motion.

"In Q1 2025, we took a write-down of our investment in the JV to reflect the current re-leasing assumptions. While we understand the uncertainty surrounding this situation has created some apprehension, we believe the market's reaction to RioCan is disproportionate in relation to our exposure to HBC and our ability to preserve at least some of the value and income," reads the report.

"Solely as a result of HBC's CCAA filing, certain debt in the RioCan-HBC JV is in a technical default, however, the CCAA court-ordered stay has been extended to benefit the RioCan-HBC JV, in its capacity as borrower."

There were valuation losses of $152.5 million in the fair value loss on investment properties, a $24.5 million provision for expected credit losses on finance lease receivables to future new tenants at market rents below existing rents at sole tenant locations, a $23.3 million write-down of straight-line rent receivable, and an impairment loss on RioCan's carrying value of the joint venture of $8.5 million.

As a result, as of the end of March 2025, RioCan's valuation in the joint venture hovered at $41.4 million, representing 0.6 per cent of the total equity of the REIT. This represents a plummet of about $208 million from the previous valuation of $249 million at the end of December 2024, when the joint venture accounted for 3.3 per cent of the company's total equity.

"We are committed to protecting the interests of our Unitholders and we are utilizing our expertise to secure optimal outcomes for the properties within the JV. Most of the loans within the JV are non-recourse to RioCan. We will allocate capital responsibly to properties that have the potential to generate value on incremental capital," continues the report.

"We look to the positive in that the dissolution of the JV removes a previously questionable part of [the] portfolio, and the resultant business model will be even more simplified, strong and resilient."

"The Trust continues to pursue all available business and legal avenues, and will leverage its extensive leasing and development capabilities to achieve the best possible outcome for each of the properties within the RioCan-HBC JV."

This joint venture owns 12 Hudson's Bay locations in total comprising five freehold stores (downtown Vancouver, downtown Montreal, downtown Calgary, downtown Ottawa, and Devonshire Mall in Windsor) and five head leasehold stores (Yorkdale Shopping Centre and Scarborough Town Centre in Toronto, Square One Shopping Centre in Mississauga, and Carrefour Laval and Promenades St. Bruno near Montreal).

There are also two stores jointly owned by the joint venture and RioCan (Oakville Place and Georgian Mall in Ontario), each holding a 50 per cent stake.

The quarterly report states that RioCan has backed two loans tied to its joint venture with Hudson's Bay. It fully guaranteed a $75 million loan for the Yorkdale Shopping Centre lease and guaranteed $12.3 million for a loan on a property in downtown Ottawa — an amount that matches its ownership share.

In return for taking on this risk, RioCan received claims over other assets in the joint venture to protect itself. These assets are currently worth enough to cover any losses if RioCan had to pay out on the guarantees. Additionally, RioCan secured the right to end leases at three properties where Hudson's Bay currently pays below-market rent.

Liquidation sales at all Hudson's Bay locations across the country are expected to end no later than June 1, 2025, at which point the stores will close.

In the meantime, the process for disposing of the retailer's leases, owned properties, and other assets, including its vast collection of art and historical artifacts, is well underway. Over the coming weeks, a clearer picture of the new owners of these assets is expected.