Enclosed shopping centre owner and operator Primaris REIT (PMZ-UN-T) has provided an upbeat update on its plans for 1.3 million square feet of space formerly occupied by Hudson Bay stores across its nationwide portfolio.

The tone of the extensive release issued Wednesday morning is fairly gushing with confidence that the returned space will be put to much more profitable use than when Hudson’s Bay stores occupied the sites. In fact, Primaris estimates its excess land alone, freed up by the vacancies, could be worth up to a quarter-billion dollars.

Building on a theme shared with RENX in an exclusive interview earlier this year, CEO Alex Avery and president and COO Patrick Sullivan noted HBC had lost much of its value as an anchor tenant in recent years. 

“The departure of Canada’s final department store is an enormous opportunity for Primaris, providing maximum flexibility for revitalization through reinvestment and remerchandising, as well as substantial land sales,” Sullivan said in the Primaris update. “It is an incredible time in the retail property landscape to regain control of these spaces, with a strong landlords’ leasing market and no shopping centre development underway.”

Canada’s population continues to grow, and available retail space has not kept pace, creating strong demand.

“There are many international and national tenants struggling to find expansion space in Canada,” Sullivan added. “Primaris is in advanced discussions with a number of credit worthy retailers, and we expect to enter into agreements in the coming months.”

HBC had become a low-value tenant

Avery focused on the extended demise of HBC’s value to the REIT, as the retailer’s financial troubles deepened during the past several years.

“We have regained control of space that has gone many years without investment, giving us the opportunity to revitalize and dramatically improve the productivity of some of the best-located, but recently least productive space in our portfolio,” Avery said in the release.

The 11 HBC locations totalled 1,286,600 square feet with an average minimum rent of $4.18 per square foot, equating to $5.4 million annually. As of Sept. 30, the average net rent for other large-format retailers was $16.65 per square foot, and $30.29 for all tenants.

“Perhaps even more impactful is the 70.8 acres of land no longer subject to ‘no-builds,’ as well as adjacent lands now more suitable for development,” Avery continued. “Owned by the REIT, the value of these lands that were previously sterilized from productive use for several decades into the future, now substantially exceeds the entire cost of re-leasing and redevelopment plans.

“HBC’s departure will deliver a significant increase in income for Primaris that more than fully pays for itself. While it will take time to surface this value, we estimate that these lands could be valued at between $150 million and $250 million or more, depending on timing and ultimate use.”

In addition to the vacated HBC space (11 properties), Primaris also has a half-million square feet of former Sears space at four additional sites and says it has accelerated negotiations with retailers.

Primaris' strategy for the properties

The strategy is twofold: 

• execute long-term leases with single tenant and multi-tenant configurations, where appropriate; and 
• repurpose and subdivide space to accommodate multiple large-format tenants, and/or high-value commercial retail units.

During the design, permitting and planning process, Primaris is executing short-term leases to restore rental income until the longer-term leases are executed.

The REIT listed a number of areas where it has made progress thus far:

• 516,000 square feet of former HBC space leased to single-tenant users;
• Walmart will assume tenancy of the 139,000-square-foot former Sears space at Lime Ridge Mall in Hamilton;
• 303,000 square feet of former Sears space to be demolished at Les Galeries de la Capitale (Quebec City) and Oshawa Centre to facilitate retail outparcel development and land sales to mixed-use developers;
• Primaris notes “strong inbound tenant interest for remaining spaces has further accelerated” since the final HBC leases were disclaimed on Nov. 27;
• Total repositioning costs for 11 HBC spaces are estimated at $125 million to $150 million over the next three years, with expected yields of between seven and 12 per cent on properties where Primaris expects to invest capital;
• Total repositioning costs of Sears spaces are expected to be $20 million to $30 million;
• 70.8 acres of land has been released from no-build and parking ratio restrictions, with an estimated value of between $150 million and over $250 million; and
• Master planning is underway for 6,300 residential units across Les Galeries de la Capitale, Orchard Park (Kelowna, B.C.), Place d’Orleans (Ottawa), and Sunridge Mall (Calgary) on excess lands slated for sale.

New tenants to revitalize shopping centres

Primaris expects new tenants moving into former HBC locations will “revitalize our shopping centres,” noting its same-store sales productivity as of Sept. 30 was $800 per square foot, already an all-time high.

The current redevelopment plans across HBC and Sears spaces encompass approximately 560,900 square feet, with the remaining 1,274,000 square feet to be re-leased. 

Approximately half of the up-to-$150 million expected HBC-related capital expenditures relate to redevelopment plans at Orchard Park and Conestoga (in Waterloo, Ont.).

Primaris is Canada’s only enclosed shopping centre focused REIT, with ownership interests in properties located in growing Canadian markets.

Its portfolio totals 15.6 million square feet, valued at approximately $5.4 billion at Primaris’ share. It offers a fully internal, vertically integrated, full-service national management platform.