Court sides with landlords opposed to the lease transfers, which the Bay tried to sell for $69 million
The owner of multiple B.C. malls, including Vancouver Island’s biggest will not be allowed to buy 25 Bay store leases for her department store plans.
The Ontario Superior Court of Justice, in companies’ creditors arrangement act proceedings Oct. 24, decided against giving approval for Hudson’s Bay Company to assign 25 store leases to Ruby Liu Commercial Investment Corp., an affiliate of Central Walk, which owns malls in Nanaimo, Victoria and Tsawwassen.
The Bay, as part of its restructuring under CCAA proceedings, came to an agreement in May to pursue the lease assignments. However, 24 of the 25 lease assignments were “vigorously opposed” by the mall owners, who objected “to being forced into a long-term commercial relationship with a tenant to whom they never agreed to lease their properties,” the court decision noted.
The asset purchase agreement would have been $69.1 million for the 25 leases in B.C., Alberta and Ontario. The business plan and financial model indicated the new department store chain would have operated under the ‘Ruby Liu’ banner, with 19 stores anticipated to open in March 2026 and five more in September 2026.
The court noted that the financial model appeared to contemplate $375 million “being injected immediately” after the closing of the transaction, including $120 million budgeted for renovations and $122 million for inventory purchases.
The potential purchaser assumed an immediate three-per cent increase from the Bay’s sales figures, a gross margin of 41.2 per cent compared with the Bay’s margin of 39.8 per cent, and a payroll of 15.7 per cent of net sales, compared to the Bay’s payroll costs of 23.7 per cent.
However, opposing landlords filed two expert reports that found shortcomings in the business plan. An Ernst and Young report found that the estimated costs to open the stores “do not appear feasible, reasonable or realistic.”
“The business plan does not demonstrate an appreciation for the complexity of the work required and the cost of doing so. It is high-level and conceptual, but does not contain a detailed market analysis or account for the complex operating infrastructure required, including merchandising function, supply chain, information technology requirements, workforce complement, and other aspects,” noted a court summary of the report’s conclusion.
The second report, from Revesco Properties, pointed to a lack of precedent for successfully opening so many stores in anchor premises in an 18-month time frame, as well as an absence of brand recognition and “inadequate” management experience.
“The proposed product assortment spans a wide range of categories from apparel to cosmetics to electronics, but ‘lacks a clearly defined customer,'” noted the court’s summary of the second report.
The landlords opposed to the lease assignments submitted to the court that they would prefer the former Bay stores to sit empty “for some time” rather than have the purchaser as a tenant.
“The opposing landlords state that they will suffer material prejudice if the motion is granted in the form of (among other things) depressed rents and property values, difficulty in attracting and retaining quality tenants, significant financial exposure in the event of tenant defaults, and overall damage to the long-term health and reputation of the shopping centres.”
Hudson’s Bay will now have to disclaim – prematurely end – the 25 leases. Three former Bay leases at the malls owned by Central Walk – Woodgrove Centre, Mayfair Shopping Centre and Tsawwassen Mills – were assigned to Central Walk earlier this year for $6 million.
