The Hudson's Bay Company has struck a deal to sell Lord & Taylor's flagship store in New York to office-sharing company WeWork, which will move into some space in the retailer's other properties.
The deal will see HBC continue to run the store in the location on 5th Avenue until the end of next year, at which point it will be converted into WeWork's new headquarters, and a smaller Lord & Taylor store.
WeWork — a N.Y.-based startup that provides freelancers and other mobile workers with temporary office space, on demand — will also take over some upper floors in Bay locations on Queen Street in Toronto, Granville Street in Vancouver and Galeria Kaufhof in Frankfurt.
"This is a transformative partnership that rethinks how retailers create exciting environments and leverage less productive space, while substantially improving the value proposition," HBC's interim CEO, Richard Baker, said in a statement.
Under the deal, WeWork's members will be able to participate in exclusive HBC sales online and in store, and HBC customers will have access to WeWork's We Membership platform.
HBC had been under pressure from an activist shareholder to monetize its real estate assets, which by some estimates are worth more than the entire company. Land & Buildings Investment Management called Monday for the removal of HBC's board, which is chaired by Baker.
WeWork's takeover of the NYC space comes with a price tag of just over $1.075 billion Cdn.
As part of the deal, financing firm Rhône Capital, which has worked with WeWork in the past on real estate deals, will make a $632-million equity investment in HBC in the form of 51 million preferred shares that can be converted into common equity.
Bloomberg Intelligence analysts Poonam Goyal and Morgan Tarrant said the move will shore up the company's balance sheet.
"Digital sales and a real estate strategy help insulate and differentiate the department store operator, but declining comparable sales and store traffic are concerns," they said, adding that they expect more similar deals for real estate could be in the offing.
HBC shares responded positively to the news, moving up about six per cent or 67 cents to $12.42 on the TSX — exactly the level that Rhône paid for its stake.