As we all know retail is a fiercely competitive industry and one that is always evolving. Retailers are continually finding new ways to adapt to changing trends in fashion and spending habits, leveraging the power of information through new technologies and refining their business models to get the best competitive advantage. Property has been a big part of this strategy and in this blog I’d like to outline some of the ways retailers are transferring their real estate assets from their balance sheets to institutional investor ownership.
Since the global financial crisis, Woolworths and Wesfarmers have had to develop their own neighbourhood shopping centres and freestanding hardware store warehouses in order to facilitate the expansion of their store networks because there has been a low level of participation by private developers. Private developers have been deterred for feasibility reasons, specialty store leasing challenges and a general low risk appetite, but the retailers have been able to undertake developments at cost or on low margins. As a result, both groups have accumulated substantial property holdings through development and have been undertaking a number of major sale and leaseback transactions.
In 2011, Woolworths sold a portfolio of eight shopping centres to a joint venture between Charter Hall and Telstra Super for AUD 266 million. Then in 2012, Woolworths also completed an initial public offering of a new A-REIT called Shopping Centres Australasia (SCA Property Group) comprising 69 centres that were valued at AUD 1.406 billion.
Bunnings (the hardware store subsidiary of Wesfarmers) sold a portfolio of hardware store warehouses to BWP Trust for AUD 241.71 million in 2011 and a portfolio for AUD 206.7 million to Charter Hall and Telstra Super in 2012. In May 2013, on behalf of Coles (the supermarket subsidiary of Wesfarmers), Jones Lang LaSalle sold a 75% share in a AUD 532 million portfolio comprising 19 shopping centres to ISPT (an Australian superannuation fund). Wesfarmers will retain a 25% share in the portfolio plus management and development rights over the centres. The joint venture also allows for future properties to be acquired as opportunities arise.
Between these five major transactions, a total of AUD 2.52 billion worth of retail assets have been transferred from the balance sheets of these two retailers into the hands of institutional investors. By releasing a large portion of their property holdings, they have been able to unlock capital that can then be re-invested into more productive ventures within their core businesses and fund future store expansion programs.
These recent transactions show there are clearly various structures and options available for retailers looking to sell down real estate holdings and there are a number of other major retail groups reviewing their options. Further, demand from large passive institutional investors continues to strengthen and is making the case even more compelling for retailers to undertake sale and lease back transactions to potentially capitalise on the liquid capital market conditions.
About the author
Andrew Quillfeldt is a Manager and National Retail Analyst in Jones Lang LaSalle Australia, based in Sydney.