Wesfarmers considers $700 million windfall from possible sale of 25 shopping centres

Conglomerate Wesfarmers, the owner of Coles, has engaged investment banks to review its property strategy with a view to selling the freeholds of 25 shopping centres it owns worth $700 million.

This follows its main supermarket rival Woolworths considering selling down 69 shopping centres currently held on its own balance sheet into a new $1.4 billion A-REIT.

Both moves are aimed at allowing the supermarkets to focus on their core activity of retailing.

Coles is not contemplating a similar ASX-listed structure as Woolworths, but is considering a similar model used by shopping centre landlord Centro, which added around $1.1 billion to its coffers through property investment partnerships with the Perron Group and industry superfund ISPT.

It would remain property manager of the freehold stores with investors also able to invest in new store rollouts – around 10 new stores annually, according to a report in The Australian Financial Review.

Coles is being advised by Simon Rooney, head of retail investments at Jones Lang LaSalle along with Nick Jacobson, head of real estate at Goldman Sachs, and John Perry, head of industrial and real estate at RBS.

Coles operates 744 supermarkets, 794 liquor outlets, 625 Coles Express stores and 92 hotels, but owns only a small percentage of these properties.

It leases 95% of its supermarket space.

Coles has been selling some of its smaller free-standing property holdings while properties featuring Coles as an anchor tenant have sold on strong yields.

In September, a 4,000 square metre corner bulky goods site on Ferntree Gully Road in Glen Waverley featuring a Coles Express service station sold under the hammer for $7 million through Burgess Rawson Melbourne. The site brings in annual rent of $413,000 a year, representing a gross yield of around 5.9%.

Wesfarmers has vast experience in the commercial property market growing the BWP Trust, which holds Bunnings Stores, into an externally run portfolio worth $1.3 billion. Wesfarmers has a 23% investment in the BWP Trust.

It also has experience divesting its property interests, selling a $230 million portfolio of stores to a Charter Hall Group and Telstra Super consortium.

Wesfarmers holds $2.6 billion worth of property assets on its balance sheet, according to June 30 annual accounts.

It acquired Coles in 2007, with Wesfarmers managing director Richard Goyder saying at the time it had not ruled out putting any property assets that it might inherit into a separate property trust.

This article first appeared on Property Observer.