This article is from the Australian Property Journal archive
CHARTER Hall has closed out the year with the $510 million purchase of the David Jones Elizabeth St flagship store on a prime Sydney CBD corner, as the department chain continues divesting major assets to free up capital.
Addressed 86-108 Castlereagh St and with frontage also to Market St, the 12 level building is on a 3,530 sqm site overlooking Hyde Park with views to Sydney Harbour, and features large light-filled floorplates of up to 2,925 sqm.
David Jones, owned by South African group Woolworths Holdings, has agreed to a 20 year triple-net lease as part of the sale and leaseback transaction, with minimum 2.5% per annum annual rent increases supplemented by an agreed turnover rent linked to sales performance.
The purchase price reflects an initial yield of 5.0% on the annual net rent of $25.5 million, reflecting about $800 per sqm of lettable area.
David Jones completed a $200 million capital works program at the Elizabeth St store last year, funded by its divestment of the nearby menswear building at 77 Market St to Scentre Group and Cbus Property for $360 million in 2016.
Woolworths had been looking to free up capital and rationalise store space by 20% before 2026 in a bid to combat the sway towards online shopping that had hit the retail sector before the pandemic, and had also put the Melbourne city department stores to the market. The six storey building at 299 Bourke St sold earlier this year to Newmark Capital for $121 million, and Woolworths will move the menswear offering from the building to the larger flagship store opposite, at 310 Bourke St, which has also been shopped around and is set for optimisation.
Both transactions come some 15 years after the retailer bought back its stores from Deutche Retail Infrastructure Trust for $414 million, after five years earlier selling the flagship Sydney and Melbourne CBD stores to the trust in a sale and 79-year leaseback agreement for $366 million.
Total sales at David Jones dropped 11.7% over the first 20 weeks of the current financial year, largely due to the second lockdown in Victoria. Comparable sales were down 14.6%.
Online sales jumped by 65% to account for 19.6% of total sales.
Australia Post data showed there was 42% more online purchases made across Australia than in the same period last year. Online spending surged 70% year-on-year in October to $3.2 billion, up from $1.9 billion, according to the Australian Bureau of Statistics data.
The Elizabeth St building was acquired by a Charter Hall-managed consortia comprising a 50% interest held by Charter Hall Long WALE REIT (CLW), a 25% interest held by the Charter Hall DVP partnership and 25% held by the group.
Settlement is conditional upon approval from the Foreign Investment Review Board for David Jones’ entry into the lease.
“This acquisition is consistent with our strategy in so many ways, namely: securing long WALE NNN leased assets, combining the appetite of our managed funds and partnerships to partner with the group on high conviction prime real estate acquisitions, co-investing group capital alongside our partners to secure attractive earnings growth from our property investment portfolio, whilst also expanding the group’s FUM platform,” Charter Hall group CEO and managing director, David Harrison said.
Combined with other recently announced acquisitions and pre-leased development project, Charter Hall’s funds under management is expected to exceed $45 billion at the end of 2020. It upgraded its full year guidance last month.
The group’s investment in the Elizabeth St asset is $71 million held in a partnership with DVP, which together have secured a five-year debt facility. CLW will fund its 50% from its existing available capacity.
CLW fund manager, Avi Anger said properties like this rarely come to market.
“The location of this property in the Sydney CBD is unique; with three prominent CBD street frontages, close to major Sydney transport links and benefitting from views over Hyde Park and Sydney Harbour.
“This acquisition extends our focus on ‘land rich’ investments where the market rent and value of the real estate provide long term growth prospects for our investors”.
CLW’s proportion of triple-net leased properties by income is now 55%. The trust has just bought the 76-78 Pitt St office tower in Sydney for $281.5 million as part of a sale and leaseback deal with Telstra that includes a 10-year triple net lease term.
