This article is from the Australian Property Journal archive
THE new Shopping Centres Australasia Property Group (ASX: SCP) will not focus exclusively on Woolworths-anchored supermarket centres and has plans to buy properties from its rival Wesfarmers, which owns Coles.
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In an interview with Bloomberg, CEO Anthony Mellowes said Woolworths and Coles will develop 50% of new neighbourhood shopping centres in Australia – a strategy they have had to adopt since the global financial crisis.
During the GFC when developers could not obtain finance to build new shopping centres, Woolworths and Coles took it upon themselves to buy up discounted or distressed assets and develop these centres to roll out their supermarkets.
Mellowes said Woolworths and Wesfarmers are not long-term owners, and SCA Property Group is well positioned to buy these assets when they come online.
However he ruled out the group building new centres. SCA Property Group listed last week with 69 Woolworths-anchored shopping centres valued at $1.4 billion.
“SCA’s not going to be a speculative property developer,” Mellowes said. “We’re not looking for the big development profit, we’re focused on yield.”
Meanwhile SCA will seek to obtain a credit rating so it can access longer-term debt outside of Australian banks.
Currently the group can only spend $150 million before its gearing ratio hits 40%, according to UBS AG analyst James Besson.
Analysts have derided the Woolworths’ spin off. JPMorgan and UBS said SCA derives 61% of rents come from Woolworths which will lead to lower- than-average income growth. JPMorgan’s Rob Stanton said the leases appear to favour the tenant, Woolworths.
The analysts are not the first to point out this imbalance. Two years ago when Woolworths initially put $900 million worth of assets on the market, Savills divisional director of valuations Stuart Fox had put the proposed sale under the microscope and concluded that the terms of the portfolio were not as attractive as they may seem.
Fox said although the Woolworths portfolio offered a 70 year lease term, it had no market rent review… so in effect the owners would not see much growth and at the same time would be responsible for outgoings costs which no doubt would increase over time.
However the spin off to SCA is structured differently, with Woolworths signing 15 to 23-year lease term plus options, with a WALE for the Woolworths leases of 19.8 years. Woolworths did not disclose the rental agreement for its leases, however for specialty tenants at the centre, the majority of leases assume a fixed rental increase of 4.0%.
Property Review
