Nearly two weeks ago, Woolworths revealed a $700 million share buyback and yesterday it also revealed a $900 million capital raising by way of a property sell off.
They are probably not linked: the retailer didn’t attempt to do that in yesterday’s statement, but the sale of the properties is one of the largest Woolies has done.
And coming so soon after revealing the second buyback this year (which will take the total to $1 billion), the asset sale helps trim debt and restore capital to the balance sheet for the new round of cost-cutting and logistical reorganization Woolies announced with its 2010 profit statement late last month.
The retailer said yesterday it plans to raise $900 million by the sale of selected retail sites in the company’s national property portfolio.
Woolies had stepped up the development of its neighborhood type marketplace sites since 20097-08 when the credit crunch and global recession hit, cutting access to commercial property finance.
It financed its own developments, thereby keeping up the construction of new supermarkets, liquor outlets and other stores during the slowdown, which enabled it to maintain sales momentum.
At the same time the retailer was also financing the rollout of a massive refurbishment of its supermarkets and completing its logistics revamp.
The news saw Woolies shares rise 41c, or 1.4%, to $28.79, the highest close for six months.
More than 30-plus neighbourhood and sub-regional shopping centres will be sold and leased back by Woolies on a long term basis.
Some of the properties within the portfolio include Ashgrove Marketplace in Queensland, Carnes Hill Marketplace in NSW and Pakington Strand in Geelong West, Victoria.
"The larger Marketplace centres usually also include other stores within the Woolworths Group such as BIG W and Dan Murphy’s, as well as a number of specialty shops, the retailer said in its statement.
Woolworths director of property Ralph Kemmler said the retailer had a history of developing shopping centres, as displayed through the global financial crisis, but was typically not a long-term holder of property assets.
"We are continually reviewing opportunities for the disposal of property assets and amid improving market conditions in the retail sector, we now see an opportunity to place a portfolio of quality completed retail sites for tender, on the basis of sale and long term leaseback transaction," Mr Kemmler said in a statement.
"However, there is no urgency to dispose of the portfolio and we will happily continue to hold the properties on balance sheet should market conditions dictate this course of action.’’
Woolworths has a history of selling down its property holdings on a sale and leaseback arrangement.
It sold a portfolio of distribution centres in 2006 and the Norwest office park in Sydney in 2004.
"To enable the continued roll out of its store network during the Global Financial Crisis, Woolworths has increased its involvement in the development of sites using its own balance sheet, which has resulted in the ownership of a large portfolio of completed retail centres," Woolies said yesterday. Now it is time to release the capital tied up in these projects.
Woolworths has appointed investment bank Moelis & Company and commercial property group CB Richard Ellis to assist in the transactions due to start in a few weeks.
