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Woolworths to Spinoff Stores Into A$1.4 Billion Trust

The planned spinoff and share sale, which was reported in the Australian Financial Review two days ago, will improve the company’s return on capital by about 60 basis points, according to Sydney-based UBS AG analyst Ben Gilbert. Photographer: Sergio Dionisio/Bloomberg
The planned spinoff and share sale, which was reported in the Australian Financial Review two days ago, will improve the company’s return on capital by about 60 basis points, according to Sydney-based UBS AG analyst Ben Gilbert. Photographer: Sergio Dionisio/Bloomberg

Oct. 5 (Bloomberg) -- Woolworths Ltd., Australia’s largest retailer, will spin off A$1.41 billion ($1.44 billion) of stores and shopping malls into a real estate investment trust as it seeks to boost shareholder returns.

The company will transfer 69 shopping centers in Australia and New Zealand to a new company, Sydney-based Woolworths said in a regulatory statement today. Existing investors will be given shares in the new trust, Shopping Centres Australasia Property Group, and a public offer of stock will raise as much as A$506 million, it said.

The share sale will be the largest initial equity raising in Australia since Westfield Group hived off ownership of some of its Australian and New Zealand malls into a new trust in December 2010, according to data compiled by Bloomberg. The spinoff will help Woolworths get a better price for the centers, given the dearth of funding for comparable investments since the 2008 financial crisis, said Ben Clark, a portfolio manager at TMS Capital in Sydney.

“It’s no secret Woolworths tried to sell these properties through the private market, but that business model got torn apart in the global financial crisis and a lot of the natural players don’t exist any more,” he said. “They would have been able to sell them, but not get the price they were looking for.”

Woolworths reported its first annual profit drop in 13 years on Aug. 24 as sales growth slowed and the company wrote off A$420 million against its Dick Smith electronics chain.

Benefits ‘Modest’

Woolworths stock climbed 1.3 percent to A$29.63 at the close in Sydney, taking this year’s advance to 18 percent.

Shareholders will vote on the plan at the company’s annual meeting on Nov. 22 with the new stock expected to start trading on the Australian Securities Exchange Nov. 26.

The planned spinoff and share sale will improve the company’s return on capital by about 60 basis points, according to Sydney-based UBS AG analyst Ben Gilbert.

“The benefits for shareholders would be modest,” he wrote in report before today’s announcement. “We see little reason for a re-rate given the Australian food and liquor market remains challenging and earnings growth remains subdued.”

The company owned A$4.11 billion of developments and properties at the end of June, according to its annual report. It had 872 supermarkets in Australia as well as liquor outlets, convenience and petrol stations, home improvement stores and the Big W discount department store chain. The Dick Smith chain, with 325 stores and 4,500 employees, was sold Sept. 27 to Anchorage Capital Partners for A$20 million.

“The creation of SCA Property Group is in line with our strategy to act on the Company’s portfolio to maximize shareholder value,” Woolworths Chief Executive Officer Grant O’Brien wrote in the statement today. “Woolworths has determined that creating SCA Property Group is the best option to reduce the quantum of property held on the Woolworths balance sheet, make better use of Woolworths’ capital.”

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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