Bloomberg News

SCA Property Plans to Acquire Properties From Woolworths, Coles

November 29, 2012

SCA Property Group (SCP), the shopping center trust spun off by Woolworths Ltd. (WOW), plans to acquire malls developed by the retailer and rival Wesfarmers Ltd. (WES)’s supermarket chain Coles Ltd. to expand its asset base.

SCA Property, which listed on the Australian stock exchange on Nov. 26., will start its own redevelopments of some existing malls in the next two years, interim Chief Executive Officer Anthony Mellowes said. The company also expects to seek a credit rating next year, he said.

“Woolworths and Coles will develop 50 percent of new neighborhood shopping centers, and they’re not long-term owners of them, so they fit really well into this portfolio,” Mellowes said in an interview yesterday. “Next year sometime, we will investigate seeking a credit rating, to access longer-term debt outside of Australian banks.”

The listing of SCA Property, which rose 2.1 percent since its debut to A$1.435 as of yesterday, was the largest initial public offering in Australia since Westfield Group (WDC) hived off ownership of some of its Australian and New Zealand malls into Westfield Retail Trust (WRT) two years ago. It comes as Australian retail sales and consumer confidence start to recover after 1.5 percentage points of interest rate cuts by the central bank.

SCA Property has about A$150 million ($157 million) of capacity for acquisitions before the ratio of its net debt to total assets exceeds 40 percent, the upper end of its target range, James Besson, an analyst at UBS AG, wrote in a report this week.

Redevelopment Plans

SCA Property -- which owns 56 completed centers and 13 properties under development by Woolworths across Australia and New Zealand -- has no plans to build new malls, Mellowes said.

“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.”

UBS on Nov. 26 began coverage of SCA Property shares with a “neutral” rating and JPMorgan Chase & Co. rated the company “underweight.” Both said SCA’s lease structure -- where 61 percent of rents come from Woolworths -- will lead to lower- than-average income growth.

“Woolworths leases appear to favor the tenant,” Rob Stanton, an analyst at JPMorgan, wrote in a report.

The company is seeking to cut total vacancies from the current 5 percent to about 2 percent in the next 24 months, Mellowes said. Woolworths has provided a rental guarantee for two years for vacant stores in completed properties and for two years from completion of each mall under development, according to listing documents.

Mellowes, who was Woolworths’ head of property operations, is serving in his current role while the group searches for a permanent chief executive, Philip Clark, chairman of SCA Property’s board of directors, said in a separate telephone interview yesterday. Mellowes is also a candidate for the permanent position, which is expected to be filled in the first quarter of 2013, Clark said.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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