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Solomon Lew weighs options for David Jones’ property portfolio

Solomon Lew weighs options for David Jones’ property portfolio

June 23, 2014

Carolyn Cummins

Speculation is mounting that Solomon Lew could strike a deal with the South African Woolworths group to buy the David Jones property portfolio, independently valued at $612 million.

According to property analysts, such a deal would allow Mr Lew to exit the David Jones takeover battle, where he has bought a strategic stake in the department store, which has left investors and Woolworths unsure of his intentions.

Woolworths has made a $2.2 billion offer for David Jones, but long-time retailer Mr Lew has bought a 9.89 per cent strategic stake and his intentions for the group remain unclear.

Property analysts have said the cash raised through a sale and lease-back of the properties could be used for the growth of the Woolworths operations.

Mr Lew is well versed in the property sector, being one of the pioneers of sale and lease-back of Coles supermarkets.

When he ran Coles Myer, his head of property was Andrew Scott, who later ran Centro Properties. Mr Scott successfully negotiated the $500 million sale of the former Grace Bros site in Sydney to Westfield, as well as the air rights above the centre, which is now apartments and the Swissotel. It was said Mr Lew put this deal in motion when he was at the department store.

Mr Lew has always said he was interested in property and retail and in 1995 he raised $560 million when he wrapped up one of the biggest property disposals in Australia in years, selling major shopping centres to Westfield Trust, Queensland Investment Corporation and the Sydney-based property syndicator Babcock & Brown.

At one point in the early 1990s, Mr Lew canvassed the market for a public float of the Coles Myer property empire then worth $1.4 billion into a separately listed trust.

Woolworths chief executive Ian Moir said in May that if successful in its $2.2 billion bid for David Jones that his group ”intends to review alternatives with respect to the owned (freehold) property portfolio of David Jones once further information on any property-related matters is made available to Woolworths”.

”No, we didn’t look at the properties at all in this transaction,” Mr Moir told journalists at the time of the offer. ”We’re not property developers, we’re retailers, so in all of the stuff we’ve looked at we’ve really concerned ourselves with how we build this retail business; this is not a property transaction, this is a retail transaction,” he said.

Property analysts say David Jones is sitting on a goldmine of real estate that has significant development potential and could deliver long-term profits.

The portfolio is the four stores owned by David Jones – two in Bourke Street, Melbourne, and Elizabeth and Market streets, Sydney.

David Jones appointed Colliers International to review the potential sale or redevelopment opportunities for the David Jones property portfolio. It also lodged a preliminary development submission in relation to its Market Street property in February.

The department store group first raised the possibility of redeveloping the air space above its Market Street menswear store in March last year when its group executive of retail services, Tony Karp, said a review of its property portfolio was under way.

Merrill Lynch analysts have said in the past that the Market Street site could be converted to a specialty and concept store retail space. ”If Market Street could be re-leased for more specialty usage, we estimate it could be rented for about $35 million per annum,” they said. ”This assumes a range of rent levels based on the attractiveness of each floor with respect to traffic.

”For example, the ground floor could be leased for as much as $5000 per square metre, whereas the basement would likely fetch only about $100 per square metre.”

 

Solomon Lew suspected of spoiler stake in David Jones

June 23, 2014

Eli Greenblat

Solomon Lew needs just 12.5 per cent of DJs shares to block the bid.

Large investors in takeover target David Jones have been tapped on the shoulder to lend out their securities to an unknown borrower, heightening speculation rag-trader billionaire Solomon Lew is stepping up efforts to build a blocking stake to derail South Africa’s Woolworths $2.2 billion takeover of the department store operator.

Speculation surrounding Mr Lew’s intentions keeps on expanding, with the suggestion that he wants to spoil the takeover bid from South Africa’s Woolworths to pave the way for him to resurrect last year’s proposal for a nil-premium merger between David Jones and arch-rival Myer.

Mr Lew is a former chairman of Coles Myer and was one of the retail conglomerate’s largest shareholders through his Premier Investments holding before eventually the company was split, with Wesfarmers buying Coles and Myer taken by private equity.

He had built up his 6 per cent stake by parlaying an original holding in Myer into a stake in the combined Coles Myer business when it was fused in 1986.

A proposal last year from Myer to merge with David Jones was at first rebuffed by the upmarket department store, and then eventually blown out of the water by Woolworths’ $2.2 billion offer in April, which came at a sizeable premium, especially compared with Myer’s nil-premium deal.

However, the true intentions of Mr Lew remain shrouded in mystery, with the leading suggestion still that he wants to use the 10 per cent holding in David Jones as leverage to get Woolworths to buy out his $160 million minority stake in fashion chain Country Road.

There was heavy trading in the securities lending sector of the David Jones market last Thursday, with market participants also reporting that institutional shareholders had been approached on Friday to offer up some stock. The identity of the buyer looking to borrow the stock in David Jones remains unknown, although most believe it was Mr Lew.

Last week 10 per cent of David Jones’ shares were on loan through securities lending arrangements, with that dropping to 5 per cent by Friday.

However, as it takes three days under the ASX systems to report changes in ownership, the true lending position of David Jones’ issued capital may be revealed on Monday or Tuesday.

An initial dip in lending could also signal that the borrower had been able to fill their requirements by deciding to buy shares on the market.

These movements come as a vote on the Woolworths takeover has been extended, and is now 22 days away.

David Jones’ share register has a large number of small investors – as opposed to a high proportion of institutional investors – and companies with such a strong lean to mum-and-dad investors typically have low turnouts at shareholder meetings.

David Jones needs 50 per cent of shareholders holding 75 per cent of the shares voted to succeed in getting the takeover passed.

At David Jones’ annual meeting last year only 50 per cent voted, meaning Mr Lew could block the bid with as low as 12.5 per cent voting ”no”.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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