Charter Hall is the last group standing in a heated competition for David Jones’s flagship store at Elizabeth Street in the Sydney CBD, which looks set to sell for more than $500 million.
South African-based Woolworths Holdings, the owner of David Jones, initially planned to offload the property in conjunction with the flagship Melbourne store on Bourke Street for about $750 million combined but recently decided to focus on selling the Sydney asset first.
The announcement on Wednesday afternoon of Charter Hall as the preferred buyer came as a surprise to the market.
Woolworths said it entered into a period of exclusivity with Charter Hall on behalf of a Charter Hall-managed partnership, after running a sales campaign through investment bank UBS.
“The discussions with Charter Hall are ongoing and remain incomplete, with any potential transaction subject to completion of confirmatory due diligence, negotiation of definitive agreements and any requisite third party approvals,” a David Jones spokesperson said.
Rich lister Shaun Bonett’s Precision Group, Sydney investment house AsheMorgan and shopping centre landlord Scentre Group had all been strong contenders for the property, but Charter Hall is understood to have offered the strongest bid, of more than $500 million.
A long 15-year leaseback arrangement to David Jones as the tenant – with the possibility of negotiating up to 20 years – is part of the terms of the deal.
If Woolworths does sell the building, it is understood the company will spend at least $26 million a year in rent.
In the event David Jones did not survive the length of its lease, Charter Hall would likely then repurpose the asset.
It is unclear whether Charter Hall already has a third-party capital partner to back the acquisition or if the fund manager would require the services of an investment bank, like UBS, to undertake a capital raising on its behalf.
Woolworths is likely to revisit the sale of the Bourke Street store in Melbourne next year once the store has reopened. It is expected to sell for between $200 million and $300 million. The buyer would be expected to fork out money for refurbishment while David Jones as the tenant would be expected to pay about $15 million net annually in rent.