Coles reveals plans to open more stores

Coles will be spun out of Wesfarmers in a deal set to be completed in November.
Coles will be spun out of Wesfarmers in a deal set to be completed in November.

Coles is set to expand its store network once the supermarket giant demerges from parent Wesfarmers, citing the tailwind of population growth, which reached 1.6% nationally last year. 

The group will continue to sell some stores it owns into a market in which there has been solid demand for neighbourhood shopping centres from high net worth individuals chasing better returns than cash.

Meanwhile, The Australian can reveal Coles’ head of property David Bridger is leaving the company.

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Store commercial director Thinus Keeve will take on the responsibility of leading the property and construction teams, a Coles spokesman confirmed.

Coles will be spun out of the Wesfarmers conglomerate in a deal set to be completed in November. Its parent is set to keep a 15% stake. The demerged Coles will have net debt of about $2 billion and operating lease commitments of about $9.6 billion.

Most Coles supermarkets are leased from landlords such as the Charter Hall Retail REIT, SCA Property Group and the ISPT Retail Australia Property Trust, as well as private owners.

Wesfarmers had $2.2 billion of property and $7.2billion of plant and equipment on its balance sheet at June 30 according to the group’s most recent annual report.

But Wesfarmers chief executive Rob Scott declined to be drawn on the value of property Coles will hold once it separates from its parent, saying the scheme booklet for the deal will go into more detail once published.

It’s a lot easier to sell a neighbourhood centre than a subregional worth $300 million

He is upbeat on plans to expand the store network, given national population growth of 1.6% last calendar year according to the ABS.

“We see opportunities to continue to open new stores. We will do that in a very measured way,” Scott told a media briefing.

“Something that Coles has always done since Wesfarmers ownership is focused on expanding our network in a way that doesn’t compromise sales density — not opening stores for the sake of opening stores.”

Although the group has not been afraid to close some stores and open new ones, the total number of stores will increase over time because of a growing population, he says.

Coles has been working on plans for a new small-store format that will combine a convenience offer with fresh and packaged groceries, The Australian reported last week.

The company will continue to look to sell stores where it has bought a site and developed a new property, Scott says.

CLSA head of Australia real estate Sholto Maconochie says neighbourhood centres are still selling well amid demand from super funds and high net worth individuals looking for better returns than cash.

“It’s a lot easier to sell a neighbourhood centre than a subregional worth $300 million,” Maconochie says.

But Folkestone Maxim Asset Management managing director Winston Sammut says the best trading centres have been large malls that have been drawing buyers on low yields, such as Scentre taking a half stake in Westfield Eastgardens on a cap rate of just 4.25%.

This article originally appeared on www.theaustralian.com.au/property.