Spinoff for Woolworths
HUNDREDS OF thousands of people who hold Woolworths shares will be handed units in a brand new spinoff company in December.
SCA Property Group will be priced favourably compared with its peers, but the rent guarantee by Woolworths is for only two years.
The supermarket giant will – after shareholder approval at the annual meeting – package 69 of its shopping centres into a real estate investment trust (REIT) – Shopping Centre Australasia Property Group. It will have assets worth about A$1.4 billion and be separately listed on the Australian Securities Exchange.
Each Woolworths shareholder will be given one unit in the new vehicle for every five Woolworths shares they hold on November 30.
Some shareholders may think they’re getting something for nothing when they receive their allocation. Many are likely to hang on to the units without much consideration.
But Morningstar senior analyst of property research Tony Sherlock says shareholders should remember that they’re effectively paying for the units and should think of it more as a capital distribution than a freebie.
‘‘All investors should question whether it’s aligned with their investment risk-reward appetite,’’ he says. ‘‘There are over 20 property stocks out there and it’s likely that there would be other property stocks out there aligning better with their investment objectives.’’
RMG Financial Services adviser Patrick Canion says the split-up does not increase the amount of property that shareholders have in their portfolios, but it will give them more flexibility with their asset allocation. ‘‘It’s going to allow you to do something about the property you already own through your Woolworths shares,’’ he says.
Over the past few years, Woolworths has come to own far more property than it intended. When the financial crisis prevented developers from getting finance to build new shopping centres, Woolworths was forced to step in and develop the properties itself to meet its expansion plans.
That meant the nondiscretionary retail exposure that shareholders got by investing in Woolworths came wrapped up with an exposure to retail property. And to some extent, it still will after the split. The retailer will retain about two-thirds of its existing property assets.
But SCA is a new company with different characteristics from its parent.
Following the split, shareholders will have three options of what to do with their units in the new REIT. They can keep them, sell them or apply to buy more units by participating in the Woolworths retail shareholder offer.
The share price for the initial public offering is expected to be between $1.26 and $1.50 a unit.
Goldman Sachs analysts noted that Woolworths was effectively selling the property in the SCA Group at a discount of between 5 per cent and 20 per cent to its net tangible assets (NTA). Similar REITs – such as BWP Trust, which holds Bunnings-tenanted retail premises, and shopping centre owner Charter Hall Retail REIT – trade at a premium to their NTA.
Investors holding units in SCA Property Group will hope they gain value. But rather than focus on price, Canion says investors should consider their investment goals for