Smiths City main store sale and leaseback

Retail chain Smiths City Group says it has conditionally sold its main Colombo Street property in Christchurch for $20 million to reduce debt, though it has not named the store buyer.

Last months the retailer said it had appointed real estate firm Colliers to investigate market interest in the flagship store, including a possible sale and lease back.

Any sale or action requires shareholder approval because of the value of the deal.

New chief executive Roy Campbell said subsidiary Smiths City Properties, the owner of the Colombo Street store, had entered into a conditional agreement to sell that property.

The main retail trading arm of the retail group had conditionally agreed to lease the property from the new purchaser, ‘‘a New Zealand-based entity’’.

The sale had been conducted through a robust ‘‘market tender’’ process, he said.

The sale price of the 550 Colombo St property is $20m plus GST. That is about $3m above the value that Smiths City carries the store on its books.

The proceeds will be used by the retailer to retire debt and put it in a stronger position, Campbell said.

‘‘Our intention is to retire debt and put us in a much more fluid position ... to make sure it’s in the right position to be competitive going forward.’’ He and the team were looking to enhance the profile and consumer offering of Smiths City around New Zealand.

Smiths City had secured finance business and bank debt of $73.5m at June 30, down from $82.9m 12 months earlier, according to its annual report.

Settlement will be on September 18 conditional on satisfaction of terms. These included due diligence and lease approval conditions for the benefit of the purchaser.

The agreement is also conditional on the approval of the shareholders of Smiths City Group. This approval will then be put to shareholders at the group’s annual meeting on August 25.

The lease commencement date will be aligned with settlement of the property. Annual rental will be $1.409m plus GST. The initial lease term is for 12 years with two further rights of renewal of six years each.

Campbell has said any proceeds from the sale would be reinvested in the company.

On Friday afternoon Smiths City shares were trading one cent higher at 53 cents and have trended sideways in recent months.