A consortium of Charter Hall Group (ASX: CHC) entities has bought David Jones' flagship Sydney store for $510 million as the retailer's South African owner pursues a strategy to boost profitability.
The move also affirms the strategic importance of the Elizabeth Street store to the David Jones business as the group continues to focus on its upmarket urban store network at the expense of closing smaller suburban outlets.
The Sydney CBD store, which accounts for about 15 per cent of David Jones' sales annually, has recently undergone a $200 million upgrade.
Charter Hall says the investment by David Jones has created "a world-class showcase of department store retailing".
The acquisition will see David Jones lease back the 12-storey building over 20 years, with minimum 2.5 per cent rent increases each year, supplemented by an agreed turnover rent linked to sales performance.
The purchase price has been struck on an initial yield of 5 per cent on annual rent of $25.5 million. This prices the retail space about $800 per square metre for the store which is located on a 3530sqm site at 86-108 Castlereagh Street, with frontages to Elizabeth, Castlereagh and Market Streets.
Charter Hall's investment comprises a 50 per cent interest held by the Charter Hall Long WALE REIT (ASX: CLW), a 25 per cent interest held by the Charter Hall DVP partnership (DVP) and 25 per cent held by Charter Hall Group.
The group's investment amounts to $71 million held in a partnership with DVP, which together have secured a five-year debt facility to fund the acquisition. CLW is funding its 50 per cent interest through existing facilities.
"This acquisition is consistent with our strategy in so many ways," says Charter Hall David Harrison who describes the David Jones investment as a "high conviction prime real estate" acquisition.
The investment is expected to bolster the group's funds under management to more than $45 billion.
Settlement of the deal is subject to approval from the Foreign Investment Review Board for David Jones entry into the lease.
David Jones is owned by South Africa's Woolworths group, which is not associated with the Australian supermarket giant.
Woolworths, which paid $2.1 billion for David Jones in 2014, announced earlier this year plans to boost the profitability of the group by closing stores and selling up to $1 billion in assets.