Wesfarmers-owned Coles has raised $532 million through the sale of majority ownership of 19 shopping centres into a joint venture with the country's biggest super fund, ISPT.
It will deliver Coles net proceeds of $400 million, as the retailer will retain a 25 per cent stake in the partnership to allow the group the right to remain manager.
The portfolio includes 18 neighbourhood shopping centres and one subregional shopping centre, spread across NSW, Queensland, Victoria, South Australia and the Australian Capital Territory.
There are plans to place further Coles stores into the new vehicle, with the possibility, in the longer term, to float it on the sharemarket in the same way as rival Woolworths' SCA Property.
For ISPT, the deal will add to its portfolio, which includes the $374.1 million acquisition of half stakes in five properties owned by Federation Centres last year.
The Coles deal has been mooted for some time as retail landlords prefer to sell down the assets but retain the management. The cash can then be used for new developments and upgrades of existing centres. It is the same practice undertaken by the mall landlord Westfield over many years.
Coles finance director Rob Scott said by retaining the minimum 25 per cent stake, Coles can ensure it has flexibility and control over the store format layouts. "This joint venture with ISPT means Coles has secured a long-term property partner with closely aligned commercial interests," Mr Scott said.
Acting on behalf of Coles, the Australian head of retail investments at Jones Lang LaSalle, Simon Rooney, said the deal will also give Coles development control over these properties. He said the joint-venture deal comes as retail expenditure in the grocery and supermarket category has grown at 5.6 per cent per annum over the past 10 years, outperforming total retail spending of 4.8 per cent per annum over the same period. "These solid fundamentals have underpinned the resilient performance of neighbourhood shopping centres, resulting in increased levels of demand for exposure to these non-discretionary expenditure-based centres, by institutional investors in recent years," Mr Rooney said.
"Achieving scale within the neighbourhood sector has been an issue in the past, so this portfolio presented an opportunity to gain immediate access to a high-quality portfolio with close to 60 per cent of the income secured to Coles, together with a rolling development pipeline."
He said it was further evidence of a growing trend of capital partnering to unlock funds for future development.