I posted a comment a week ago regarding Myers rent dilemma. They want to reduce rent (lease payments) but Scentre are looking to increase rent. Myer is only paying 7% of sales of its flagship Sydney store as rent to Scentre. Right now, Scentre could get almost 18% of sales as rent from an alternate retailer. Scentre has a big incentive to do this as the value of their Sydney commercial property will increase by $3.3b. This is a massive uplift for Scentre and would please their SHAREHOLDERS. If Scentre decide to up rent or not renew Myers lease, then this could definitely hurt profits or impact sales depending on the scenario. This is a real dilemma for Myer.
Snippet from article below:
“Based on the rental income Scentre receives from specialty retailers versus Myer, it would be in Scentre’s interest to replace Myer with more profitable tenants. And why not? Its business model for the last 50 years is based on replacing weaker retailers with stronger ones.”
He calculates that the Myer Sydney City store generates about $729 million in retail sales, while replacing Myer’s 46,754 square metres of floorspace with specialty retailers could generate $1.04 billion in sales.
Myer currently pays 7 per cent of its revenue in rental, compared with specialty retailers which are willing to pay 18 per cent. In other words, the rental from Myer’s Sydney floor space could increase from $51 million to $187 million.
“The increase in rent of $136 million based on Scentre’s latest Sydney CBD capitalisation rate of 4.12 per cent implies a $3.3 billion valuation uplift,” he said.
Reference: http://www.news.com.au/finance/busi...e/news-story/74b9820b845ef306bb39ff776c2faf9f
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