pretty accurate, page-12

David Jones plans $85m renovations
November 20, 2007 - 5:23PM

David Jones Ltd will spend $85 million redeveloping its historic central Melbourne stores as it targets an extra $300 million of sales across the city.

Most of the renovation on the two Bourke Street stores, to be ready by Christmas trading in 2009, will be funded by the $50 million sale of its smaller "Home Store" property in nearby Little Bourke Street.

The buyer, a consortium including Colonial First State Property Trust and the Government Investment Corporation of Singapore, recently bought the site of David Jones' neighbour and rival, Myer.

The consortium says it will use the extra space for speciality retail outlets and office space in its overall redevelopment of the Myer site.

Meanwhile, David Jones plans to expand its selling space in its two Bourke St stores by 30 per cent.

"For us it's the most strategically important initiative we've undertaken this year," David Jones chief executive Mark McInnes said.

The ritzy retailer will use the expanded space to increase its "home of brands" approach in contrast to Myer, which has increased its private label strategy since it was taken over last year by a private equity group.

"Myer have had the heartland of Melbourne for just on 100 years basically because they suburbanised first," Mr McInnes said.

"Today, our fundamental brand offerings are completely different."

David Jones was the first department store in Bourke Street, trading as Buckley and Nunn in 1852, but it had allowed Myer to overtake it and become the pre-eminent trader during the 20th century, Mr McInnes said.

We don't intend to allow them to do that in the this century, he said.

"I think we've already got a superior brand portfolio and we're just going to add to that."

The sale includes an $8 million disruption compensation payment and will deliver a one-off profit for the group of between $10 million and $12 million.

The redevelopment will also be funded with another $43 million from the group's dividend reinvestment plan, which will remain in place until fiscal 2010.

The company said the redevelopment would be earnings per share accretive in the first year after completion.

Earnings before interest and tax will be unaffected during the 18-month redevelopment due to the compensation facility, it said.

Along with other proposed store openings in suburban Melbourne, David Jones hopes to double its market penetration to 15 per cent, creating an extra $300 million of sales a year.

"The size of the opportunity is to double our business in this state effectively," Mr McInnes said.

David Jones bought back its central Melbourne properties last year as it sought to keep pace with restructuring within the industry.

The Myer chain was sold off from the Coles empire to the private equity TPG-led consortium, which then sold Myer's central Melbourne properties to Colonial and its partners for $605 million.

Colonial's retail fund manager Michael Gorman said targeted yield return for the trust remained in line with the initial estimate of between 6 and 6.5 per cent on costs, including the acquisition of the site.

"This is a great opportunity to redevelop the property in a manner that connects and complements the Lonsdale Street development," Mr Gorman said.

"This will provide a more efficient retail layout and provides for a wider specialty shop/mini major mix."

David Jones shares finished two cents down at $4.92 and Colonial Retail Property Trust was also down two cents to $2.33.