Awesome WordPress Themes

Enlarge image

David Jones Seen Luring LBO on Lowest Value Since ‘04

Sergio Dionisio/Bloomberg

Revenue at David Jones, which sells everything from ties and fragrances to suitcases and cameras, peaked at A$2.1 billion in the year ending July 2008, according to data compiled by Bloomberg. It will fall about 10 percent from that high to A$1.9 billion this fiscal year, analysts’ estimates compiled by Bloomberg show.

Revenue at David Jones, which sells everything from ties and fragrances to suitcases and cameras, peaked at A$2.1 billion in the year ending July 2008, according to data compiled by Bloomberg. It will fall about 10 percent from that high to A$1.9 billion this fiscal year, analysts’ estimates compiled by Bloomberg show. Photographer: Sergio Dionisio/Bloomberg

With David Jones Ltd. (DJS) trading at the
lowest price to its net assets in eight years, the Australian
department store’s real estate is making it a buyout candidate.

Competition on the Internet from American retailers,
including Saks Inc. and Nordstrom Inc. (JWN), and Australian savings
rates that are more than double those in the U.S. have sent
shares of Sydney-based David Jones down 51 percent in the past
year. After Australia’s second-largest department store operator
also projected its smallest annual profit in six years, the
company is trading at 1.4 times the value of its assets minus
liabilities, a level not seen since May 2004, according to data
compiled by Bloomberg.

While the slump has pushed David Jones’ market value down
to A$1.2 billion ($1.2 billion), its real-estate holdings alone
would be worth as much as A$1 billion if sold and leased back,
Bank of America Corp. said. With Australia’s central bank now
cutting interest rates, and David Jones in need of a turnaround,
now is the time for potential buyers to look, according to
Commonwealth Bank of Australia.

David Jones’ real-estate portfolio is “something tangible
that investors can hold onto when there’s capitulation in the
market,” said Robert Penaloza, Sydney-based head of equities at
Aberdeen Asset Management Ltd., which oversees about A$18
billion in Australia. “The company still has a decent brand
name and its positioning in the market is still valid.”

Four Properties

Helen Karlis, a Sydney-based spokeswoman for David Jones,
said she had no comment on takeover speculation.

Australia’s oldest department store, David Jones was
founded in 1838, half a century after Britain started sending
convicts to the country. The company is named after the Welsh-
born immigrant that opened a central Sydney store to sell “the
best and most exclusive goods,” according to its website.

The four sites that David Jones owns, one each on Elizabeth
Street and Market Street in Sydney and two on Bourke Street in
Melbourne, account for a quarter of the retailer’s sales, Karlis
said. They are adjacent to some of the priciest retail strips in
the world, according to Kevin Stanley, research director of
property consultants CBRE Group Inc. (CBG), the world’s largest
commercial real estate services company.

“The pedestrian flows in these areas are very high,” he
said. Sydney is the world’s third-most expensive city for retail
rents after New York and Hong Kong, and Melbourne the eighth-
most expensive, ahead of Milan, Frankfurt and Chicago, CBRE said
in a report last November.

Falling Sales

Revenue at David Jones, which sells everything from ties
and fragrances to suitcases and cameras, peaked at A$2.1 billion
in the year ending July 2008, according to data compiled by
Bloomberg. It will fall about 10 percent from that high to A$1.9
billion this fiscal year, analysts’ estimates compiled by
Bloomberg show.

David Jones, which didn’t include an online strategy in its
three-year plan released in 2008, trails rivals in tapping the
web. Comparing itself to 10 retailers including New York-based
Saks (SKS) and Nordstrom, David Jones said in March it generated the
smallest proportion of total sales — less than 1 percent –
from the Internet. U.K. department store operator John Lewis Plc
ranked first with 17 percent, while Saks and Seattle-based
Nordstrom each derived about 9 percent of revenue online.

U.S. and foreign retailers that ship to Australia are
capitalizing on an Australian dollar that has climbed 27 percent
against its U.S. counterpart in the past three years. In Hong
Kong, StrawberryNET sells a jar of Clinique Daily Relief
moisturizer for A$55, a price that includes shipping to
Australia. The same product at David Jones’ online site is
offered for A$90, 64 percent more.

Higher Borrowing Costs

After Australia recovered from the global financial crisis
that peaked in 2008, David Jones and the country’s other
retailers have struggled as interest rates climbed to 4.75
percent, the highest in the developed world.

The savings rate among Australian consumers reached 12.6
percent in December 2008, a level last seen in 1986, according
to data compiled by Bloomberg. At the end of 2011, it was 9
percent, still more than double the pace before the financial
crisis and about twice the personal savings rate in the U.S. at
the same point.

The central bank this month made its steepest cut to
borrowing costs in three years, reducing the benchmark rate to
3.75 percent.

A potential buyer of David Jones will need a plan to solve
its problems by lowering prices, investing in technology and
expanding its Internet platform, said Andrew McLennan, an
analyst at Commonwealth Bank in Sydney.

‘Pretty Good Deal’

“When these things are under a fair degree of cyclical
pressure and there are some structural concerns, this is the
time to have a look at them,” he said. “If some of those
structural concerns can be overcome and the cycle recovers,
you’ve ended up with a pretty good deal.”

David Jones forecast its lowest annual profit since 2006
for the year ending in July, spurring an 11 percent drop in its
shares on March 21. In the past year, the stock is the worst
performer among 22 Australian retailers with a market value
greater than $100 million, data compiled by Bloomberg show.

Down 51 percent in that period, compared with an average
drop of 5.4 percent for the group, David Jones is trading at 1.4
times the value of its assets minus liabilities, or book value,
of A$803 million. That’s the lowest multiple since May 10, 2004,
data compiled by Bloomberg show.

Myer Path

The slump has created an opportunity for an acquirer to
capitalize on the value of David Jones’s real estate in Sydney
and Melbourne’s central business districts, according to Silvia Spadea, an analyst for Bank of America. If sold and leased back,
the stores in Australia’s biggest cities may be worth as much as
A$1 billion, Spadea wrote in a note last month. Spadea didn’t
return a request for an interview.

“David Jones is unique” compared with most retailers in
owning its valuable property assets, Spadea wrote. An external
party, such as a financial buyer, “would be in the best
position” to monetize the assets.

Using a “mid-point” valuation of A$800 million, the real
estate is worth A$1.52 a share, according to Bank of America,
which based its estimates on consultations with several property
developers, according to an April 12 note. David Jones shares
closed at A$2.20 last week.

Any buyer taking this route would be following the lead of
Fort Worth, Texas-based TPG Capital, which bought Australia’s
largest department store chain Myer Holdings Ltd. (MYR) for A$1.4
billion in 2006, said Michael Simotas, an analyst at Deutsche
Bank AG. The buyout firm sold the retailer’s flagship property,
next door to David Jones’s Melbourne store, the next year for
A$605 million.

‘Quite Reasonable’

“The property is certainly a factor and there is value
that could be unlocked,” said Sydney-based Simotas. “The
appetite for those assets would be quite reasonable.”

David Jones sold the stores once, only to reacquire them in
September 2006 for A$362 million to regain control of
redevelopment and avoid rising rental payments, according to
data compiled by Bloomberg.

Rents for the best retail locations in central Melbourne
have increased by an average 7 percent a year since 2006 and now
stand at A$8,700 per square meter, while those in central Sydney
have risen by 2 percent a year to A$11,500 per square meter over
the period, CBRE’s Stanley said.

TPG, which refurbished stores and boosted Myer’s profits,
sold the retailer in an October 2009 initial public offering
that valued Myer at A$2.4 billion. A buyer of David Jones would
also have to see an opportunity to turn the fundamentals around,
said Simotas, who has a sell rating on the stock.

New Strategy

“Normally when a sponsor looks at a business like this, it
wouldn’t rely on getting an acceptable return using financial
engineering alone,” he said. “It would like to think it could
improve the business by making management or structural
changes.”

David Jones Chief Executive Officer Paul Zahra, mapping out
a strategy in March under what he called the toughest conditions
in his 30 years of retailing, said he’ll increase the number of
products available through the website to 90,000 from 9,000. The
company will lift online sales to about 10 percent of total
revenue from less than 1 percent, it said.

Potential buyers of David Jones may be deterred by the
prospects for Australian retail, said Martin Duncan, a fund
manager at Arnhem Investment Management in Sydney.

‘Dour Outlook’

“It would be highly unlikely because of the generally dour
outlook for retailing,” said Duncan. “The outlook continues to
be bleak because consumer confidence continues to be weak.”

Australian consumer confidence in May stagnated near the
lowest level this year as concern about the global economy and
the Greek debt crisis offset the central bank’s rate cut. From a
year earlier, confidence was down 8.3 percent, according to a
Westpac Banking Corp. and Melbourne Institute survey.

The slump in confidence hasn’t stopped buyout funds from
pursuing local consumer companies. KKR Co. approached Pacific
Brands Ltd. (PBG), Australia’s biggest underwear maker, in January.
TPG Capital offered to buy surfwear maker Billabong
International Ltd. (BBG) in February.

“We know private equity are having a sniff around these
assets, generally,” said Commonwealth Bank’s McLennan. “There
have been a lot of headwinds in the Australian household sector
which will not stay around forever, so let’s not get too
depressed about the retail sector.”

With David Jones trading so near the value of its assets,
there’s the chance to make money through a takeover, said
Penaloza at Aberdeen Asset Management.

“Interest rates are low, you can probably borrow enough to
buy the assets, sweat the assets and perhaps sell it on when
times are better,” he said. “Online is another way of shopping
but it’s not going to kill the bricks and mortar.”

To contact the reporters on this story:
Angus Whitley in Sydney at
awhitley1@bloomberg.net;
David Fickling in Sydney at
dfickling@bloomberg.net.

To contact the editor responsible for this story:
Daniel Hauck at
dhauck1@bloomberg.net;
Katherine Snyder at
ksnyder@bloomberg.net;
Philip Lagerkranser at
lagerkranser@bloomberg.net.

• Facebook Share

• LinkedIn
• Google +1

• 
  COMMENTS

• Print

Please enable JavaScript to view the comments powered by Disqus.

<!–Saxotech Paragraph Count: 15
–>

Leesville-based Candice Skinner has been recognized by Realtor magazine as one of the rising stars in the industry nationally.

Skinner made the magazine’s “30 Under 30″ list, announced last week. Each spring, the magazine selects 30 young Realtors “who are successful in the real estate business and have demonstrated skill, success, creativity, and leadership in their careers.”

This year’s honorees are featured in the May/June issue of Realtor, the official magazine of the National Association of Realtors.

“I’m very excited,” Skinner said. “I remember when I was getting started in this business at 20 years old, I picked up a copy of that magazine and said to myself, ‘Someday, I’m going to be in there.’ Seven years later, it happened.”

Skinner, who opened Candice Skinner Real Estate last year, was singled out for her work with military families.

“My husband is in the Army, so a big part of my heart is with military families,” she said.

This year’s group of honorees “exemplifies the ingenuity, dedication, and prowess that’s raising the bar in real estate today,” according to the 30 Under 30 announcement.

“I am always astonished to see the ’30 Under 30′ professionals every year and all that they have achieved in such a short amount of time,” National Association of Realtors President Moe Veissi said in a statement.

“What amazes me the most about this year’s class is how they recognize there is no one formula for winning in real estate,” he said. “They have discovered success their own way and display the dedication and hardworking spirit all Realtors possess. As Realtors, we are constantly evolving with the market and it’s important to recognize these young people and learn from them, as they are the future of the real estate profession.”

Unemployment data

The Alexandria metropolitan area’s unemployment rate dropped slightly in April, according to figures released Friday by the Louisiana Workforce Commission.

The seasonally unadjusted rate in the area was at 6.4 percent in April, down .6 percent from March and .1 percent from April 2011.

All eight metro areas in the state saw a slight drop in unemployment in April. Statewide, the rate was 6.4 percent, a drop of .6 percent from March.

Nonprofit award

Capital One Bank is accepting participants in its 2012 “Investing for Good Award,” which provides support through volunteerism and grants to six Louisiana nonprofits that build economic opportunity in the following focus areas: education, financial literacy, and small business and work force development.

Letters of intent to participate in the program are being accepted online at www.cybergrants.com/capitalone/LAinvestingforgoodawardLOI through June 21.

Award recipients are each eligible for grants totaling up to $60,000 over the two-year period.

—”Business Beat” runs each Sunday. Send tips and news to business reporter Jeff Matthews at jmatthews@thetowntalk.com or call (318) 487-6380.

QUESTION: My husband and I purchased our first home in 2011. The home is a four-story townhouse in Washington, D.C. Built in the 1880s, it has had many owners and updates.

After living in the home, we noticed the home shakes every time a truck drives down the street. The home is four stories tall and has a basement. If we slam the door, the second floor shakes. The seller was a real estate agent and had the home for several years. He did not disclose this, and now we think the home has serious and costly structural problems. The shaking just isn’t normal. Do we have any recourse?

ANSWER: Unless you know that the house has serious and costly structural problems, you probably don’t have much to complain about. You knew you were buying a home from the 1880s. It’s about 130 years old and is still standing. When the home was built, there were only horse-drawn carriages going down the street, and now you have trucks that are many tons in weight going down your street. It has probably been shaking this way ever since trucks started going down the street.

Presumably, you had an inspector come to the home and go through it before you bought it and did not find any deficiencies in the construction — or at least you decided to buy the home, anyway. The only way you’ll know for sure whether the house has structural problems is to hire a structural engineer to investigate. If you hire a structural engineer, even if he or she finds that the house is not built to today’s standards, that does not mean that it is deficient. The structural engineer will have to find that there has been some recent or new deficiency in the structure that is causing the shaking problem.

Even if you find out that there is a deficiency in the home, shaking alone may not constitute a sufficient problem for the seller to know that the home had a deficiency that needed to be disclosed to you.

There may be a way to make the problem better by installing additional supports or taking other action; you can see what it would cost to do so. But taking that action may be like improving the home and not a true fix to a deficiency that needed to be disclosed to you.

If you buy an older home and some of the elements of the home have aged and become weak, the seller has to disclose to you any problem they know about as a result. If the seller knew, for example, that a center beam of your home was cracked and deteriorated and could fail at any time, it would seem that the seller should have disclosed that to you. However, if the roof of a home is old but is not leaking, and you move into the home and it then starts leaking, you can’t blame the seller for the leak or for the cost of replacing an old roof. You knew the roof was old, and an old roof can start leaking at any time.

You have to take responsibility for your actions and the purchase you decided to make. You need to review the situation, get some expert advice from people who are familiar with homes like yours. You might start by asking your neighbors who live in homes of similar age whether their homes shake when a truck drives past. Assess what, if any, corrective action must be taken, and then talk to an attorney when you have all of this information.

If the fix to your problem is relatively inexpensive, you may want to do it and move on. If the fix looks to be quite expensive, then you may have to investigate the problem more and then determine whether any disclosure laws were broken and whether the seller would have any liability for nondisclosure.

Tell us how things end up once you gather more information.

Ilyce R. Glink’s latest book is “Buy, Close, Move In!” Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call Ilyce’s radio show toll-free (800-972-8255) 11 a.m.-1 p.m. any Sunday. Contact them through her website, www.thinkglink.com.

<!–Saxotech Paragraph Count: 15
–>

For the first four months of the year, sales are up 13 percent, and the median sales price is up 4 percent at $133,463.

In its monthly commentary on the market, the Realtors group cited multiple offers on properties as one factor bolstering prices.

Members of the Southern Indiana Realtors Association are also seeing more sales and slightly higher prices. The smaller group of agents has sold 818 homes so far this year, a 14 percent increase from last year.

The median price for the Southern Indiana group is also up 4 percent, to $110,000, for the first four months of year.

Factors helping the local housing recovery include an improving job market and mortgage rates that have continued to plummet.

As of March, the Louisville-Southern Indiana metro area had 19,500 more jobs than a year earlier, a gain of 3.2 percent, according to the latest data from the U.S. Bureau of Labor Statistics.

On Thursday, mortgage buyer Freddie Mac said average fixed rates for 30-year and 15-year loans fell to record lows for the third straight week. The rate on the 30-year loan dipped to 3.79 percent. That’s down from 3.83 percent the previous week and the lowest since long-term mortgages began in the 1950s.

As sales pick up, the Louisville market is seeing more balance between the number of homes for sale and the number of buyers in the market.

As of April, it would take seven months to sell off every house and condo listed by members of the Greater Louisville Association of Realtors — close to the six-month level that is considered a balanced market.

Fischbach and Jarboe cautioned that while good listings are being snapped up faster than they used to be, there are plenty of houses that sit on the market for months without fetching a single offer.

That’s likely because those properties are either priced too high or in poor condition, Fischbach said.

Jarboe said she advises sellers to make improvements like replacing tile and putting a fresh coat of paint on the walls before listing their property.

“In the early 2000s, it was like you put a sign in the yard and the house sells,” she said. “The difference is the work that is done upfront (by sellers) now.”

One mistake is for sellers to list their homes at unrealistic prices and then drop their asking price over time — rather than listing it at a realistic price from the start, she said.

“If it’s priced right in the beginning, that price is appealing,” Jarboe said. “If you drag out price reductions over a several-month period, all of sudden that same price is less appealing because buyers see the history of the house not selling.”

Post Contributor Badge

This commenter is a Washington Post contributor. Post contributors aren’t staff, but may write articles or columns. In some cases, contributors are sources or experts quoted in a story.

More about badges | Request a badge