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07 May

Masters deal creates Australia’s largest large-format landlord

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The Masters stores are estimated to cover about 700,000 square metres combined. David Di Pilla is leading the consortium that is buying the Masters portfolio. Photo: Louise Kennerley

Rich-lister Zac Fried, who parts owns the Anaconda and Spotlight stores, is in the consortium. Photo: Wayne Taylor

Woolworths’ sale of its Masters stores will propel a consortium of wealthy private families to become Australia’s largest retail landlord, overtaking shopping giant Harvey Norman.

The 61 Masters stores, estimated to cover about 700,000 square metres combined, will close their doors for good on or before December 11 after being offloaded this week to Home Consortium –  a company controlled by the families behind Aurrum Group, Spotlight Group and Chemist Warehouse – in an $800 million deal.

The single transaction will give a handful of well-known rich-listers a large-format property empire to rival retail kings Gerry Harvey and Brett Blundy.

The Home Consortium includes Melbourne-based Chemist Warehouse owners Mario Verrochi and Jack Gance and retail rich-listers Zac Fried and Morry Fraid who own the Anaconda and Spotlight stores.

The consortium is being led by UBS banker David Di Pilla, who is a major investor, along with his parents-in-law Mary and Alex Shaw, and Greg Hayes. Others chipping in to the consortium are UBS directors Robbie Vanderzeil and Matthew Grounds.

The Shaws and Hayes are major investors behind aged-care start-up Aurrum.

Insiders suggest the consortium managed to outflank other circling property powerhouses – fund giant Blackstone and local heavyweights Charter Hall, Vicinity and Stockland – by offering a retailer-led concept complete with pre-leases to tenants like Spotlight, Anaconda and Chemist Warehouse.

“They not only went with cash but a substantial pre-leasing commitment to demonstrate they could turn this around,” a source close to the deal said.

“It’s as close to turnkey as you can get,” they said. “That’s what won them the day.”

The consortium expects to have first centres refitted and open between April and June next year.

The wind-up of Masters, foreshadowed for months, will see a fire sale of all the store’s hardware stock and thousands of workers losing their jobs, although the new owners expect to create a similar number of jobs in the new retail centres.

The flood of empty space has concerned some industry watchers.

“While it is still early days, this is a negative read-through for large-format retail given the potential for new competing supply to come online,” Macquarie Bank said in a research note.

Others welcomed the deal. “It’s great news for the industry,” said Philippa Kelly, chief executive of the Large Format Retail Association, which represents an industry with a turnover of $66 billion a year that employs 425,000 people.

“There has been a shortage of supply of new space in the last few years,” she said.

CBRE’s head of large format retail Chris Parry said his firm investigated the Masters portfolio and found significant demand for new space among the nation’s largest retailers.

“We were quite surprised at how much demand there was,” he said.

Home Consortium said it was already negotiating with retailers including Anaconda, JB Hi-FI, Super Amart, BBQs Galore, Woolworths Supermarkets and Dan Murphy’s to take over some of the 61 freehold properties.

The deal to offload Masters is still subject to approval from Woolworths’ US-based joint-venture partner Lowe’s.

It covers 40 trading freehold stores, 21 development sites and 21 Masters leasehold sites which the consortium plans to repurpose into multi‐tenant large-format centres.

Woolworths said it will acquire three Masters freehold sites and take assignment of 12 leases to facilitate the deal.

Rival hardware giant Bunnings was quick to jump on plum locations, confirming it planned to take over 15 Masters sites.

“Eleven of the 15 locations will be replacement stores and provide us with a great opportunity to improve our offer in these areas,”  Bunnings CEO John Gillam said.

The process of re-letting and subdividing stores could take up to five months, he estimates.

Bunnings’ deal with Home Consortium will see it lease six freehold sites, two development sites and seven of Masters leaseholds.

The two freehold development sites Bunnings intends to lease will require normal development approvals before it can build and open its warehouses.

The other leg of Woolworths’ Masters divestment, a deal to sell its Home Hardware chain to Mitre 10’s owner Metcash for $165 million, will create a new 1800-store competitor to Bunnings.

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