Clicks make DJs think of evaluating its heritage bricks and mortar

David Jones has advised it is not considering a sale of its flagship Sydney and Melbourne CBD properties, but rather their redevelopment, as profit slumps amid the internet-driven worsening traditional retail environment.

Net profits in the year to July dropped 39.9% to $101.1 million, down from $168.1 million, the second largest department store company advised today in line with earlier guidance.

While the department store has ruled out selling its four landmark CBD properties, its is still reviewing opportunities to unlock the value of its property portfolio, which it anticipates could be worth almost twice its $460 million book value.

After early reportage, by including Property Observer, its chief executive Paul Zahra said the company wasn't considering the sale of its four flagship properties in the Sydney and Melbourne CBDs, estimated to be worth $612 million, but rather merely having the properties potential investigated and "appropriately valued because there was such a wide range in the market about what the properties were worth."

"We didn't do the work to sell the properties, that wasn't our intention," he announced after the headlines interpreted the initial announcement.

"We have no plans to sell the properties.

"What we wanted to do was actually get the properties appropriately valued because there was such a wide range in the market about what the properties were worth."

The company, in an effort to reassure investors of the company's value after profit plunged over the past year, will update the market on its plans in six months. While ruling itself out as a property developer, David Jones could look at forming a partnership with a developer.

The latest property sale speculation came after David Jones announced consultants Cushman & Wakefield had been appointed to ‘‘investigate opportunities to unlock and enhance the value of its property portfolio.’’

David Jones’s flagship stores on Elizabeth Street and Market Street in Sydney and on Bourke Street in Melbourne have 85,000 square metres of floor space between them and could rent for $39 million a year, the company said.

"Detailed analysis on the development opportunities of each site, including planning limitations, design, structural works and the short term impact on trading is being undertaken by the company with a view to updating the market in six months time,'' David Jones said.

The properties are the only ones David Jones owns.

Cushman & Wakefield will advise David Jones "with an indication of the potential sale price of these assets assuming a lease to David Jones, or equivalent tenant, on the basis of their existing use".

But Zahra played down the suggestion it would sell and vacate the properties because of a capital gains tax issues.

He outlined a broader shift in strategy as David Jones will open six new leased store locations, including one in 2013 in Highpoint in Melbourne's west and another store in Indooroopilly, Queensland, in 2014.

The company will also open more "village format" stores that focus on fashion and beauty, which are planned to target areas with "good demographics which do not have a major shopping centre".

Last month, David Jones announced a village format store in the Malvern suburb of Melbourne.

Bloomberg reported David Jones sold its stores once, only to reacquire them in September 2006 for $362 million, to regain control of redevelopment potential and avoid rising rental payments.

The $612 million value put on the stores on Elizabeth Street and Market Street in Sydney and Bourke Street in Melbourne is about half of David Jones’s current total stock market valuation of $1.2 billion.

Australia’s largest department store company, Myer, has no significant property assets.

Last month stockbroking analysts  looked at the issue of  the partial sale and lease back of David Jones’ flagship stores after takeover speculation.

David Jones has been mooted as a potential leveraged buyout candidate, with much of the value around its property portfolio, UBS noted.

UBS suggested the three flagship stores had a $462.5 million book value, but UBS says they could secure $666 million on-market.