By Claire Reilly

Wesfarmers is looking to free up cash to pay for new Bunnings Warehouse store openings with the company announcing plans for the sale and leaseback of 10 Bunnings Warehouse stores to an Australian property investment trust.

The sale to BWP Trust — a company that bills itself as a “managed investment scheme which invests in premium commercial real estate throughout Australia” — is set to bring in more than $271 million to Wesfarmers coffers when it is fully realised.

For its part, BWP is buying the 10 sites (two of which are operational, and eight sites in development) as well as “one Bunnings Warehouse anchored bulky goods centre” located in south-west Sydney that is being purchased from a third party. BWP will pay a total of $312 million for this total portfolio of sites.

According to a statement from Wesfarmers, the property sale will help offset the group’s planned expenditure on new Bunnings stores in Australia in the next three years. The company is also in talks to sell further property holdings in a deal that is set to be worth more than the BWP sale.

Bunnings managing director John Gillam explained the sale in a statement to the ASX.

“The transaction is consistent with our established approach to release capital, on lease terms which provide flexibility to Bunnings from a longer term operational perspective, while offering BWP a quality retail property portfolio, backed by the strength of Bunnings’ covenant,” he said.

“Effective recycling of property capital is of heightened importance given the depth of our new store pipeline and the rate at which we will convert sites into trading locations across the next 36 months.

“To that end, in addition to this transaction with BWP we are in advanced discussions with other parties on a separate sale and leaseback transaction for a separate portfolio of freehold properties which will likely have a headline value that is slightly larger than this transaction.”

BWP already has an existing portfolio of properties that it leases to Bunnings, including 62 Bunnings Warehouses, five Bunnings Warehouses and showrooms, one Bunnings Warehouse development site and one Bunnings distribution centre (according to the most recent audit at 1 December 2012). The majority of these properties are across Victoria, New South Wales, Queensland and Western Australia, with South Australia and the Australian Capital Territory also accounting for 6 per cent of BWP rental incomes.