Wesfarmers game plan unveiled

New joint venture will free up capital from Wesfarmers' balance sheet.

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Wesfarmers (ASX: WES), owner of supermarket chain Coles, has announced the creation of a joint venture (JV) with property fund manager ISPT. This JV will be 25% owned by Coles and 75% owned by ISPT. The vehicle will be used to purchase Coles-owned shopping centres, thereby freeing up capital from Wesfarmers' balance sheet. The JV will begin with 19 Coles centres with an initial value of $532 million and will deliver proceeds of $400 million in cash back to Wesfarmers.

It is not a surprising move and likely a good one judging by a similar vehicle that Wesfarmers-owned Bunnings has used for the ownership structure of its warehouses. BWP Trust (ASX: BWP), formerly known as Bunnings Warehouse Property Trust, was established and listed in 1998 at $1 per unit. At the time the Trust was backed by $170 million worth of properties. Today the share price is at $2.30 and the Trust has nearly $1.4 billion in properties. Given how well the BWP Trust has worked at allowing capital to be focussed on growth rather than tied up in slower growing property assets, shareholders can expect a lot more properties over time to be rolled in to the JV.

This all comes hot-on-the-heels of the recent listing of Shopping Centres Australia Property Group (ASX: SCP), the newly formed vehicle to house Woolworths' (ASX: WOW) tenanted shopping centres. Currently the portfolio houses 55 Australian centres, 14 New Zealand centres and 13 properties that are under construction.

Foolish takeaway

Property trusts are generally viewed (rightly so) as stable, conservative and high yielding investments. The GFC proved that not all property trusts are created equal, with a number of highly leveraged property trusts collapsing. Property Trusts or REITS (Real Estate Investment Trusts) as they are more widely referred to, can be quality additions to risk averse portfolios, however as always, watch out for and be wary of high debt levels and aggressive accounting.

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