THREE retailing groups are rumoured to be selling their substantial property portfolios as the tide of sentiment turns firmly in favour of retailers leasing rather than owning premises.

Peter Blankenberg, the MD of Richway Retail Properties, said recently that a number of retailers had tried property ownership in the past, but it tended to be a cyclical phenomenon.

From time to time retailers became frustrated with landlords and, hoping to peg their rents, decided to buy. Then they discovered the headaches associated with managing property.

Blankenberg declined to name the three retailers mentioned earlier to whom he had referred, but said they had 'discovered they have cash resources tied up in property they could better use in their own business of retailing, because that is their speciality.

'The business of retailers is selling their goods, and once they become property owners they can lose their focus.'

One obvious candidate for selling its property appears to be Shoprite, which put some properties into the recently listed property loan stock company, Shops for Africa.

Shoprite's divisional financial manager for property, Danie Moller, said Shoprite's first preference was to lease properties, not buy them. The returns from retail were 25% to 40% compared with an internal rate of return of about 18% or 19% on property.

But there were two other options. The first was for a retailer to own its premises, normally in a shopping centre, which meant it could benefit from capital growth in the property but still had to manage the line shops.

Shoprite owned some properties on this basis, which it acquired years ago as a small and growing retailer having to make its own expansion opportunities.

It also followed this route when expanding into Africa, where it had identified suitable sites but was unable to find a property developer willing to take on the risk. Moller said Shoprite would like to sell its properties in Africa to free up capital for further expansion.

Sometimes Shoprite would buy properties for other reasons, for example in Kimberley, where a fire destroyed the Shoprite site and the group decided to buy the site so it could rebuild a more modern centre.

The second route was for the retailer to take on a head lease, Moller said. A head lease means a retailer takes responsibility for the lease over the whole centre, collects the rents and hands them to the owner, but does not benefit from the capital growth.

Shoprite has some head leases it inherited from Checkers and OK Bazaars, which had in the past sold properties they owned to a financier to realise cash and taken on the head lease as part of the deal. But Shoprite was averse to head leases.

Royden du Plooy, MD of Catalyst Property Asset Managers, said retailers should compare their returns from property over the past 10 years with their returns from stock.

There might be particular reasons why a retailer would wish to own a property rather than lease it, for example if the retailer wanted a store in a particular location.

This was borne out by Paul Simpson, senior executive in the real estate division of Woolworths, which mostly leases properties, but does own some for strategic reasons.

For example, Woolworths owns its distribution facilities and it also owns certain stores, like Woolworths on the corner of Strand and Adderley Streets in Cape Town, where it has rights to build higher.

'There can be a sound reason for purchasing a property if we know we will be there for 10 to 15 years. But if we had any doubts that we would be trading in that store for less than 10 years we would favour leasing rather than holding the property.

'Generally, our strategy is to focus on trading rather than creating a property empire. We are a retail business,' Simpson said.

The other reason why most recently opened Woolworths' stores have been leased is because it was the company's strategy to occupy regional shopping centres, and part ownership of a shopping centre diverted management resources.

Edgars, also, was firmly in favour of leasing rather than renting, although it owned the Edgars store in East Rand Mall, a deal done in the past which was right at the time.

Mike Pienaar, the commercial manager: property at Edcon, said the group's policy was that it made better returns on inventory than property.

'Also, retail changes, areas change and customer profiles change, so we like to be able to decide whether to stay or to move on when our lease expires.

'We have recently reduced the terms of the leases we sign to five years for smaller stores and 10 years for larger stores, with two to five options to extend tenure, for five years each.

'This arrangement gives us the flexibility to meet our customer needs. In the past we were prepared to sign long leases but retail locations and customer profiles change too rapidly to permit these long-tenure arrangements,' Pienaar said.

There is, though, one group that combines retail and property investment Vestacor. It owns 20% of Fashion Africa and 15% of Richway Retail. But chairman Gerald Rubenstein said the two investments were separate.

'I believe the retailer should have nothing to do with real estate because they are two totally different issues,' Rubenstein said. 'The returns from real estate will run at 11% or 12% pretax whereas a good retailer can make a return well above 22%.

'But at Vestacor we follow a different principle. Our base at Vestacor is assets, not returns. We believe as a holding company we can hold both retail and property, but they are not mixed.'