UK's Largest Supermarket Group Evaluating £600 Million Sale Leaseback

Times Online - January 30, 2004

Tesco, the UK's largest supermarket group, is believed to be in talks to sell up to £600 million of property to Topland, the private property group run by Sol Zakay, through a sale and leaseback of its stores. British Land is among the other companies known to have expressed an interest in buying the stores, alongside private property companies such as Rotch. A spokesman for Tesco said that the supermarket had not officially picked a preferred party to buy its stores.

Tesco recently appointed the real estate finance team at Ernst & Young to help it evaluate options for releasing cash from its property, as part of a plan to build a £1.7 billion war- chest to protect its dominant position in the UK market. Property sources said that discussions with Topland were at an early stage but that an official agreement could be reached within two months.

The sale and leaseback deal is expected to involve Tesco selling about 30 stores into a joint venture company. Tesco, which is usually reluctant to sell its freehold properties, has discussed retaining the right to buy back the stores from its joint venture partner in five to seven years. The supermarket chain is keen to raise the money because its balance sheet has recently come under pressure. The company’s financial profile had deteriorated over the past 18 months after a series of debt-funded acquisitions and heavy capital expenditures. Competition in the sector is expected to get tougher this summer, when WM Morrison gains control of Safeway and J Sainsbury introduces price cuts. Sphere: Related Content