Tesco Raises £650 Million in 33 Store Sale Leaseback

The Guardian - March 23, 2004

Tesco yesterday raised more cash for acquisitions by selling off 33 of its UK stores for £650m. The stores, which range in size, have been sold to a joint venture that is half owned by Tesco and real estate firm Topland. Tesco has also sold two distribution centres in the deal. Tesco's £650m cash will come from issuing bond debt, which will be secured on the rent that it will begin to pay for the properties. Tesco will rent the stores on a long leasehold and carry on running the operations, so customers will not see any change.

Topland, run by Israeli-born brothers Sol and Eddie Zakay, has done similar sale and leaseback deals with retailers Marks & Spencer, Littlewoods and Budgens.
Tesco will use the extra cash for expansion in the UK market, where it is the dominant force in retailing, or for more acquisitions overseas.

The supermarket firm raised £773m in January by selling new shares to investors. A small chunk of this cash was used to buy Adminstore, which owns the Europa convenience stores. A source at Tesco said that it could use its combined £1.4bn in cash to buy up some of the 52 Safeway stores that are on the market after its takeover by Wm Morrison. However, the firm is keenly watched by competition regulators as it has such a strong position in the British market. Tesco could also use the cash to convert more of its stores into the large "hypermarket" format where non-food ranges such as clothes, CDs and homewares are sold alongside food.

The 35 properties being sold make up about 5% of Tesco's total property assets. It has done similar sale and leaseback schemes on a smaller scale, including 21 stores with UK property group British Land and two properties with Slough Estates. Sale and leaseback schemes mean a company effectively raises debt but does not have to put it on its balance sheet.

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