Marks and Spencer Plans £500 Million Sale Leaseback of UK Store Portfolio

Forbes - January 23, 2006

Marks & Spencer Group PLC revealed a novel property deal to plug its 704 mln stg pension deficit without requiring a major cash injection.

Instead of contributing cash into the fund M&S has agreed with the pension scheme's trustees to inject 1.1 bln stg of property assets into a partnership with the scheme, with 500 mln stg of value going to the fund -- reducing the deficit by this amount.

M&S will lease back the properties, paying rent of 50 mln stg for 15 years -- a total of 500 mln stg after 15 years when adjusted for the time value of money. The balance of the deficit is expected to be met by future investment returns.

M&S retains control over the properties and retains any capital gains on the properties which revert to it after 15 years. It expects the profit and loss implications of the deal to be minimal. M&S will have the right to substitute properties within the portfolio to suit its corporate needs.

M&S also said it would redeem outstanding secured bonds to the value of 317 mln stg issued by Amethyst Finance PLC, releasing properties with a current market value of 550 mln stg (but with a book value of 343 mln stg as of September 2006) for use in the partnership. The redemption will mean it taking a exceptional hit of 30-35 mln stg in its year to end-March 2007 results. Sphere: Related Content