Tesco Enters £1 Billion Sale Leaseback of 21 UK Superstores

TimesOnline - March 21, 2007

Tesco, the UK's largest retailer, has released more than £1 billion of capital from its bumper stores portfolio in less than three months, after striking a property joint venture with British Land that involves 21 of its superstores.

The deal, the fourth between the two companies, covers giant Tesco stores stretching from Ashford, Kent, to Hereford and Dundee in Scotland. It puts Tesco well on track to meet its target set last April of freeing up £5 billion of capital from its valuable property assets by the end of the decade.

It is expected that Tesco, which is sitting on property worth just under £16 billion at the last count, will unveil further sale and leaseback property deals before the end of the year.

Tesco's move follows a similar exercise undertaken last year by J Sainsbury, involving 127 of its supermarkets or, at £3.55 billion, approximately half the book value of its property assets. The UK's third-largest supermarket group used a mortgage-backed securities deal to raise £2 billion for debt refinancing purposes.

Today's deal sees Tesco and British Land set up a limited partnership joint venture on a 50/50 basis. Tesco banks profits of £142 million on proceeds of £570 million from selling the superstores to British Land. The retailer then pays British Land annual rent of £29 million secured against the stores, with payment increases linked to inflation but capped at 3.5 per cent a year for 20 years.

The deal, Tesco's second of the year, follows the deal in January with the British Airways pension fund that raised proceeds for the retailer of £445 million.

The latest move comes as Britain's retailers increasingly look to release value from their property assets, which have made them attractive to potential bidders but have also brought scrutiny from regulators.

Tesco has more property than any of its peers. Sphere: Related Content