Property Week - April 15, 2008
Tesco, in its results for the year to 23 February 2008, revealed it had completed a £207m sale and leaseback deal with PruPIM at a 4.8% yield. (Tesco reportedly agreed to lease back the properties for 20 years with annual rent reviews linked to the Retail Prices Index and capped at 3.5 percent per annum.)
The deal is the third since Tesco revealed a new £5bn property plan last year which took the total earmarked for property sale and leasebacks and joint ventures to close to £9bn. It completed two transactions in 2007 which raised £1.2bn for the supermarket giant.
The first of these deals, with the British Airways Pension Fund, was a £445m deal completed at the end of the 2006/7 financial year. The second, a £650m deal with British Land, completed in March 2007.
Tesco said in a statement: ‘Whilst yields have increased modestly in recent months, appetite for Tesco's property and covenant remains strong, and if market conditions remain conducive, we expect to be able to complete further transactions on attractive terms in the months ahead. It added: ‘We are currently in discussion with potential counterparties.’
The proceeds from the property deals will be used to fund expansion and its share buy-back programme - which has so far re-purchased Tesco shares worth over £1.1bn.
The net book value of Tesco’s fixed assets is £19.8bn, up from around £17bn estimated last year. Most of this value is in its freehold store portfolio. It estimates the current market value to be £31bn, representing a 57% premium to book value.
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