Tesco Completes $1.1 Billion Sale Leaseback of 13 UK Stores & Distribution Center

Bloomberg - August 21, 2008

Tesco Plc, the U.K.'s biggest retailer, sold properties to real-estate investors for 605 million pounds ($1.1 billion), its fourth such disposal in two years, freeing up capital for overseas expansion.

The 13 stores and a distribution center were purchased by four buyers, including investment arms of insurers Prudential Plc and Sun Life Financial Inc., and represent 2.4 percent of the value of the grocer's stores, Cheshunt, England-based Tesco said today. The company is leasing back the properties for 20 years, with the right to extend the contracts.

Tesco has about 1,780 U.K. outlets. It gets more than 25 percent of its sales abroad and entered the U.S. last year. Over the past two years, rising values for property assets had lured investors to retailers such as J Sainsbury Plc, which rebuffed demands for a real-estate split.

``Tesco freehold property sales show that there is still good pension-fund appetite for supermarkets,'' analyst Nick Bubb of Pali International said in an e-mailed note.

The disposal is part of Tesco's plan, announced two years ago, to raise 5 billion pounds through property sales, of which it has so far raised 2 billion pounds, including today's announcement.

The stores all pay landlords a return of at least 4.88 percent on their investment as a percentage of the purchase price, Tesco said. The company has estimated the value of all of its real estate at 31 billion pounds.

One of the buyers was the Universities Superannuation Scheme, Britain's second-largest pension fund, which runs money for academics and college staff. Tesco formed a joint venture with USS that will own the property.

The rest of the properties were bought by Prudential Plc's Prupim property-investment arm, Sun Life's Canada Life division, and LaSalle Investment Management, a unit of commercial real- estate broker Jones Lang LaSalle Inc. Sphere: Related Content