Co-operative Group Sale Leaseback - Update

Crain's Manchester Business - September 7, 2009

The Co-operative Group is on the verge of selling the freeholds to 20 of its stores for £40m as part of a sale and leaseback deal, Crain's has learned.

Property investor Threadneedle is within days of finalising the deal which has been in the pipeline for months, according to sources familiar with the situation.

The London-based fund, which is owned by New York Stock Exchange listed Ameriprise Financial, is buying the freeholds for cash and will lease the properties back to the Co-op for 25 years at rents linked to inflation.

Threadneedle and LaSalle Investment Management were whittled down from eight bidders in the race to land the properties, which are spread throughout the UK.

A source familiar with the situation said: “It's one of the biggest deals at the moment. The Co-op are just trying to raise a bit of cash.”

The stores have been in Co-op hands for decades in some cases and are not among those recently acquired as part of the £1.6bn acquisition of Somerfield in 2008.

In its latest accounts for the year to the end of January the Co-op said it was aiming to sell £175m of “surplus properties” over the next three years.

A note in the accounts says: “Disposals are particularly important as they realise capital that can be invested in other group projects.”

Last year the Co-op made a profit of £20m on property sales which raised a total of £58.4m. It said this was “well ahead of target” but some observers of the property scene have raised eyebrows about the decision to make large scale disposals at a time when asset values have been falling. The capital value of the Co-op's investment portfolio dipped by £62.3m in the year.

The Co-op owns land and buildings worth a collective £1.6bn, not including investment properties, and the sell-off comes at a time when other parts of the group, in particular the expanding food and financial services businesses, require more capital.

The group needs cash for a £100m rebrand of its stores, which began last year, and is planning a £100m project to build a new headquarters on Manchester's Miller Street. Sphere: Related Content