Sainsbury’s has bought into a £1.2bn British Land owned vehicle as part of its strategy to gain control of its stores.

Sainsbury’s has bought a half share of 39 stores owned by British Land, comprising 38 Sainsbury’s stores and one Waitrose store, with a value of £1.2bn.

Sainsbury’s has made an investment of £273m into the joint venture and the £1.2bn valuation of the portfolio represents a net equivalent yield of 5.1%.

British Land had owned the stores in a vehicle - the British Land superstore portfolio vehicle - which it had created more than fifteen years ago following a sale and leaseback with Sainsbury’s.

Sainsbury’s leases the 38 Sainsbury’s stores on a 35 year lease arrangement. On average the stores have around 20 years unexpired on the leases.

Increase control

Sainsbury’s has entered into the arrangement as part of its strategy of increasing control over its key trading assets with significant development potential.

Justin King, chief executive of Sainsbury’s, said: ‘This venture is an excellent opportunity for Sainsbury’s to increase our interest in future extension and development of many of our most important stores.’

The initial term of the jv is 10 years and after this time Sainsbury’s will retain an equal degree of control over the ongoing ownership of the properties.

Sainsbury’s will initially fund the deal from cash and over the medium term will fund it through the sale of its mature assets.

The securitised vehicle’s value of £1.2bn comprises a £544m equity stake shared equally by both parties, and £722m of BL’s existing debt which will be retained by the venture. The outstanding securitised third party debt is at a fixed interest rate of 4.96% with an average life of 12 years.

KPMG corporate finance real estate team and JLL advised Sainsburys