Tesco has teamed up with its long standing property partner British Land in a new £650m sale and leaseback joint venture.
The 21 store sale and leaseback deal will generate Tesco £570m with property profits of £142m.
The funds raised will be ploughed into funding Tesco’s future growth.
This partnership is the second phase of Tesco’s property sale and leaseback programme announced in April 2006, and follows a deal with British Airways Pension Fund, announced in January, which raised £445m.
The 21 stores account for 3% of Tesco’s UK property assets by square footage.
The leaseback is for 20 years with an early termination option in 2017. The portfolio has an initial rent of £29m a year and the rents are subject to annual RPI indexed increases for the first 20 years capped at 3.5% a year. At year 20 it will revert to open market rent reviews with options at that date for Tesco to either renew or buy back the stores at open market value.
A Tesco statement said the joint venture ‘takes advantage of attractive conditions within the debt and equity markets, being reflected in an initial yield of less than 4.5%’.
British Land and Tesco have three other property joint ventures, the first of which was formed in 1996. Assets in the joint ventures total £1.16bn as at December last year and include four retail parks, shopping centres and 13 Tesco stores.
The debt provider was Goldman Sachs International. Morgan Williams advised Tesco and Colliers CRE advised British Land.