2nd UPDATE: Tesco Sells 41 Stores In GBP950M Property Deal

7th Jul 2010 18:48

(Adds background, detail.) By Marietta Cauchi Of DOW JONES NEWSWIRES LONDON (Dow Jones)--British supermarket giant Tesco PLC (TSCO.LN) said Wednesday that it has sold 41 stores in a sale and leaseback deal that will generate around GBP950 million as part of its continuing program to extract more value from its vast U.K. property portfolio. Tesco said it would use the proceeds to help fund new property development projects, both in the U.K. and in international markets. The transaction, which is expected to produce an average net initial yield of 4.9%, is structured as a joint venture with the supermarket operator's pension fund trustees, and is its fourth such deal in 18 months. Last year it sold and leased back 12 stores and two distribution centers in a GBP458 million joint venture deal with Tesco Pension Trustees Ltd; it sold and leased back 13 properties worth GBP605 million to various other investors including the Universities Superannuation Scheme, Prupim, the property-investment arm of U.K. insurer Prudential PLC (PUK), LaSalle Investment Management, a unit of Jones Lang LaSalle Inc. (JLL), and Canada Life Assurance; and in October it completed a GBP514 million sale and leaseback deal involving 15 stores and two distribution units with an unidentified U.K. pension fund. As with its deal in October, the transaction is being primarily funded by fixed-rate notes issued by Tesco Property Finance 3 PLC. Tesco last month named its Europe and Asia chief, Philip Clarke, to succeed longtime Chief Executive Terry Leahy next March, signalling that it will continue its aggressive global expansion, especially in emerging markets. Clarke will be supported by a new management structure that creates regional chief executives throughout the world in recognition of the shift to international and growth in Asia. Right now, the U.K., where the company has 2,482 stores, accounts for more than two-thirds of its revenue, but it has over 4,800 stores worldwide, in countries including China, India, Japan and the U.S. A spokesman for the company said that following the latest deal it will still own over 70% of its property in accordance with its intention to maintain a freehold portfolio of at least that level. Tesco is the U.K.'s largest retailer by sales and the fourth largest in the world behind U.S.-based Wal-Mart Stores Inc. (WMT), France's Carrefour SA (CA.FR) and Germany's Metro AG (MEO.XE). In April, it posted a forecast-beating 9.3% rise in full-year net profit to GBP2.34 billion. -By Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241; [email protected] (END) Dow Jones Newswires July 07, 2010 13:48 ET (17:48 GMT)