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Tesco sale/lease-back proceeds top 5.5Bn

Tesco Plc, the world’s fourth-largest retailer, sold 21 U.K. properties in a 685 million-pound leaseback transaction, bringing the total raised from such deals to about 5.5 billion pounds in seven years.

The sale of the 20 stores and one mall under development is structured as a 50-50 joint venture with the company’s pension fund trustees, Cheshunt, England-based Tesco said today.

Tesco, the U.K.’s largest supermarket company, has been selling and leasing back its outlets, of which it owns about 70 percent, since 2004. The proceeds have helped fund its global growth ambitions, including new shopping malls in China.

“This latest deal should highlight the attractions of doing property deals at such low yields for the group and how much its property is worth relative to its current equity,” Justin Scarborough, an analyst at Royal Bank of Scotland Group Plc, said in an e-mail. He has a “buy” rating on the stock.

Tesco valued its property assets at 34.6 billion pounds, according to last year’s annual report. That compares with the retailer’s market valuation of 31.7 billion pounds.

“While the U.K. trading profit is impacted by higher rents, it benefits from lower associated depreciation on the book value of the assets in the transaction,” Scarborough said.

The retailer is planning to divest about 1.8 billion pounds worth of property assets this fiscal year ended Feb. 26. Tesco is due to report its preliminary results on April 19, which will be presented by incoming Chief Executive Officer Philip Clarke.

Source : Sarah Shannon - Bloomberg

09 February 2011
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