Tesco announces new property joint venture

Tesco today announced a new property joint venture to realise 366 million from its UK property portfolio.

"We are delighted to be joining forces with Consensus. This latest joint venture allows us to release funds efficiently from our valuable property portfolio"

Andrew Higginson
Finance Director, Tesco

Joining forces with property group Consensus, Tesco has created an innovative partnership that allows us to maintain a balance between the capital intensity of holding a substantial, growing freehold portfolio and an element of leasehold whilst providing the flexibility to release funds for programmed investment in our existing business.

The 50/50 joint venture follows an earlier deal announced in March 2004. Together these initiatives provide further flexibility and firepower to expand and take full advantage of the growth opportunities available in all areas of Tescos business.

Announcing the deal Tesco Finance Director, Andrew Higginson said: "We are delighted to be joining forces with Consensus. This latest joint venture allows us to release funds efficiently from our valuable property portfolio and at the same time remain free to improve the stores for our customers by extending or remodelling them."

The joint venture takes advantage of the attractive levels within the debt and equity markets and has achieved a highly competitive price reflecting an effective initial yield of circa 5.2% p.a. The keen pricing was achieved through a competitive two-stage debt and equity bid process run for Tesco by KPMG Corporate Finance. The sole debt provider was Deutsche Bank AG London.

The transaction will include 12 Tesco stores and two distribution centres, accounting for around 1.5% of Tesco property assets by gross floor area. The joint venture is for a term of 27 years with an early termination option in 2015. The transaction also links the annual rental uplifts to a Limited Prices Index calculated by reference to RPI collared between 1% and 3.5% per annum, thereby hedging part of Tescos fixed costs against its underlying business revenue.