UK supermarket Tesco today (Tuesday) announced a new joint venture with property group Consensus to realise £366m (US$702.35m) 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 and at the same time remain free to improve the stores for our customers by extending or remodelling them,” said Tesco finance director, Andrew Higginson.
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 Tesco’s fixed costs against its underlying business revenue.