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Strategic Finance

Sainsbury’s in property joint venture

Written by Adrie van der Luijt

Wednesday, 26 March 2008

Sainsbury's has invested £273 million to create a 50:50 joint venture with British Land.

This securitised property joint venture (JV) holds 39 stores, including many of Sainsbury's most important stores, with a valuation of £1.2 billion, representing a net equivalent yield of 5.1 per cent.

British Land's existing £722 million of outstanding securitised third party debt, at a fixed interest rate of 4.96 per cent and average life of 12 years, will be retained by the joint venture.

Enhanced trading performance

Sainsbury’s said that the creation of this JV unlocked the opportunity to significantly develop these stores and deliver an improved customer offer.

The JV will seek to maximise the full potential of these development opportunities, including extending up to 25 sites by an estimated 500,000 sq. ft. of net selling area.

Sainsbury's will benefit from both the enhanced trading performance of the extensions as well as retaining a share of the increased property value.

This transaction is in line with Sainsbury's active property management strategy of increasing its control over key trading assets with significant development potential whilst disposing of fully developed mature assets.

Earnings neutral in the current financial year

The initial term of the joint venture is 10 years and after this term Sainsbury's retains an equal degree of control over the ongoing ownership of the properties.

The investment will initially be funded from cash and existing facilities available to Sainsbury's.

Over the medium term the transaction will be funded by the continuing sale of Sainsbury's mature assets.

The transaction will be earnings neutral in the current financial year and the additional trading and property value will be accretive to earnings in future years.

Justin King, Sainsbury’s chief executive, said that the venture was an excellent opportunity for Sainsbury's to increase its interest in the future extension and development of many of its most important stores.

“This will enable us to enhance the customer offer, increasing both the trading and property value of these assets. This transaction sits within Sainsbury's strategy to actively develop the property estate and we are delighted to be working alongside British Land to deliver these development opportunities," King concluded.

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