12 Sainsbury’s Stores Sold to US Company for £429 Million

This week, British Land, one of the UK’s largest listed landlords, sold 12 Sainsbury’s superstores to a US company from its joint venture with the grocer, a net initial yield of 5.0 per cent. The £429 million sale is part of British Land’s wider plan to reduce its retail exposure and represents a 7.4 per cent discount to the portfolio’s 2007 peak valuation of £463.1 million.

As the FTSE 100 group owned only a partial holding in the Sainsbury’s stores, its share of the proceeds will be around £193.5 million, which, after repayments of debt and contract break costs, are expected to amount to £95 million.

Sainsbury’s have been said to receive net proceeds of £133 million and will continue to operate the stores.

Dating back to 2008, the original agreement between Sainsbury’s and British Land covered 38 stores already owned by the property company, aiming to provide the supermarket with more control over the sites.

New York-based investor Realty Income Corporation said the purchase was its first international real estate acquisition and that new leases were agreed ahead of the transaction. Realty Income said a sale-leaseback transaction with Sainsbury’s includes annual rent increases over the lease term and carries a weighted average lease term of approximately 15 years. Subject to customary closing condition, the deal is expected to close on or around 22nd May 2019.

Sumit Roy, president and CEO, said the purchase is a ‘natural fit’ for the company’s portfolio as one of the top operators in the grocery industry:

“We believe that the size of the European net lease market and a need for a large-scale, well-capitalised institutional real estate partner creates a very propitious environment for us to increase our addressable market.”

Since April 2018, British Land has offloaded close to £1 billion of retail assets, earning the company £646m. This included the sale of the Debenham’s store in Clapham, south London, along with the Spirit pubs portfolio. British Land explained the latest transaction is part of its strategy of building a business focused on London office developments and residential rentals, hoping to make its retail sector smaller and refocused by decreasing its assets from half of its portfolio to 30-35%.

British Land released a statement commenting on their current strategy amidst the challenges in the retail market:

“Alongside investment into our campuses and progressing unique development opportunities such as Canada Water, we are focused on further sales of retail assets which are not aligned to our strategy and continue to make good progress.”

Following this deal, British Land will have just six standalone stores, cutting its superstores exposure to around 1.3%.

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