British Land has “outflanked the competition” with the purchase of a 26% equity stake in a Sainsbury’s superstore portfolio.
The REIT bought an unnamed investor’s position in the £1bn geared structure that was created through a sale and leaseback in 2000.
The deal is being labelled as an intelligent move by the REIT which, along with its peers, is being squeezed out of the investment market by cash-rich overseas investors.
BL finance director Lucinda Bell likened the investment to a zero-coupon bond because BL will not receive any earnings on its investment – the cashflow, after interest, amortises debt.
The vehicle’s 50% gearing is forecast to reduce to 30% by 2023 on current capital values.
At maturity, Sainsbury’s can buy the stores back at market value, which would give the three investors including BL full value in cash, take a 20-year lease at market rents, or vacate.
Deutsche Bank analyst Martin Allen said the deal gave BL the benefit of the total return of the 2m sq ft portfolio of 26 stores, not the income, which grows by 1% pa through fixed uplifts. Leases average £24 per sq ft.
The purchase also shows a vote of confidence in the supermarket sector, which has been moving towards smaller store formats.
According to Jefferies, BL has used its ability to process financially complex transactions to access a high-quality portfolio when “it is almost impossible [for REITS] to buy high-quality assets which is getting trickier and more expensive”.
“It’s an unusual structure and BL outflanked the competition with its ability to process the transaction off-market.”
Cushman & Wakefield Corporate Finance advised the vendor.
Bridget.O’Connell@estatesgazette.com
