Following press reports yesterday, Sainsbury’s confirmed this morning that it is in talks to sell 18 of its stores in southern England to property investor LXi REIT for around £500m on a sale and leaseback basis.
LXi REIT is seeking to fund the deal through a mix of new equity and debt, with it in discussions with potential investors about a possible share issue to part-fund the transaction.
Sainsbury’s also announced that it had reached an agreement on the acquisition price for the 21 stores in the Highbury and Dragon investment vehicles, on which it recently served notice to purchase.
Sainsbury’s has held a c.49% interest in Highbury and Dragon since it was created in 2000. The vehicles comprise the freeholds of 26 supermarkets which are leased to Sainsbury’s. The remaining c.51% is owned by a joint venture between Supermarket Income REIT and British Airways Pension Trustees Limited. The agreement is part of the process of bringing the structure to an end with the acquisitions expected to be completed in the first half of its financial year to March 2024.
Sainsbury’s noted that if the LXi transaction were to proceed, the cash received from this transaction would be used to part-fund the purchase of the 21 Highbury and Dragon stores. In combination with some other smaller activities, this would result in a broadly unchanged proportion of leasehold and freehold Sainsbury’s supermarkets. The retailer noted that the ownership and lease structures would better reflect current market conditions and its priorities.
Supermarket groups are under pressure from investors to improve the efficiency of their balance sheets amid the toughening economic conditions.
Shares in Sainsbury’s were up nearly 2% in early trading.
