Tesco Shops For Store Ownership In £733m Deal

Tesco (Xetra: 852647 - news) and British Land (LSE: BLND.L - news) have completed a property exchange deal worth a combined £733m as both companies look to strengthen their core businesses.

Britain's biggest retailer, which remains the subject of probes over its £263m profits overstatement scandal last year, has been implementing a separate UK recovery strategy under new chief executive Dave Lewis.

Tesco said it had regained sole ownership of 21 superstores, which it did not identify, that were part of a joint venture with the property firm and were all subject to rent increases linked to retail price index (RPI) inflation.

In exchange for the superstores, British Land will take over Tesco's stake in three shopping centres, three retail parks and three standalone stores which are held in two other joint ventures between the two firms.

Tesco will continue to lease the stores at these sites at market rents which are not subject to RPI-indexed increases and the chain was also to receive £96m from British Land.

Mr Lewis said: "Last year we identified the opportunity to increase the proportion of our stores we own as freehold.

"This transaction with British Land allows us to increase our ownership and thereby insulate more of our businesses from indexed rent reviews.

"We have a long way to go but it's a transaction which takes us in the right direction. This agreement makes our business simpler and stronger."

Since joining Tesco in September last year, he has had to overcome the fallout from the scandal over supplier payments and arrest a decline in market share on the shop floor.

His plans to combat the challenge offered by hard discounters are to result in big cost savings including thousands of job losses.

Charles Maudsley, British Land's head of retail, said of the deal: "This mutually beneficial transaction clearly demonstrates the great relationship we enjoy with Tesco.

"It plays to our strengths of managing multi-let assets and gives Tesco more control of their stand-alone portfolio.

"We see significant opportunity to add value and drive returns through asset management and development."

The company said it had taken control of three shopping centres including Peterborough's Serpentine Green and three retail parks.

They were the Kingston Centre in Milton Keynes, York's Clifton Moor and the Woodfields Retail Park in Bury.