Tesco chief executive Dave Lewis’ turnaround project continues with the acquisition of 21 of its superstores in a deal with British Land which will see £733 million of assets swap hands.
Strengthening Tesco’s home UK market position is top of Lewis’ priorities and reducing costs is crucial to that as he seeks to reassert the supermarket chain following a miserable 2014 which saw losses of market share and a devastating accounting scandal.
As of October last year, Tesco owned the freehold 53 per cent of its 3,300 UK stores and Lewis identified opportunities for the supermarket chain to increase that number. The stores acquired are valued at £352 million and the acquisition will remove the possibility of increased annual expenditure, given the potential retail price index-linked rent increases on the stores. Tesco had initially occupied the stores as part of a joint venture between themselves and British Land.
British Land will subsequently take over the £381 million worth of interests held by Tesco in various shopping centres, retail parks and standalone stores, all of which are part of two other joint ventures between the two companies.
These locations will continue to be leased by Tesco, however, outside of the joint venture agreements, they will be rented at market rates, which are not subject to retail price index-linked rental increases.
The kicker in the deal will be the receipt of £96 million by Tesco from British Land.
"This transaction with British Land allows us to increase our ownership and thereby insulate more of our businesses from indexed rent reviews," said Lewis. "This agreement makes our business simpler and stronger.”
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