LONDON-British Land has bought 23 department stores from Debenhams for euro 719.7 million ($933.5 million). The deal for the 3.28 million sf of freehold and long leasehold stores brings the value of British Land's retail portfolio to over euro 9.3 billion ($12.1 billion).

The stores are located in prime positions on UK high streets, including Oxford Street in London, Manchester, Cardiff and Chester. They are leased to Debenhams for a term of 30 years from March 2004 with the exception of 35 years in the case of Oxford Street and Manchester. The stores generate rent of euro 40.5 million ($52.5 million) a year from March 2005. The rent increases annually by 2.5%, with a review in March 2019 and every five years after that. At the end of the lease Debenhams has the option for a further 25 years but subject to five-yearly rent reviews linked to market rates.

The transaction will be financed at rates of around 5.1% from existing cash and debt facilities. British Land was advised by Dalgleish. Lazard acted for Debenhams.

"This well-let portfolio has guaranteed annual uplifts throughout a minimum term of 30 years, and potential for additional rental growth, plus an initial income return of 5.6%," says British Land chief executive Stephen Hester. "We believe the 23 stores, leased to one of the leading department store operators in the UK, provide an excellent addition to British Land's retail portfolio. The secure income growth is expected to be increasingly valuable with various asset management opportunities on top and in a sector well known to us."