LONDON-Tesco says it will unlock as much as $9 billion in cash over the next five years through a massive sale-leaseback effort. Britain's biggest supermarket chain says a majority of the funds will be used to finance growth while about $2.7 billion of the proceeds will be used to buy back company stock to fund employee share plans without having to dilute the stock.
"Tesco's got a tremendous property portfolio; we've invested carefully over the years and do all of our own development," says Tesco chief executive Sir Terry Leahy. "We own 85% of all our assets around the world and we've seen values appreciate strongly, so we've seen an opportunity to use that property in part to finance the business."
The announcement was included in its year-end earnings report. The company reported a 17% rise in full-year profit. Net profits for the year ending Feb. 25 were $2.8 billion (1.58 billion pounds), up from 1.35 billion pounds the previous year. Revenue rose 16.5% to $70.4 billion (39.45 billion pounds).
Tesco says the net book value of our fixed assets is 15.9 billion pounds, most of it in freehold property. Thanks to appreciation, Tesco estimates the current market value of the assets is closer to 24 billion pounds.
Even after unlocking 5 billion pounds of property value, Leahy says the company will still have a strong ownership position, "certainly more than 70%." The 70% ownership mark had been its historic level before the company determined a few years back that its previous leased developments gave disproportionate rewards to landlords, making it hard to remodel or expand stores.
Tesco began unlocking cash from its freehold properties a couple of years ago, when it sold 675 million pounds worth of properties to a joint venture with Topland Group, the investment group run by entrepreneur Sol Zakay. Last year, it cut a similar $350 million pound deal with Consensus, a private company run by property tycoon Vincent Tchenguiz. Both deals were sale-leasebacks that include Tesco's right to buy back the properties after 10 years.
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