British supermarket Sainsbury's is to take full ownership of the Highbury and Dragon store investment vehicles, paying Supermarket Income REIT £430.9 million (€490.2 million) for its 51% stake.
Sainsbury's, Britain's second largest grocer after Tesco, has held a 49% interest in Highbury and Dragon, which comprises the freeholds of 26 supermarkets leased to Sainsbury's, since it was created in 2000.
In a statement, the retailer said, 'Sainsbury's announces the exchange of contracts for the purchase of Supermarket Income REIT's c.51% interest in the Highbury and Dragon investment vehicles. The purchase will be implemented through an acquisition of Cornerford Limited, Horndrift Limited, Avenell Property PLC and Hobart Property PLC'.
The deal will result in Sainsbury's buying the freeholds of 21 stores which will continue to be operated as Sainsbury's supermarkets.
The remaining five stores will be sold by Sainsbury's, four of which it will lease back.
Sainsbury's has also agreed to fully fund Highbury and Dragon's bond redemptions of £170.5 million (€193.95 million) on March 20 and £130.4 million (€148.3 million) on July 13.
It said the acquisition and bond redemptions would be funded by cash resources and a committed unsecured term facility.
'Going forward, Sainsbury's will not recognise revaluation gains and losses on these assets as they will be held as owner operated freehold stores, instead seeing a reduction in depreciation and interest expenses, alongside a reduced cash outflow on rent,' it noted.
Shares in Sainsbury's, which trades from over 600 supermarkets and over 800 convenience stores, have increased 17% in 2023 so far.
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Commenting on the transaction, Shore Capital's Clive Black said, "As a result of this quite material piece of real estate management, Sainsbury will not recognise revaluation gains and losses on the assets as they will here on be held as owner-operated freehold stores. Accordingly, the group will go on to record, starting in FY24 we would imagine given its March financial year end, an ongoing reduction operating lease costs, depreciation and interest expenses.
"As outlined above, we welcome the earlier than expected completion of this anticipated transaction, which provides the removal of a balance sheet distraction, as well as providing Sainsbury with the full in-house opportunity to make the most of the potential of the stores without third-party involvement."
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