Sainsbury’s strikes biggest property deal

J Sainsbury, Britain’s third-largest supermarket chain, has struck a £1.2 billion joint venture property deal with British Land in its biggest step so far to unlock greater shareholder value from its vast store estate.

The group has created a 50-50 venture that will hold and develop 39 superstores over the next decade.

Justin King, Sainsbury’s chief executive, said that the move marked an “excellent opportunity” to increase the chain’s interest in the future expansion and development of its most important stores.

The joint venture deal came alongside better-than-expected like-for-like sales growth of 4.1 per cent for the 12 weeks to March 22.

The growth, excluding fuel, for the fourth quarter means that Sainsbury’s achieved a like-for-like increase of 3.9 per cent for the past financial year and is on track for pre-tax profits of about £480 million.

Sainsbury’s has generated an additional £2.7 billion of sales since March 2005, beating its goal of £2.5 billion.

Mr King hailed this as an “outstanding success” and hinted that it was Tesco rather than Sainsbury’s that was losing out to the resurgence of Wm Morrison in the South of England.

He said: “The South has one of our strongest areas. A lot of Morrison’s growth is from capturing back business it lost two or three years ago. At the time people said most of that went to Tesco.”

He added: “The achievements we have made during our Making Sainsbury’s Great Again plan are significant and I am delighted with our progress.

“The market remains competitive but, as we enter our fourth year of growth, the improvements we have made to date position us well to meet the demands of what continues to be a challenging environment.”

The British Land joint venture effectively allows the supermarket to manage store extensions better and gain a greater share of any rising value of its estate.

British Land owned the freehold to all 39 stores before today’s agreement.

About 25 sites will be extended by 500,000 sq ft and Sainsbury’s is investing £273 million in the venture.

One of the stores is a Waitrose supermarket, but Sainsbury’s will have no say over the running of the site.

Today’s move comes after increasing pressure from shareholders, such as Robert Tchenguiz, the property tycoon, for Sainsbury’s to unlock the value of its property estate after two failed bids for the supermarket last year.

Shares in the group have fallen by nearly 25 per cent since the start of the year to a low of 317.5p, making Sainsbury’s the worst-performing stock in the sector.

The shares opened this morning up almost 2 per cent at 343p.

Both the bids mooted by the CVC-led private equity consortium and the Qatari Investment Authority were set at a price of 600p a share.


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