Tesco’s have started selling off large chunks of land originally purchased for supermarket expansion to property developers and investors.
The recognised big four UK supermarket operators, Asda, Morrisons, Sainsbury’s and Tesco have seen profits slump since discount stores like Lidl and Aldi entered the sector. Tesco has hit particularly hard times having also to endure its 263-million-pound accounting scandal in 2014, seeing its share price drop by 50% over the last couple of years.
The big stores are selling off assets
It would seem, from Tesco’s point of view they are getting out, having recently sold off 250 million pounds of land earmarked for new supermarkets, as well as announcing the closure of 43 unprofitable outlets.
At least Meyer Bergman, the investment firm who bought the land from Tesco, is happy. The land could eventually provide up to 10,000 much needed new homes. The land Tesco has already sold to provide funding for its debts is in London, the south-east, and south-west; premium areas for both developers and investors to see good returns on their investment. And it seems Tesco hasn’t finished there.
When asked on BBC Radio 4 what Tesco’s plans were for the mothballed sites chief financial officer Alan Stewart replied, “We don’t have the resources to put into these developments. The right decision for us and the business is not to go ahead.”
Shore Capital’s investment group head of research Clive Black echoed the sentiment saying. “After many years focusing on new stores, it is now all about making the existing ones better, conserving cash and trying to reduce its exposure to debt, rents and pension responsibilities. Hence Tesco is selling sites that it once aspired to open shops on. The journey has started, but there’s a long road ahead before we can say Tesco is in calmer waters and sailing into much brighter times.”
Sainsbury are taking a different route
While Tesco sells off its assets, Sainsbury it seems has chosen to invest in its own, having built flats above its Fulham store. With the success of this venture, Sainsbury now intends to expand its residential portfolio into other suitable areas. In a recent interview with Management Today (MT), Sainsbury’s boss Mike Coupe is quoted as saying. “Technically, in terms of how much we own, we’re the third largest property company in the UK.”
Will the big sell off continue?
Tesco’s property portfolio is estimated to be in the region of 20 billion pounds, of which 10 billion of that is in the UK. With the current state of Tesco’s finances (although improving), developers are queuing round the block trying to get a piece of the action.
Development land sales by the big supermarkets are nothing new. In 2014 development companies bought over 1.25 million pounds worth of supermarket land assets which returned them an average 7%. Even so, as far as Tesco is concerned, funding from its land sales will make but a small dent in its 18-billion-pound debt.
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