Deal comes amid continued economic uncertainty and a sharp rise in online sales
Sainsbury’s and British Land have sold 12 superstores to a US property investment company for £492m, amid a struggling retail property market.
The sale to San Diego-based Realty Income Corporation will give Sainsbury’s net proceeds of £133m. British Land’s share of the sale will be £193.5m, although net proceeds will only be £95m after debt and contract break costs, it said in a statement to the stock market on Tuesday.
Sainsbury’s said it would continue to operate the stores, which will be leased back from the US investor.
The British retail property sector is under severe pressure, faced with economic uncertainty as well as the increase in online shopping by consumers, to the detriment of bricks-and-mortar retailers.
Total returns for investors in retail property underperformed the broader sector by around seven percentage points last year, according to the consultancy Capital Economics.
Adrian Benedict, a property investment director at Fidelity International, has predicted the value of UK shopping centres, retail parks and high street stores could fall by between 20% and 70% in the coming years owing to a glut of space.
British Land said there were “clear challenges currently in the retail market”, but that it would be “opportunistic and proactive” on future deals. The company has sold nearly £1bn of retail assets since April 2018, earning it £646m, including the struggling Debenhams’ store in Clapham, south London, and the Spirit pubs portfolio.
British Land said it was part of its strategy to “build an increasingly mixed-use business” with a greater emphasis on London office developments and residential rentals.
About half of the company’s assets are in the retail sector, but the “smaller, refocused retail business” will comprise between 30% and 35% of its business in the future. British Land will only own six standalone superstores.
Other companies have been caught in the retail storm. UK shopping centre landlord Intu was the target of two bids which fell through last year because of broader economic uncertainty.
Hammerson, one of the bidders for Intu, in February said it was in talks to offload more than £900m of assets because of the pressure on retailers.