Tesco has quietly sold its former distribution hub in Middlewich in Cheshire, which is subleased B&M, to Canadian investment giant Brookfield Asset Management, for £45 million or a 3.58% net initial yield.
The transaction, which completed last year, forms part of £266 million of proceeds from property transactions, including the sale of 17 malls and one retail park in Central Europe, flagged by the UK's largest supermarket group in its preliminary results for the 2022/-3 period today.
The proceeds were partially offset by the purchase of its partner's stake in The Tesco Dorney Limited Partnership in October 2022, it said.
Brookfield Asset Management bought the freehold interest of the 468,000-square-foot hub Midpoint 460 on Pochin Way at a capital value of £96 per square feet. Savills advised Brookfield while Morgan Williams advised Tesco.
Value retailer B&M signed a 10-year sublease in 2015 from the supermarket chain, which had occupied it as a distribution warehouse. In 2020 Tesco took full control of the freehold interest when it bought out its partner Consensus Business Group's 50% stake in the Tesco Property No 2 Limited Partnership for £54 million plus debt and bond obligations. The partnership owned 12 of its stores and two distribution centres.
Elsewhere in its preliminary results Tesco said the estimated market value of its fully owned property as at the year-end had reduced by £900 million to £17.2 billion due to the weakening of the UK property investment market in the last six months. The market value represents a surplus of £0.8 billion over the net book value.
Its group freehold property ownership percentage was 60%, an increase of 2% year-on-year. The completion of the purchase of its partner's 50% stake in The Tesco Dorney Limited Partnership in October brought back into full ownership seven sites, contributing a 1% increase in the percentage of fully owned properties in the UK and Republic of Ireland. It also repurchased the Tesco Extra stores in Mansfield and Melton Mowbray in the UK.
Following the transaction, it has five UK property joint ventures still in place, from a peak of 13 structures in 2015 as it continues to streamline its ownership and raise capital from property sales. The remaining structures contain properties worth £3 billion and debt of £2 billion, with £2 billion of associated lease liabilities on its balance sheet. The three largest remaining property joint ventures are with the Tesco Pension Scheme.
Sales rose 7% to £66 billion but pre-tax profits dropped 51% to £1 billion as Tesco faced "unprecedented" rises in the prices charged by its suppliers.