Tesco reviews property strategy

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February 25, 2011 11:06 pm
Tesco reviews property strategy
By Andrea Felsted, Senior Retail Correspondent

Philip Clarke, the incoming chief executive of Tesco, is examining the group’s property strategy in a move that some analysts believe could herald a further multibillion-pound disposal programme.

For the first time, sale and leaseback deals could involve Tesco’s overseas property, some analysts have suggested.

Mr Clarke, who succeeds Sir Terry Leahy as chief executive of Tesco on Tuesday, told investors and analysts in November that he would provide an update on Tesco’s property strategy when he unveils his first annual results in April.

In 2006, Tesco said it would divest £5bn of property assets, which has been delivered.

“We would not be at all surprised if Tesco announced another £5bn of proceeds over the next five years,” James Anstead, analyst at Barclays Capital, said.

Clive Black, analyst at Shore Capital, said: “I think there will be another phase of property disposal activity.”

Tesco declined to comment on any property plans.

Mr Black estimated that Tesco could look to divest another £5bn-£7bn of property from its £35bn store estate, including some stores outside the UK.

In November, Mr Clarke estimated the market value of Tesco’s international property at almost £15bn.

Divesting some of Tesco’s overseas estate could help highlight the value of the business outside the UK, which Mr Clarke will be keen to do.

Tesco operates in 14 countries, but investors have been focused on the domestic business after disappointing trading in the UK over the Christmas and new year period.

“To date, Tesco’s real estate divestments have focused almost exclusively on the UK,” Mr Anstead said.

“However, we suspect Tesco is sitting on some very large capital gains made on mature stores in countries such as Poland, Thailand and Korea.

“Making some divestments internationally could be very helpful in highlighting this store of value.”