Friday, June 19, 2009

Commercial real estate to crash?

Giant retailer Tesco has just sold and leased back 12 stores, netting £430 million (£458m, according to another source). This comes on top of another such move 10 months ago, which brought in another £605 million from 13 properties.

There's various ways you could interpret this - e.g. it could be a way to deflect criticism of Tesco's powerful position in the retail commercial property market, which some say has been used to prevent competitors setting up near their own outlets. But there are cheaper ways to deal with critics.

I think this billion-pound bet may be a straw in the wind - or perhaps an uprooted tree in the mighty gale - portending a significant fall in commercial property values.


CityUnslicker said...

rare for me to disagree with you.

But this is a good sign, the deal was securitised, the first one of the year. It means the market is healing.

Tesco has no need to own assets and so is raising money to put to better use than sitting in the asset section of the balance sheet under property.

They pay good yield to, so the buyers are getting a sure thing.

More of this kind of thing happening will be a good sign. i though, remain a bear in the medium term, much of what we are seeing is the stimulus working its way through, when it is done, we face another cliff.

Nick Drew said...

can read it either way, CU. I agree 100% that clean securitisations are a good & often highly appropriate means of raising £££

but the 'good yield' must be at Tesco's expense - what use do they have for the £££, that will yield more ?

I'd never bet against Leahy, who is always willing to back his judgment; but it's good to guess what his moves betoken. (I see that Sainsburys are increasing their proprty holdings at the moment, so there's a bit of strategic divergence going on in the sector)

he definitely called the recession 12 months before anyone else

here's another thought: perhaps he reckons Tesco's credit rating is as high now as it's likely to be for a while to come - so raise the £££ now ...

Sackerson said...

CU, I'm flattered that you rarely disagree, seeing that I'm an outsider. But if Tesco "is raising money to put to better use", that has implications. "Better use" can mean making faster profits; it can also mean cutting losses, holding cash ready for crash. Philip Green did well out of raiding his own firm for £1 bn, didn't he? That war chest let him go bargain-hunting with Baugur and others.

Sackerson said...

Nick, didn't see your comment while typing mine. Maybe the Qatari stakeholders in Sainsbury's have their own reasons for getting into UK property - as with my previous comment, context is important.

CityUnslicker said...

Tesco's growth is global, its property portfolio in the stagnant UK. Raising capital here to put to use in the far east and middle east makes sense.

Nick is right re the rating, now is a good time to raise money if you are a defensive business.