Sainsbury’s considers sale and leasebacks to back expansion

Sainsbury’s property director John Rogers has said the grocer is mulling further sale and leasebacks this year as it ploughs on with aggressive expansion plans.

Speaking at last week’s Retail Week Conference, Rogers said Sainsbury’s will “probably” do more sale and leasebacks “in the coming months”.

The development comes as Sainsbury’s seeks to open more convenience stores and expand non-food areas in its grocery stores.

Last June Sainsbury’s revealed ambitious expansion plans following a fundraising, but analysts think further expansion is on the agenda.

Evolution analyst Dave McCarthy said: “Given we expect Sainsbury’s to open more space than it previously and publicly announced, increased sale and leasebacks look almost inevitable to raise the financing.”

One analyst said Sainsbury’s could easily raise £30m from a single store so if it wanted to step up expansion, sale and leasebacks would be an easy way to fund it. The analyst said Sainsbury’s considers sale and leasebacks on its mature stores, and as it opens more extensions it has more stores that fit this bill.

Sainsbury’s has carried out sale and leasebacks in the past and struck joint ventures with property firms such as British Land. Rival grocer Tesco has also created joint ventures on stores recently, including one in October 2009 to raise £514m.

In June last year Sainsbury’s raised capital via a £225m placing of new shares and a £190m convertible bond, and chief executive Justin King said the proceeds will be used to increase selling space by 15% over two years.

He said expansion would include store extensions to add non-food ranges, an accelerated roll-out of convenience stores to 150 new shops over two years, and the acquisition of more stores. At that time Sainsbury’s said it had bought a further nine shops from Co-operative Group in addition to the 24 stores already purchased.

Oriel analyst Jonathan Pritchard said: “Sainsbury’s has a decent cash flow after its fundraising but there are still areas that need tidying up so sale and leasebacks are an ad hoc way of raising cash to keep its portfolio fresh.”