Sainsbury's enters £1.2bn venture with British Land

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The Independent Online

J Sainsbury is putting £273m into a joint venture with its biggest landlord to buy back a half-share in 39 supermarket sites. The British Land deal was announced yesterday alongside a trading statement reporting fourth-quarter sales up by 4 per cent, excluding fuel, and target-beating revenue growth of £2.7bn since 2005.

"These are good result in a continually challenging market and it is our 13th consecutive quarter of growth," Justin King, Sainsbury's chief executive, said.

The joint venture, covering £1.2bn of property, is designed to boost development.

"It only makes sense to invest in a site if you own it, because the value accretes to landlord rather than tenant," Mr King said. "British Land owns about 8 per cent of Sainsbury's stores so in one fell swoop we have bought back a share in those sites, which gives us every incentive to develop them."

The initial terms of the venture are for 10 years and the investment will be funded in the short term from cash and existing facilities. Specific plans include the extension of 25 stores by about 500,000 square feet, in line with the firm's target to boost its sales area by 10 per cent by 2010.

"We have seen both our shares and those of British Land go up today, which demonstrates that the classic landlord/tenant relationship is one where no one wins," Mr King said.

Sainsbury's shares rose 6.4 per cent, but it is not the UK retail sector's preferred stock, say brokers. "Sainsbury's is looking to eke out value from its assets and that has been received pretty well," Richard Hunter, the head of UK equities at Hargreaves Lansdown, said.

"But its shares are still down 23 per cent over the last three months, 41 per cent in the last six months and 40 per cent over the last year."

It is still suffering from the collapse of the Qatari-backed takeover bid by Delta Two in November. "Since the Qatar bid came to an end, there is little in terms of a catalyst for the shares to rise again," Mr Hunter said.

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