Shoprite leaseback agreement collapses

SHOPRITE, the discount retailer, yesterday dropped a second bombshell on the City in less than a month when it said that agreements to sell and lease back 11 of its stores had fallen through, writes Heather Connon.

The announcement sent the shares tumbling 27p to 51p, cutting its market value by a third to just pounds 40.1m - less than a quarter of last year's sales. The shares have fallen 93p since it released disappointing results last month.

The deals, with Allied Dunbar and Edge Investments, accounted for pounds 1.3m of the pounds 2.7m pre-tax profit for the six months to 1 May. These results had showed a 17 per cent fall in operating profits from food retailing despite the opening of 20 new stores, alarming the City which had expected Shoprite to continue its healthy growth.

Michael Pridham, finance director, said Allied Dunbar and Edge had not given a reason for pulling out but he believed it might be due to a softening property market. He admitted that the poor performance of the group could have encouraged it.

Mr Pridham said the group and its agents were confident the sales would still take place. The group's policy is to hold leaseholds, and where it is forced to take on a freehold to arrange a sale and leaseback. The collapse of the latest deal leaves it with about 13 freeholds among 86 stores.

The sales are also needed to finance expansion and contain borrowings. The deal was expected to cut debts from 47 per cent of net assets to about 30 per cent.