Cambridge University Endowment Fund has taken a 50% equity stake in the £490m sale-and-leaseback of seven regional Tesco stores throughout the UK, financed last week by a £493.4m credit-linked CMBS.
This is the second such sale-and-leaseback joint venture which Tesco has entered into with the Cambridge University Endowment Fund, after the similar deal brokered 12 months ago for 11 Tesco supermarkets, as revealed by CoStar News.
Last January’s deal was similarly structured with a £450m credit-linked CMBS, with the bonds repaying over 22.5 years.
The £700m Cambridge University Endowment Fund was thought to have paid only a nominal fee for its interest, given that the University College will not derive any economic benefit from its ownership until the maturity of the real estate notes.
CoStar News understands a similar agreement has been struck for this transaction, for which the Tesco Property Finance 6 plc CMBS bonds mature in 21.1 years.
The total sale price to the joint venture special purpose vehicle is in excess of £490m, reflecting an average net initial yield of 4.7%.
The seven Tesco supermarkets comprise four trading stores and three mixed-use sites under development.
The credit-linked securitisation, at LTV at 108.4%, will be fully repaid over the projected 21.1 year maturity, paying debt investors – thought to include M&G Investments, Legal & General Investment Management, Standard Life Investments and Henderson Global Investors – a 5.41% quarterly coupon.
Goldman Sachs International and Barclays Bank – joint bookrunners for Tesco Property Finance 6 plc – closed the credit-linked CMBS last Thursday at 245 bps over the UK Treasury 4.25% 2032 benchmark, five basis points below initial guidance pricing.
The slightly narrower pricing, together with an estimated 1.8 times oversubscription of the bonds, is a positive reflection for the demand for sterling-denominated investment grade bonds.
Already the bonds are trading above par in the secondary markets, at 100.78.
The quasi-corporate debt structure will be repaid by rental income from the seven UK-wide supermarkets, each let to subsidiaries of supermarket giant on around 30-year leases, including three properties currently under construction.
Four of the seven-strong Tesco superstores portfolio account for 30% of the portfolio by market value – Alfreton in Derbyshire, Ebbw Vale in Wales, Maldon in Essex and Diss in Norfolk.
The remaining three are the development assets – in Gateshead, West Bromwich and Sunderland – and are due for completion between mid-2013 and mid-2014.
Spen Hill Management is the property developer, which in turn is guaranteed by Tesco PLC.