Tesco PLC, Cheshunt, England, formed a real estate joint venture with British Airways Pension Fund, Hounslow, England, to implement a sale-and-leaseback transaction covering 16 stores, Tesco spokesman Tom Siveyer confirmed. The 50/50 joint venture would use mostly debt financing to purchase 2% of Tesco's U.K. real estate assets at an estimated £445 million ($859 million). Tesco would then pay rent on the properties to the joint venture, which would provide British Airways' £10 billion pension fund with a relatively consistent cash inflow over a scheduled period of 20 years.
"Pension funds normally invest outright in property, so it is innovative and unusual for a pension fund to be the counterparty to a sale and leaseback," Claire Milton, spokeswoman for the London-based National Association of Pension Funds, said in an e-mail response. "Normally it's financial institutions that are the counterparty of sale and leasebacks."
The transaction was the first in what is expected to be a wider program involving about £5 billion in real estate assets over the next five years. Initial returns are estimated at about 4.4%, according to Mr. Siveyer. John Birch, British Airways' pension fund manager and secretary, could not be reached by press time.