Tesco denies plan for REIT

Tesco denies plan for REIT

	Published : Sat, 25 Mar 2006 11:15 By : Cedric Benson Print this Story

LONDON: Super market chain Tesco Plc. said it has no plans immediately to seek registration as a real estate investment trust (REIT). The company responded to news reports suggesting it is examining whether to place its freehold property worth over 12 billion pounds in a real estate investment trust.

A spokesperson for the company said it is looking at different possibilities, and it will not rule out anything, "but there is nothing major on the cards right now".

The newspaper reports had pushed the company's shares up 5 per cent to a new high of 351 pence in early trading Friday. The reports quoted the company's finance director Andrew Higginson.

Registering as a REIT enables a company to raise funds by selling shares in that vehicle. Higginson was quoted as saying the company is obviously interested "in the sense that we're a big property company. We've got people looking at whether it's a good idea."

In a related statement, lead managers of a recent Tesco bond issue said the retailer had clarified that it had no plans in this direction at the moment.

Another British retailer J Sainsbury had earlier in the week sold two mortgage-backed securities worth 2.1 billion pounds and used the cash to buy back 1.7 billion pounds worth of outstanding bonds and clear the entire 350-million-pound pension deficit.

Another retail firm that is speculated to have interest in REIT is Marks & Spencer, though there is no official confirmation or denial. The company's shares also went up 3.5 per cent to 570 pence a share.

The government had announced plans to launch REITs as quoted property vehicles and had set out the terms and conditions in its budget last Wednesday. The scheme is to be launched in January next year. REITs are required to distribute 90 per cent their income to shareholders, but in return will get exemption from payment of corporate tax. At the time of creation of the REIT, a firm will be required to pay 2 per cent of gross assets.

Analysts say Tesco is capable of substantial investments to create a REIT and it could easily generate some 6 billion pounds in proceeds, which it can use in share buybacks.