We present a rare opportunity to participate in Tesco Superstore investments, structured within a superior risk-return scenario versus current market for the Tesco covenant.
The fund regularly releases investments in line with the parameters set out below.
The fund’s deals are only open to High Net Worth or Sophisticated Investors as determined by the FSA definition.
Tesco Deal - Financial Highlights:
- New build Tesco store, circa 115k sq ft
- Purchase yield of 4.9%
- Anticipated exit yield of 4.5%, or better
- Purchase price of £44m
- Build and purchase Completion in 2012
- Rent at £20 p.s.f.
- 25 year lease, with an RPI cap (4%) and collar (0%) on rent increases
- Paying a cash coupon of 2-5% p.a.
- Business plan IRR range 12%-35%
- Total cash return target of £1.53 per £1 invested, under the 4-year hold business plan scenario
- Minimum investment £150k (£50k in 2011 to support Exchange, and up to £100k in 2012 to support Completion)
Tesco Deal - Attributes:
- The fund often sources off-market deals through developer relationships, and this new deal is a prime example. This deal is also a rare opportunity for smaller investors to participate in the ownership for a brand new Tesco Superstore. Deals like this are normally the exclusive arena of the big pension funds.
- Purchasing this Superstore allows our investors access to a new, long lease with one of the most secure covenants in the UK today. The Tesco lease provides for inflation-mitigating, upward-only rent increases, based on RPI with a cap and collar, compounded every 5 years.
- Tesco is a “forward commit” deal structure. The fund will purchase the site pre-construction at less than current market price for operational stores. This results in a potential built-in equity gain for the fund investors on day 1, versus market price for completed, operational Tesco’s.
- The fund’s investors’ initial deposits to purchase the property are escrowed until deal Completion, and thereby protected in that we will only Complete and release funds to the developer-vendor when Tesco moves in, and they will only do so upon construction completion to their exacting satisfaction. Construction completion is currently scheduled for the Fall of 2012.
- The escrowed “deposit investment” will therefore in effect experience a high, but much protected, leverage over a Tesco property covenant and any market improvement in the value of that covenant, over the period from now until the construction Completion in 2012.
- The expected IRR and ROE on this deal is also much higher than the return currently achievable from trading the Tesco covenant in the corporate bond market, for those that would compare versus a marketable security investment in the this same covenant.
- This investment will ultimately bear a cash coupon annually to investors in the “long term hold” business plan scenario.