Tesco has issued its sixth CMBS, a long-dated securitisation that raised £493.4m. Tesco Property Finance 6 has a single tranche of bonds paying 5.411%, maturing in 2044, to cash in on investors’ enthusiasm for long-dated income.
The collateral will be owned by Tesco and Cambridge University Endowment Fund. It includes four Tesco stores and three of its mixed-used developments: Trinity Square in Gateshead, New Square in West Bromwich and Sunderland Retail Park.
Tesco subsidiaries will take 30-year leases on the properties, with Tesco guaranteeing the rent – a credit link that gave the bonds an A- Standard & Poor’s rating and Baa1 from Moody’s.
The bonds are expected to amortise fully over their life-time from rent payments, but because the stores’ rents are linked to the retail prices index, whereas the rest of the portfolio has fixed uplifts, the payments might not be enough to pay the fixed-rate bond liabilities.
So the floating rental income will be swapped to fixed amounts to pay the bonds, with Tesco’s treasury services acting as the swap’s counterparty.