Tesco 2011 Annual Report Download - page 51

Design blueprints
Our formats are supported by design blueprints to ensure
best practice is replicated across the Tesco Group. We have used
our successful UK formats and experience internationally to build
plans for each of our formats, as well as for our mall developments.
The blueprints codify guidelines for the sales area, design standards,
operating procedures, people plans and financial insight. They also
allow us to build for less as we standardise building specifications and
fixtures and fittings for Group scale buying.
SHOPPING MALLS
Tesco is one of the world’s
largest operators of shopping
malls, with approximately
30m sq ft of mall space across
Europe and Asia. In these
markets we have found that the
most successful hypermarkets
are located in busy shopping
malls and by owning and
operating our own malls we are
able to ensure we have high-
quality sites from which our
hypermarkets can trade.
Our mall business is a
combination of owning and
operating existing malls – as
a landlord – and building new
malls as a developer. The mall
business provides a stable,
profitable income stream – one
that has grown throughout the
recession. Our significant
experience in operating malls
and our many long-term tenant
relationships with retailers
help us to design and fill our
new malls.
Our fastest expansion in new
malls is currently in China where
we are rolling out our new
Lifespace mall concept. The
blueprint is approximately
400,000 sq ft of retail and family
leisure space anchored by a
Tesco hypermarket. We have
four malls currently trading
and expect to have up to ten by
the end of this year. We’re also
starting to redevelop some of
our older malls around the world
to access their full potential.
In a number of markets we are
starting to convert small strips
of shops alongside well-located
Tesco hypermarkets into large
modern shopping malls, creating
compelling retail destinations.
Property Finance Strategy
Tesco releases some of the value that it has created through carefully
selected divestments of some of its property, as well as taking
advantage of strong market conditions offering good yields. Over the
last five years we have delivered in excess of £5 billion of proceeds in
line with our stated objectives in 2006 at an average net initial yield of
4.9%. We have also generated profits from property-related items of
£1.3 billion over the past five years. We have used the proceeds to
invest in property assets in growth economies, buy back c.£1.1 billion
of our own shares and enhance dividends for shareholders.
In the future we intend to deliver £250 – £350 million per year in
property profits, which is a sustainable profit stream as it is broadly
equivalent to the value we create through development activities.
This will require us to divest just over £1 billion of property per year.
This level of divestment is sustainable as we invest around £2.5 billion
per year in growth capital – so the asset base will continue to grow.
It is currently more attractive to divest UK property as yields and
projected GDP growth in the UK are lower than in our overseas
markets. Over time however, we expect a growing proportion of the
divestments to come from our other countries as properties mature.
Some of these future international divestments will be shopping malls
that have been fully developed. In such cases, we will release capital for
new investments by selling the mall to investors and leasing back the
Tesco hypermarket. Importantly, when we do this, it will always be our
objective to manage the malls after divestment to ensure they remain
excellent locations from which our hypermarkets can succeed.
TESCO PLC Annual Report and Financial Statements 2011 — 47
Overview Business review Governance Financial statements