Diageo enters into sale and leaseback arrangement relating to its North American wines business

Diageo announced today that it has entered into a sale and leaseback arrangement in respect to certain land and facilities located in Napa Valley, California valued at approximately $260 million (£174 million).

The land and facilities will be purchased and leased back to Diageo by Realty Income Corporation (NYSE: O) under a 20 year lease, with Diageo holding options to extend the lease for up to 80 years in total. Diageo Chateau and Estate wines (DC&E) remains the operator of the properties under the lease agreement and retains ownership of the brands, vines and grapes, which remain a strategic part of Diageo’s wine business.  The purchase and lease agreement is expected to close no later than 30 June.‪
 
The transaction is part of the previously announced review of the operations of DC&E which resulted in a reduction in the workforce and may also include the sale of non-strategic brands.‪ The impact of the restructuring, including the sale and leaseback, on the income statement for the year ending 30 June 2010 will be broadly neutral as the profit on the sale of land is broadly offset by restructuring costs, inventory impairment and provisions made against the disposal of non-strategic brands. The benefit to free cash flow in the year ending 30 June 2010 is expected to be in the region of $200 million (£134 million).‪‪ The transaction will also improve the return on invested capital of the DC&E business.

SOURCE Diageo