EG America Owner Sells U.S. Gas Stations And Considers Asda Merger

Asda’s owners the Issa brothers have sold a chunk of their U.S. retail and gas station property empire in a sale and leaseback deal worth $1.5 billion.

EG Group agreed the sale and leaseback deal with San Diego-based Realty IncomeO
Corporation but EG America will continue to operate and trade the 415 stores under the Cumberland Farms, Fastrac, Tom Thumb and Sprint banners.

The transaction is expected to close in the second quarter of 2023 and approximately 80% of the total portfolio is based in the Northeast U.S., including around 116 properties in Massachusetts, 87 in New York, and in the Southeast 74 in Florida, the top three states in the portfolio.

Over 80% of the total rent is expected to be generated from properties under the Cumberland Farms brand.

The deal will see EG America lease the assets back for a $103 million annual rental fee and the sell-off comes as the pair – who snapped up U.K. supermarket chain Asda in 2021 – look to bring down the firm’s debt burden amid soaring interest rates.

EG Group said the move, which represents a sale of around 15% of its real estate empire, was part of its “commitment to reduce total net leverage through debt reduction and free cash flow generation.”

In other words, EG Group wants to pay down debt fast as it can as it wrestles with its loan burden and righting the ship after investing in Asda.

EG Group has at least $9 billion of debt due 2025, according to its most recent quarterly report. The majority is made up of loans with interest pegged to the LIBOR, EURIBOR and SONIA indices which reflect the rate at which banks lend to each other.

These rates have as much as quadrupled in the past five months, leading to hundreds of millions of dollars in increased debt interest.

Zuber Issa, co-founder of EG Group, put a positive spin on the deal, saying: “This announcement demonstrates the progress we continue to make to put in place a robust capital structure for the medium term that will underpin our long-term strategy and represents an important first step in this process.”

Paying Down Debt Burden

The reality is that after the siblings acquired Asda two years ago for $8.1 billion alongside private equity firm TDR Capital, food and gas retail have seen challenging conditions and in January there were reports that the partners might combine both profitable businesses into a $15.5 billion corporation in order to refinance the debt on more favourable terms.

The EG Group, whose brands include Euro Garages, Coopland and Leon, plus European franchises including Cinnabon, has over 6,600 sites across the world.

At least, after some difficult trading, Leeds-based Asda has seen an uptick in fortunes and led the pack outside of the discounters in the U.K. with sales up 6.4% over the all-important Christmas Holiday season and followed up with a 6% rise in sales in the 12 weeks to Jan. 23.

In February EG Group opened its 100thAsda On The Move store and confirmed plans to open a further 100 of the neighbourhood and gas station sites across the U.K. this year. The Asda On the Move concept was launched in Fall 2020 and the 100th store in Middlesbrough is one of 35 that have opened so far this year on EG Group’s existing forecourt estate.

Mohsin and Zuber Issa started out with a single gas station in Bury, north west England in 2001 and in the most recent trading update, for the three months to September 30, 2022, EG Group’s total revenue increased to $8.9 billion from $7.2 billion for the same period in 2021.