REAL ESTATE - UK retailer Marks & Spencer is to plug a £704m (€1.07bn) hole in its pension fund via a property partnership that will see the retailer sell and lease back its £1.1bn property portfolio.

Under the deal, the retailer will invest £500m in the partnership upfront, with an annual £50m payment to the 123,000-member scheme over a 15-year period. Interest on the partnership's assets will contribute the balance.

M&S spokeswoman Katie Pratt said: "We're using the value of our property to create value for the pension fund - after all, we all have an interest in the fund."

The announcement comes midway through a £800m store renewal programme. Remodelling of 35% of the retailer's stores has already been completed; a further 35% of stores are slated for refurbishment in 2007.

Morgan Stanley real estate analysts early last year speculated in a research note that Marks & Spencer would convert its property assets into a real estate investment trust (REIT). However, analyst Brook Bone pointed to a major downside: that the retailer would lose control of its property portfolio because REIT shareholdings are capped at 10%.

In the new model - developed in consultation with Morgan Stanley - Marks & Spencer retains control over its real estate assets.

"As far as we're concerned, the key benefit is that we'll still own the property," said Pratt.