UK supermarket group Sainsbury's has exchanged contracts with LXi REIT on a deal to sell 18 stores in southern England for £500m to the property investor and then lease them back.

The companies had said earlier this week that they were in talks on a deal.

LXi REIT said today completion of the acquisition was conditional on it raising the necessary equity funding, for which it is currently in talks with investors.

Sainsbury's, Britain's second largest grocer after Tesco, has said if transaction goes ahead it will use the cash to part fund the purchase of 21 stores from the Highbury and Dragon investment vehicles.

Sainsbury's has held a 49% interest in Highbury and Dragon since it was created in 2000. The vehicles hold the freeholds of 26 Sainsbury's supermarkets which are leased to it.

The remaining 51% is owned by a joint venture between Supermarket Income REIT and British Airways Pension Trustees Limited.

Sainsbury's purchase of the 21 stores is part of its plan to bring that structure to an end.

It said both deals would result in a broadly unchanged proportion of leasehold and freehold supermarkets in its portfolio and would not impact financial guidance.

Sainsbury's trades from over 600 supermarkets and over 800 convenience stores and has £10.4 billion of property assets.