The announcement by Metro, the evening before it reports second-quarter results, confirms an earlier report by Reuters that helped Metro's shares close up 1.7 percent.

Once a sprawling retail conglomerate, Metro has been restructuring in recent years to focus on its core cash-and-carry business, selling Kaufhof department stores and then splitting from consumer electronics group Ceconomy.

It has long sought to shed its Real hypermarkets chain, which has annual sales of more than 7 billion euros (6.03 billion pounds), but has struggled for years in a fiercely competitive German market, dominated by discounters Aldi and Lidl.

Metro said the exclusivity lasted until the end of July, with negotiations expected to be completed in the summer and anti-trust approval needed for a final deal.

The parties have agreed a framework under which Real would be sold as a whole to Redos, with Metro initially retaining a 24.9 percent stake in the operating business and a 'put' option to sell that holding which could be exercised after three years.

The liabilities of the struggling chain will be assumed by the new owner, resulting in a preliminary cash inflow of around 500 million euros to Metro, with Redos planning to make "extensive" investments, while also selling some Real stores.

Metro said the current status of negotiations would lead to it taking a 385 million euro impairment in its first-half financial statement.

People close to the matter said last month the consortium comprising Redos, ECE and Morgan Stanley Real Estate had dropped out of the auction for Real.

But talks were taken up again after key hurdles were resolved, one source close to the matter said on Wednesday.

Another said Redos did not have a partner in the retail industry and planned to work with current Real management.

Talks with a different consortium led by property investor X+Bricks, which had earlier been seen as frontrunner to secure a deal, have been put on hold, the sources added.

A major challenge in the sales process has been for buyers to define a future strategy for Real's 279 sites, roughly 65 of which are owned by Metro itself.

While suitors were keen on acquiring the property with a view to letting the real estate to new tenants, interest in taking on the loss-making operating company has been scant.

People close to the matter have said Real's suitors have in recent weeks been in talks with other retail groups over a sale of individual sites after a deal for Real.

The buyer will also have to deal with unions about ways to safeguard as many of the 34,000 jobs as possible. Labour representatives have been vocal critics of plans to split the property from the operating business.

Analysts expect Metro's second-quarter earnings to slump, dragged down an ailing Russian business.

(Writing by Emma Thomasson, Editing by Mark Potter)

By Matthias Inverardi and Arno Schuetze