Morrisons Pursues £1 Billion Property Deal
Morrisons, one of the largest supermarket chains in the UK, is currently exploring a potentially significant £1 billion property deal. This initiative comes as the retailer seeks to improve its competitive edge against rivals such as Sainsbury’s and Aldi, who have gained market share in recent years.
Morrisons’ Property Strategy
Based in Bradford, West Yorkshire, Morrisons has enlisted the help of CBRE, a real estate advisory firm, to assess financing options linked to its extensive freehold store portfolio. While details are still unfolding, sources indicate that this process is in its early stages and may not follow the traditional sale-and-leaseback model frequently used by supermarkets.
Potential Financial Outcomes
Morrisons could potentially raise up to £1 billion from this endeavor. However, neither the specifics of the transaction nor the amount have been finalized. The supermarket operates approximately 500 locations across the UK and employs around 95,000 individuals.
Ownership of freehold properties is a significant aspect of Morrisons’ business, as it holds approximately 80% of its estate in freeholds, one of the highest in the grocery sector. Even with a potential transaction, the percentage of wholly owned stores is expected to remain around 60%, according to insiders.
Recent Developments and Leadership Changes
Morrisons was taken private in 2021 by Clayton Dubilier & Rice (CD&R) in a deal valued at nearly £10 billion, including debt. Since this acquisition, the supermarket has faced challenges, including a drop in sales rank, allowing Aldi to surpass it last year and claim the position of the UK’s fourth-largest grocery provider.
To counteract these challenges, Morrisons appointed Rami Baitieh, a former Carrefour executive, as CEO in 2023. His leadership aims to stabilize the company’s performance and enhance its market presence.
Debt Management and Long-term Strategies
The supermarket is actively reducing the debt incurred during its acquisition, with roughly £1 billion remaining in acquisition finance. Currently, the company does not face urgent debt maturities, indicating it has the flexibility to strategically navigate a potential property deal without immediate pressure.
CD&R has prioritized maintaining a stable asset base since acquiring Morrisons, promising not to engage in major disposals of store freeholds for a designated period. Recent actions in the real estate sector primarily focused on selling non-store assets rather than supermarket freeholds.
A Future Partnership
In 2024, Morrisons established a partnership with Song Capital, which acquired the rights to receive income from 75 of its supermarkets for the next 45 years, valued at £370 million. This collaboration further indicates Morrisons’ strategic approach to managing its assets and cash flow.
As the retail landscape continues to evolve, Morrisons remains one of only two major UK grocery brands under private equity ownership, alongside Asda, which is backed by TDR Capital.
Despite the challenges faced, Morrisons reported robust Christmas trading last month. Baitieh commented on the company’s resilience and ongoing commitment to maintaining market share and profitability amid external pressures.
Morrisons has not publicly commented on the prospective property deal and its implications for the company’s future.
