t the time of publication, the value of Morrisons remained unknown, with bids submitted by cash-rich US private equity suitors Clayton, Dubilier and Rice and a consortium headed by Fortress Group still sealed.
Whatever the price, one thing seems certain: The winner of a months-long tussle for the ‘big four’ supermarket will pick up one of the UK’s largest property portfolios for a song. The last public bid for the company valued the business at 295p per share, or £7bn. The company’s estate, 85% of which is freehold and substantially unlevered, is valued at £6bn.
Although all parties have offered commitments to maintain the store base, in a bid to win over pension trustees and asset manager investors afraid to be seen as enabling an asset stripper, they have also ensured they have some room to monetise its assets.
‘If Fortress “does not anticipate engaging in any material store sale and leaseback transactions”, the presence of Koch Real Estate in the deal may suggest differently,’ Bank of America analyst Xavier Le Mené said. ‘We would expect any new owner to investigate the potential for value creation within property.’
Xavier Le Mené, Bank of America
So, what could the new owner do with the huge Morrisons estate, and how could that affect the wider UK property market?
‘We are in the uncertainty period now about what the effect of Morrisons will be, what debt will they own, what leasebacks will they do, so for institutional managers this is going to be on their minds right now,’ said Tom Edson, Colliers’ head of retail capital markets and lead director of its supermarket practice.
Lessons from Asda
Edson said that the recent takeover of Asda by brothers Mohsin and Zuber Issa, who are petrol station entrepreneurs, offered a potential blueprint. The company signed a £1.2bn sale and leaseback deal on the company’s distribution base this summer.
That was potentially worrisome for those with exposure to Morrisons as a tenant he said, who would likely be switching a AAA-rated FTSE 100 occupant for a less-reputable counterparty.
‘When the Asda rumour started to go around that they were going to be bought out, and the likelihood was that it would be a debt buy, a number of institutions dumped Asda’s stores,’ Edson said.
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