Morrisons chingford store

Morrisons is paying the price for its debt through lower valuations in sale and leaseback deals on a cluster of supermarkets, according to a property industry source.

Owner Clayton Dubilier & Rice (CD&R) embarked on a plan to sell five Morrisons supermarkets last autumn.

The property source said that while there was investor interest in the stores, “the price people will pay for a Morrisons is a lot less than for a Sainsbury’s or Tesco”.

“Morrisons have accepted this and are selling a lot cheaper compared with their peers.”

As a result, a store in Plymouth had sold for about £22m, while an equivalent Tesco “would have been closer to £30m”, the source said.

“Pensions and investors are extremely nervous about Morrisons” as it grapples with a £5.9bn debt pile following CD&R’s takeover, the source said.

“Their basket prices are high, they’ve lost customers, they’ve got ­bigger interest payments to make, and if they have any problem paying rent for the next 20 years you’re pretty much at the back of the queue to get your money.”

CD&R is said to be seeking about £150m for the five-store portfolio.

When the US private equity firm won the auction to buy Morrisons in 2021, it said it did not “intend to engage in any material store sales or leasebacks”, a commitment that lapses after a year under takeover regulations.

Morrisons disputes that investors are wary, pointing to the high proportion of freeholds it owns, at 86% of its store estate, underpinning the financial strength of the business. The supermarket returned to quarterly sales growth for the first time in two years in the 13 weeks to 29 January, with total revenues up 3.4% and group like-for-like sales excluding fuel and VAT up 0.1%.

Morrisons also recently embarked on a new price-cutting programme across nearly 500 products while price-locking a further 600 for at least two months.

In December, Morrisons completed a £220m sale & leaseback deal for seven warehouses across the UK, agreeing to lease the properties for up to 25 years.

The property source said that despite investor nerves, “there are some advantages” to Morrisons in the store sale and leasebacks. “It’s a way of getting the debt down which means they can reduce consumer prices.”