Morrisons agrees £331m property deal on extra long leases to cut debt pile

Morrisons has raised £331m to cut its debt pile through the sale of ground leases on 76 supermarkets as part of a turnaround plan under the new chief executive, Rami Baitiéh.

If all the proceeds are used to pay down debt, Morrisons would have net debt of £3.6bn, down from as much as £8.6bn at the end of last year.

The deal will provide an income stream to the investment firm Song Capital for the next 45 years, according to Sky News, which first reported the transaction.

Morrisons is likely to reduce its rent on the 76 stores to well below market rates, but the fact they are subject to much longer than usual leases could make it hard to move out of or sell the properties without huge financial penalties.

The chain, which has about 500 supermarkets and 1,600 convenience stores, has been struggling since it was bought by the US private equity investor Clayton, Dubilier & Rice (CD&R) in October 2021 amid the cost of living crisis and the rise in interest rates, which has increased debt payments.

The group pledged not to do any supermarket sale and leasebacks as part of the deal but the time period on that promise is understood to have ended.

Morrisons’ market share has stabilised in the past year since the arrival of Baitiéh, who has cut prices and improved availability of products and customer service. In the latest figures from analysts at Kantar, the group’s share stood at 8.5%, down only 0.1 percentage points on a year before.

On Thursday, Morrisons said sales at established stores were up 2.9% led by an increase in the amount of items sold while prices are understood to have been held virtually flat year on year. Clothing did particularly well, up 8% including a 23% rise in back-to-school items.

Baitiéh said Morrisons had made “good headway” during the quarter as it had reduced gaps on shelves with the installation of artificial intelligence-powered cameras that watch for gaps and automatically reorder or alert staff to fill up. They are now in 400 stores and will be in all 500 by the end of next month.

The company has also been reducing debts with a £450m sale and leaseback of assets, including warehouses, and the £2.5bn sale of 337 petrol station forecourts to Motor Fuel Group, which is also owned by CD&R.

Morrisons’ net debt obligations were £3.2bn before the CD&R takeover. The parent company, a legacy of the takeover called Market Topco, reported that net debts at the end of 2023 increased to £8.6bn after the acquisition of the McColl’s convenience store chain in late 2022.