There is a growing trend amongst supermarkets where they sell their land in lease-back deals in order to free up their capital. Deals rose a reported 50% in 2013, with an increase in values of 5.8% which is the strongest annual growth in value since 2010.
In the past, supermarkets, such as Morrisons, ASDA, Sainsburys etc, bought out large expanses of land to promote and aid expansion in their companies, giving them the space to physically expand.
However, a lot of this land has become capital ‘dead money’. Many investors are interested in helping these supermarkets free up their money by buying out the land the supermarkets sit on, and then leasing it back to the stores.
The most relevant consequence of doing this is that it will likely boost share prices in some cases.
Apparently, Elliott Advisors, a large shareholder of Morrisons, are pressuring the superstore chain into doing just that. The store’s 9bn pound property is apparently 90% freehold at the moment, which will come under review.
The reason there is a market for the stores to sell into is that grocery superstores are seen as a stable and low risk to investors as compared with other retail outlets. This means the rent they will have to pay to the new owners of the land is less likely to be cut off for some reason. In addition, the leases can be double the length of those held by normal retailers.
