Grocers including Sainsbury’s and Morrisons could become unviable if they opt to spin off their property portfolios, a senior retail analyst has warned.
Shore Capital analyst Clive Black believes that pressure from US hedge funds to sell their freehold property assets could harm the retailers’ future prospects.
Black said he doubted whether the Competition Commission “would stand idly by and permit major property activities that could operationally leverage the retailers to a point that their viability came into question”.
Minority stakeholders in the US have suggested that quoted UK grocers – namely Morrisons, Sainsbury’s and Tesco – could improve returns to investors by selling or floating their property assets.
Black said: “If major deals were undertaken we assert that the long-term viability of Morrisons and Sainsbury’s in particular to withstand another trading set back could be brought into question as margins could conceivably dip towards or even below 1%.”
Black added that he does not expect to see retailers react to the investor comments. He said: “Without much more material shareholder pressure through increased ownership and so the power to deliver strategic change, beyond somewhat vociferous minority activism in some instances, we question whether current management teams (executive and non-executive) will change present strategic plans.”
Morrisons is currently undertaking a property review which is expected by analysts to reduce its 90% freehold estate to 70%. The results are due to be reported in March.
Canadian grocer Loblaw sold 20% of its properties last year after floating their buildings in a real estate investment trust.
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