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The private equity owners of Asda and Morrisons have raised about £6.5bn selling off chunks of the UK retailers’ property portfolios, as they move to pay down the substantial debts accrued to finance their takeovers and regain ground subsequently lost to rival supermarkets.
The bulk of the sums have been raised by selling supermarkets, petrol forecourts and distribution centres, according to Financial Times research and data from property agency Cushman & Wakefield. In most cases Asda and Morrisons have ended up paying rent to the buyer of the properties.
London-based TDR Capital has raised about £3.3bn from Asda’s property assets since acquiring the supermarket chain in 2021 for £6.8bn with the Issa brothers.
US private equity group Clayton Dubilier & Rice meanwhile has raised about £3.2bn from Morrisons’ property portfolio since winning an auction for the retailer with a £7bn bid. The deal was completed in 2022.
The buyouts of Asda and Morrisons were both completed towards the end of the low interest rate era, leaving the two supermarket chains with substantially higher debts than listed rivals Tesco and Sainsbury’s at a time of rapidly rising interest rates.
TDR used the proceeds from a £1.7bn sale-and-leaseback deal on 27 of its warehouses with private capital group Blackstone to help finance its acquisition of Asda. In November TDR bolstered Asda’s balance sheet by bringing in £568mn from two sale-and-leaseback deals on its supermarkets.
Asda’s executive chair Allan Leighton described the latest deals, which come ahead of a looming debt repayment to previous owner Walmart, as “opportunistic”.
“I work on the principle that when someone wants to give you a load of cash, you’re best to take it as it’s not always available,” he told the Financial Times in November. “We’ll use it for capital requirements as we’ve got a store base that we’re renovating and we can use it to reduce leverage.”
Defenders of supermarket sale-and-leaseback deals argue that they allow capital tied up in real estate to be used more productively. But detractors point out that they erode the asset base of the business and add lease liabilities to already substantial cost bases.
In 2024, CD&R sold Morrisons’ 337 petrol forecourts to Motor Fuel Group, another of its portfolio companies, in a £2.5bn deal. Morrisons took a roughly 20 per cent stake in MFG as part of the transaction.
The proceeds were used to reduce the £5.5bn net debt pile that Morrisons was saddled with after the buyout.
Asda and Morrisons are both seeking to recapture lost ground in the competitive UK grocery market.
Under CD&R’s ownership, Morrisons’ market share has slipped from 9.5 per cent to 8.3 per cent and it has lost its place in the so-called big four to Aldi, according to data from Kantar Worldpanel. Asda has fared even worse under TDR’s ownership, with its market share declining from 14.4 per cent to 11.5 per cent.
Both companies, however, said they had been putting more focus on the convenience store market, where sales are not fully represented in Kantar’s data, which focuses on groceries bought to consume at home.
Asda and Morrisons have also both raised hundreds of millions of pounds of debt through so-called ground rent deals in recent years. These deals involve raising debt secured against supermarkets and making regular “ground lease” payments, in effect a rental payment, to the groups lending the money.
By contrast Tesco and Sainsbury’s have collectively raised only £21mn from sale-and-leaseback deals in the past five years, C&W estimates.
Marcus Wood, head of retail and leisure investment at C&W, said that a decade ago there was little difference in the strength of the covenants of the UK’s traditional big four supermarket chains — Tesco, Sainsbury’s, Asda and Morrisons. However, the arrival of private equity had changed the sector’s dynamics.
“Now the spreads on those assets are wider because the balance sheets of the companies are very different,” said Wood, adding that overall investor demand for supermarket assets was strong.
Purchasers of supermarket sites are typically attracted by long, inflation-linked leases, in which the tenants pay for the upkeep and specialist equipment such as refrigeration.
Asda, which has about £3.4bn of net debt at the end of its 2024 financial year, said it still held more than 60 per cent of its property portfolio as freehold or long leasehold.
“Like other retailers, we regularly review our property portfolio to ensure it is being used as efficiently as possible,” Asda said. TDR declined to comment.
Morrisons has cut its net debt by 43 per cent to £3.4bn, while still retaining freehold ownership of more than 80 per cent.
“We have delivered significant improvements in working capital and generated cash for investment in growth in convenience and online, and in the ongoing modernisation of our supermarket estate,” a spokesperson said. CD&R declined to comment.
Analysts estimate that Tesco and Sainsbury’s own the freeholds to about 60 to 65 per cent of their property portfolios.