Morrisons makes huge change to 76 supermarkets due to 'debt'

Morrisons has raised £331 MILLION to cut its debt pile through the sale of ground leases on 76 supermarkets. The move from Morrisons, which is rivalled by Asda, Tesco, Sainsbury's and more, comes 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. Sky News has learnt that the private equity-backed grocer has agreed a mammoth ground rent transaction with Song Capital, a real estate investor.

It 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.

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Morrisons will retain ownership of the stores' freehold. The deal comes more than three years after the Bradford-based retailer was taken private by Clayton Dubilier & Rice (CD&R) in a transaction valued at close to £10bn including debt.

It comes as Morrisons has revealed a slowdown in sales growth for the latest quarter amid “softer” market conditions. The supermarket group said its like-for-like sales, excluding fuel and VAT, grew by 2.9% in the three months to July 28.

It represented an easing from 4.1% growth in the previous quarter as food and drink inflation reduced. Rami Baitieh, chief executive of Morrisons, said: “Our focus on listening to customers, better availability and improving the Morrisons More Card has driven another quarter of good headway across the board.

“Like-for-like sales remained positive, the switching data improved year-on-year and although the market was noticeably softer in Q3, our relative position improved and our market share stabilised. Our price competitiveness improved further in the quarter as our Aldi and Lidl price match, More Card offers and everyday low prices combined to give customers increasing confidence in Morrisons’ great value.”

The agreement with Song Capital - which according to its website was set up by Dan MacKinnon and Tom Pritchard - is the largest store-based transaction involving Morrisons since CD&R bought the company. CBRE, the property agent, is understood to have advised Morrisons on the deal with Song Capital.