Stores’ shareholders ‘denied value of property holdings’

According to The Sunday Times, a number of Wall Street investors want Tesco, Sainsbury’s and Morrisons to shake-up their store estates.

The newspaper reports that the investors are expected to demand that property holdings be spun off into separate companies and then floated, with the supermarkets selling minority stakes. The hedge funds reportedly claim that shareholders are being denied the real value of the property holdings.

Mike Dennis, an analyst at Cantor Fitzgerald, told The Sunday Times that Morrisons was “vulnerable to a break-up by outside interests” that could see it return to its roots as “a small regional supermarket group”.

Yesterday, Mr Dennis told the Yorkshire Post that activists first wanted the company to explore the possibility of establishing a separate property company, 75 per cent owned by Morrisons, like Loblaw, the food retailer in Canada.

He added: “There could be an opportunity to break Morrisons up, but (this) would be tested by the Competition Commission.”

In September last year, Morrisons cheered shareholders with the news that it planned to sell off part of its £9bn property portfolio and return proceeds to investors.

The Bradford-based company said over 90 per cent of its estate is freehold, a considerably greater proportion than its main rivals.

Speaking in September, chief executive Dalton Philips said the group has begun a review to decide how much of the property to offload to realise value for shareholders, At the time, finance director Trevor Strain said it was too early to say what percentage of the estate could be offloaded, but he said the business would still be overwhelmingly freehold.

Asked what he planned to do with the proceeds, Mr Philips said in September: “We will invest in the core estate to ensure the estate is in a very strong position. We know how important the dividend is to shareholders. Yes, we could return money to shareholders. It’s a significant opportunity to generate significant amounts of cash flow.”

In late 2013, the group also announced proposals to reduce its plans for large store openings, which slashed capital expenditure and freed up cash for its fast growing convenience store business and the launch of its online offering, which took place this month.

Morrisons and Tesco emerged as festive retail losers following a sharp decline in sales after what they described as a “very challenging” Christmas for the supermarket sector.

Morrisons reported a worse than expected 5.6 per cent decline in like-for-like sales and warned that profits will fall short of City expectations.

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