Asda and Morrisons gamble on risky leaseback deals to ease debt burdens
Two of Britain's biggest supermarket chains, Asda and Morrisons, have increasingly turned to sale-and-leaseback deals to raise cash. This strategy comes as both face financial strain under private equity ownership. Meanwhile, the risks of such long-term agreements were highlighted by the collapse of car park operator NCP in early 2023.
Asda and Morrisons were taken private in 2021 by different investment groups. Asda's new owners, TDR Capital and the Issa brothers, replaced Walmart, which had held a majority stake until 2020. Morrisons, on the other hand, was acquired by Clayton, Dubilier & Rice (CD&R). By 2026, both chains remain under private equity control, unlike rivals Tesco and Sainsbury's, which stayed publicly listed with stable institutional backing.
The financial pressures on these supermarkets have pushed them toward property deals. In the first three months of 2023 alone, UK supermarkets sold and leased back £400 million worth of property. Asda, which owns only 40% of its stores and leases the rest, saw its credit rating downgraded by S&P in December 2022. The agency cited slow operational recovery and concerns over leaseback risks. Morrisons, owning about 80% of its stores, has also leaned on similar arrangements. The dangers of long-term leasebacks became clear when NCP, a major car park operator, entered administration in January 2023. The company had sold and leased back £600 million of assets in 2002 to help fund its acquisition by private equity firm Cinven. Despite this deal, NCP's revenues in 2023 matched those of 2002—£187 million—while its unavoidable rent obligations soared from £45 million to £1.3 billion over the same period. Factors like congestion charges, ride-hailing apps, and the shift to remote work further weakened its business.
The struggles of NCP serve as a warning for companies considering super long-term leasebacks. Asda and Morrisons continue to rely on such deals to manage debt and free up capital. Yet, with market pressures and fixed lease costs, the financial sustainability of this approach remains uncertain.
