Carrefour has capitulated – or at least partially – to the property-related pressure for a change of strategy at Europe’s supermarkets.
The French group, the world’s second largest retailer, said on Thursday that it would list a property vehicle in 2008, inventively dubbed Carrefour Property, that would include about 60 per cent of its valuable freehold portfolio. The 3.7m sq m of hypermarket and supermarket space could be worth between €12bn to €14bn, based on Carrefour’s valuation of its entire holdings at €20bn to €24bn. But only €3bn will be offered to outside investors as part of the float.
In addition, the retailer, which has been under pressure from Bernard Arnault and US group Colony Capital who won board seats after taking a 9.1 per cent stake, said it saw scope for a further €1.5bn in asset disposals during 2007 and 2008, making a total pot of €4.5bn for everyone’s favourite, share buybacks.
Sainsburys has also been under pressure to free up the capital locked in its freeholdings. The idea tends to be popular – Carrefour shares rose about 2.6 per cent on Thursday morning. Sainsbury was also up on news that it was closer to opening its books to suitors touting a plan to securitise its real estate portfolio.
The fear has been that by giving away control of their property portfolio through a sale-and-leaseback, for example, supermarkets would limit their operational flexibilty in what is a price-driven game. Becoming hostage to rising rents across their stores could impair their ability to compete. And the retailers, especially those of Carrefour’s size, can’t rely on a sales bump to smooth the ride. Carrefour’s first half sales rose 5.1 per cent, helped by rapid growth in developing market in Asia and Latin America. Sales in France rose just 1 per cent.
In floating a property backed vehicle, an idea that the French group considered but dismissed some years back, Carrefour can maintain control over its property holdings, while raising a chunk of cash against them.
Rather as Carrefour on Thursday has moved its cautious valuation of €15-20bn earlier this year up towards that of its activist shareholders’ at €30bn, this solution looks like something of a halfway house.