{"text":[[{"start":5.2,"text":"There’s a link between a failed UK car park operator and the country’s big supermarket chains — besides the challenge of squeezing a vehicle into some of their spaces. The retailers and NCP, which entered administration last month, have all sold and leased back swaths of their property. Splitting real estate from a company’s actual operations is one of the older forms of balance-sheet engineering, but NCP’s collapse is a cautionary tale on what can go wrong. "}],[{"start":34.800000000000004,"text":"UK supermarkets worth some £400mn were put up for sale-and-leaseback deals in the first quarter, according to Savills. That’s roughly half the amount completed in all of last year. Asda and Morrisons, ranked third and fifth by sales in the ultra-competitive UK grocery market, are leading the way. Both were taken private in recent years with owners keen to pay down the resulting debt. "}],[{"start":62.650000000000006,"text":"At their best, sale-and-leaseback deals allow a company to raise funds for investment by selling land, while retaining its use through a long-term lease. Why should a retailer manage property when its expertise is selling food? At their worst though, the deals encumber a company with heavy annual rents that limit future financial room for manoeuvre. "}],[{"start":87,"text":"That’s what happened to NCP, which sold and leased back some £600mn of car parks in 2002 to help Cinven cover the £800mn it paid for the UK’s then-leading parking lot operator. Big deals that retained long-term use of the family silver were all the rage in the go-go years before the 2008 financial crisis, supported by seemingly steady cash flows: drivers always grumble, but pay up to avoid parking fines. "}],[{"start":119.84,"text":"But such deals need top-line growth to avoid constraining an operator, not least because long-term leases typically bake in adjustments for inflation. NCP’s revenues since 2002 have fluctuated, but in 2023 — the most recent year with filed accounts — they were virtually identical to when Cinven took over, at £187mn. Yet its minimum future rent bill from inescapable leases rose from £45mn to £1.3bn over that time, helping create a financial straitjacket that two restructurings and multiple owners couldn’t escape."}],[{"start":161.04000000000002,"text":"As it stands, supermarkets still have room for manoeuvre. Morrisons owns about 80 per cent of its stores. Asda, with some 40 per cent leased, is closer to the levels maintained by bigger rivals, which directly own just over half their portfolios. Rating agency S&P dropped Asda’s credit rating one notch further into junk territory in December, citing a slow pick-up in its operations and cautioning that leasebacks risked limiting its future operating flexibility. "}],[{"start":192.73000000000002,"text":"It may be hard to see how supermarkets might go out of shopping fashion given the basic nature of what they sell and the limited sites available. But then, who in 2002 could have foreseen congestion charging, ride-hailing apps and the shift towards working from home that helped undermine NCP? Super long-term deals such as leasebacks are best done with more financial caution than confidence."}],[{"start":228.91000000000003,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1775179098_5469.mp3"}