The idea was raised in an internal paper submitted late last year to the M&S board, says the property magazine, Estates Gazette. It forms part of a comprehensive review of company strategy started last summer after the retailer experienced a sharp downturn in trading. Setting up a separate property company is the most radical of a number of property-based financing options under review as this would allow the company to let or sell properties at market value.
Last week it emerged that the company has considered selling up to 40 high-street stores in order to raise around pounds 250m.
Roger Aldridge, head of estates and a main board director, said: "We are reviewing all our options, but the review won't be complete until July. Until then no decisions will be taken."
M&S is unusual in that its freeholds account for a high proportion of its property portfolio. Many of these are held in the books at historical cost which, in the case of stores bought many years ago, may be almost zero.
Sources said that an in-house property company could be run along similar lines to Chartwell Land, Kingfisher's subsidiary, which charges market rents to in-house "clients". It could mean charging economic rents for the first time . A source said that Mr Aldridge and financial services director Robert Colvill have argued that a shake-up could add shareholder value by generating a better return on the assets.
Last year, Mr Aldridge talked to British Land about property-based financing. The suggestions in the paper coincided with new chief executive Peter Salisbury's restructuring of M&S into UK retail, overseas retail and financial services.
The source said: "The minute the various profit centres have more informed valuations, they might start asking more questions, such as would the property have an alternative use that is more valuable? It might lead to splitting up stores and subletting to create profit rents. You have to balance that against retailers' reluctance to start paying true economic rents. Mr Aldridge and Mr Colvill are focused on shareholder value and return on assets. Are the rest of the board members happy to leave the assets as cosy boxes to sell knickers and chickens from?"
One insider speculated that the moves were, in part, defensive, designed to inflate profits after their dramatic collapse from pounds 452m to pounds 348m at the September 1998 half-year.