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David Jones Limited (ASX:DJS) has been tipped as a leveraged takeover candidate because of its exposure to Australian property.

The company’s property is understood to be valued conservatively and worth more than its book value.    

Analysts have speculated the department store retailer’s earnings downgrade has created a situation where its shareholders could realise value by selling to private equity buyers.

A leveraged buyout (LBO) allows acquisitions to be funded mainly through debt by enabling the buyer to invest in a portion of equity relative to the total purchase price and then use leverage to fund the rest of the consideration.

DJs forecast in March its full year profit will drop by as much as 40 per cent in fiscal 2012.

David Jones first half net profit dropped almost 20 per cent to $85 million.