Retail landlords swallow bitter pill to prop up Arcadia
Faced with the choice of accepting rent cuts or finding new retailers to fill hundreds of stores, UK, retail landlords are swallowing their medicine.
Some of Britain's biggest commercial landlords, including Hammerson and British Land, voted in favour of a rescue plan for billionaire Philip Green's Arcadia Group.
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It means having to accept dozens of store closures and rent cuts of at least 25pc at almost 200 sites.
Arcadia includes well-known fashion chains Topshop, Topman, Burton Menswear, Dorothy Perkins, Evans, Miss Selfridge and Wallis.
Approval for the so-called Company Voluntary Arrangement (CVA) was grudging and highlights how much pressure landlords are under from the pain inflicted on retailers by consumers choosing to shop online rather than in department stores.
Commercial landlords Land Securities, Standard Life Aberdeen and the Crown Estate had intended to vote against Arcadia's proposals and switched at the 11th hour, according to people familiar with their plans who asked not to be named.
One landlord, Intu Properties, voted against, calling the deal unfair to tenants that pay full rent.
Intu owns eight of the top 20 shopping centres in the UK. "It really is like being stuck between a rock and a hard place," said Daniel Swimer, property litigation partner at law firm Joelson.
"Landlords could have rent reductions forced upon them or, if the CVA doesn't get passed, they're left with a large retailer failing in the current retail climate."
The fact the deal was approved is likely to put further pressure on shopping centre rents and values, and raises the possibility that commercial property owners could be tipped into a crisis similar to that faced by the retailers who make up some of their biggest tenants.
The cost of insuring Land Securities' debt against default saw the biggest daily rise since December on the day after the Arcadia vote, according to ICE Data Services.
Moody's Investors Service warned of possible damage to the creditworthiness of retail property owners that already face "weak operating performance, with declining footfall and retail sales, and downward pressure on rents."
The landlords came under pressure from Arcadia to back the deal or put about 18,000 jobs at risk if the company was forced into administration, people with knowledge of the negotiations said.
Several were told they would be shirking their social responsibilities and be blamed for job losses, an accusation they resented, some of the people said, asking not to be identified as the talks were private.
Representatives for Arcadia declined to comment.
Ultimately the decision to back the CVA came down to the best commercial interests of the landlords, given that they could be left with empty sites if Arcadia fell into administration, two of the people said.
Spokesmen for Land Securities, the Crown Estate and Standard Life Aberdeen confirmed they had backed the plans but declined to comment on the detail of the negotiations.
Representatives of Hammerson and British Land declined to comment.
While many companies have preceded Arcadia's CVA, few have been so large and many secured less generous rent cuts. The risk is that following Arcadia, other retailers now demand the same, even those that have previously undertaken rent cuts.