Landlords’ new CVA shock

Restructuring firm Hilco has called in insolvency practitioners to instigate a company voluntary arrangement for 74 former Somerfield supermarkets just six months after taking them on from Co-operative Group. The appointment of Alix Partners, which is working with Savills, to The Food Retailer Operations Limited, puts the future of around 1.4m sq ft of space in jeopardy. The process, known as Project Houston, follows the closure of BHS’s 164-store portfolio last year and comes despite a series of positive Christmas trading results from grocers. A vote on whether it will proceed will be taken on 27 January. One landlord said: “This is yet another example of agreements made in good faith with landlords being torn up, facilitated by a CVA process.” The stores typically range from 15,000 sq ft to 25,000 sq ft and it is expected that landlords will consider splitting the large units and court discount retailers to occupy the space. The portfolio is split relatively evenly geographically but many are understood to face strong nearby competition. Last summer the stores were deemed non-core by Co-op and transferred to Hilco, with 36 subsequently converted to Budgens. There are 22 stores sublet to other retailers.  The Food Retailer Operations Limited’s largest creditor is The Food Retailer Services Limited, owed £22.2m, the chief investment officer of which is Hilco chief executive Henry Foster. A spokesman for The Food Retailer Operations Limited said: “Due to disappointing trading results, the board of The Food Retailer Operations Limited has launched a company voluntary arrangement.  “The principal objective of the proposal is to rationalise the company’s leasehold obligations, restore the viability of the company’s business, improve the balance sheet and return to profitability. “Subject to consultation with staff and landlord negotiations, it is anticipated that up to 12 stores could close in due course. “All remaining stores will continue to trade as normal and, where possible, staff will be redeployed in order to limit redundancies.” Store categories Category 1 –  23 stores Landlords receive 55% of rent for two years. Company reserves right to end lease with 42 days notice Category 2 – 12 stores Two-month lease put in place terminable within seven days Category 3 – 6 stores Company will exit leases immediately  Category 4 – 32 stores Currently sublet, some of which at a loss. Rent that reflects loss will not be paid Category 5 – 1 store Lease surrender agreed  • To send feedback, e-mail amber.rolt@estatesgazette.com or tweet @amberrolt or @estatesgazette