BL and Intu are most exposed in Arcadia store restructuring

Intu, British Land and Arcadia’s property-owning arm, Redcastle, own the largest proportion of stores within Sir Philip Green’s retail empire, making them the landlords that have the most exposure to a potential store restructuring. Arcadia last week appointed niche retail agency GCW to oversee its property strategy, after big-name agents, including JLL, CBRE and Savills, are understood to have declined the work. A restructuring across Arcadia’s stores – which include Topshop, Topman, Miss Selfridge, Evans, Wallis, Dorothy Perkins, Burton and Outfit – could potentially include a company voluntary arrangement that would allow the business to shut shops and slash rents. Arcadia’s strategy of negotiating rent reductions and allowing stores to close upon lease expiry, to reduce its liabilities, has been well documented in recent years, but a more formal process, such as a CVA, could have significant implications for the retail property industry if it gains approval from Arcadia’s creditors and the Pension Protection Fund. Dual branding Arcadia traded from 571 stand-alone stores in the UK in the year to August 2017. However, figures from Radius Data Exchange show there are now around 540 shops in the UK estate, when factoring in stores with dual branding as individual locations. Redcastle, Arcadia’s property business, is the largest landlord providing premises to these stores, with 36 sites totalling around 209,000 sq ft. It is followed closely by Intu, which owns interests in 35 Arcadia-branded stores across retail parks and shopping centres, including those held in joint ventures. This amounts to around 6.5% of Arcadia’s total estate. British Land owns 24 stores, equating to 4.4% of the retailer’s portfolio. According to BL’s latest trading update, Arcadia represented 1.4% of its total rent roll in the six months to 30 September. Smaller shares Hammerson and M&G each own 18 shops, including joint ventures held with other retail landlords, comprising 3.4% of the estate each. Arcadia accounted for 1.4% (£4.9m) of Hammerson’s total passing rent in the year to 31 December. Landsec has 13 stores, representing less than 1% of the REIT’s group rent, while divisions within the Legal & General Group – namely, L&G Investment Management and L&G Capital Investments – collectively own nine stores. Top five landlords with the most Arcadia stores (%) Redcastle: 6.5% (36) Intu: 6.5% (35) British Land: 4.4% (24) M&G Real Estate: 3.4% (18) Hammerson: 3.4% (18) Arcadia has previously stated that “none of the options being explored involve a significant number of redundancies or store closures”, and that the business will continue “to operate as usual including all payments being made to suppliers”. However, market sources have said they broadly expect formal discussions with landlords on the business’s stores to begin within the next few weeks, with the aim of drawing up proposals by the end of the month. COMMENT: James Child, head of retail and industrial research, EG Arcadia has been quietly ramping up its store closure programme since 2017. Using Radius Data Exchange analytics, we calculate that around 70% of all stores in the Arcadia portfolio will reach lease expiry by the end of 2023. Green’s drafting in of financial advisers points to the strain that the fashion sector is under. It would not be surprising to see significant closures across some of the premium destinations, in an attempt to dramatically (and quickly) cut rents and rates liability. The closure of some of Arcadia’s Westfield London stores last year indicates as much. To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette