New Look proposes turnover rents at 402 stores in second CVA

New Look has launched a proposal today for a company voluntary arrangement that seeks to “reset” 402 UK stores to a turnover rent model, and retain 68 stores under nil rent. The troubled clothing retailer, which underwent a CVA in 2018, said that the proposal comes after turnover rent negotiations with landlords began in May. The retailer is seeking approval to set 402 leases at a turnover percentage of up to 12%. Minimum rents for the rebased stores in the second year will be equivalent to 85% of rent paid in the first year, while minimum rents in the third year will be equivalent to 85% of rent paid in the second year. The retailer said this will provide “greater certainty and forward visibility of minimum rental level”. At the conclusion of the CVA, the rebased store rents will reset to the higher of CVA turnover rent or market rent. The proposal also includes “enhanced landlord breaks for all stores”, providing landlords with the flexibility to exit the lease if they can identify an alternative tenant on improved terms. The company will in turn have no additional rights to exit the rebased stores until the end of the CVA (after three years), and even then will only be able to exit in the event that the store is underperforming. The proposal has also been structured to ensure there are no proposed changes to service charges for the rebased stores, and includes the full settlement of service charge arrears across all store categories. New Look’s advisers at Deloitte said the retailer has engaged with the British Property Federation on the plans, and that no stores will close on day one. Creditors will vote on the CVA on 15 September. The news comes after New Look launched a debt-for-equity swap on 13 August, with the aim of reducing group debt by £440m and raising £40m of new money. The retailer said this will elevate unsecured creditor claims, including from landlords, to a “more senior position” in the group structure. Nigel Oddy, chief executive of New Look, said: “We are launching this CVA out of absolute necessity and are calling on our landlords to agree a turnover rent model for our stores which will put us into a position to be able to complete a financial restructuring agreed with our creditors that will secure the future of New Look and our employees. “The proposal to landlords is to rebase our rental cost base through a turnover-based model that aligns future performance and reflects the wider retail market.” He added that the retailer, which staffs 11,200 people, still “fundamentally” believed the physical store “has a significant part to play in the overall retail market and its omnichannel strategy”. “We remain committed to the high street and serving our customers through our portfolio of local, conveniently-located stores in towns across the UK,” said Oddy. “However, the magnitude and speed of the shift in consumer behaviour and confidence nationwide requires a change in the way leases are structured in order to manage uncertainty so that stakeholders share both risk and upside, and to ensure continued business viability.” Oddy emphasised that the proposal will “relieve the financial pressure on New Look as we navigate the post-Covid landscape, while also providing our landlords with greater flexibility over their rental arrangements and ensuring closer alignment of interests with regards to sales recovery”. To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette Photo by Maureen McLean/Shutterstock