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Landlords' move to seek equity in CVA deals 'worrying'

More landlords are likely to seek equity in struggling retailers as part of company voluntary arrangement (CVA) negotiations, which could promote a more collaborative relationship between the two parties, property experts have said.

Four Monsoon Accessorize landlords wrote to the retailer’s owner, Peter Simon, last week requesting a stake in the company if they agreed to rent cuts.

The women’s, children’s and home chain appointed consultancy firm Deloitte in mid-April to look at options to reduce its costs. It is expected to launch a CVA imminently, although a date has not been confirmed.

The four landlords – British Land, Hammerson, M&G Investments and Roubaix Group – are collectively represented by independent advisory firm PJT Partners, and it is understood they own 10% of Monsoon Accessorize’s 268 properties.

There were similar terms within Arcadia Group’s CVA proposals: it offered to provide all affected landlords with an entitlement to a pro-rata share of 20% of any equity value in the group upon a future sale. The proposals are due to be put to a vote on Wednesday.

A source close to the Monsoon situation told Drapers the landlords thought an equity stake would reflect the “investment” they are making in the retailer through rent concessions and store closures. It would also ensure they share in any upturn in the retailer’s performance following a successful CVA.

The source said: “It demonstrates that landlords are committed to working with a brand for the long-term, as they literally have a stake in its future.”

Property experts agreed that it was an understandable attempt to claw back something positive from a difficult situation.

“It’s symptomatic of landlords trying to get something out of an otherwise pretty grim deal,” said one property adviser. “They don’t have a heap of choice but they want to see some kind of upside.

“The ideal scenario would be that on the other side of the CVA, rents return to their original value, but retailers are never going to commit to that, so landlords are attempting to secure some kind of payback.”

Another property source said: “Tenants are asking landlords to take a view on their business and to help, but it’s all one-way traffic. The only help they’re giving is cutting rents. It’s affecting landlords whose business model is to get as much rent as possible.

“The only way that dynamic is going to change is the kind of partnership where you both take a risk and both see an upside. The landlord owning some part of the business does help, because if the business does well, so do they.”

Another agreed: ”I think they’re having to consider these deals otherwise landlords will say, ’no more, we’re not going to vote for this’. The only way we’re going to get CVAs through now is on that basis. [Landlords are] fed up with the whole scenario.”

However, one source doubted that this would become common practice: “Landlords are not in the business in investing in retailers and if they wanted to, they would want to pick the retailers that are, perhaps, a better bet.”

Sources close to the situation told Drapers Monsoon is likely to refuse the equity request. Instead, Simon has reportedly offered to inject £34m into the struggling business if landlords agree to the rent cuts.

Monsoon declined to comment on the CVA negotiations.


Readers' comments (1)

  • Landlords have been paying the price for too long for incompetently run businesses. Who can blame them for trying to grab what they can?

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