Successful rescue arrangements look set to boost performances of UK landlords
Company voluntary agreements have kept some retailers afloat while others have consolidated, making life easier for property owners
UK property owners are finding some respite despite uncertainty around Brexit and the restructuring of the region’s retail environment.
JSE-listed companies such as Intu Properties, Hammerson, Capital & Regional and RDI, which own shopping centres in British cities, have managed to renegotiate leases at higher rentals and in some cases use special agreements known as company voluntary agreements, which have helped to save some of their tenants from closing stores and retrenching staff.
Company voluntary agreements are signed between landlords and tenants to avoid companies being liquidated. Landlords are offered more than if the tenant were to enter a terminal insolvency process. Often in terms of these agreements a tenant would pay rent for certain stores and the landlord would receive at least some rent, which was better than not receiving any money at all.
There has also been consolidation among some UK retailers and those companies that have left the market and have quickly been replaced.
Some fund managers believe that these landlords’ strategies have begun to pay off in 2019, which could lead to a recovery in these UK-invested stocks whose share prices have been under sustained pressure since the UK voted in favour of leaving the EU in May 2016.
“We have been through an intense period of company voluntary agreements and liquidations but it looks like this is beginning to settle now. Renegotiations are also helping,” Nesi Chetty, head of listed property at Momentum said.
Intu Properties has had a company voluntary agreement in place with department store group House of Fraser. Sports Direct bought House of Fraser in August last year for £90m and then negotiated with Intu, using the company voluntary agreement as an option.
Intu’s share price climbed 4.42% to R20.10 on Monday, after Sports Direct said it would not to shut four House of Fraser stores at malls owned by Intu as originally planned. This meant 1,000 jobs would be saved.
And even though some company voluntary agreements have not always been successful, UK Reits are finding ways of guaranteeing rental growth.
An example is RDI, which owns assets in the UK and Germany and which announced on Monday that it had signed three new leases at two of its retail parks, with average rental growth of 40% across them.
CEO Mike Watters said that the three leases were previously let to retailers that were subject to company voluntary agreements or under administration.
But he said each lease was agreed well in advance of the previous tenants vacating and at rents ahead of the pre-company voluntary agreement gross annualised rent.
Keillen Ndlovu, head of listed property funds at Stanlib said retail property owners in the UK had been through “much of the worst” using various tools to manage their challenges.
While there would be pain for the next five months, the “second half of 2019 should see a marked improvement in their performances as their strategies paid off”, said Ndlovu.
Sometimes retailers had to shut down but they were replaced quickly and staff were retained.
“The retail market is restructuring in the UK, which landlords are well aware of. Some retailers are no longer relevant or competitive be it because of online retail or customer trends and are shutting down but they are being replaced,” he said.
Garreth Elston, a portfolio manager at Reitway Global said even though UK Reits were being pragmatic they were still operating in an uncertain environment because of the lack of clarity around the Brexit process.