There are three initials that are putting more fear into the property industry than the leaked guest list to The Presidents Club dinner. Every retailer and restaurant straining to stay afloat is starting to fall back on the restorative powers of a CVA, or company voluntary arrangement — a legal scheme that allows a business to reschedule its debts.
Toys R Us did one, as did the Byron burger chain and then last week Jamie’s Italian. Next on the list is the ailing fashion chain New Look, it seems. While the banks end up taking some pain with these deals, it is my understanding that the big losers are typically the landlords.
It’s thanks to the CVA mechanism, which requires agreement from 75% of creditors, that these high street laggards have been able to shut down sites and trim their rent bills.
Presumably the landlords agree to these restructurings, as they would stand to lose more if the company falls into administration. Nonetheless, it seems that the slow-motion crash of these over-expanded casual dining chains in particular will leave its mark on property owners.
Bricks and mortar? It’s safe as houses — or so I was assured repeatedly by the former HBOS star banker Peter Cummings in the run-up to the credit crunch. It didn’t turn out to be the case then, and alarms bells are ringing once again.
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On the residential side, the slowdown in the London market is abundantly clear based on any data point you care to choose. Foxtons, the most aggressive of the capital’s big estate agents, unveiled a 42% drop in profits last week — blaming not just the drought of transactions, but also falling rents in their lettings business.
Countrywide, Britain’s largest agency, parted company with its chief executive, Alison Platt, after she issued a second profit warning in three months.
In commercial property, pain will have to be felt somewhere as the crisis in the restaurant trade gathers pace. Think about that recently boarded-up Byron burger site near your home. Who is likely to occupy that space in the current, tough trading environment? Who will occupy the Toys R Us complex in your local out-of-town retail park? Someone will be left picking up the bill.
For the past decade, the property sector has been living high on the hog — propped up by the Bank of England’s quantitative-easing programme that has sent cash flowing into hard assets.
That is just one of the reasons why it was little surprise to see that prominent figures in the property industry figured so highly among the attendees at the odious men-only black-tie event that was exposed last week. Yet it feels as if a change is coming — and not just in terms of attitudes to women.
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Cineworld’s blockbuster gamble
Box office receipts might be booming, thanks to the strong run of films currently showing in the lead-up to the Oscars. Yet that has not helped Cineworld of late, whose investors have taken fright at its planned swoop for American rival Regal Entertainment.
Since news of the talks leaked on November 28, the stock has dropped by about one third — not least thanks to the £1.7bn rights issue needed to finance the deal.
Investors get the chance to vote on the deal on Friday. Will those who have expressed doubts follow through with threats to block it?
Investor frustration is understandable. Cinema chains have all been trying to sell the idea that their revenues are becoming more predictable, with more and more ticket sales dependent on reliable big-budget film franchises, such as Star Wars, whose releases are being planned years in advance. Some of the doubters have made it clear that it was solid reliability they thought they were buying.
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However, Regal is a huge brand in the US. The deal would transform the business into the world’s second-biggest cinema chain behind Chinese-owned AMC. Not bad going for a chain set up with one picture house in Stevenage, Hertfordshire, in 1996.
Leveraging the business to four times earnings might seem toppy, but the Greidinger brothers, who took over the business in 2014 following the merger with their Cinema City chain, have explained how they hope to get the debt down again. And they are putting their money where their mouth is, following on their rights to the tune of about £400m — which the company reckons is the biggest private investment ever by a British management team.
Recent deals in the media sector suggest that bigger is better in the current environment where Netflix and Amazon are starting to dominate.
Would I invest in a cinema chain right now? Based on my own viewing behaviour, definitely not. Yet Moshe and Israel Greidinger are the third generation of their family to get behind a projector since their grandfather opened his first venue in Haifa in 1931.
They have taken big gambles in the past and won, particularly through an ambitious expansion in eastern Europe in the 1990s. Standing still is rarely the best option when the world is shifting under your feet.
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