Retail vs Real Estate - The times they are a changin
All,
Value has been shifting this week. The commercial real estate sector received another setback from a landmark ruling in connection with the restructuring of fitness chain Virgin Active. In the context of its wider restructuring, the company has been able to strike off its rent arrears.
Buy Retail, Sell Real Estate:
The path is now paved for other debtors - in particular, retail and restaurant chains - to rid themselves of rent arrears from the pandemic. In an insolvency, a landlord re-letting a site to a new Tennant won’t be recovering the unpaid rent of the last Tennant. So the plan restructuring does not treat the landlord unfairly if it writes off the unpaid portion. This sounds like a slippery slope, but effective this week, that’s the state of play.
Winners: Retail, QSR chains, Fitness Chains like Matalan, Pizza Express, New Look (shelved)
Losers: UK Commercial Real Estate like INTU
Restructuring landlords with Plan 26a:
This was the first time a Plan 26a restructuring has been used to restructure secured and unsecured creditors - including landlords. To date, landlords have typically been restructured via CVAs, which allow for voting in classes and therefore - given clever class structure - the cram down of certain landlords within those classes. The Plan 26a restructuring (new since last year) allows for cross-class cram down where a class is not worse off relative to insolvency proceedings.
We remain long Matalan and a legacy position in Pizza Express. We are closely looking at Intu SGS, for which we had not given any value to rent arrears in the first place.
Happy to discuss,
Wolfgang
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E: wfelix@sarria.co.uk
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