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£300M Topshop Refinancing Will Test Appetite For UK’s Most Famous High Street

214 Oxford Street

The flagship store of Sir Philip Green’s Topshop empire is at the centre of one of the most fascinating real estate refinancing deals this cycle.

Green’s Arcadia is in talks to refinance a £310M loan secured against the 90K SF store on Oxford Circus, according to the Sunday Times. The loan matured in June and was extended until the end of December, but needs to be refinanced then. 

The refinancing brings together many of the themes that have been swirling around UK real estate in recent years.

Banks have been significantly reducing their exposure to retail real estate, because struggling retailers are going into bankruptcy or looking to cut rents.

The £310M loan secured against 214 Oxford St. was provided by Royal Bank of Scotland, HSBC and Barclays. The building also contains Nike’s flagship London store and a store leased to Vans.

The Sunday Times reports Arcadia has been in talks with private equity firms and hedge funds including Apollo about providing new debt — a very different kind of lender.

That could see the interest Arcadia pays on the debt rise significantly; such firms typically demand much higher interest rates for their debt.

Arcadia pays about £8M a year in interest on its property loans, which would put its interest rate margin at about 2.5%, according to accounts for the company in the Arcadia group that owns the building.

But there is a balance to be struck, because Arcadia itself is one of those struggling retailers. Earlier this year it had to undertake a company voluntary arrangement which saw it close about 25 of its 500 stores and cut rents on others. Hike up the interest on the property loan by too much, and you put more pressure on the company. According to Arcadia’s accounts, in 2018 it made a £138M operating loss, compared to a £124M profit the year before.

The strength of the Arcadia brand, in particular Topshop, is something lenders will take into account when weighing whether to refinance the property. But the asset is undoubtedly valuable, given its location on the central crossroads of the most famous shopping street in Britain.

While negotiations over the terms of Arcadia’s CVA were ongoing, ITV reported that CBRE had valued 214 Oxford St. at around £500M, which would put the loan-to-value ratio of the debt at around 60%.

In spite of the turmoil in the retail sector, institutions like Norges Bank and super rich individuals like Zara founder Amancio Ortega have continued to snap up assets on Oxford Street, which would give lenders confidence that, in spite of Arcadia’s woes, the asset would be extremely valuable.