Is The Best-Located Shop In Britain Worth £500M?
The flagship store of Topshop on the Oxford Circus crossroads is one of the most famous and best located shops in Britain. So how much is it worth in the current market?
In the wake of the retailer’s collapse at the end of last year, that is the question being pondered by one of the world’s biggest investment managers and staff of Topshop’s parent company who have savings in the company’s pension scheme.
A new report from administrators gives an insight into the financials behind the 165K SF block at 214 Oxford Street, and what the plans are for it in the coming months.
UK retail giant Arcadia went into administration in December, and partners at Deloitte were appointed to oversee the company as the impact of COVID-19 further exacerbated trading that had been weak for some years. The company owned brands including Topshop, Dorothy Perkins and Miss Selfridge, and operated from more than 500 stores across the UK.
The most famous of those is at the junction of Oxford Street and Regent Street, an area which in a typical year sees average footfall of more than 190 million visitors and retail spend of £7.6B, according to the New West End Company.
The building is owned by Arcadia, previously run by retail entrepreneur Philip Green, and in 2019 a £300M loan from Royal Bank of Scotland secured against the asset was coming due for repayment. Unable to refinance the loan with the existing lender, Arcadia secured a £310M debt facility from private equity firm Apollo Global Management.
Arcadia’s pension scheme had a deficit at the time, so a charge of £185M was put against the building in favour of staff who had a pension with the company, meaning that if the asset was sold, they would be repaid before the company saw any of the money.
When Arcadia went into administration, Apollo appointed its own administrators from KPMG over the company that owns 214 Oxford Street so that it could take control of the asset rather than have it become tangled up in the wider administration of Arcadia Group.
For both Apollo and the Arcadia pensioners to get repaid in full, a sale at about £500M is needed. It will be a test of the value of one of the best retail pitches in the UK at a time of huge uncertainty for the sector.
The building was valued by CBRE at around £500M in 2019. KPMG did not put a value on the asset, but it hinted that reaching such a level was not completely out of the question.
“Based on current estimates, unsecured creditors may receive a dividend,” it said in its administrators’ report filed on 27 January.
Apollo is owed £311M, and is the most senior creditor, meaning it gets repaid first. The Arcadia pension scheme is owed £185M, and it gets repaid from anything remaining after Apollo gets its money back. Overall, secured creditors are thus owed £496M.
It said the timing of any sale, and how much the building is likely to fetch, is dependent on what happens following the sale by administrators of the main tenant, the wider Arcadia retail group and Topshop in particular.
On Monday 1 November, online retailer ASOS confirmed that it had bought the Topshop, Topman and Miss Selfridge brands from administrators at Deloitte, but would not be taking on the stores they trade from.
On a conference call following the acquisition, ASOS Chief Executive Nick Beighton said that the company would look at the possibility of retaining the Oxford Street flagship, but said it was "not a key priority".
"It is something we are considering but we are not a stores business," he said.
"Our priority is to double down on the brands, which we've seen perform incredibly well across our platform."
That raises the prospect of the administrators needing to find a new tenant for the 90K SF store in one of the toughest retail leasing markets in modern history.
Arcadia pays about £8M of rent a year at the store, accounts for the company now managed by KPMG show; that deal was struck well before the current malaise hitting the high street. Any new tenant would likely pay significantly less, in spite of the prime location.
The total rent paid to it by the three tenants was £23M in 2018, the last year for which the company filed accounts.
UPDATED: FEB. 1 12:45 P.M. UK: This story has been updated to reflect the completion of the sale of Topshop to ASOS and Nick Beighton's comments on the Oxford Street store.