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The Landlords Most Exposed To Thomas Cook’s Collapse

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On Monday, it was officially announced that after 178 years in business, travel agency and holiday tour operator Thomas Cook has collapsed into insolvency, dragged down by debts of £1.7B.

The failure has left tens of thousands of travellers unsure of how to get back from holiday, and almost 20,000 staff facing the prospect of losing their jobs. It will also leave property owners facing big losses.

The holiday business has moved online, and it seems hugely anachronistic to think of a tour operator having a high-street presence. But at the time of its collapse, Thomas Cook still had a portfolio of 593 stores. The onerous leases on stores that were no longer profitable were part of the reason for its collapse. All of the stores have been closed immediately.

The Landlords Most Exposed To Thomas Cook’s Collapse
A Thomas Cook store

Using data from PropTech firm Datscha, Bisnow analysed a sample of 186 of these stores, owned freehold by investors and leased by Thomas Cook. The data highlighted how big listed property companies, the Church of England and local councils are among the owners most exposed to the company’s collapse.

Of the stores owned freehold, British Land had the largest number leased to Thomas Cook, with four of its units occupied by the company. They are in the Meadowhall shopping centre in Sheffield, the Serpentine Green shopping centre in Peterborough, the Surrey Quays shopping centre in south east London and the Broughton Shopping Park in Chester.

Among the other large REITs, Intu has three units leased to Thomas Cook, in its Lakeside, Merry Hill and Trafford Centre malls. Landsec has two units leased to the company, and Hammerson one. Smaller retail REIT NewRiver also has the company in two of its freehold units.

Among the UK’s big pension funds, the Church Commissioners are the most exposed, with three units leased to Thomas Cook.

The insolvency will also hit those local authorities that have bought properties in their town centres to try and regenerate them: 12 local councils from Farnham to Tyneside own freeholds leased to Thomas Cook, Datscha data showed.

Thomas Cook’s annual report from 2018 highlighted the scale of the financial loss that landlords face, and not just retail landlords: Thomas Cook also leases hotel properties across the globe. Its accounts show it was due to pay £369M in rent on properties it leases over the next 10 years, with £66M due in 2019.

The company had been trying to hack back its store network to reduce costs and increase profitability for some time. In 2018 alone it closed 100 stores, at a cost of £40M. But it was not fast enough, and high debt costs coupled with reduced profitability meant the company was unable to continue trading.

One company with links to real estate that will take a particular loss from Thomas Cook is Chinese investor Fosun. In 2015 it paid £91M for a 5% stake in Thomas Cook, as part of a big drive into the European hospitality sector which saw it pay €939M for French holiday company Club Med the same year.

Fosun owns European property fund manager Resolution Property and has direct assets in Europe and the U.S.

Earlier this month Fosun offered to pay £450M for a 75% stake in Thomas Cook in a rescue deal, part of a wider £900M funding package that would have allowed it to continue trading. But last week the company’s banks, including Royal Bank of Scotland, said they wanted another £200M of new financing to be put in place before they would agree to convert its debt into equity.

Thomas Cook appealed to the UK government to step in and provide the £200M funding, but the request was refused. Thomas Cook was in fact nationalised in 1948 in the wake of the Second World War. It remained publicly owned, as part of British Rail, until 1972.

Given that Thomas Cook owns stakes in hotels around the world, plus funds that buy hotels, it is expected that numerous tourist assets could be put up for sale as a result of the insolvency.