Sustainable Rents | Passing Rent | Corporate Risk | Unit Risk

FSP RETAIL BUSINESS CONSULTANTS

Section 6: Sustainable Rents

Passing Rent – Sustainability

FSP RETAIL BUSINESS CONSULTANTS 40

In standard FSP reports, rent sustainability is assessed on two dimensions: Corporate Risk and Unit Risk.

Corporate Risk

Refers to the level of risk associated with the business overall. For example, HMV may have been performing well in High Wycombe, but financial vulnerability across the Company has put the individual store in jeopardy. Corporate Risk is assessed using information from Company Accounts that is in the public domain and is shown in this example report. Corporate risk can be assessed only for retailers that file annual accounts at Companies House.

Unit Risk

This refers to the health of a particular retail unit. For example, Next is financially healthy as an overall business. However, for various reasons, Next might not trade well in every location. Assessing unit risk requires the use of sensitive, and usually confidential, information (e.g. annual rent per unit). In this Demonstration report, the unit risk section is fictitious; it is not indicative of trading in High Wycombe town centre, and is provided only as a visual aid. It will be made clear which charts are examples, and which are based on actual data in the following pages.

This section is for example purposes only and does not reflect the true sustainability of Eden’s retailers.

Passing Rent – Sustainability


The Demonstration chart shows the proportion of rent in Eden deemed Thriving, Viable and Vulnerable As a whole, Eden is Viable, with Sustainable Rent 8% below Passing Rent 39% of rent is Thriving, largely driven by Marks and Spencer 42% of rent is deemed as Viable 19% of rent is deemed Vulnerable, predominantly driven by Gap and Lush

Source: FSP

For an explanation of how FSP calculates Sustainable Rents, please refer to Appendix 5.

Vulnerable19%

Viable42%

Thriving39%

Retailer Sustainability The majority of merchandise categories are deemed Viable. C&F is particularly strong with Sustainable Rent 15% above Passing Leisure Goods and F&B categories are both Vulnerable


Source: FSP

Total Gross Lettable

Selling Space

Space Conversion

Est Sales Density

Est Gross Turnover

Passing Rent

Sustainable Rent

Merchandise Category ft2 ft2 % £/ft2 £k £k £k £k %

Clothing and footwear 311,155 191,178 63 397 76 752 862 110 15

Personal 57,433 42,336 36 593 25 830 686 - 144 - 17

Household 59,711 42,602 40 469 20 140 138 - 2 - 2

Leisure 31,558 20,266 56 518 11 489 340 - 150 - 31

F&B 42,359 25,250 68 313 7,906 256 183 - 73 - 29

Total Unit Shops 502,216 321,632 64 25 8,038 2,467 2,208 - 259 - 10

Grocery 4,446 3,432 77 510 1,749 262 292 30 12

Total Non-Grocery/Grocery 506,662 325,064 64 30 9,787 2,729 2,500 - 229 - 8

Example Summary Schedule

Sustainable over Passing

Financial Risk Matrix The Financial Risk Matrix (overleaf) classifies retailers according to the Department for Business, Innovation and Skills (BIS) Wealth Creation Index (see Appendix 6 for definitions) – Very Worrying, Head Above Water or Healthy. FSP compares this to individual unit risk – Vulnerable, Viable or Thriving within Eden. By definition, the analysis deals with historical accounts data and in a period of high retail instability, like the present time, retailers’ viability can change substantially from one accounting period to the next.

It should be stressed that FSP’s Sustainability model assumes retailers will be seeking to achieve at least their average portfolio Return on Trading Assets (ROTA). Thus, retailers showing as Vulnerable are not necessarily losing money, but may be achieving a below average return.


Financial Risk – Passing Rent Matrix Example


Source: FSP

The chart below is an example, showing what a standard FSP Risk Matrix would look like if the relevant rental information were provided. Note – the Unit Risk shown below is also example only.

Vulnerable Viable Thriving

Cor

pora

te R

isk

Unit Risk

Very Worrying

Head Above Water

Healthy

M&S

21%

15%

3%

19%

17%

6%

8%

6%

5%

Starbucks

PandoraGames Workshop

Monsoon

Office

Boots

ClarksErnest Jones

River IslandWaterstones

New Look

Holland & Barrett

Herbert Brown

Nando's

Subway

CineworldApricot

Superdry

Charles FishH. Samuel

Ann Summers

Cargo

The Fragrance Shop Zara

Claire's

House of Fraser

F.HindsJones Bootmaker

Blue Inc.Linens Direct Clintons Beaverbrooks

H&M L'OccitaneYO! Sushi Thorntons

Mothercare

Gap

Lush

BhsHMV

Muse

Build A Bear Workshop

Two SeasonsBijou Brigitte

Next

Zizzi

Corporate Risk Commentary BIS Very Worrying – 5% of Passing Rent subject to analysis by BIS methodology.

Lush – Medium Risk – £12.6m is owed to group undertakings Gap – Medium Risk – there has been substantial re-organisation of the European operations and there has been an undertaking by Gap Inc. to support the Company for at least another 12 months. £20.1m is owed to subsidiary undertakings Muse – Medium Risk – £1.8bn is owed to group undertakings under long term creditors


Unit Risk Commentary A further 14% from rent is from retailers deemed as Vulnerable by unit risk, but Head Above Water or Healthy by Corporate risk – indicating Vulnerability is specific to Eden. An example of these retailers include:

Cargo – significantly undersized unit compared to the retailer’s FSP audited average, plus a high rent per ft². A larger unit with lower rent per ft² could be more suitable for Cargo Waterstone’s – poor sales, which is an on-going company wide problem, and above average rent per ft² for this retailer Games Workshop – low estimated sales density for the retailer. With an above average store size for Games Workshop, a smaller unit could provide better sales densities


Sustainable Rents Centre Plan


Source: FSP/GOAD

An example of a Sustainable Rent plan of Eden is shown, classified by unit risk – Vulnerable, Viable or Thriving.

Economy & Finance

Sustainable Rents | Passing Rent | Corporate Risk | Unit Risk