Monday 08/10/18

1. In UK REAL ESTATE NEWS, we look at contrasting fortunes in the office, retail and residential markets
2. In RETAILER NEWS, US retailers scramble to fill the hole left by Toys R Us and FCUK is up for sale
3. In INDIVIDUAL COMPANY NEWS, Ford wields the axe, Apple has talks with BT and Jollibee takes on KFC
4. In OTHER NEWS, I bring you some amazing raffles and Thomas Cook’s rebranding fail

So the UK real estate market is a bit of a mixed bag at the moment…

London’s office boom bearing up in face of Brexit (Daily Telegraph, Jack Torrance) does a good job of giving a quick overview of what happened in London’s property market in the immediate aftermath of the referendum and what the current situation is. Initially, nothing happened but then “by Christmas everybody had realised whatever is going to happen is going to take many years to unravel and our business can’t sit still”, according to Will Colthorpe, a partner at property developer Argent. Big employers continued to rent properties and over 5m sq ft of central London office space has been let in the first half of this year – the highest level since 2015 and 13% above the long-term average! Google, for instance, currently occupies an 11-storey building in between King’s Cross and St Pancras stations and last year signed to take over an even bigger building across the road. Facebook will be moving into the area in 2021 at an even larger site and Apple signed an agreement to lease six floors in the redeveloped Battersea Power Station. There has been continued interest from other major international companies such as advertising major Dentsu Aegis and Sony Pictures as well as a mushrooming in demand from the likes of flexible office space providers WeWork – but supply hasn’t been able to keep up. Interestingly, this has led to increased levels of pre-letting, where tenants sign leasing agreements sometimes years in advance of actually moving in. Almost 3m sq ft of pre-lets have been signed this year according to Savills’ research – the highest level since 2013. * SO WHAT? * A lot of this runs contrary to what you would have expected given all the uncertainty engendered by all the Brexit chat, and although Tim Roberts of British Land is probably biased in his projections, he does suggest an interesting theory that “disorderly Brexit could be an opportunity. There does appear to be quite a lot of money lining up that if they can get another 20pc on the currency they will pile in to London to capitalise on that”.

On the other hand, Landlords struggle to offload billions in UK retail property (Financial Times, Judith Evans) looks at the rather more downbeat assessment of what’s going on in our shopping and retail parks at the moment. One unnamed retail estate agent remarked that “Everything is for sale. Nobody wants to own this stuff. The bid-offer

spread between holders’ expectations and the prices that buyers are willing to pay is just a chasm” and a stream of high-profile retail sector collapses has exacerbated the situation. Retailers such as House of Fraser, Maplin, Poundworld and Toys R Us have all been hit by a combination of consumers buying more online and increased overheads (higher minimum wage and higher taxes) while the landlords themselves are getting pummelled by markets. For instance, Hammerson – which specialises in shopping centres – is currently trading at a discount of 40% versus its assets and there are even rumours of rival Intu going private  – but this only looks likely to go ahead at a sizeable discount to net asset value. Others are looking to offload their retail assets, putting further pressure on prices. * SO WHAT? * It is a buyers’ market at the moment as it seems that companies can’t cut their retail portfolios fast enough. Although local councils appear to be buying shopping centres, you do wonder whether they are just throwing taxpayers’ cash into a money pit given the way that the retail landscape is changing. You could argue that having the council as a landlord is probably quite good from a lessee point of view (perhaps they will be more understanding?) but a dying market is a dying market and if everyone is heading for the exit, you have to be a very brave (and deep-pocketed) contrarian to go against the tide. IMHO, these big buildings need to be re-purposed to provide attractive experiences for your average punter – whether that is retail or otherwise. If they don’t do that, these places will just continue to die a slow death.

Then, looking at another area of the property market, Councils paying price as one in three tenants in rent arrears (Daily Telegraph, Helen Chandler-Wilde) shows that one in three council houses was in rent arrears last year. Universal Credit, a subsidy payment that includes all allowances in one payment, is thought to be a major factor because money is paid directly to the tenant, who then has to pay the landlord. Previously, rent was paid directly to the landlord, but senior policy analyst at the Resolution Foundation observed that the “Citizens Advice Bureau and the like have said that people will naturally dip into that money if it’s in their pocket. The temptation is understandable when they’re on very low incomes.” * SO WHAT? * This just adds to the pressure that councils are currently under. It is also something that private landlords who rent to people on benefits will need to keep in mind as this will add to their own uncertainty as well.

US retailers ready themselves for a Christmas without Toys R Us and FCUK effectively goes up for sale…

Retailers rush to fill holiday hole left by Toys ‘R’ Us (Wall Street Journal, Paul Ziobro and Bryan Anselm) we see that, in the aftermath of Toys R Us’ (“TRU”) demise US retailers such as Walmart and Target are allocating more floor space to toys in a bid to chase the dollars that previously went to the now-defunct toy retailer. Even Amazon is rumoured to be looking at handing out toy catalogues to shoppers at its Whole Foods stores! Kohl’s is selling Lego sets and JC Penney is going to distribute a toy catalogue. TRU had the ability to stock up late in the season because it could afford to carry new inventory into the next year, unlike everyone else who faced more pressure to sell so they weren’t wearing extra stock. This meant that they could sell more (at higher prices) than anyone else because they could afford to hold back until the final week of the holiday season when everyone else was running out. TRU’s absence could mean that punters doing last minute shopping are therefore going to be more likely to come up empty handed when the time comes. * SO WHAT? * It’ll be interesting to see how these new tactics play out without the presence of TRU at retailers who aren’t really all that used to selling toys. Personally 

speaking, I don’t think that this sounds good for the embattled toy manufacturers who need their distributors now more than ever to sell their toys in the best way possible. No doubt sales will continue to migrate online.

French Connection hoists for sale sign (The Times, Deirdre Hipwell) heralds a sad day for the apparel retailer as a notice that will be issued to the London Stock Exchange today says that “The board confirms it is currently reviewing all strategic options in order to deliver maximum value for its shareholders, which includes the potential sale of the company”. Numis, the company’s corporate broker, has been tasked with approaching potential buyers who might be interested in buying founder Stephen Marks’ 42% stake in the company that will probably lead to a bid for the whole company. French Connection floated in 1984, reached a peak of 484.5p in March 2004 and is now worth 43p a share. * SO WHAT? * Wow – how time flies! FCUK popularity went through the roof with its famous campaign emphasising the similarity of its logo to a naughty word and I recall the days when it was whupping Next’s ass in clothing sales. Now the company has a “tiny” market cap (compared to what it used to have) of £41m. This is a chain in SERIOUS need of a revamp – and who knows, maybe Sports Direct’s Mike Ashley will ride to the rescue as, funnily enough, he (via his company) owns a 27% stake as part of “Mike Ashley’s Bag of Retail Cr@p”. I call it that because he seems to like owning retailer no-hopers. Good luck to whoever buys this.

In individual company news, Ford cuts jobs, Apple talks distribution with BT and Jollibee takes on the mighty KFC…

There’s bad news for workers in Ford to cut jobs as it reorganises salaried workforce (Wall Street Journal, Mike Colias) as the company announced job losses as part of a broader plans to cut costs in an effort to revive its flagging fortunes. There are no further details as yet re the numbers of job losses but a spokeswoman said that this latest move reflected chief exec Jim Hackett’s desire “to have an organisation that is moving faster, and part of that comes from having a flatter management structure”. * SO WHAT? * Hackett is under a lot of pressure to reveal more details of how he will revitalise the company’s fortunes (and share price) as rivals have continued to perform better. Announcing job cuts is a quick fix IMHO, but it has to be part of something bigger and more wide ranging otherwise he’ll be following the people he sacks out of the door himself.

Apple and BT in talks over new pay-TV partnership (Daily Telegraph, Christopher Williams) highlights talks between the two companies over a combined push into pay-TV as they appear to be in early discussions to make

BT’s mobile brand EE a major distributor of Apple TV set-top boxes. BT would offer the boxes to EE broadband customers pre-loaded with BT Sport and other content. Apple has a similar distribution deal in Switzerland with pay-TV provider Salt. * SO WHAT? * Sounds like a nice idea. It is at the early stages though, so it’ll be interesting to see how this develops. If it does go ahead, I wonder whether this will result in other similar deals as the pay-TV customer base continues to fragment.

Philippines’ Jollibee Foods plans expansion to rival KFC (Financial Times, John Reed and Grace Ramos) heralds some punchy chat from the Philippine fast-food company with a $5bn market cap (which could possibly put it into the FTSE100 if it was quoted on the LSE) as it announced ambitions to become a “global” brand. The company wants to open 25 outlets in the UK over the next five years and plans to expand further in the US and China as it adds to its majority interest in US chain Smashburger, Vietnam’s Highlands Coffee, Pho 24, Dunkin’ Donuts in some parts of China and the Burger King franchise in the Philippines. The company is popular in the Philippines for its Chickenjoy fried chicken, sweet spaghetti and pineapply Aloha Yumburgers. Funnily enough, it held talks back in 2017 about buying Pret A Manger – but I bet it’s glad it didn’t do that given recent newsflow. * SO WHAT? * This sounds like a very interesting company in a very competitive space. Still, here’s hoping they do well in a tough market! The first London store in Earls Court is due to open on October 20th.

And finally, in other news, I bring you some potentially very exciting raffles and a Thomas Cook branding fail…

If you feel like bagging yourself a bargain, how about having a look at this: Five incredible homes which could be yours for less than £25 – and one is just around the corner from Zayn Malik (The Mirror, Zoe Forsey https://tinyurl.com/yay4uxsz). Wow!

But then finally, I’m sorry to bring the tone down a tad but this did make me laugh: Thomas Cook plane turns X-rated when the door is open thanks to awkward design flaw (The Mirror, Nicola Oakley https://tinyurl.com/yb93ycz5). Photos taken at the door of this plane on disembarkation would be priceless…