Sports Direct begins negotiations with House of Fraser landlords

Sports Direct has started negotiations with House of Fraser landlords, raising fears of store closures and job losses should agreements on rents and leases fail to be reached.

Commercial real estate services firm CBRE confirmed today that it had been appointed to advise Sports Direct “on all property related matters in relation to its recent acquisition of House of Fraser”.

Some landlords have already been in touch with CBRE, which said “contact will be made to all landlords over the following days”.

Talks will centre around rental costs and the length of leases, though local councils will also be part of negotiations in some cases given the impact of business rates on the retailer.

The news comes after Sports Direct founder and chief executive Mike Ashley last week pledged “to keep as many stores open as possible” and expressed ambitions to turn House of Fraser into the “Harrods of the high street”, after his firm spent £90 million to buy the embattled department store out of administration.

However, there is still a lack of clarity over long-term future of jobs and whether Ashley would shut underperforming House of Fraser stores or if he would convert them into Sports Direct or Flennels fascias as part of a restructuring programme.

Ashley’s takeover deal was struck through a pre-pack administration process, where a company is put into administration before a new buyer cherry picks the best assets.

The retail tycoon – who owned an 11 per cent stake in House of Fraser before his takeover – beat off competition from rival Philip Day, the billionaire owner of the Edinburgh Woollen Mill Group, and turnaround specialists Alteri Investors.

Auditing firm EY had been appointed administrators for House of Fraser on Friday morning, when the retailer officially collapsed after a tumultuous couple of months.

Less than six hours after taking on the role of administrators, EY opted for the pre-pack administration offer from Ashley’s Sports Direct.

It has since emerged that Sports Direct bought the House of Fraser brand, assets and stock – but will not control its pension scheme, placing the benefits of its 10,000 pension holders at risk and raising further questions about the safety of the pension schemes.

Ashley has long held ambitions to own a department store.

His previous 11 per cent stake in House of Fraser came after he after narrowly missed out when China’s Nanjing Cenbest, part of the Sanpower conglomerate, secured a £500 million deal to become majority owners four years ago.

He currently has a 29 per cent stake in Debenhams, just a few percentage points shy of launching a takeover bid and speculation is rife that he could seek a merger of Debenhams and House of Fraser.

Prior to House of Fraser’s collapse last week, Chinese investment firm C.banner – also the owner of toy retailer Hamleys – had promised a cash injection of £70 million, which was conditional on the implementation of its CVA that creditors approved in June.

Additionally, Nanjing Cenbest had signed a memorandum of understanding that C.banner would purchase a 51 per cent stake in the department store after the CVA process was complete.

The CVA featured plans to close down 31 of House of Fraser’s 59 stores, rents reductions on 10 stores that were to have remained open, a relocation of offices, and 6000 job cuts.

However, C.banner withdrew its planned cash injection in late July, a day after influential credit ratings agency Moody’s judged House of Fraser to be in technical default on its loans, downgrading it from the “very high risk” rating it received in December.

The withdrawal prompted House of Fraser to urgently scramble for new investors ahead of quarterly rent bills and to buy enough stock for the crucial Christmas trading period.

Had Ashley not bought the department store out of administration, House of Fraser could have become the biggest high street casualty since the fall of BHS.

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