The Snippa Solution

As we know, Ritchie tells us that the solution to the current woes is that rents be cut. For landlords have the resources to weather the problems.

Shopping centre giant Intu enters administration


32 thoughts on “The Snippa Solution”

  1. Bloke in North Dorset

    I can’t remember which economic historian I was listening to but they made the point that historically pandemics and similar crises just bring forward what was already happening. The high street was dying, that’s been known for a while, all that’s happened is that it’s now been confirmed.

    Time for a major rethink, remove planning laws and let the market rip.

  2. This was always going to be the crunch – how much of the rent roll was paid on 24 June. We shall see the impact on the open-end funds with exposure to retail property very soon. The investment trusts and REITs might have accumulated enough revenue reserves to last a few more quarters.

  3. Wow…it’s worse then I feared:

    “Just over 18 per cent of rent was received on 24 June, according to data compiled by commercial property management platform Re-Leased, down from 25 per cent three months earlier.”

    Of course the landlords will survive… How many businesses can survive on only 18% of normal turnover?

  4. I refer the honourable gentleman to the question I posed some threads ago.

    How badly do you have to be running your business to be wiped out by 3 months’ negative cashflow?

    Presumably they are leveraged as far as they could possibly be, mortgaged to the hilt on the basis of malls full of tenants, rather than really owning assets they have been managing for 20+ years (Fakeside, Trafford centre, Arndale, Gateshead Metro …)

    It used to be private equity (and the Glazers) had a reputation for saddling the companies they bought with masses of debt. Now it’s everyone, with entirely predictable results.

  5. What is needed: alternative uses. (Car parks, sports grounds, driving test facilities, nuclear waste storage?)
    What will happen: a wave of “defensive” mergers,

  6. “For landlords have the resources to weather the problems.”

    In many ways, they should do. It’s a hazard of being a landlord. They should have money in reserve given that gathering rent on property you own is just about the easiest source of revenue that there is. You should have a reserve of cash hanging around for emergency purposes.

    Thing is….Gone into debt to own all those properties? Tough. Just as tough as evicting your tenants for non-payment. It is your turn matey boy. Am I supposed to be sympathetic that no-one in your little book has the means to meet their payments and yet also you’ve got no money to cover this?

    Don’t like that? Don’t be a landlord then. You’re not a victim here. But maybe you are, in that you’re being evicted alongside all of your tenants. INTU properties have bought shopping malls left and right like drunk sailors, and while places like the Trafford Centre have a rationale, many of them are just 1970’s refurbished junk like the Victoria Centre in Nottingham. Every one of these owners and city councils slowly sold these assets to “landlord” companies like INTU. It is really difficult to have a minute’s sympathy.

    Ritchie’s “solution” is odd, but I suppose it depends if you want to try save city and town centres. They arguably have to then go and pressure their own creditors.

    Otherwise, there is just retail parks and the internet.

  7. Years and years of low interest rates have had an impact. It’s easy to gear up when things work. But when things stop working, you see who really knows what to do. And 3 months of poor cash-flow would cripple most businesses, at most times

  8. The Meissen Bison

    BiG: How badly do you have to be running your business to be wiped out by 3 months’ negative cashflow?

    Diogenes: 3 months of poor cash-flow would cripple most businesses, at most times

    Großer – it’s always fun when you make ex cathedra statements on the stuff you know nothing about!

  9. People who read the Liverpool Echo need to have it explained to them who the KKK are?

    Also, the reason why the less stupid politicians didn’t condemn Trump for telling a black politician to go home was because that wasn’t what he said. What he said and what the media said he said were two different things. Since the media have been deliberately misquoting him since he was elected it would have made sense to check.

  10. Porzellankuh,

    The business I was CFO of for over 6 years has seen a cashflow cut of comparable magnitude than InTU. It’s still there. Mostly because of the robust financial health I left it in.

    What was it I know nothing about again?

  11. I’d go so far as to say that almost any business should be capable of surviving 3, perhaps even 6, months, with zero turnover (For TmB’s benefit, no turnover means zero income).

    Cashflow is almost always what kills businesses that have made it past their toddler years. Fucking up your business plan can do it too, but isn’t remotely as important a risk as cashflow shock. At that point you’ve simply handed over too much money to shareholders, perhaps even borrowed a ton of money at low interest rates (that you can claim as a business expense) to hand over to shareholders (i.e., the private equity trick of old). That is basically turning the value of your company in to cash today, which is the opposite of investing.

    The ill-conceived corona lockdown his might be an event with a return period of 100 years or more, but you’re going to see quite a few 100-year return period events in your lifetime. As Granny Weatherwax said, milllion-to-one chances crop up nine times out of ten. So, be prepared, as a famous racist colonialist founder of a popular club for boys once said.

  12. BiG

    6 months of zero turnover! That’s not a stress test that too many companies routinely model for (or banks ask for when risking loans)! You might want to go and study the average set of accounts and re-think that one?

    For a service business (where direct cost = people), few mature companies would have that sort of cash sloshing around generating little return. You talk about investment; cash sitting idly isn’t investment. Most companies like that simply wouldn’t compete, and rightly so.

    And sure, that company could technically “survive”, provided that the direct costs (ie lots of people) could immediately (and temporarily?) be culled to suit through that period… And then start again I guess following that!

    If the business you were CFO of had that kind of level of (non return generating) free cash available, it would be interesting to know what sector it was?

  13. A sector in which the owners (of which there are a thousand or more in over 30 countries, this isn’t a two-bit shop I’m talking about) preferred that their business be able to survive foreseeable but unforeseen events than that we sell future expected income for some kind of fast buck.

    Of course the company has cut costs where feasible, but turnover for the whole year to date is in the toilet.

    The point is more that Mr Meissen’s ignorant ad-hominem holds no water. I dare say I have more executive experience than he does! And if I don’t, I’ll back down and apologise in the same manner as he has.

  14. I understand. I could see that in sectors where there might be a lot of R&D and / or extraordinarily lumpy turnover and profits, and hence much higher returns (and spare capacity) to compensate for the necessary risk – and (perhaps not coincidentally) that might fit the sort of sector you sometimes comment on here from a science angle? Obviously quite different for the large majority and more vanilla of the business world.

  15. I lost a business doing over 150K turnover due to 3 months negative cash flow.
    You use up reserves, you still have bills to pay that are due – the business becomes insolvent.
    At that point the game changes.
    Lost the entire business. Set up a new one to do the same thing.
    Much lower turnover, very little debt – but 3 months negative cashflow could still kill us off.

    Be kinda embarrassing to go under owing a few hundred quid…

  16. PF,

    Its a small world, so I’m not going to specify further what the activities are, only that they are of a profitable nature of interest to people who returned me at every AGM until I decided to quit.

    Continuity is valuable to some people, in the same way that other people see immediate value in financializing a company up to the eyeballs, such that it isn’t really making money from its core activity any more but reliant on the prayer that the income it has already booked on the balance sheet, then mortgaged to pay to shareholders on the prayer that some fifth or sixth order derivative of its projected compound future income from expected growth-adjusted interest rate cuts actually ever lands on the income account.

    And if that makes no sense, I commend an investigation into how enron operated.

  17. The Meissen Bison

    Mr Meissen’s ignorant ad-hominem…

    Hang on, Großer, I only said you were talking rot. You have to reach Murphyesque levels of self regard to claim that as an ad hominem attack.

    I dare say I have more executive experience than he does!

    Executive lounge experience, maybe.

    And if I don’t, I’ll back down and apologise in the same manner as he has.

    I haven’t but you seem rattled and you’re still talking drivel.

  18. Wrong. You said I know “nothing” about something I’ve spent a substantial part of my life doing. I may know, even admit to knowing, very little about it, but not nothing, and clearly, in practical, actual “done this shit and bought the t-shirt” terms, infinitely more than you. So, you lose that one.

  19. @BiG

    The personal stuff is all a bit unnecessary to be honest. But I think there’s an issue with overgeneralising from a small sample or unrepresentative sector. My one man band consulting outfit could survive thirty years with zero income if needs be but I wouldn’t recommend Tesco or Boeing to build that kind of buffer – my point not being that my experience is of greater worth than yours but the size of the cashflow shock that’s worth buffering against, or feasible to buffer against, is not universal.

    The idea of most firms in most sectors being capable of surviving three months with zero cash coming in is genuinely an extreme one and not something that most shareholders would see the benefits of reduced risk outweighing the opportunity costs associated with restructuring the firm to focus so intently on survival. Owners of family firms might be more survival-minded than someone buying a stock with 2% of their retirement savings. But on the whole shareholders (and lenders) make their investment decisions based on their own risk preferences and if there was demand for more investments to be super-resilient then more firms would be. But a diversified investor will usually think of risk in terms of their portfolio as a whole which changes the equation for them substantially.

    The debate does remind me of those tendentious lists newspapers and magazines occasionally compile of “the world’s oldest companies that are still around today”, usually bypassing the issue of whether some thousand-year-old Japanese inn has had a millenium of legal corporate continuity or whether it’s more like a long-lived asset that has passed through many hands and structures. (If it’s anything like the history of a typical British inn I suspect plenty of owners will have been overextended at some point and forced to sell up in distress, not unlike Intu itself…) Occasionally such listicles have a comment attached from a finance academic pointing out that long corporate life isn’t generally the best indicator of success and firms with far shorter lives can still deliver better returns to investors over their lifespan. Like I said that might be moot if the family firm is your main asset and you don’t want to be the one caught out in an intergenerational game of pass the parcel if it blows up on your turn. But for portfolio-holders the returns-while-it-lasts vs survivability tradeoff can have a very different optimum.

    I think it’s wrong to lambast a firm for “taking money out of the business” to pay shareholders in general (obviously there are specific circumstances it’s dodgy) if shareholders feel they can make better use of the cash than the firm could, including alternative investments that insure them against existential risks to this particular firm that even a three-month cash buffer might not be enough to ride out.

  20. “The personal stuff is all a bit unnecessary to be honest.”

    I agree. Bulls shouldn’t go around erroneously telling people they don’t know that they know nothing about something and then triple down on the error.

    “The idea of most firms in most sectors being capable of surviving three months with zero cash coming in is genuinely an extreme one and not something that most shareholders would see the benefits of reduced risk outweighing the opportunity costs associated with restructuring the firm to focus so intently on survival. ”

    True, but rather a lot of shareholders seem to be regretting that now. And, in many instances, foisting their losses on hapless taxpayers.

  21. I think it’s wrong to lambast a firm for “taking money out of the business” to pay shareholders

    Especially if you use another word for “shareholder”: “owner”

    rather a lot of shareholders seem to be … in many instances, foisting their losses on hapless taxpayers

    Which also is far more clearly unacceptable when you use the “owner” word.

  22. BiG

    True, but rather a lot of shareholders seem to be regretting that now.

    This cancellation of their income and turnover is entirely government imposed, it’s not a commercial issue or any error or fault of the company. A Government could have told these businesses to shut down for two years? Would you be still be making that same point – “shoulda had spare cash for two years”?

    So no, most businesses, which have evidenced patterns of normal recurring income, should not be having any regrets whatsoever; at least not about having not put contingency plans in place for 3 or 6 months of *zero turnover* because they should otherwise have anticipated that a Government might shut them down.

    They can plan reserves for a recession, new competition, and lots more, but not for what the Government have just gone and done here.

  23. Indeed – many businesses plan for a recession because they do happen. May not hold massive amounts of cash at all times but may have plans to adjust business, hunker down on core stuff or expand to new heights during a recession. Holding multiple years of cash on hand simply to sit on it isn’t feasible for most.

    Its incredibly inefficient to get a few percent return on cash held (if have that much cash) versus say 30% return (yes, poor return) from using it to expand, grow, take advantage of opportunity.
    Or 300% return on using the money….

  24. And yet we are now staring down the barrel of what, the third or fourth massive government injection of cash into the economy since 2008. Because the last 2 or 3 times weren’t enough. And I’m sympathetic to the notion that the government caused this lockdown shit so should pay for it. But that means, the rest of us pay for it.

    Just for a trivial example, if you played your cards right then the taxpayer bought you your last 3 new cars in Germany, the 2008 “Abwrackprämie”, VW diesel scandal, and now the 2020 e-car subsidy.

    At what point do we, the morons financing all this state capitalism/corporate socialism, start to smell a rat?

  25. Martin, I don’t see hertz, intu, Lufthansa, VW, etc, delivering 30% yoy growth on investment just lately.

  26. I’m the Honourable Treasurer (CFO) of the International Association of Wizards, a role which I have filled for a number of years because nobody else wants it.

    We have a membership of 1000+ wizards from around the world who pay a substantial annual subscription which is not only tax-deductible but trivial in the general order of things for wizards.

    Members can put the initials MIAoW after their names and the Association generates a cash surplus year on year out of which it funds a quarterly newsletter, a fairly basic website and keeps a database of its membership. These activities are outsourced to third parties. 75% of subscription receipts are retained within the association against pandemics and to validate members’ sense of self-worth which is an important aim of the Association.

    The Association runs a number of international congresses and workshops throughout the year to share and discuss the latest developments in wizardry and how these developments might benefit the wider world. The activities are generally spread over several days in attractive international resorts and attendance fees reflect the media appeal of the topics, the relaxed timetable and the locations. High profile guest speakers are engaged at some expense but all costs are more than recouped by the generous conference attendance fees which continue to accumulate in our accounts.

    The Association is currently debating whether it should devolve some of its accumulated funds to setting up subsidiary groupings to promote more specialised areas of wizardry like left-handed wizardry or to fund a study into how wizardry contributes to executive experience. Whatever we do, the money just keeps pouring in which, of course, is a feature of every successful business.

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