Damian White and Romford Marks and Spencer (M&S) July, 2019

Damian personally authorised the £14.7 million purchase of M&S’ Romford site in July, 2019. The checks and balances of the Overview and Scrutiny committee were by-passed by Darren Wise, the chair. As a consequence, the decision wasn’t subject to robust analysis as it was hurried through. A Havering College 6^th former studying Business Studies knows this is the worst possible way to make an investment decision. The students would have done a SWOT analysis first.

Strength M&S is an iconic retailer with a loyal customer base

Weakness M&S is a flabby, badly managed company feeding off past glories

Opportunity M&S has a wonderful reputation for quality, which can be migrated into other activities

Threat M&S, along with every other retailer, is faced with online competition, which is destroying their principal activities.

Havering’s M&S investment depends on a revenue stream paying the costs related to borrowing £14.7 million. The question posed by ‘Threat’ is: will M&S pay their rent? Many retailers are negotiating with landlords to accept CVAs with downward adjustments, sometimes to zero.

“£14.7 million is required to replenish the capital allocation for new opportunities. A significant opportunity arose to purchase the lease of the premises occupied by Marks & Spencer in Romford earlier this year [2019] which reduced the allocation by a similar amount. The annual lease income being received from Marks & Spencer covers the ongoing revenue costs of the purchase and makes a return to the General Fund.”**

Amazingly the July, 2019 report says, “this is a liquid asset, providing many of the characteristics which investors are seeking.” *** (my emphasis) The statement is nonsense. In 2019, some property unit trusts couldn’t meet redemption demands because their property assets were illiquid and they’re professional property investors.

Damian’s administration relies on the Harold Wood 3, one of whom is Darren Wise. He’s the Overview and Scrutiny chair who agreed scrutiny wasn’t applicable due to the urgency of the decision. The Cabinet was by-passed by Damian, using ‘strong leader’ provisions of the Localism Act. He behaves as if he’s an elected Mayor. (see Addendum One)

The use of ‘urgency’ clauses is exceptional and the assistant Director of Regeneration added a hand-written note to the document (see Addendum Two) stating it was authorised by Darren Wise. This suggests that he had doubts about whether it was urgent. The preliminaries of a property deal of this size take an extended period of time. Prior to purchase it went through due diligence, ensuring the deeds were accurate, the physical condition of the 52 year old building, the insurance details (which were odd, as it turns out). Finance has been arranged for thirty years. There was no ‘urgency’.

So why did Damian do it?

Nigel Wilcox, the executive director of the Institute for Economic Development said: “The conclusion is that local authorities are embarking on risky strategies – but they have clearly been driven to this route through the underfunding from central government.” (my emphasis)

£14.7 million of the Havering 2019 capital budget was used for property speculation by people who are naive as investors. Damian has saddled Havering with a 30 year debt for a non-performing asset which is probably unsellable and Darren assisted him. Covid-19 is the final nail in the coffin of this ‘investment’, which was reckless from the beginning.

Addendum One: The strong leader

“In 2009 Milton Keynes Council moved to the Strong Leader model – a model where all powers that fall to the Executive are now discharged solely by the Executive Leader (whether personally or through delegation), and not by the Executive as a ‘body’.”

“The two ‘executive’ models that now exist are the Executive Leader model (known as the Strong Leader Model) and the elected Mayor model.”

“…in practice these will be delegated to other executive members (cabinet members), committees of the executive, or officers of the council. But even once delegated this does not stop the leader from personally exercising any executive function.”* (my emphasis)

https://milton-keynes.cmis.uk.com/milton-keynes/Document.ashx?

And https://www.unison.org.uk/content/uploads/2013/06/On-line-Catalogue213663.pdf

Notes

* Strength – Weakness – Opportunity – Threat

** https://democracy.havering.gov.uk/documents/s39402/190910%20Budget%20Update%20-%20report%20final%20100919.pdf 18^th September 2019

*** See https://democracy.havering.gov.uk/documents/s38373/49%2039-43%20South%20Street%20Romford%20Acquisition%20and%20finalisation%20of%20outstanding%20pre-conditions%20on%20Prope.pdf

SourcesFor the retail environment as an investment see https://www.ellandi.com/our-news/ellandi-media-coverage/2019/11/exclusive-no-evidence-councils-buying-shopping-centres-out-of-the-area#.XrxBJG5Fy70

For illiquid property unit trusts see https://www.hl.co.uk/news/articles/Investing-in-property-consider-liquidity-risk

For M&S relegation from the FTSE 100 see https://www.theweek.co.uk/103101/why-ms-is-about-to-drop-out-of-ftse-100 Next joined the FTSE 100 in 2001

History of companies joining and leaving the FTSE 100 Index since 1984

For a very good summary of CVA see https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/credit-valuation-adjustment-cva/ see also https://www.savills.co.uk/research_articles/229130/290114-0/spotlight–the-impact-of-cvas-on-the-uk-retail-market