Even before Covid-19 and the high street shutdown, Mike Ashley was already feeling pain in Ireland. The approved accounts for Heatons Unlimited, the retail magnate’s main Irish company, the year ending April 28, 2019 show falling sales, a hefty loss and significant issues with its property leases.
The directors flagged property as its biggest issue, and the company behind Heatons and Sports Direct in Ireland made a provision for onerous leases of a whopping €26.8 million during the year.
Now, however, the company’s issue over its leases is set to come before the courts. Balrath Commercial Property Holdings has issued a High Court case against Heatons Unlimited, seeking summary judgement.
Balrath is the company behind the Charlestown Shopping Centre at junction five off the M50 in North Dublin. Sports Direct has a store in the shopping centre, with an annual rent bill of €450,000.
Charlestown was built by the property developers Tom and Michael Bailey, the brothers behind Bovale Developments. Its loans were transferred to Nama, and the assets was subsequently sold in 2018 to Garristown Venture Holdings, which is owned and controlled by Ronan Barrett, a Dublin-based businessman who is originally from Co Tyrone.
The funding from the deal came from a mix of equity capital from Citadel’s institutional and private clients and debt from AIB. Businessman Eamon Waters, owner of Panda Waste, was the primary client of the Citadel entity. The overall price paid was in the region of €42 million.
There has been a corporate restructuring in recent times, with assets transferred to a new company called Balrath. Bain Capital recently took a charge over certain company assets.
The case by Balrath was issued on Friday, and it has retained Dublin law firm Ivor Fitzpatrick & Co to handle the litigation. The case will appear before the courts in the coming weeks.
The most recent accounts by Heatons flagged the issue of property rents heavily. The group’s turnover fell from €200 million to €181 million in 2019. A profit of €1.4 million in 2018 had reversed into a loss of €19.4 million in 2019.
Much of the loss stemmed from a provision for onerous leases of €26.8 million during the year. The company said the provision was made due to “the challenging trading conditions experienced during the year and envisaged to continue into the future”.
The provision was made against the company’s long-term leasehold property leases and its short-term property leases. It is, in essence, a negative hedge on the future resilience of Irish retail and commercial property.
Coming into 2019, the company had a provision of just €3.7 million for onerous leases or leases that the retailer believes will be loss-making in the long run. This increased to €29.1 million during the year.
According to the company: “The provision contains amounts in respect of onerous lease contracts representing the net loss of fulfilling the company’s obligations under the terms of these contracts. The provision is expected to be utilised over the period to the end of each specific lease.”
In the 2019 financial year, for example, the company utilised €2.3 million of that provision.
Many of the outlets within the network are large department stores – which remain branded as Heatons, although Ashley has prioritised the Sports Direct and Brand Max brands in Ireland.