Fitch Issues Report on Corporate Property Sale and Leasebacks

Fitch Ratings - July 23, 2003

In the past few years, the European CMBS market has seen the emergence of property divestment financing from corporate owner occupiers. Sale and leaseback is an increasing trend amongst corporates, for a range of motivations that can include a need for financing, a focus on core business (rather than capital and resources tied up in property) and a rationalisation of space requirements with additional flexibility built into leases. The objective is to outsource property management to an external party, as well as balance sheet management.

Sale and leaseback transactions are not a new phenomenon, but securitisation with regard to such deals is a relatively recent trend in Europe. Traditionally, institutions such as life insurers, major pension funds, or bank financed property companies would be the buyers of these portfolios. However, where highly rated credit tenants are selling property, long-term financing at competitive spreads can be achieved using the credit quality of the rental cash flow underpinned by intrinsic property value.

Recent transactions have included telecom companies, utilities, retail corporates and a defence manufacturing company. Fitch Ratings expects this market to expand considerably over the next few years as debt-burdened companies seek to stabilise their balance sheets. Sphere: Related Content