Volkswagen Pursuing £300m Sale Leaseback of its UK Property Portfolio

Property Week - February 13, 2004

Volkswagen, the largest car manufacturer in Europe, is working on plans to raise up to £300m through a sale-and-leaseback of its UK property. City sources say that Royal Bank of Scotland is the favourite to buy the portfolio of around 150 car showrooms throughout the country plus VW's head office in Milton Keynes.

In the UK, VW imports and distributes not only its most successful VW Golf series, but also ranges of Audi, Seat and Skoda. The vast majority of its VW, Audi, Seat and Skoda showrooms are owned freehold, but they are leased out to dealers. Those acquainted with the company said it began to sound out potential investors on a property deal in August last year.

At one stage, it explored the possibility of a complete property outsourcing deal with companies such as Mapeley and Land Securities Trillium, but it has now plumped for a sale-and-leaseback instead. Under the terms of the deal it is expected VW would take back the leases owned by dealers and sublet to them.

Experts said VW wanted to raise capital in the UK to show better returns on its burgeoning costs as it invests more capital in the business. The company has invested in a swathe of high-quality dealerships of up to 25,000 sq ft (2,322 sq m) in cities such as Birmingham and Reading. VW has been cashing in on a hot car market in the UK. Sales were higher in 2003 than at any other time since 1988 because of consumer confidence, lower car prices and low interest rates.

It is thought the sale-and-leaseback could be part of a plan by VW in the UK to become more independent of its German parent. Although VW in the UK has done well, the group has been badly hit by the downturn in the global economy. The impact of falling demand led to profits for the first nine months of 2003 slumping 53.7% below the same period in 2002, according to its latest interim report in September. Sphere: Related Content