Friday, April 30, 2004

Fidelity Pursuing $270 Million Sale Leaseback of Two Boston Office Buildings

Boston Herald - April 30, 2004

Fidelity Investments is putting on the market a significant block of its downtown Boston real estate holdings in a bid to cash in on a hot investment market for fully leased office properties.

The financial services giant plans to sell the 900,000-square-foot 245 Summer St. building, next to South Station, and a much smaller 7 Water St., near Post Office Square, a company spokeswoman confirmed yesterday.

The move is part of an effort, said spokeswoman Anne Crowley, to cash in on sky-high demand by real estate investors for office buildings leased to high-quality corporate tenants. As part of the deal, Fidelity will lease back its space in the former Stone & Webster building - a key factor that would make the 14-story South Station high-rise more valuable to investors, observers say.

Fidelity bought the 1970s era edifice for roughly $190 million in 1999. The financial services giant could get nearly $100 million more for it, noted one real estate executive.

In opting to put the downtown buildings on the block, Fidelity may be eyeing the record, $705 million sale of the recently completed State Street Financial Center. That 1 million square foot tower sold for more than twice its $350 million development cost, largely due to its lease to State Street Corp., observers say.

Fidelity, at the least, could sell 245 Summer for $300 a square foot - or $270 million - with the price going up from there, noted Gary Lemire of CB Richard Ellis/Whittier Partners. It's also expected to lease back space it occupies at 7 Water St.
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Tuesday, April 20, 2004

American Financial Announces Acquisition of Citigroup Properties

PRNewswire-FirstCall - April 19, 2004

American Financial Realty Trust announced that it has signed agreements to purchase three office buildings to be developed by Koll Development, LLC and net leased by an affiliate of Citigroup, Inc. The three buildings, totaling approximately 531,000 square feet, will be located in Louisville, Kentucky, Greensboro, North Carolina and Boise, Idaho. All three properties are to be developed concurrently and are expected to be completed in the fourth quarter of 2004.

American Financial's purchase price for the three properties will be between $85.6 million and $88.6 million, based upon construction requirements of the lessee, payable upon completion of construction. American Financial will assume no development risk in the transactions, as an affiliate of Citigroup has net leased the properties at a rental rate to be determined as a percentage of the Company's gross purchase price. The Citigroup leases will be for an initial term of 15 years with two five-year renewal options. Citicorp (rated AA- by Standard and Poor's) will guarantee the lessee's obligations under the leases.
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Friday, April 16, 2004

NY Partnership to Acquire Morgan, Lewis and Bockius' DC HQ


Joseph Chetrit, Lloyd Goldman and Jeffrey Feil are the winning bidders for a coveted office at 1111 Pennsylvania Ave. N.W., near the White House, for $160 million. The office is occupied entirely by law firm Morgan, Lewis and Bockius, which has a 15-year lease in place. Fresh off of their plan to buy the Sears Tower for about $835 million from MetLife (REFI, 3/15), the partnership is said to be looking to pay about $450 per square foot for the downtown trophy 356,000-square-foot office, which translates into a low 5.5% capitalization rate.

The building is being marketing by representatives of philanthropist Dr. Lazlo Tauber (REFI, 1/26). It is unclear if all three private investors are involved in the deal or if any other investors are participating. Several calls to Goldman, Feil and Chetrit were not returned. Officials at Eastdil Realty, which is representing Tauber's estate, also did not return a call.

Observers originally believed that the building, known as the Presidential Building, would sell for about $140 million. Its location and the belief that it was a one-of-a-kind property subsequently boosted bidding, said one REIT official German investor KanAm was also in the running for the office, observers said. Officials there did not return a call. Sphere: Related Content

PETCO Funds Acquisition of 20 Stores in Sale Leaseback Deal

Yahoo News / PRNewswire-FirstCall - March 23, 2004

Office Depot, Inc. (NYSE: ODP - News), one of the world's leading sellers of office products, and PETCO Animal Supplies, Inc. (Nasdaq: PETC - News), a leading specialty retailer of premium pet food, supplies and services, announced that they have reached an agreement under which PETCO will acquire 20 former Kids 'R' Us stores from Office Depot for approximately $45 million in cash plus the assumption of lease obligations on leased properties.

The 20 stores -- concentrated in Florida and Ohio, with other locations in Illinois, Kansas, Michigan, North Carolina and New York -- are part of the 124 Kids 'R' Us properties that Office Depot agreed to purchase on March 3. At that time, Office Depot announced its commitment to convert 50-60 Kids 'R' Us stores to Office Depot locations as well as its intention to sell the remaining properties.

James Myers, CEO of PETCO, commented "In addition to enabling us to further penetrate key markets in an efficient manner, the acquisition of the stores will be funded without incurring significant capital outlay, through a sale-leaseback transaction providing traditional store operating lease financing for PETCO."
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Captec Completes Sale Leaseback of 24 Burger King Restaurants in Chicago

Crain's Detroit Business - April 06, 2004

Ann Arbor-based Captec Financial Group Inc. acquired 24 Burger King restaurants in Chicago and the surrounding suburbs from BNB Land Venture Inc. The deal is a sale-leaseback arrangement where Captec owns the properties and leases them to BNB, Ken Milne, senior vice president for Captec, said in a statement. Sphere: Related Content

HealthSouth Lost Millions in Failed Sale Leaseback Deal in 2002

The Birmingham News - April 4, 2004

A failed real-estate partnership involving relatives of former high-ranking executives of HealthSouth Corp. in 2002 ended up costing the Birmingham company more than $16.5 million. The complex deal involved HealthSouth selling 14 facilities to an entity known as First Cambridge-HCI Acquisition LLC, which would lease the facilities back to HealthSouth.

The plan then called for First Cambridge-HCI to sell shares to the public in a deal that bears striking similarities to a HealthSouth spin-off called Capstone Capital Corp. that operated in Birmingham in the mid-1990s.

In December 2001, documents show, UBS arranged an $82.2 million loan for First Cambridge-HCI that was backed by HealthSouth. First Cambridge-HCI used the money to buy 14 health care facilities from HealthSouth, then leased the properties in Texas, California, Florida, Arizona, South Carolina and North Carolina back to the Birmingham company for $9.5 million a year.

HCI intended to establish a total portfolio of approximately 25-30 properties within the first three to six months of 2002 and then conduct an initial public offering through UBS Warburg. For arranging the transaction, HealthSouth paid what UBS a "success fee" of $900,000, plus 1 percent of the loan value. The company also paid the investment bankers $375,000 for servicing the loan during its one-year term.

When Health South came under investigation for other matters, the deal unraveled. To reclaim the properties it had sold to First Cambridge-HCI, HealthSouth paid the company $87.5 million. A year earlier, HealthSouth had sold those same facilities to First Cambridge for $81.5 million, resulting in a loss of $7 million on the loan and repurchasing the facilities. It also paid $9.5 million in rent it otherwise would not have had to pay.

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BentleyForbes Completes $67 Million Acquisition of Five Building Warehouse Portfolio

BUSINESS WIRE - April 16, 2004

Los Angeles-based BentleyForbes has completed the $67 million acquisition of a five building industrial property portfolio. The approximately 1.5 million-square-foot portfolio is 100-percent leased to the North American operating unit of international logistics provider Kuehne & Nagel. The portfolio is comprised of five warehouse facilities in four states, with locations in: Alsip, Ill.; Franklin, Mass.; Forest Park, GA; and two more in Durham, NC.

In the transaction, Bryon Ward of Grubb & Ellis represented both the seller of the five buildings, Loeb Partners Corporation, and the buyer, BentleyForbes. Long-term leases were already in place with Kuehne & Nagel at the time of sale.

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Tuesday, April 06, 2004

Senate Panel Targets Tax Deductions on Existing Foreign Leases - Senate panel targets�tax deductions tied to foreign leases - Apr 6, 2004

American companies that leased foreign dams, bridges and subways stand to lose billions of dollars in tax deductions beginning next year under a proposal advanced by Senate tax writers. The House and Senate have advanced bills effectively blocking future leases, but critics said the Senate Finance Committee's new proposal goes further by penalizing companies that entered legal leases years ago, long before debate erupted on Capitol Hill.

The committee started investigating the lease transactions after an anonymous witness testified to their widespread use last fall. "This scheme is so pervasive that much of the old and new infrastructure throughout Europe has been leased to, and leased back from, American corporations," said the witness. "The sole purpose of this scheme is to generate a tax shelter for U.S. corporations that invest in these schemes."

In the typical lease under scrutiny, a local government leases public infrastructure, such as a bridge built or bought with public funds, to a private company to raise revenue. The private company claims a tax break for the depreciated value of the infrastructure while the local government retains control of it.

U.S. companies hunting for new tax deductions have leased as much as $750 billion worth of bridges, subways and other public works in the United States and abroad over the past four years, according to the Treasury Department. Sphere: Related Content

Shire Pharmaceuticals Opens US HQ in Philadelphia

Shire Pharmaceuticals picks site of U.S. HQ - 2004-03-30 - Philadelphia Business Journal - March 30, 2004

Shire Pharmaceuticals Group PLC, a British pharmaceutical company, signed a 10-year lease at the Chesterbrook Corporate Center in Tredyffrin, Pa. as the site for its new American headquarters. The company has settled on 725 Chesterbrook Blvd., space that once served as the headquarters of another pharmaceutical giant, AstraZeneca, which moved to Delaware. Shire would lease the entire 128,000-square-foot building, according to various real estate sources.

The space will house the company's research and development as well as administrative and marketing departments, said Souheil Salah, a spokesman with Shire. Shire, which last year operated 14 research and manufacturing facilities in the United States and Canada last year, is seeking to reduce that number to four by the end of 2005, Salah said. As part of that process of consolidating its North American operations, the company decided it wanted to open an East Coast headquarters that would eventually have about 300 employees. Salah said that the headquarters will have 150 employees to start out and grow from there.

Founded in 1994 in Hampshire, Chineham, England, Shire focuses primarily on four therapeutic areas: central nervous system disorders, metabolic diseases, cancer and gastroenterology. Shire generated revenue of $1.2 billion last year, up from $1 billion in 2002. Sphere: Related Content

KKR Circling Sainsbury's

The Observer - April 5, 2004

Kohlberg Kravis Roberts, the US leveraged buyout firm dubbed 'barbarians' for the aggressive deal-making that symbolised Wall Street in the Eighties, is stalking beleaguered J Sainsbury. Sources close to the New-York based company confirmed strong interest in an audacious raid on Britain's third biggest supermarket. Last Thursday KKR asked investors for $3bn to finance more European takeovers.

City consensus says that the Sainsbury family, which controls 38 per cent of the shares, would sell, having sucked out more than £100 million in dividends from the company in the last year. 'A bid is going to be a year away. They're in the paddock. They read how much cash has been taken out of the business. They see that the family is a bit wobbly,' said a well-placed source. It is not known whether KKR has made any approaches to the family or other institutional shareholders at this stage.

A bid would have to be pitched above £6 billion. It is likely that Archie Norman, the former Asda boss and a consultant to KKR, would lead new management at Sainsbury's. New owners would sell and lease back its lucrative property portfolio to repay debt and take out cash in dividends.

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Nordea Bank in 775 Million Euro Sale Leaseback of HQ Properties in Sweeden - April 1, 2004

Nordea Bank is close to closing a 775 million Euro sale leaseback / securiization transaction involving four of Nordea Bank’s Scandinavian head office complexes. The four leases will be drafted as a "bondable" triple-net leases with a term of twenty-five years, with three extension options, two of ten years each, and a third of five years. Two of the complexes are in Stockholm and one each in Oslo and Helsinki.

The new lessees will be wholly-owned subsidiaries of Nordea Bank AB (Aa3, P-1), Nordea Bank Norge ASA (Aa3, P-1) and Nordea Bank Finland Abp (Aa3, P-1), respectively. The properties form the main corporate headquarters of the three Nordea Bank Entity parents. The majority of value of the underlying collateral is attributable to the two Stockholm properties. The properties are located in the most prime area of the City and Stockholm is considered the strongest of the Scandinavian Centres, both from a macro-economic and a creditor rights perspective.

Geographic Diversity: [68.4%] Sweden, [13.7%] Finland, [17.9%] Norway based on Moody’s Stabilised Vacant Possession Value. Opening LTV (VP): 190% Moody’s Stabilised Vacant Possession Value. Sphere: Related Content

N. Ireland Govt Considering £1 Billion Sale Leaseback

Telegraph - March 27, 2004

The Government of Northern Ireland is considering an estimated £1billion in a sale and leaseback deal that will see the outsourcing of the management of its entire Northern Ireland estate. The secretary of State for Northern Ireland has been instructed to push ahead with plans to transfer all its freeholds and lease liabilities to a private-sector partner according to property magazine, Estates Gazette .

The estate totals more than 3m sq ft of Northern Ireland Civil Service accommodation and includes the Stormont estate, outside Belfast. Northern Ireland's department of finance and personnel, which is responsible for the project, is appointing financial advisers to finalise a strategy for the estate, which could favour a piecemeal sale of chunks of property. Property outsourcing specialists Mapeley and Land Securities Trilliam are uderstood to be interested in the deal. Sphere: Related Content

Sunday, April 04, 2004

Metro Completes €700 Million Sale Leaseback of 28 Stores in Poland

Globes Online - March 28, 2004

12 Israeli investors are participating in a huge real estate deal, in which Apollo Real Estate Advisors LP and Rida Development Corp. are buying 28 German-owned Metro shopping malls in Poland for €700 million ($860 million). The Israeli investors include Israel Phoenix Assurance (TASE:PHOE1; PHOE5), Hadar Insurance and Profimex (Israel) general manager Elchanan Rosenheim, Apollo Real Estate representative in Israel.

Metro is selling shopping malls with an aggregate space of 600,000 sq.m. in six cities, including Warsaw, Krakow, Poznan, and Lodz. Metro has committed to leasing back most of the space in 20-year contracts, since its hypermarkets anchor most of the shopping malls. The rest of the space is leased to other stores in long-term contracts. The pretax return for the investors, after expenses, will be 19.8%. Some of the malls have land for future building. Metro is one of the largest supermarket chains in the world, with 2,500 supermarkets across Europe.

The €700 million investment in a project of this kind in a single country is above Apollo Real Estate's permitted ceiling as pledged to its investors. The investment was therefore split, with Apollo Real Estate and Rida investing €350 million, and €350 million being invested directly by Apollo Real Estate's investors. The 12 Israeli investors accepted the offer and will invest directly in the project. Sphere: Related Content

Boulder Group Releases Report on Net Lease Restaurant Market

The Boulder Group - April 1, 2004

The Boulder Group has released its most recent quarterly research report on the US net leased investment property market. The report, entitled "The Net Lease Restaurant Market" provides vital statistics on the restaurant segment of the net leased market. As of March 19, 2004, The Boulder Group is tracking 684 available net leased restaurant properties with a combined value of $1.25 billion in 38 states. The restaurant properties included in their survey have a mean selling price of $1,610,000, or $840,000 less than the retail sector as per the The Boulder Group National Report. Additionally, Restaurant Properties mean CAP Rate of 8% is 51 basis points lower than the national retail mean because they are attractive to a larger group of people. The report identified over 100 different restaurant chains that have properties available for sale. Sphere: Related Content

Bankruptcy Court Reclassifies $248 Million in United Airlines Facility Lease Deals as Financings

BUSINESS WIRE - March 31, 2004

Fitch Ratings believes that yesterday's court decisions in the United Airlines' (United) bankruptcy proceedings regarding the treatment of the carrier's special facility bonds sets a troubling precedent which may weaken security provisions behind certain municipal leased-backed bonds, but potentially strengthen bondholder security on other lease structures and provide guidance for structuring future transactions as true leases. The ruling came in response to a motion filed by United in which the airline asked the bankruptcy court to determine if certain special facility bonds issued on the airline's behalf constituted a true lease subject to the provisions of Section 365 of the United States Bankruptcy Code, or instead were 'disguised financings' that should be treated by the court as unsecured debt of the airline.

The case involved five series of bonds issued to construct various facilities for the airline at four airports - Denver International (DEN), Los Angeles International (LAX), San Francisco International (SFO), and New York John F. Kennedy International (JFK) - totaling $510 million. The decision rendered yesterday does not address a second case that remains pending before the bankruptcy court regarding approximately $601.3 million in special facility bonds issued by the City of Chicago for United facilities at O'Hare International Airport.

As a result of this decision, bondholders in these four transactions may rank as unsecured creditors in the bankruptcy proceedings. Recoveries on unsecured claims, which rank near the bottom of the priority list under bankruptcy rules, are determined through the plan of reorganization approved by the bankruptcy court. Historically, recovery for unsecured creditors in airline bankruptcies is well below the value of their claims against the bankrupt's estate. For example, US Airways estimated unsecured creditors would receive stock and warrants in the reorganized company valued between 1.2% and 1.8% of their allowed claims when that airline emerged from bankruptcy in March 2003. However, United will maintain access to the facilities financed by these four transactions, provided it assumes the underlying leases with the airport sponsor.

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