Property Sale Leasebacks Help Fill Corporate Pension Holes

Reuters.co.uk - March 10, 2006

Companies looking to plug big pension shortfalls are increasingly using sale-and-leaseback property deals to raise money, boosted by strong demand for real estate, said investment firm Close Brothers. Supermarket chain J. Sainsbury, defence and engineering group BAE Systems and holiday village operator Center Parcs are among firms using this technique to raise capital for pensions or other needs, the firm said in a note.

The fund-raising method is among a number of ways pension schemes are being urged to fill their deficits, caused by a greying population and low bond yields. Shortfalls stood at 76 billion pounds in January among 200 major firms surveyed by Aon Consulting last month.

Sale-and-leaseback deals have been done for many years but are now highly attractive because of strong demand for property, low interest rates and a desire by firms to make more efficient use of capital and fill their pension deficits, Daniel Morland, director at Close Brothers, told Reuters. "It is not a brand new concept ... there is a huge demand now for property."

British property returns surged 19.1 percent last year, only beaten by equities and property shares, according to data last month from research group Investment Property Databank (IPD).

The potential in sale-and-leaseback is considerable, Close Brothers said. The country's top 100 listed companies have freehold property assets with a net book value well above 100 billion pounds, compared with pension deficits of more than 37 billion pounds, it said.

The investment house recently advised on gym group Esporta's raising of new debt facilities as part of a sale-and-leaseback transaction, Morland said. Sphere: Related Content