Sale Leasebacks Revived as Companies Look for Cash

Property Week - January 22, 2009

Big-name owner-occupiers attempt to raise capital from property portfolios
A host of the world’s biggest companies are turning to their property portfolios in an attempt to raise cash to shore up their declining balance sheets.

Property Week understands that builders’ merchant Travis Perkins and communications company Cable & Wireless are investigating ways to raise capital from their properties.

The potential is huge, predicts GVA Grimley, which estimated in spring 2008 that the value of freehold properties held on the FTSE 200 companies’ balance sheets totalled £163bn.

Julian Lyon, chairman of the Confederation of British Industry’s property group and manager of European real estate at General Motors, said: ‘All companies must keep under constant review how they raise working capital. ‘Several options for raising capital have disappeared, so companies have to look at alternatives.’

Rumours have swept the market that other corporate occupiers such as Credit Suisse, builders’ supplier Wolseley and Honda may be considering sale and leasebacks. They would follow General Motors, which, advised by Jones Lang LaSalle, put $750m (£536m) of sale-and-leasebacks properties on the market at the end of last year, including its Detroit headquarters, the Renaissance Center.

Matthew Richards, director of corporate capital markets at JLL, said enquiries of this type had doubled over the last six months.

However, most companies are at early stages in their investigations. Cable & Wireless, which is advised by Doherty Baines, has a small portfolio of technical sale-and-leaseback properties on the market.

Credit Suisse reviews its freehold property every six months and is thought to be considering the sale-and-leaseback option for the future.

Wolseley was unavailable for comment.

Honda’s property manager, Gordon Hunt, said it was not yet the right time.

‘We are not looking at sale and leasebacks as it doesn’t appeal to us because of a simple commercial reason: the yields are not where they need to be.’

Hunt’s comments demonstrate a crucial point: that some owner-occupiers only consider them when they are desperate for cash, but others, such as Tesco and Travis Perkins, have long pursued them as a sensible business initiative.

Property director of Travis Perkins, Martin Meech, who has a sale and leaseback portfolio on the market, said: ‘Sale and leasebacks are part of an ongoing portfolio strategy for us.’

Tom Betts, finance director at Topland, which has invested in several sale-and-leaseback transactions in the past, agreed and said: ‘We are seeing a few things in their infancy at the moment. But it should not just be cash-raising to sort a problem.

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