Leaseback: Quick Way To Raise Cash

Sydney Morning Herald

Saturday October 25, 2008

Carolyn Cummins

THE pending recession in Europe and Britain has forced many companies to review how to raise cash from alternative sources rather than trying a bank or the sharemarket. This has led to a huge increase in corporate sale and leaseback transactions.

A report from CB Richard Ellis says that between 2004 and 2007 the total value of this type of transaction rose from 6.7 billion euros ($12.8 billion) to 46 billion euros.

This represented an increase from 6 per cent to 21 per cent of the European investment market for this type of transaction.

The report says that against the backdrop of economic uncertainty and a substantial increase in the cost of corporate debt, these transactions are gaining momentum across Europe and accounted for 21 per cent of all investment activity in the first half of 2008 - their highest percentage contribution ever.

The head of corporate strategies with CBRE's global corporate services, John Wilson, said a company's decision to proceed with a sale and leaseback were motivated by a range of factors. These include the increased pressure to raise capital, the high cost of debt, the need for more flexible lease structures and the growing acceptability of a company selling its real estate.

"The wave of sale and leasebacks in the banking sector in recent years eradicated the 'last resort' stigma previously attached to this type of transaction, transforming it into another viable choice for corporates looking to raise capital," Mr Wilson said.

In its European market report, DTZ's national research director, David Green-Morgan, said the European markets had been nine to 12 months ahead of Australia in terms of falls in the value of assets and the emergence of opportunities.

"While we have seen the slowdown in activity in Australia, we are yet to see the hard evidence of the outward movement in yields which will entice investors back into the market. We expect to see this over the next few months as December valuations are completed. Many of the Middle Eastern and German funds currently active in Europe are also looking at Australia with increased interest as values and the currency fall are making the market increasingly attractive.

"If the December valuations reflect the mark to market we expect to see then transactional volumes should pick up in the first half of 2009 as purchasers take advantage of this opportunity, particularly foreign investors who historically have found good quality Australian assets hard to acquire."

© 2008 Sydney Morning Herald

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