Mapeley

A company's biggest asset is often the very buildings from which it does business. Many now believe that this wealth can be put to better use. John Waples reports
The directors of Britain's big companies have fretted for decades about how to release the billions of pounds locked up in their property.
Property accounts for about 40% of the market value of Britain's top 100 companies. But analysts say it is increasingly being viewed as a nonperforming resource rather than an asset.
This change in perception is putting pressure on chief executives to alter the way they treat property. Added impetus has come for high-street retailers from the threat of low-cost internet rivals, who are not hampered by historical and expensive commitments to buildings.
The introduction of new accounting rules, forcing companies to account for property leases as balance-sheet liabilities, has also made the issue a boardroom priority.
At least a quarter of Britain's top 100 companies, two governments and a handful of the Continent's big companies are currently consulting advisers to find the best ways of releasing capital tied up in their property assets.
The companies vary from British Telecommunications to retailers, including Marks & Spencer and JSainsbury, as well as high-street banks such as Lloyds TSB and HSBC. In all cases the estates are bigger than those owned by most quoted property companies.
Sainsbury is one of Britain's big property owners with an estate worth �5.7billion, which accounts for most of its �6.6billion market value.
BT has property valued at �1.6billion and British Energy's estate is worth �1.2billion.
The chances of acquiring such valuable properties are being studied eagerly by a handful of acquisition consortiums, which have been created by banks, facilities management and property companies.
Most of the consortiums were formed several years ago when they submitted bids to acquire two huge government-owned property estates put up for sale.
The estates were the Ministry of Defence's married quarters estate and the Department of Social Security's portfolio. In both cases the government leased the buildings back with an agreement that it
would reduce its occupation over 25 years.
The success of the two deals has encouraged the government to put its Customs & Excise
and Inland Revenue estates up for sale.
Three private-sector consortiums have been short-listed to take over ownership and management of the two estates. The successful bidder will be picked in July.
The three parties in the running are Servus, which is backed by Nomura and NatWest; Trillium, whose partners include Regus and Whitehall, a property fund managed by Goldman Sachs; and Mapeley, a consortium backed by Merrill Lynch, and co-owned by Soros Real Estate Partners and Fortress Investment Corporation.
Many of these groups have adapted the government's property privatisation model and have taken it into the private sector. Robin Priest, a former banker and now Mapeley's chief executive, believes there is strong demand. He says: "Interest has picked up in the last six months and is dramatically higher than it has been before ...
"For the private sector the issues are often more complex and vary according to the need and size of the organisation. But for all of them the issue is return on capital employed and is it smart to have your money tied up in property if you are a retailer or a bank? For most of them the key is to return to their core competence, which does not involve being a property company."
In the case of retailers, analysts say many companies, subject to having sufficient covenant strength, are being forced to raise cash from sales and leasebacks as a defensive measure to ward off potential predators. Among them is Marks & Spencer, which is widely viewed as a bid target.
It has asked Morgan Stanley, the investment bank, to examine a potential securitisation of its estate.
Analysts believe its property portfolio is worth 150p per share, which is equivalent to half its �8.5billion market value.
Peter Salsbury, M&S's chief executive, is understood to believe that the capital can be reinvested to produce higher returns for investors.
Last week Metro, Germany's biggest retailer, showed the potential gains that can be made by selling part of its property portfolio. It raised DM2.5billion (about �835m) through a sale and leaseback of 290 properties. The move was made to create a cash pile for future acquisitions and to build e-commerce operations.
Sainsbury and Tesco have gone down the sale-and-leaseback route but both still have the potential to raise significant cash from further deals.
Analysts say that while their share prices remain low, which makes a rights issue less attractive, sale and leasebacks or securitisation are among the limited options open to them.
Banks are also undertaking similar studies. Barclays, which occupies property worth �1.3billion, and Lloyds TSB, which owns a freehold estate worth �640m, are both keen to reduce their exposure to high-street branches.
Oliver Jones, a director at Citex, a facilities management group backed by Donaldson Lufkin & Jenrette, says there is a big competitive advantage to be the first to find a way of reducing property overheads. But he also says there is a general unease among companies about making their plans public for fear of raising expectations.
The interest is not just confined to Britain. The Italian government is thought to be preparing to privatise a large chunk of its property estate. And Deutsche Telecom, one of Europe's biggest property owners with an estate totalling 140msqft, has also hired consultants to review how it can best maximise the value of its portfolio. One option is to demerge it into a separate company, a route already taken by Spain's Telefonica as a precursor to a full flotation.
But there are alternatives and one is to follow the example of JPMorgan, the American investment bank. It has asked consortiums to submit proposals to take over the running of its portfolio of 12 London buildings, which include its European headquarters on the Embankment. The bank is looking to achieve greater operational freedom and believes it can achieve this by paying an outside organisation to take over its property liabilities.
Analysts believe companies will want increased flexibility as people's working habits change. Regus, the world's biggest serviced-office provider, has been a big beneficiary of this transformation. Mark Dixon, the founder, is confident there is huge growth potential to link with international companies and provide all their property requirements.
Operators such as Dixon and Priest believe that when big companies start to evaluate the total cost of owning and leasing buildings they will see the financial benefits of offloading them to outside companies.
Analysts say there is potential in the long term for companies such as Mapeley and Servus to float on the stock market as office providers serving a myriad of customers.
Priest says: "Historically, FTSE100 companies liked asset backing. Now the world's most successful stocks are those without any. The whole focus has shifted from assets to value added."
Analysts believe that if one company makes a high profile move it will trigger a rapid response from rivals and will mark a sea change in how the big companies view property.
(c) Times Newspapers Ltd, 2000.
Not Available for Re-dissemination.



09/01/00 UK: BOSSES TRY TO FREE PROPERTY RICHES. A company's biggest asset is often the very buildings from which it does business. Many now believe that this wealth can be put to better use. John Waples reports The directors of Britain's big companies have fretted for decades about how to release the billions of pounds locked up in their property. Property accounts for about 40% of the market value of Britain's top 100 companies. But analysts say it is increasingly being viewed as a nonperforming resource rather than an asset. This change in perception is putting pressure on chief executives to alter the way they treat property. Added impetus has come for high-street retailers from the threat of low-cost internet rivals, who are not hampered by historical and expensive commitments to buildings. The introduction of new accounting rules, forcing companies to account for property leases as balance-sheet liabilities, has also made the issue a boardroom priority. At least a quarter of Britain's top 100 companies, two governments and a handful of the Continent's big companies are currently consulting advisers to find the best ways of releasing capital tied up in their property assets. The companies vary from British Telecommunications to retailers, including Marks & Spencer and JSainsbury, as well as high-street banks such as Lloyds TSB and HSBC. In all cases the estates are bigger than those owned by most quoted property companies. Sainsbury is one of Britain's big property owners with an estate worth �5.7billion, which accounts for most of its �6.6billion market value. BT has property valued at �1.6billion and British Energy's estate is worth �1.2billion. The chances of acquiring such valuable properties are being studied eagerly by a handful of acquisition consortiums, which have been created by banks, facilities management and property companies. Most of the consortiums were formed several years ago when they submitted bids to acquire two huge government-owned property estates put up for sale. The estates were the Ministry of Defence's married quarters estate and the Department of Social Security's portfolio. In both cases the government leased the buildings back with an agreement that it would reduce its occupation over 25 years. The success of the two deals has encouraged the government to put its Customs & Excise and Inland Revenue estates up for sale. Three private-sector consortiums have been short-listed to take over ownership and management of the two estates. The successful bidder will be picked in July. The three parties in the running are Servus, which is backed by Nomura and NatWest; Trillium, whose partners include Regus and Whitehall, a property fund managed by Goldman Sachs; and Mapeley, a consortium backed by Merrill Lynch, and co-owned by Soros Real Estate Partners and Fortress Investment Corporation. Many of these groups have adapted the government's property privatisation model and have taken it into the private sector. Robin Priest, a former banker and now Mapeley's chief executive, believes there is strong demand. He says: "Interest has picked up in the last six months and is dramatically higher than it has been before ... "For the private sector the issues are often more complex and vary according to the need and size of the organisation. But for all of them the issue is return on capital employed and is it smart to have your money tied up in property if you are a retailer or a bank? For most of them the key is to return to their core competence, which does not involve being a property company." In the case of retailers, analysts say many companies, subject to having sufficient covenant strength, are being forced to raise cash from sales and leasebacks as a defensive measure to ward off potential predators. Among them is Marks & Spencer, which is widely viewed as a bid target. It has asked Morgan Stanley, the investment bank, to examine a potential securitisation of its estate. Analysts believe its property portfolio is worth 150p per share, which is equivalent to half its �8.5billion market value. Peter Salsbury, M&S's chief executive, is understood to believe that the capital can be reinvested to produce higher returns for investors. Last week Metro, Germany's biggest retailer, showed the potential gains that can be made by selling part of its property portfolio. It raised DM2.5billion (about �835m) through a sale and leaseback of 290 properties. The move was made to create a cash pile for future acquisitions and to build e-commerce operations. Sainsbury and Tesco have gone down the sale-and-leaseback route but both still have the potential to raise significant cash from further deals. Analysts say that while their share prices remain low, which makes a rights issue less attractive, sale and leasebacks or securitisation are among the limited options open to them. Banks are also undertaking similar studies. Barclays, which occupies property worth �1.3billion, and Lloyds TSB, which owns a freehold estate worth �640m, are both keen to reduce their exposure to high-street branches. Oliver Jones, a director at Citex, a facilities management group backed by Donaldson Lufkin & Jenrette, says there is a big competitive advantage to be the first to find a way of reducing property overheads. But he also says there is a general unease among companies about making their plans public for fear of raising expectations. The interest is not just confined to Britain. The Italian government is thought to be preparing to privatise a large chunk of its property estate. And Deutsche Telecom, one of Europe's biggest property owners with an estate totalling 140msqft, has also hired consultants to review how it can best maximise the value of its portfolio. One option is to demerge it into a separate company, a route already taken by Spain's Telefonica as a precursor to a full flotation. But there are alternatives and one is to follow the example of JPMorgan, the American investment bank. It has asked consortiums to submit proposals to take over the running of its portfolio of 12 London buildings, which include its European headquarters on the Embankment. The bank is looking to achieve greater operational freedom and believes it can achieve this by paying an outside organisation to take over its property liabilities. Analysts believe companies will want increased flexibility as people's working habits change. Regus, the world's biggest serviced-office provider, has been a big beneficiary of this transformation. Mark Dixon, the founder, is confident there is huge growth potential to link with international companies and provide all their property requirements. Operators such as Dixon and Priest believe that when big companies start to evaluate the total cost of owning and leasing buildings they will see the financial benefits of offloading them to outside companies. Analysts say there is potential in the long term for companies such as Mapeley and Servus to float on the stock market as office providers serving a myriad of customers. Priest says: "Historically, FTSE100 companies liked asset backing. Now the world's most successful stocks are those without any. The whole focus has shifted from assets to value added." Analysts believe that if one company makes a high profile move it will trigger a rapid response from rivals and will mark a sea change in how the big companies view property. (c) Times Newspapers Ltd, 2000. Not Available for Re-dissemination.