COMPANIES & FINANCE UK AND IRELAND - Abbey National sells property network BANKS 221B BAKER STREET SITE SOLD AS GROUP AIMS FOR FLEXIBILITY TO MOVE BRANCHES FROM ONE AREA TO ANOTHER.

Abbey National, the mortgage bank, has sold its branch network and famous Baker Street head office in an ambitious deal giving it more flexibility than any other private sector sale and leaseback deal.

Abbey becomes the first private sector occupier to follow the blueprint set by the government, which has already outsourced the ownership and management of both its Department of Social Security and Inland Revenue property estates. Abbey said it had agreed to sell its freehold and leasehold properties - totalling 6.5m sq ft - to Mapeley Columbus, a George Soros-based consortium, for a 20-year term. The price of some �457m results in a pre-tax profit after sale of about �70m. The bank said the deal would have no effect on future profits. Under the terms of its deal, Abbey occupies its 722 branches and head office at 221b Baker Street - the home of the fictional detective Sherlock Holmes - under leases as short as one year and as long as 20.

Moreover, it can chose to shorten or lengthen any lease terms during the life of the deal.

John Price, director of group property and survey, said that although the deal does release capital, its primary objective was obtaining flexibility in accommodation so that the bank can change with its customers and with the industry.
"The idea is that it will match our property portfolio to our business plans," said Mr Price.

Mark Pain, finance director, added: "Ultimately it allows us to concentrate on banking rather than being property developers, which is not our job." Banks and other retailers have been increasingly hamstrung by the long-term leases that landlords typically insist they sign to occupy prime sites. Although prime sites may not remain prime, the leases contain upwards-only rent reviews under which rents can never fall, even when an area declines.

Banks have been retreating from high streets, closing more than 2,000 branches in the past five years alone. However, Abbey is not expected to close large numbers of branches, and wants flexibility mainly so it can move branches from one area to another.

Occupiers vacating surplus premises are often unable to relet them at the prevailing rent and consequently sustain losses. Abbey National was advised by Ernst & Young Real Estate Group. Property, Page 30.

FINANCIAL TIMES, 20/10/2000 P27