European corporates cash in on bricks-and-mortar assets

European companies are increasingly leveraging their real estate to fund expansion strategies as business sentiment improves. Over €3.4 bn of corporate sale-and-leaseback transactions took place in Europe during the first half of 2014, according to Cushman & Wakefield.

The sale-and-leaseback (S&LB) deals mark a strong start for the year as organisations move from cost-cutting defensive strategies to growth, capital investment and optimism about the economic environment, C&W has said in a new report.

This H1 volume of €3.43 bn accounts for about 40% of the total in 2013 which represented a ‘turnaround’ year with S&LB volumes up 30% year-on-year across Europe, equating to a total transaction volume of €8.7 bn.

Kevin Vickers, partner of EMEA corporate finance at Cushman & Wakefield, said: 'With the increasingly competitive pricing across the European real estate markets we have witnessed a marked increase in the number of corporate's looking to take advantage of the arbitrage between the relative cost of a S&LB and the return that can be generated from the redeployment of capital raised into the core business. While we expect further enquiry for S&LB advice the changes to lease accounting expected next year may dampen the appetite of some businesses.'

BIGGEST DEALS
Of the S&LB transactions in H1 2014, 30% occurred in UK, with France taking second position with 24%. Increased activity from the Nordic region resulted in Sweden, Finland, Denmark and Norway accounting collectively for 21% of transactions.

One of the largest deals of the first six months of the year was Credit Agricole and Aviva’s acquisition of mobile phone operator SFR’s head office in the Saint-Denis submarket of Paris for €680 mln.

Other notable transactions were Swedish fund manager AREIM’s purchase of insurance group Trygg- Hansa’s office complex in Stockholm for its second fund for €270 mln. Hines also completed its purchase of Morgan Stanley’s 25 Cabot Square office in Canary Wharf for £223 mln. Morgan Stanley signed a new 15-year lease at the Headquarters building which it had previously owned since 1993.

Invesco was also an active buyer, acquiring four InterCity Hotel properties in Germany for €80 mln, leased back to Steigenberger Hotels for 30 years, as well as part of the Entré Lindhagen office complex in Stockholm, occupied by Skanska, for €110 mln. Leading Nordic media group Sanoma Oyj also disposed of three assets in Finland across two deals, raising €246 mln and leasing back the assets for 15 years.

MORE TO COME
According to Cushman & Wakefield, activity in a range of sectors will continue as corporates seek to utilise real estate to fund their expansion strategies and European economies and business sentiment strengthen further.

Financial services firms closed the lion’s share of deals, accounting for 28% of transaction volume (€972 mln) during the six months while telecommunications firms closed a quarter of H1’s transaction volume, totalling €823 mln, of which €680 mln was attributable to the SFR deal with Credit Agricole and Aviva.

The first half was dominated by office transactions, making up 75% of the total volume for the six months, followed by industrial and retail with all three property types contributing 92% of the total volume.

Access the full report through the link below