The future of sale-and-leaseback (S&LB) deals is safe despite new international lease accounting changes, according to CBRE, which predicts S&LB will survive and continue to offer major benefits to many corporate occupiers.
The key change is the introduction of accounting standard IFRS 16 in 2019, which will remove the 'off balance sheet' financing benefit of a S&LB.
CBRE's latest report, 'Raising Capital from Corporate Real Estate: Opportunities from a changing environment', examines the implications of IFRS 16 and finds that most tangible benefits of a S&LB will remain, which will help to underpin demand for S&LB as a way of raising capital for corporates.
'IFRS 16 has stimulated increasing sector and press speculation regarding the future of S&LB activity. While companies will lose the ‘off balance sheet’ financing benefit of a S&LB, we believe this will be offset by the more tangible benefits of this form of capital raising, which will be unaffected by these changes,' said Paul Lewis, head of CCM EMEA at CBRE.
'As a result, we see demand for S&LB transactions remaining robust, as evidenced by recent transactions by the likes of KPMG, Lloyds Banking Group and DHL, although we do anticipate more structured deals that address specific needs and the impact of changing legislation.'
Whilst the 'off balance sheet' nature of a S&LB was historically an advantage, it was not the only benefit from a S&LB, the advisor says in a briefing note. 'Whether a S&LB is the right strategy for a given scenario or corporate occupier will depend upon a balance of operational, financial, property and market considerations. For the right real estate and occupier, the S&LB can be a highly cost effective and liquid alternative to bond issues or bank debt raising.'
According to CBRE, the impact on balance sheet gearing and loan covenants will be far less than many expect and primarily sensitive to a company’s specific circumstances.
For some, the changes to lease accounting under IFRS 16 could provide new opportunities by boosting shareholder value and capital structure efficiency in the short term, as well as reducing tax liabilities.
CBRE concluded by suggesting that 'the largest impact of IFRS 16 will be the requirement to pay greater attention to the structuring of any S&LB, to ensure the positive opportunities are captured and any negative effects mitigated'.
