London,
14
February
2018
|
11:28
Europe/London

CBRE sees bright future for Sale & Leaseback despite new lease accounting changes

While some commentators have predicted the early death of the sale and leaseback (S&LB) with the introduction of IFRS 16 in 2019, CBRE, the world’s leading real estate advisor, contends that the S&LB will survive and continue to offer major benefits to many corporate occupiers. Following a number of recent major commitments to S&LB transactions by blue-chips including KPMG, Lloyds Banking Group and DHL, 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.

Summary of findings:

  • Other benefits of a S&LB will compensate for loss of ‘off balance sheet’ financing benefit

Whilst the ‘off balance sheet’ nature of a S&LB was historically an advantage, it was not the only benefit from a S&LB. 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.

  • 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.

  • The structure of S&LBs will determine their effectiveness

We anticipate 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.

Paul Lewis, Head of Corporate Capital Markets, EMEA
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. 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.
Paul Lewis, Head of Corporate Capital Markets, EMEA

About CBRE Corporate Capital Markets

CBRE Corporate Capital Markets are an integral part of CBRE Capital Advisors Ltd, a market leading Real Estate finance advisory team. We provide capital Solutions to the corporate real sector ensuring our clients drives the maximum value of out of their real estate, whilst providing optimum flexibility to the client’s business needs.

We advise on a range of structures bringing in both real estate sector specialisms with corporate finance and expertise to ensure the right solution including:

  • Sale and leaseback structures
  • Finance lease and Income Strips
  • Synthetic lease structures
  • Debt funding
  • JV/Investment Vehicle structuring
  • Build to suit financing and Forward funding
  • Site rationalisation and development advice
  • Advice in relation IFRS 16 adoption

We work closely with sector and regional specialists across the globe to deliver the best results fulfilling our clients financial and real estate objectives.

Should you wish to discuss any aspect of this report or would like to discuss options for your own needs, please do get in touch.

Download the full report here