The need to generate cash is more important than ever, as the current health crisis makes the future uncertain. This means, the momentum for sale-and-leaseback transactions in the Nordic CRE market continues amid the Covid-19 outbreak.
How hard the Nordic countries will be affected by the current health crisis is still uncertain, but one thing is certain; No sector has been immune from the impact of the virus, with many companies experiencing falling revenues and reducing cash reserves. As leverage and net debt ratios have deteriorated, this has placed an increased burden on both companies and their lenders. The longer period of lockdown than initially expected, furthermore means many companies are currently trying to optimise their cash flow and secure their business in both the short and longer term.
Need for longer-term solutions
Government and lender support have provided valuable intermediate solutions, but as we begin to exit lockdown and discover the new normal, there will be a need to look to longer term capital raising solutions as companies unwind the support they have received from Government and their lenders.
CBRE Nordics believe that the sale-and-leaseback of owned operational real estate will provide such an opportunity: The capital released will offer companies greater financial flexibility and can be used to re-invest in the core business and secure the future. The larger the value of the property, the bigger should the cash generation be. The lower the book value of the transferred property, the larger is the possible capital gain from the transaction.[1]
Attractive Nordic CRE market
Commercial real estate in the Nordics is attractive, as the prices are at their highest and interest rates remain low. This means the Nordic CRE market will continue to be characterised by an attractive risk-adjusted return compared to government bonds by both local and international investors. Additionally, from a structural point of view, the core business of a company is generally more profitable than a property. [2] Given the current valuation of properties, the current period could be appropriate for many companies to generate cash and reduce their exposure to real estate markets at a beneficial point in the cycle.
CBRE Nordics advises multiple companies on their sale-and-leaseback programmes and is actively engaged with both domestic and international investors. Even in these challenging times, there are well capitalised investors who remain active and are keen to deploy capital to support companies.
Conclusion
We believe that the impact of Covid-19 on businesses and corresponding level of investor demand will lead to increased activity in this sector and the growing use of sale-and-leaseback agreements as part of a corporate’s funding and capital strategy over the coming months. Preliminary figures from CBRE Research are already confirming this trend, as the share of sale-and-leaseback transactions in Europe seems to have taken a rise in the second quarter of 2020.
Please don´t hesitate to contact Christian or Katja, if you have any questions or would like to book a meeting.
Sources:
[1] COVID-19 #4 Sale-and-lease-back to generate cash, PWC
[2] Corporate real estate as an opportunity to overcome the crisis, KPMG
