Global Viewpoints

Poor Holiday Performance Hits US Retail Sector

By: Jennifer Brenner Andrade

The results are in and holidays sales, the make or break sales season for most US retailers, were much more than lackluster, they were catastrophic. Major retailers like Circuit City, KB Toys and online retailer, etoys.com have already filed for bankruptcy with unprecedented store closings expected in 2009.

According to SpendingPulse, a macro-economic report tracking retail and service sales nationally, total retail sales are down between 5.5% and 8%, based on retail sales for November and December 1-24, 2008.

According to Michael McNamara, Vice President of Research and Analysis for SpendingPulse, sectors that sell food, such as grocery and general merchandise stores and some sectors of the restaurant sector helped keep total declines in the single digit range; eCommerce sales remain comparatively healthy; moreover the 40% drop in the price of gasoline compared to December 2007 accounts for almost half of the decline. Excluding gasoline, total sales were down 2% to 4% this holiday season compared to the same period in 2007.

Still, Mr. McNamara noted, “A difficult economic environment combined with unfavorable weather during the last week of shopping made 2008 one of the most challenging holiday shopping seasons in decades.”

Of course, for the part of the commercial real estate sector dedicated to retail space, the news could mean increased vacancy rates, mall and strip center closings and other difficulties for landlords as the sheer number of retailers shrinks dramatically in the next year.

Kungsleden concludes divestment with Riksbyggen, upgrades forecast

Source: Kungsleden 

 

Kungsleden AB, a listed Swedish property company, has finalized the sale of a portion of Lund Klostergården in southern Sweden for SEK 100 m to Riksbyggen, a housing cooperative. The sale was begun in May of 2006 and was conditioned on Kungsleden receiving detailed planning on the property. The property consists of some 30,000 sq.m. of housing development rights. Having met all of the prescribed conditions, the deal has now been finalized.

The sales price exceeds acquisition value by about SEK 50 m. This amount will be included in Kungsleden’s profit for calculating dividends for 2008.

The transaction executed by Kungsleden in December has also resulted in Kungsleden increasing its forecast profit for calculating dividends for the financial year 2008 from the previous SEK 700 m to over SEK 800 m.

“It’s pleasing to now be able to conclude this deal with satisfactory profits and increase our forecast,” commented Kungsleden’s Chief Executive Thomas Erséus.

Hypo Real Estate Group Restructures

Source: Hypo Real Estate Group

Hypo Real Estate Group has announced a strategic realignment and restructing in order to adapt to the “profound changes in the capital markets environment, and to the growing challenges in the real estate business,” according to a statement from Munich-based Hypo Real Estate Group.

According to the release, this restructuring is also a prerequisite for the support measures already provided by the Federal Republic of Germany, and for further support to be extended by the German Financial Markets Stabilisation Fund (SoFFin), which is required for the company's continued existence.

The objective of the strategic realignment is to reposition Hypo Real Estate Group as a leading specialist for real estate and public-sector finance in Germany and Europe, with a funding strategy focused on Pfandbrief issuance. The structural cost base will be reduced, and the balance sheet structure and risk profile enhanced.

The Group plans to further simplify its corporate structure. The corresponding measures will be implemented over the next three years. Discussions with SoFFin regarding extensive support measures are continuing.

Hypo’s CEO Dr Axel Wieandt explained: "With the decisions taken today, the Group has taken necessary steps paving the way for its return as an active market participant in the medium term. Given the changes to the capital market environment – as a consequence of the financial markets crisis – and the real estate downturn, there is no alternative to the extensive planned adjustments to the business model. The focus is now on discipline in managing the balance sheet, as well as costs and risks, and on consistently implementing the restructuring measures."

Business activities to be concentrated

In the Commercial Real Estate Finance business segment, the Group will be positioned as a business partner to real estate investors in Germany, key European markets, and the US. New business in this segment will be generated from the Group's offices in Munich, London, New York, and Paris.

In the Public Sector Finance business, the Group will henceforth concentrate on the selective origination of primary business in Europe eligible for inclusion as cover assets for Pfandbriefe, and on managing the existing portfolio. The segment's office locations will be centralised to reflect this adjusted focus.

No new business is planned in infrastructure finance. Capital markets and trading activities that are no longer in line with the business model will be discontinued. A sale of non-strategic activities is being considered. The Group will continue its client-related derivatives business.

Reducing the Group's cost base, streamlining its structure

The changes to the business model will be accompanied by reductions in annual costs of approx. EUR 200 million by 2011, and approx. EUR 250 million by 2013.

The number of employees will be reduced over the next three years, from its current level of close to 1,800 to around 1,000. Two-thirds of affected positions are located outside Germany. An additional 200 redundancies will occur until 2013, once the planned IT investment programme has been completed. The objective of this programme is to harmonise and standardise Hypo Real Estate Group's IT environment.

A part of the reduction in staffing levels will be achieved through outsourcing and divestitures. Hypo Real Estate Group is striving to reach agreeable and socially responsible solutions with affected employees, and will make every effort to avoid terminations for operative reasons whenever possible.

Following the merger of Hypo Real Estate Bank International AG into Hypo Real Estate Bank AG, it is intended to merge DEPFA Deutsche Pfandbriefbank AG into Hypo Real Estate Bank AG as a next step. The Group´s infrastructure functions will be integrated to a large extent.

Additional burdens on Q4 results

The realignment and restructuring of Hypo Real Estate Group will involve total non-recurring expenditure of approx. EUR 400 million, including approx. EUR 160 million attributable to IT investments.

Around two-thirds of the aggregate EUR 400 million non-recurring expenditure is expected to be recognised in the Q4/2008 financial statements. Business conditions on the international credit and real estate markets have deteriorated further in the course of the current quarter.

Accordingly, Hypo Real Estate Group expects significant additional burdens to Q4 results, from net trading income and allowance for credit losses related to real estate finance and structured credit exposures. At least for the Group and Hypo Real Estate Bank AG a negative annual result is expected.

ProLogis to Divest Chinese Ops and Stake in Japan Property Funds for $1.3 Billion

Source: ProLogis

ProLogis has signed a binding agreement to sell its operations in China and property fund interests in Japan, to affiliates of GIC Real Estate (GIC RE), the real estate investment company of the Government of Singapore Investment Corporation, for total cash consideration of $1.3 billion, plus liabilities assumed as part of the transaction.

The net proceeds will be used to reduce debt. Overall, ProLogis expects to record a modest net loss on the transaction of approximately 4 to 6 percent of the book value of the assets sold. ProLogis' development pipeline as of September 30, 2008 will be reduced by $1.0 billion, including $255 million in costs to complete development of the assets owned directly and within Prologis' development joint ventures in China. The company expects to close the transaction in January 2009, subject to fulfillment of conditions precedent.

"In one substantial step, this transaction helps ProLogis de-lever its balance sheet, relieve near-term re-financing pressure and enhance liquidity," said Walter C. Rakowich, chief executive officer of ProLogis in a statement. "Selling our China operations and our investment in the Japan funds was not an easy decision; however, this represents a major milestone in the implementation of the plan we outlined last month to strengthen the company's balance sheet in order to meet the challenges of the current environment.

"GIC RE is a well-established, respected global real estate investor," continued Rakowich. "As an important partner in several of ProLogis' property funds, including those in Japan and China, GIC RE is very familiar with our business in these markets and is a natural buyer for these high-quality assets.

"In China, ProLogis' team of associates will join affiliates of GIC RE to manage the portfolio, and in Japan, ProLogis and GIC RE will identify a group of dedicated associates that will transition over time to manage the GIC RE assets," Rakowich added. "We have a strong, long-term relationship with GIC RE and look forward to continuing our partnership."

The transaction includes all of the company's operations in China as well as its property fund interests in Japan.

In China, the assets to be sold to GIC RE include (all figures as of September 30, 2008):

• 20.7 million square feet (msf) of completed properties and properties under development with a total expected investment of $861 million (including a remaining funding requirement of $223 million for properties under development) that were 45.5 percent leased;
• ProLogis' interest in five China joint ventures and one property fund, of which the company's share aggregates 4.4 msf with a total investment of $184 million (including a remaining funding requirement of $32 million for properties under development) that were 69.0 percent leased;
• A 30 percent interest in SZITIC CP, a retail joint venture, with a book value of $53 million; and
• 713 acres of land with a carrying value of $213 million.

In Japan, ProLogis will sell its 20 percent interests in the Japan funds that own 27.1 msf of properties, including fourth quarter 2008 contributions, to GIC RE, which already owns an 80 percent stake. ProLogis has a current investment of $348 million in these funds. In addition to the proceeds from this transaction, ProLogis will receive 12.6 billion yen ($140 million) from the sale of a 637,000 square-foot building in Japan from its development pipeline to GIC RE. The sale of this facility, which is expected to close in the first quarter of 2009, will satisfy the remainder of GIC RE's equity commitment to ProLogis Japan Fund II.

ProLogis will retain the following assets in Japan (all figures as of September 30, 2008, updated for fourth quarter contributions and removing previous starts that were halted during the quarter):

• 4.5 msf of facilities completed and currently in lease up with a total investment of $687 million that were 43.7 percent leased;
• 4.2 msf of facilities under development with a total expected investment of $681 million (including a remaining funding requirement of $194 million) that were 2.6 percent leased; and
• 64 acres of land with a carrying value of $173 million.

Among 2009 Cutbacks: How About E-mail Dependency?

By: Jennifer Brenner Andrade

Venture capitalist Fred Wilson’s May 2007 declaration of “e-mail bankruptcy” not only ignited a movement, but also gave voice to the e-mail overload suffered by most knowledge professionals. In commercial real estate particularly, stories about missed RFPs, tenants signing outdated versions of leases, and miscommunications between vendors, contractors and lenders abound because of the overuse of e-mail as a business tool.

These days, people running their businesses out of e-mail might as well be running their businesses on the back of a napkin.

While 2009 will most certainly be the year of cutting back in almost every operational area imaginable and some not imaginable; as an industry, commercial real estate should also consider ending the dependence, errors and miscommunications of e-mail. Yes, there is a better way.

Many real estate companies are currently working with various high cost solutions to facilitate file sharing, task setting, version control and calendaring among groups of all shapes and sizes in an effort to accelerate their business beyond e-mail.

One systems director at a major REIT was quoted as saying that the risk of exposure from sending the wrong spreadsheet version to a customer or partner was just too great. This REIT wanted to realize efficiencies in its due diligence, fund management, investment and real estate development operations.

While most collaboration tools cost thousands of dollars per seat, ARGUS Software has introduced, ARGUS Zone, an innovative portal that offers collaboration or deal room features on an individual or enterprise level for a fraction of the cost. Additionally, ARGUS Zone offers live market research such as comps, news articles and market reports through the Situs Insight portal as well as an innovative, new online auction for off market properties through the Transaction Zone powered by RIISnet.

All current ARGUS Software customers are afforded free access to the ARGUS Zone Standard Package, which includes the collaboration module. ARGUS Software is also announcing introductory pricing through 31 December 2008 for access to this efficiency tool.

For customers residing outside of North America, contact Jennifer Andrade at jandrade@argussoftware.com to find out more.

New ARGUS customers in North America can obtain access to ARGUS Zone for $49.99 per month for the Standard package or $79.99 per month for the Plus package which includes access to market research, access to MS Live Meeting and workflow tools among other things. Current ARGUS customers may upgrade their ARGUS Zone membership to the Plus package for the introductory rate of $49.99 per month.  Click here to be taken to the web store to purchase an ARGUS Zone plan with the introductory pricing.

Development Securities PLC Completes Carnival’s UK HQ

Source: Development Securities

Development Securities PLC, a UK-based property development and investment company, announces the completion of the prime headquarters building for Carnival UK, two months ahead of the scheduled programme.

The 210,000 sq. ft. office, developed with Aviva Investors, occupies the West Quay III site in Southampton’s town centre. The building, complete with a 10,000 sq. ft. atria and sculpted public art façade, was handed over to Carnival on 15th December for their internal fit out.

Duncan Trench, Head of Delivery at Development Securities PLC, said: “ It is pleasing that we have successfully delivered a modern and flexible new office space for Carnival UK. The cooperative and open dialogue with our investors, the tenant and Southampton Council throughout the development process resolved the challenges often associated with such complex inner city developments.”

David Dingle, Chief Executive Officer of Carnival UK, the cruise operators, said: "We are excited at the prospect of moving the Carnival UK business into this landmark property and are very pleased with the building which we will be occupying next year. This state-of-the-art working environment will enable us to consolidate staff from five different locations, enhance our efficiency and provide a highly-enjoyable place in which to work."

Councillor Royston Smith, Southampton City Council, said: “This is a momentous achievement for our city. Southampton City Council is extremely proud that the world’s largest cruise shipping company Carnival has chosen to base its UK headquarters here and that Development Securities has delivered such a remarkable building. We congratulate them both for joining in our vision to put Southampton at the forefront of European cities.”

PREIT Secures $173M in Financing

Source: PREIT

Pennsylvania Real Estate Investment Trust (“PREIT”)has completed three non-recourse mortgage loans with total proceeds of $173 million that are secured separately by Exton Square, Francis Scott Key and Viewmont Malls. Year to date, the Company has completed 14 financings for an aggregate of more than $820 million.

Ron Rubin, Chairman and Chief Executive Officer of the Company said "We are pleased to have completed these financings and are excited about the progress we are making at our transformed Cherry Hill Mall, Plymouth Meeting Mall, and Voorhees Town Center properties. In 2009, visitors to these malls are sure to enjoy the shopping, dining and entertainment experiences we are creating at these vibrant New Jersey and Pennsylvania properties."

PREIT closed a $70 million non-recourse mortgage loan secured by Exton Square Mall in Exton, Pennsylvania. This mortgage loan, provided by the lenders for the previous mortgage loan, carries a fixed interest rate of 7.50% for the term of the five year loan. Exton Square Mall, acquired in 2003, is a 1.1 million square foot enclosed mall anchored by Boscov's, JCPenney, Macy's and Sears. As of September 30, 2008, non-anchor occupancy was 83.6% and twelve-month same-store sales were $359 per square foot.

PREIT also closed a $55 million non-recourse mortgage loan secured by Francis Scott Key Mall in Frederick, Maryland. The five-year, interest-only loan, provided by a commercial bank, carries a variable interest rate of LIBOR plus 2.35% that was swapped to a fixed rate of 5.245% for its full term. Francis Scott Key Mall, acquired in 2003, is a 711,000 square foot enclosed mall anchored by JCPenney, Macy's and Sears. As of September 30, 2008, non-anchor occupancy was 92.3% and twelve-month same-store sales were $355 per square foot.

Finally, a $48 million non-recourse mortgage loan secured by Viewmont Mall in Scranton, Pennsylvania was also closed. The five-year, interest only loan, provided by a commercial bank, carries a variable interest rate of LIBOR plus 2.35% that was swapped to a fixed rate of 5.245% for its full term. Viewmont Mall, acquired in 2003, is a 750,000 square foot enclosed mall anchored by JCPenney, Macy's and Sears. As of September 30, 2008, non-anchor occupancy was 92.5% and twelve-month same-store sales were $375 per square foot.

The proceeds from these three financings were used to repay the previous $93 millionExton Square Mall mortgage, repay a portion of the amount outstanding under the Company's Credit Facility and for general corporate purposes.

Lend Lease Names New CEO

Source: Lend Lease

Lend Lease has named its current Finance Director, Steve McCann, as Chief Executive Officer. The appointment follows a global search process, announced in August this year, which included assessment of a number of high quality external and internal candidates.

Mr McCann will formally take over as Group Managing Director from Greg Clarke, early in 2009 following a transition period to ensure a smooth handover of responsibilities.

Mr McCann has more than 15 years’ experience in property, first in his capacity as an investment banker advising a number of large Australian property companies including Lend Lease and more recently in his three years as a senior group executive with Lend Lease. He joined Lend Lease in September 2005 as Global CEO of the Investment Management business before moving into the group Finance Director role in March 2007.

Lend Lease Chairman, Mr Crawford said: “We are delighted to confirm Steve McCann’s appointment ”

“Steve’s strategic focus and management strength became clear as he guided the repositioning of the Group’s Investment Management business to become widely regarded as a leading wholesale fund manager in the property investment market.

“As a member of the senior executive team, Steve has been a key driver of the Company’s integrated business model. In his role as Finance Director, he has worked closely with the Board to enhance the Group’s risk management processes and has been instrumental in ensuring the company’s capital structure has remained one of the strongest in the industry.

“Steve has already made a significant contribution to Lend Lease. His financial and earlier legal experience together with his in depth knowledge of the Lend Lease Group, make him well prepared for the CEO role. The search process confirmed that he is the best person to lead the Company through the turbulent market conditions at present and on to its next phase of growth,” Mr Crawford said.

Mr Crawford also paid tribute to Mr Clarke’s contribution over six years at the helm of Lend Lease.

“Greg leaves Lend Lease in a sound financial position and with a significant backlog of attractive development positions in its key markets and sectors. He drove the revitalisation of the business including the creation of its integrated business model,” Mr Crawford said.

“Greg recruited Steve McCann three years ago as a potential successor and has actively participated with the Board in the recent search and benchmarking process.

“The Board extends our sincere thanks to Greg for his achievements as CEO and his willingness to remain at Lend Lease to assist our new CEO with a smooth transition process,” he said.

Brad Soller, Deputy Chief Financial Officer, has been appointed interim CFO while an extensive search and benchmarking process is conducted both internally and externally to ensure the CFO role is also filled by the best possible candidate.

Heijmans Makes Further Organizational Changes; Cuts More Jobs

Source: Heijmans

European property development, building and facilities manager, Heijmans has announced the the elimination of 200 jobs in Heijmans’ support (staff) departments, as well as an additional 450 jobs will be eliminated in the other operational areas. The reductions affect both direct and indirect personnel in the Netherlands. Jobs will be eliminated in Property Development, Residential Building, Non-residential Building and Road Building (Infrastructure). The intervention is designed to allow the organization to operate more cost effectively.

The motivation for this action is threefold: 1) To reposition the residential and non-residential building sector; 2)To improve the match between available capacity and expected volumes; and 3) To achieve improved efficiency due to a reduction in business units/regions.

The property development sector has been hit by the impact of deteriorating market conditions. The Property Development and Residential Building organization structures will be adjusted, thereby taking the lower numbers of new housing units to be built and sold into account. In terms of activities in the non-residential building sector, less work is expected due to the selective contracting policy being pursued. An excess of asphalt production capacity is prevalent in the road building marketplace. In part due to this situation, jobs are becoming redundant in this area.

The elimination of the additional 450 jobs will be realized on the basis of terminating temporary contracts, regular turnover and forced layoffs. This will be effected during the course of 2009.

Wyndham Worldwide Announces Plan to Eliminate Reliance on Asset-Backed Securities Market

Source: Wyndham Worldwide Corporation

Wyndham Worldwide Corporation today announced an acceleration of its initiatives to increase cash flow and eliminate its reliance on the asset-backed securities (ABS) market by reducing the sales pace and cost structure of Wyndham Vacation Ownership. The Company now expects to reduce gross Vacation Ownership Interest (VOI) sales in 2009 to approximately $1.2 billion from expected gross VOI sales of approximately $2.0 billion in 2008 by eliminating sales offices and marketing programs. In addition to eliminating the need to access the ABS market, the realignment will reduce costs and capital needs and enhance cash flow.

“With the credit markets showing no signs of improvement, we are effectively eliminating our need to access the securitization markets to support an otherwise well-performing vacation ownership business. These proactive steps will ensure maximum flexibility across all our businesses irrespective of conditions within the asset-backed securities market. If the markets are available, we will certainly utilize this effective form of financing, but we are assuming that the markets will be unattractive for the foreseeable future,” said Stephen P. Holmes, Wyndham Worldwide Chairman and Chief Executive Officer.

The Company expects to take a charge of approximately $50 - $60 million in the fourth quarter of 2008 and $10 - $15 million in the first quarter of 2009 related to these initiatives. These charges are incremental to previously announced company-wide restructuring charges of $25 - $30 million in the fourth quarter of 2008 and $5 - $10 million in the first quarter of 2009.

“As we navigate through this difficult economic environment, I am proud of our associates, who continue to deliver outstanding results. We have a great mix of strong and stable hospitality businesses. Our vacation ownership business is complementary to this platform, giving us a full spectrum of consumer offerings from an overnight stay to a lifetime of vacations and contributing to strong brand loyalty,” said Mr. Holmes.