Freeholds spurned to quench capital thirst

Once perceived as a desperate attempt to rescue a drowning business, sale and
leaseback of commercial property has re-emerged as a popular way to unlock value
and increase return on capital.

Over the past year, sale and leaseback deals worth over £2bn were finalised
as the likes of Tesco, Goldman Sachs and Debenhams decided to take advantage of
the embedded value tied up in their property portfolios.

For finance directors, a sale and leaseback not only frees up the proceeds
from property sales for reinvestment. It also offers a range of tax and
reporting benefits.

In a report titled Sale and leaseback takes the spotlight, Big Four firm KPMG
points out that a sale and leaseback allows companies to take a tax benefit by
offsetting lease costs as an operating expense.

In the report, Nick Leslau, chief executive of Prestbury Investment Holdings,
said the rise of private equity and the desire to make capital work harder had
driven the sale and leaseback trend. Prestbury has invested £1.3bn in sale and
leasebacks over the past three years. ‘The advent of private equity has changed
the game. Smart money has come in to buy inefficient companies, and make capital
work,’ Leslau said.

According to KPMG, the market for sale and leasebacks is set to continue
growing this year, as there is still a large amount of commercial freehold
available in the UK.

‘The combination of increasing investor interest in continental Europe and a
structural shift in corporate and government thinking suggests activity will
continue to grow,’ said John Taylor, a director in KPMG’s real estate advisory
team.

Leslau, however, warned that the continued growth of sale and leaseback was
linked to the property market cycle and could not continue indefinitely.

COMPANY REPORTS

FTSE 250
Tullow Oil, the £2.2bn company by market cap, has lashed outat government’s
plans to raise the tax on North Sea oil. Reporting a 98% increase in 2005
revenues, which climbed from £225.3m in 2004 to £445.2m, the oil company said it
could not understand the government’s intentions at a time when the UK was
importing energy.

In a statement it said: ‘While Tullow’s UK business has prospered, the
government’s decision to raise the supplemental corporation tax rate for the
industry is difficult to understand at a time when the UK, as a net importer of
gas, is seeking to promote investment in exploration and maximise recovery of
indigenous reserves.’

The restructuring of Cable & Wireless into two divisionswill result in
the departure of Charles Herlinger, the company’s finance director, in May.

Tony Rice, a non-executive director, will take on the new role of group
managing director and central and finance director. C&W has been struggling
lately after it issued a profit warning in late January and said its 2006
earnings would be affected by several non-recurring items, which had also
affected results from previous years.