Corporate Real Estate Management

Question 1

What is meant by the 4P’s and how does this relate to your client?

Answer 1

• Property
  
  • Retail premises for business activity
  • Offices for corporate functions such as HR, Finance, Property, etc
  • Stadia for betting products
• Pounds
  
  • Securing the best rents for betting shops on market trends
• Place
  
  • Ensuring shops are best placed for trading potential
  • Ensuring good office location to recruit the best corporate staff
• People
  
  • Ensuring staff are trained and competent to do their jobs
  • Ensuring staff are aware of business strategy and contribute to this

Question 2

What is lease engineering/re-gearing, give me examples

Answer 2

• Re-gearing is changing the terms of a lease to suit both Landlord and Tenant
• Examples:
  
  • Queen Victoria Street, Reading
  • Rent was £135k
  • Reduced to £125k in exchange for moving break by 24 months

Question 3

What’s the contents of a PLC Company Accounts?

Answer 3

• Chairmans Statement
• Independent auditor’s report
• Income statement (Profit & Loss account)
• Statement of financial position (Balance Sheet)
• Corporate Governance Report
• Remuneration Report

Question 4

What’s the difference between a Profit & Loss account and a Balance Sheet?

Answer 4

• A P&L is a summary of income and expenditure for a period of time, such as a Quarter or Financial Year
• A Balance Sheet shows a company’s assets and liabilities at a specific point in time
  
  • Assets can include cash, property, investments held
  • Liabilities can include borrowings, overdraft, loans etc
• Under IFRS 16, LH properties should be listed as a liability on the balance sheet, showing a company’s liability to pay rent

Question 5

How has Covid-19 affected Corporate Real Estate Management for your company?

Answer 5

• Pressure on rents
• Closed two London offices to make way for hybrid working
• Cost saving exercises for Real Estate, including re-gearing leases, rent reductions, closures of loss making shops
• Requesting rent deferrals for the 2020 March Quarter
• Requesting Covid clauses in lease renewals, re-gears

Question 6

Can you tell me your understanding of IFRS 16.

Answer 6

• Leases of more than 12 months to be accounted for on the balance sheet as liabilities
• This can affect a company’s gearing ratio by listing leases as liabilities

Question 7

Can you tell me your understanding of the 4 P’s and give me examples of why they are important to your client?

Answer 7

• Property - re-fit programmes currently ongoing to deliver 100 new “digi-hubs” per year
• Place - ensuring our property’s are in the right trading locations by analysing customer trends, demographic spend
• People - ensuring we have the right staff, if the manager is poor, the shop won’t succeed
• Pounds - ensuring we are paying the market rent, I recently negotiated a lease renewal in Guildford which reduced the rent by £42,000 P.A.

Question 8

Can you tell me about the sale and leaseback project you were a part in

Answer 8

• The client’s strategy is to move all properties onto LH to ensure flexibility of tenure due to the constant changing trading conditions
• 17 properties were listed for inclusion in a sale and leaseback project
• This would involve the sale of the Ladbrokes or Coral covenant on a 10 year lease with a TOB & RR at 5
• All properties were to be sold at auction to ensure fluidity of sale and an open audit trail of sale on an arms length basis
• The reserve was set at 10% yield of the ERV for each property
• I valued the properties individually on an investment method with a market approach
• The project delivered £3.4m with a net income of £2.9m generating a net yield of 7.43%
• 10% rent deposits paid as security to Landlord’s

Question 9

Can you tell me how you undertake budgeting for your client?

Answer 9

• The budgets are carried out on an annual basis in September for all lease events outstanding or upcoming in the following year
• A rental budget, SC budget is then set for each shop depending on our experience with the transaction and any foreseen rental increases
• These are then sent to the finance team for inclusion in P&L budgets for the shops
• The total rent payable is then held on the Balance Sheet as a liability to pay rent under IFRS 16

Question 10

Can you tell me about any rent saving initiatives you were a part of?

Answer 10

• Project Artemis
• Targeted the top trading shops during the pandemic for rent saving incentives
• These were either re-gears or lease renewals based on a targeted percentage reduction
• If the target wasn’t met, or the LL rejected the deal, it was rejected
• The reductions also included rent free periods, such as Queensmead, Farnborough
• The project saved the business £500,000 P.A. in rent saving across 109 transactions, I was responsible for 14 of these transactions in a team of 8 saving the business £30k P.A. against passing rent

Question 11

Can you give me some examples of market factors which affect Corporate Real Estate strategy?

Answer 11

• Technology - less need for permanent desks for each member of staff. The client consolidated 3 London offices to 1 saving £3m in rent P.A.
• Globalisation - we moved our first line IT support and AP function of Hydrabad for cheaper labour cost
• Corporate takeover - Ladbrokes Coral was bought out by GVC in 2018, the Victoria Office was closed as a result and moved to St Pauls
• Legislation Changes - The Gambling Act 2005 triennial reform saw 500 shops closed due to the stricter rules on machines. The latest white paper for proof of funds is expected to hit profits hard as well

Question 12

Can you tell me the advantages and disadvantages of outsourcing?

Answer 12

• Efficiency gains for economy of scale
• Expertise in the area outsourced, e,g. business rates is outsourced
• Higher costs
• Loss of control of key functions
• Loss of internal relationships
• Cultural factors not present if outsourced