GOVERNMENTS have been doing it, large corporations have been doing it, and small enterprises are now following suit.
GOVERNMENTS have been doing it, large corporations have been doing it, and small enterprises are now following suit.
The common cause is cost cutting, principally by the shifting of property assets and equipment off balance sheets and into the hands of investors and institutions.
The asset sell-off has coincided with the increasing move to out-source non-core business.
The Federal Government has been leading with fire sales of almost 60 properties worth close to $1 billion in the past 12 months. Most notable sell-offs over the past decade have been defence properties and airports.
Telstra also has been an active seller, with a multi-million dollar asset disposal program under way. Then there are other leading corporations, such as Qantas, David Jones and Wesfarmers, which have taken properties off the books either by selling them or through the establishment of individual property trusts.
Ernst & Young tax partner Ian Crisp said assets sales and lease-backs were another way of raising finance. He said it was this point that should always be the motivation behind any decision to sell an asset.
“If you’ve got existing assets that are not yielding a higher return for the business you might be better crystallising it,” he said.
“There are some tax benefits, particularly for companies that are carrying forward cash losses. If the value of the property being disposed of is greater than the book value, this profit on the sale can be used to offset the tax loss.”
Property Council policy manager Geoff Cooper said the trend was being driven by businesses wanting to make more out of their balance sheet.
“Sale lease buybacks are being driven by the increasing realisation by businesses that property is not a part of their core business,” he said.
Colliers International manager research David Cresp said while sale and lease-back arrangements were popular, it was not a new phenomenon.
However, he said the incidence of lease-back arrangements was likely to decline over the next few years once most of the large corporations had removed the bulk of their assets from their balance sheet and continued to enter lease arrangements.
Mr Cresp said an advantage for the company selling the asset was that it immediately freed up cashflow, which could be used more effectively elsewhere.
“It has been a trend for large corporations to sell their properties. It’s seen as a lazy asset and most businesses want to invest in their business,” he said.
Mr Cresp said this was because the yields from owning property in many cases were lower than that a business hoped to achieve through the core business.
But he said it really depended on the structure of the business as to whether benefits existed.
Yet for many small to medium businesses, achieving a lean balance sheet is of secondary importance. Lowering the cash expense outflow may also be obtained by sticking with the traditional approach of buying the premises or assets.
“With the low interest rate environment there is a very strong trend for smaller industrial companies to become owner-occupiers,” Mr Cresp said.
He said low interest rates meant loan repayments were lower than the yield demanded from a third party owner.
Another advantage was that the owner could spread the risk by diversifying into other asset classes. It also could insulate the business against failure.
Many businesses were using tax incentives through their own superannuation funds to finance the property or equipment purchases.
In these circumstances the business leases the property or asset from the self-managed superannuation fund.
Mr Crisp said tax benefits were another driver for businesses wanting to “cash their assets in”.
“There are some tax benefits, particularly for companies that are carrying forward cash losses,” he said.
If the value of the property being disposed of is greater than the book value, this profit on the sale can be used to offset the tax loss, Mr Crisp said.
However, he said it was imperative that the company didn’t go into an asset sale purely for tax reasons. Raising cash had to be the main objective.
The common cause is cost cutting, principally by the shifting of property assets and equipment off balance sheets and into the hands of investors and institutions.
The asset sell-off has coincided with the increasing move to out-source non-core business.
The Federal Government has been leading with fire sales of almost 60 properties worth close to $1 billion in the past 12 months. Most notable sell-offs over the past decade have been defence properties and airports.
Telstra also has been an active seller, with a multi-million dollar asset disposal program under way. Then there are other leading corporations, such as Qantas, David Jones and Wesfarmers, which have taken properties off the books either by selling them or through the establishment of individual property trusts.
Ernst & Young tax partner Ian Crisp said assets sales and lease-backs were another way of raising finance. He said it was this point that should always be the motivation behind any decision to sell an asset.
“If you’ve got existing assets that are not yielding a higher return for the business you might be better crystallising it,” he said.
“There are some tax benefits, particularly for companies that are carrying forward cash losses. If the value of the property being disposed of is greater than the book value, this profit on the sale can be used to offset the tax loss.”
Property Council policy manager Geoff Cooper said the trend was being driven by businesses wanting to make more out of their balance sheet.
“Sale lease buybacks are being driven by the increasing realisation by businesses that property is not a part of their core business,” he said.
Colliers International manager research David Cresp said while sale and lease-back arrangements were popular, it was not a new phenomenon.
However, he said the incidence of lease-back arrangements was likely to decline over the next few years once most of the large corporations had removed the bulk of their assets from their balance sheet and continued to enter lease arrangements.
Mr Cresp said an advantage for the company selling the asset was that it immediately freed up cashflow, which could be used more effectively elsewhere.
“It has been a trend for large corporations to sell their properties. It’s seen as a lazy asset and most businesses want to invest in their business,” he said.
Mr Cresp said this was because the yields from owning property in many cases were lower than that a business hoped to achieve through the core business.
But he said it really depended on the structure of the business as to whether benefits existed.
Yet for many small to medium businesses, achieving a lean balance sheet is of secondary importance. Lowering the cash expense outflow may also be obtained by sticking with the traditional approach of buying the premises or assets.
“With the low interest rate environment there is a very strong trend for smaller industrial companies to become owner-occupiers,” Mr Cresp said.
He said low interest rates meant loan repayments were lower than the yield demanded from a third party owner.
Another advantage was that the owner could spread the risk by diversifying into other asset classes. It also could insulate the business against failure.
Many businesses were using tax incentives through their own superannuation funds to finance the property or equipment purchases.
In these circumstances the business leases the property or asset from the self-managed superannuation fund.
Mr Crisp said tax benefits were another driver for businesses wanting to “cash their assets in”.
“There are some tax benefits, particularly for companies that are carrying forward cash losses,” he said.
If the value of the property being disposed of is greater than the book value, this profit on the sale can be used to offset the tax loss, Mr Crisp said.
However, he said it was imperative that the company didn’t go into an asset sale purely for tax reasons. Raising cash had to be the main objective.
