A Detailed Henry Stewart Briefing
Latest Developments in Property Outsourcing

Chair
Susie Gray
Product Development Director – Operations
Land Securities Trillium
President
CoreNet Global UK

Speakers
Ian Campbell
Director of Group Property & Procurement
Bradford & Bingley

Jason Davies
Director
Deloitte Real Estate

Michael Evans
Partner
Donaldsons

Nigel Grice
Partner, Head of Corporate Real Estate
Drivers Jonas

Geoffrey Lander
Principal
Tricore Equity Partners

Michael Lister
Relationship Director
Bank of Ireland

Rob Oldham
Director, Head of Corporate Consulting
DTZ Pieda Consulting

Robin Priest
Partner, Real Estate Solutions
Deloitte & Touche

Rosalind Rowe
Partner, Real Estate Tax Group
PricewaterhouseCoopers

Jeffrey Rubinoff
Partner
Freshfields Bruckhaus Deringer

Melita Thomas
Partner
Remit Consulting

 

Current Thinking on Property Rationalisation Strategies
• Linking property to business measures
• Stratification of property portfolios dependent upon business need
• Dealing with each part of a portfolio:
- core properties: lease regearing/sale and leasebacks/purchase freeholds
- surplus properties: wholesale disposal/ cherry pick/leave on the lights
• Flexibility issues – lease flexibility/ framework agreement terms
• Using covenant strength to create value
• Using the landlord to solve the problem
• Balancing occupancy cost and value created

The Advantages (and Disadvantages) of Outsourcing (to the Outsourcer)
Advantages and disadvantages need to be considered in the context of an organisation’s objectives but they revolve around:
• Control
• Flexibility
• Service levels
• Occupancy cost
• Risk
• Resource
• Innovation

Who is on the Other Side of the Arrangement, Why the Outsourcee is There and What is So Good About the Arrangement for Them
• Outsourcing: the supply side perspective
• How do suppliers make money?
• What do suppliers do well?
• What do suppliers do poorly?
• How can the interests of the outsourcee and the outsourcer be aligned?
• Selecting the right supplier

Alternative Strategic Approaches to Implementation: The Strategic Partner Approach
• Advantages of outsourcing over the more traditional methods of procurement
• The ‘Government’ style model, its advantages and why it is suitable to the public sector
• The Strategic Partner Approach and why it is more suitable to the private sector than the more prescriptive ‘Government’ style model
• Case studies on applying the model with relation to
- management of existing space
- expansion
- contraction
- new space

What the Documentation Looks Like – Problem Provisions to Watch For
• Flexibility of property portfolio to keep up to speed with business needs
• Financing – what is it based on?
• Scope of service
• Access to the property/title issues
• Performance standards, how will performance be measured? What will be the effects of failure?
• Transition issues
• Management of property portfolio: output based or input based?
• Service change – accommodating changes to service requirements
• Vacation periods and cash flow protection

Consequences for Shareholder Value, ‘Real’ Bottom Line Profits and Return on Capital From a Bradford & Bingley Perspective
• Understanding the business strategy
- cost of flexibility
- changes of direction
- value of capital
• Developing an operational business strategy
- cost control
- suitability of property for current and future needs
• Hidden value in freeholds
- accounting for freeholds
- value of covenant and lease length
- equity release and the balance sheet
- property as a bond
• Cost and income impact
- 3 year plan v 15 year lease
- business plan cycle
- notional interest and real yields
• Selecting properties for sale and leaseback
- risk management in freehold and leasehold ownership
- market opportunities
• Enabling surplus property disposal
- FRS 12 risks
- focus on operational property
• Engaging decision makers
- capturing attention of CEO, FD, and Chairman
• Shareholder communications
- property deals in the business context

Implications for Borrowing Strategies and Covenant Strength
• Risk assessment of the corporate
• Does ownership of fixed assets improve the covenant of the corporate?
• Mixing asset borrowing with corporate debt
• Real estate - asset or liability?
• Confusing the corporate strength
• Impact of sale and leaseback
• Property development in the corporate

Implications for Reported Results, the P&L Account and Balance Sheet
• How real estate is reflected in UK financial statements of investors and occupiers
- owner v occupier
- operational lease v finance lease
• Key considerations in the representation of real estate and real estate transactions
• Impact of International Financial Reporting Standards
- current IFRS
- potential IFRS

REITs and Outsourcing
• Conversion of existing outsourcees
• Related tax costs
• Nature of investment
• Funding
• Selecting the right structure including consideration of potential impact on the existing group
• International issues
• What property qualifies? (PFI? Hotels? Shopping Centres?)
• Impacts of sale and leaseback

Understanding All the Implications for Tax
• Stamp duty mitigation
• Capital gains savings
• Structuring options
- maximising capital allowances
- securing tax relief on acquisition

Surplus Operational Property – When Risk Transfer is Not the Answer
• Visibility: liability or asset?
• A property issue, or a financial one?
• Invest to divest
• Modelling and business plans
• Prioritisation: a template for getting things done
• The merits of active management

Outsourcing Business Processes
Massive cost savings through outsourcing? The real story!
• Who is outsourcing?
• Why are they outsourcing?
• What processes are they outsourcing?
• Is anybody offshoring?
• What benefits are being sought and/or achieved in both cost and time?
• What are the barriers to outsourcing/offshoring?
• Where will the market be in 5 years?
- our analysis of the direction the market is going in

Outsourcing so Far – The Lessons Learned and Looking to the Future
• What has gone right in outsourcings to date?
• What have the issues been so far?
• How can the experience to date be best leveraged?
• What are the next opportunities?
- which occupiers?
- which asset classes?
- which geographies?
• Our top three predictions for 2006