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In December 2001,
as part of a wider property outsourcing arrangement, BT completed
the sale and leaseback of the majority of its UK properties to
Telereal, a 50/50 joint venture partnership formed by Land Securities
Trillium and The William Pears Group. Around 6,700 properties
– offices, telephone exchanges, vehicle depots, warehouses,
call centres and computer centres – were transferred totalling
some 5.5 million square metres. Under these arrangements, Telereal
is responsible for providing accommodation and estate management
services to BT. The consideration received amounted to £2,380
million. BT has leased the properties back at a total annual rental
commencing at around £190 million for the 2003 financial
year and subject to a 3% annual increase. This charge was offset
by reduced depreciation and interest charges. In addition, BT
has transferred the economic risk on a large portion of its leased
properties to Telereal in return for an annual rental commencing
at approximately £90 million per annum. This was broadly
equivalent to the existing level
of rentals. In February 2002, BT outsourced its property management
unit to Telereal.
The
profit on the sale of the properties amounted to £1,019
million and was determined after allowing £129 million for
BT’s actual and future obligations under the terms of the
legal agreement with Telereal and for the cost of advisors’
fees. The obligations include expenditure of £34 million
to be incurred on completing nearly finished new properties and
remedial work to be undertaken on several properties.
Part
of the proceeds of sale were used in novating fixed interest rate
obligations to support Telereal’s financing. An exceptional
cost of £162 million was incurred in unwinding this position
and was included in the interest charge for the year.
In
summary, the property transaction benefited the results for the
2002 financial year by £857 million as shown below:
| Profit
on sale and leaseback of properties |
£m |
|
|
|
| Sales proceeds |
2,380 |
|
| Net book value
of assets disposed |
(1,232 |
) |
| Estimated cost
of BT’s future obligations |
(129 |
) |
|
|
|
| Profit on properties
sold |
1,019 |
|
| Interest rate
swap novation costs |
(162 |
) |
|
|
|
| Net profit on
sale and leaseback of properties |
857 |
|
|
|
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Following this transaction,
we retained direct ownership of approximately 220 properties –
including certain telephone exchanges, computer centres and high
radio towers – totalling some 800,000 square metres. We also
retained BT Centre, our headquarters building, Adastral Park,
our major research facility near Ipswich, Madley and Goonhilly
earth satellite stations and the BT Tower in central London.
In
advance of the property transaction being completed with Telereal,
BT also completed the sale of one of its major properties in London
at a profit of £43 million.
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