A disposition will trigger the write-down of unamortized capital expenditures from previous projects. Do you have this information?
Subleases establish legal and financial liability for security deposits
FASB 13 and “Materiality”:
Subject to interpretation, there is a point when a leasehold space is sufficiently vacated to force a trigger the write-down of the remaining obligation associated with that space. Different companies may have different standards for materiality
Trigger of ADA requirements
Scrutiny of lease and past improvements by landlord
Top priority will be given to reduce the amount of time needed to free the corporation’s capital from surplus property to redirect it to the core business of the corporation
However, in the effort to reduce the amount of time needed, no short-circuiting of planning, research and due diligence will occur in order to save money or get to market
You are the corporation’s real estate advisor : Be committed to infusing the disposition strategy and philosophy and process with your corporate knowledge. Communicate confidence in dealing with “Monday morning quarterbacks”
The goals you develop in your surplus portfolio disposition plan provide a context for analyzing the situation - property by property. Begin your situation analysis by reviewing the major goals including:
Cash to be generated
Occupancy costs to be saved or avoided
Tax benefits to be realized
Other balance sheet or income statement impacts realized
Since the disposition of surplus property can create a major tax event which your corporation may want to avoid or delay, the potential capital gain or loss which would be realized must be calculated and communicated
Taxable capital gain or loss is calculated by subtracting the net book value from the net proceeds of the sale
Price Earnings Ratio (P/E):
Expresses the perceived relationship between a company’s value and its earnings, as indicated by the price of the stock and the company’s earnings per share
At many companies, it is an accepted practice to apply the P/E ratio to occupancy costs eliminated by the disposal of surplus properties in order to determine the true overall financial impact to the corporation. The theory is that every dollar of savings equals a dollar of after-tax earnings.
Focusing on obtaining the optimal financial outcome does not necessarily mean getting the highest price for the property, but rather achieving the best results in terms of earnings and balance sheet effects
Financial evaluation of dispositions can be reduced to the “Three T’s”:
As the decision model suggests, conclusions drawn from the situation analysis provide the context for strategy development. The next step is to “crunch the numbers” for various combinations of the “Three T’s” using a financial model appropriate to the transaction.
At this point, the alternatives must be compared with respect to:
An exchange is a tax-deferrable transaction by which a seller trades one property for another “like-kind” investment. If the transaction is in accordance to IRS rules - capital gain is not realized as a taxable event. Instead, the gain is transferred to the other exchange property.
Company : desiring disposition but willing to make a qualifying investment in interim
The situation analysis assessed the property, the tenants, and the market. That assessment should reveal the property’s strengths and weaknesses. These strengths become selling themes of the marketing plan.
A selling theme shows how a targeted buyer or lessee can benefit from the property through understanding their buyer values.
Can an “artificial market” be created to serve a sense of urgency and greed in the market?