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A Portfolio Makeover for Boots
Sophisticated Structuring Maximizes Disposition Strategy
- Boots Plc is one of the leading retail companies in the UK.
“It is difficult for agents to differentiate on market capability and, in truth, many firms have good connections. What we really appreciated was, after a good debate over the next steps, the team delivered. The communication was clear, timely, and relevant. We got a great result.”
— Richard Bartholomew
Boots Plc is one of the leading retail companies in the UK. In 2005, we were invited to structure a sale-leaseback of £250-£300 million ($436 million to $523 million) worth of freehold (owned) and long-leasehold properties occupied by Boots.
We were instructed to maximize value while retaining sufficient flexibility for the changing requirements of Boots’s retail operations. Boots wanted to retain maximum flexibility to respond to changing trading conditions. A portfolio of 312 properties was chosen and included a unique geographic spread across the UK.
The unique structuring of the transaction represented one of the most innovative property transactions in the UK for 2005.
Our Capital Markets team worked with Boots to analyze a series of economic scenarios to identify which stores might need to be vacated. Our team then determined the price potential investors would pay for the overall portfolio given key variables, including an annual option to vacate with flexible terms of 1.5% or 3%. Boots also wished to review the price differential applied to lease length, so our team asked for bids on both 15- and 20-year lease lengths.
In addition, the deal was structured to provide Boots added flexibility should unforeseen changes arise. The team negotiated an option whereby Boots could vacate 20% of the portfolio simply by giving a year’s notice and paying three- or four-year’s rent, based on an index of the portfolio’s overall rental value.
A limited number of parties were approached and a two- stage carefully managed bidding process was undertaken. Given the matrix structure of the bidding process, our Capital Markets team was able to determine each bidder’s willingness to pay, and how much, given alternative scenarios. That matrix enabled Boots to make an informed decision as to the best outcome. The ultimate purchase price provided Boots with a significant profit above the portfolio’s book value, certainty of future occupational costs, and retained substantial flexibility.