Corporate Real Estate Strategies and Implementation Lau Melchiorsen, Director Corporate Solutions 28 October 2012
From Cost optimization To Value creation
Sadolin & Albæk Sadolin & Albæk is an independent commercial property agency and consultancy firm with offices in Copenhagen and Aarhus. Sadolin & Albæk employs 34 people of which 29 are based in Copenhagen and 5 in Aarhus Sadolin & Albæk has a strategic alliance with Jones Lang LaSalle, one of the world s leading real estate services providers with market coverage in 60 countries. Thanks to its alliance, Sadolin & Albæk has a solid international platform, also in the Nordic region. Sadolin & Albæk has long-standing experience with the traditional range of real estate services, which also draws on up-to-date knowledge within the fields of economics, investment, finance, accountancy and law on the strength of its highly qualified staff. Sadolin & Albæk is a member of RICS. Valuation and Analysis Valuation of commercial properties, portfolios and development projects (feasibility studies) Accredited valuation standards and practices Substantial knowledge database International network of top analysts Absorption analyses Market reports Capital Markets/ Corporate Finance Mediation of commercial and investment properties as well as minor portfolios, also by means of company transfers Structured sales of major commercial properties, portfolios and property companies Investment strategies Portfolio analyses Advisory services regarding property fund set-ups Corporate Solutions Professional corporate real estate consultancy services Reduction of corporate overheads Optimisation of corporate space Sale & leaseback transactions Renegotiation of lease agreements, etc. Relocation advisory/ tenant representation Commercial Leasing Mediation of commercial leases, primarily in Copenhagen Broad network of landlords and substantial prospective tenant data-base Professional marketing tools and exposure Lease valuations -3-
Sadolin & Albæk Corporate Solutions: selected clients 2012-4-
Goals for CRE Drive costs out of the business Add flexibility and agility Aggressively manage talent Grow the business Optimize the use of capital Brand Consolidate facilities Take advantage of market opportunities Implement design or workplace standards Relocate operations to low cost markets Drive enterprise initiatives (e.g. sustainability) Maximize economic incentives Create workplace strategies that enable collaboration, mobility & sharing of space Implement financial RE structures that align with business objectives & optimize flexibility Develop consistent processes that streamline decision-making Identify strategies that support the way employees need and want to work implement real estate / occupancy strategies that attract talent to the firm? Reinforce your brand through real estate Allow business leaders to spend less much time on real estate and more time on business issues Speed to market Optimal locations Create savings and capital for reinvestment Efficiency in operations Identify opportunities to access capital hidden in the portfolio Manage capital needed to maintain assets Add value and speed to the acquisition and divesture process Create workplaces that reinforce the brand Locate in locations that reinforce the brand 5
Approach & preliminary schedule Project Launch Data Sourcing, Collection, Normalization & Consolidation Business / Project Vision & Objectives Discovery Supply Portfolio Analysis Market Analysis Current & Future HC (if available) Workplace Strategy Demand Opportunity ID & Assessment Strategic Decisioning Workshop Phase II steps to be addressed under a separate scope Desired outcomes: Data is collected for all facilities Data gaps highlighted for future efforts Stratified data to provide portfolio insight Comparison to relevant benchmarks Identification of potential opportunities and risks High-Level Business Case Implementation Roadmap Recommendation Phase I Data Collection & Opportunity Assessment (Weeks 1 8) Phase II - Bus. Case Development 6
Different Delivery Options External strategic; high supplier leverage Decentralized Out-tasking Fragmented authority, different standards, more expensive, multiple internal owners using multiple providers Strategic Alliance Partner Partnership - central cost accountability, standard service levels, transformation of workflow and optimized organisation model Legend: Lowest Cost / Highest Quality Lower Cost / Higher Quality Higher Cost / Lowest Quality Highest Cost / Lower Quality Organizational focus Self Performance Model Multiple internal owners, duplicate costs, non-standard, low leverage of spend Asset Management/ Bundled Services Model Centralized Functions, Programs, Processes - either self performed or provided by multiple service providers Benefits: CRE Value IT Speed Risk Management Innovation Quality Internal operational; low supplier leverage Cost Savings Efficiency Distributed Accountability for outcomes Centralized 7 7
Partnering Continuum 8
Optimizing portfolio costs From payables focus to integrated strategy: increasing value Integration with transactions & strategy Monetary & non-monetary value Data maintenance Strategic portfolio mgmt Portfolio consolidation & Speed to market (10% - 20%) Cost savings & avoidance (.4 -.8%) Control & Sox compliance Value Scope Lease Data Maintained Non lease Data Linked in Financial Mgt of A/P and /A/R Integration w/ Transaction Process Integration w/ Longterm Strategic Planning
Opportunity identification & assessment Details of our typical methodology Reduce Operating Expenses Leverage Market Standards Facility Operating Expenses Own vs. Lease Portfolio Stratification Asset Type Geography Business Unit Levers Reduce Portfolio Footprint Consolidation / Utilization Strategy Optimize the amount of capital invested in owned real estate Highest & Best Use Vacant Space Strategy Strategy Own vs. Lease Alternative Work Practice Adopt New Ops Model Cost Savings / Improvement Opportunities Optimize portfolio flexibility Duration Matching Own vs. Lease Quick Wins / Big Rocks The objective is to identify actionable recommendations that prioritizes opportunities for cost savings, monetization and value enhancement. The Task Force Driven Rapid Assessment approach above outlines some of the areas we analyze to identify opportunities 10
Generic Scope of a premises portfolio strategy Required knowledge to reply demands Understand business drivers Reduce total occupancy costs, headcount change, M&A activity, business direction and company values Understand occupancy trends How is the existing space being used, utilization rates, spatial needs Develop the Workplace Vision How will the workplace improve productivity, what space do you need, what will it look like, branding & communications, technology enablers 11
Trends branding towards employees An engaging corporate culture: Corp. Banding is increasingly turning inward to connect employees with the company, its business and its values e.g.: the front door feeling, transparent CEO offices, logos, signage, slogans, product photos, colours that echo products 12
Trends identity Vision What we want? Our stakeholders Costumers Employees Shareholders Culture How we do it? Image Who we are? 13
Trends physical working environment and more 76 Site1 Site 3 Site 5 Site 2 Site 4 65 56 59 57 62 67 64 65 66 64 65 69 68 72 61 57 54 72 63 67 65 70 50 49 The internal climate (draught, temperature, air quality, etc) at my workplace is good Cleaning in my unit is adequate The lighting at my workplace is suitable I am not disturbed by noise at my workplace The physical working environment at my place of work 14
No matter what it all begins with the key figures Key figures Owned premises Total owned [m2) Market value [DKKm] Book value (DKKm, 2011] Internal rent [DKKm] Rented premises Total rented [m2] Total Site 1 Site 2 Site 3 Site 4 Site 4 Total Site 1 Site 2 Site 3 Site 4 Site 5 Total Vacancy Total running cost (rent and operating); DKKm Number of workplaces 2012 Operating cost Rent Owned Rented ( ) Vacancy (app.) Gross capacity [m 2 ] Total Site 1 Site 2 Site 3 Site 4 Site 5 Owned Rented Note: Excl. Cleaning, security, catering etc 15
to be compared with benchmark on key cost drivers to set new targets Cost per workplace is significantly above benchmark The structure of our buildings is inefficient but overall we use the office space available effectively Cost per workplace; DKK Gross area per workplace; Effective work area per Vacancy; % m 2 workplace; m 2 We have above benchmark vacancies in our buildings XX.000 27 20 10 Optimized target XX.000 20 7 8 -XX% -24% -6% -20% Definitions Benchmark calculated on the basis of a diversified premises portfolio considering in and out of city locations Benchmark is estimated by external consultants and is based on newer office buildings for comparable companies in Scandinavia Benchmark is estimated by external consultants and is considered comparable with similar companies in Scandinavia 16
Opportunity identification - sample deliverables 17
Summing up Required knowledge to reply demands Understand business drivers Required knowledge to reply supply Organize the change high anchored Understand occupancy trends Agree on programme objectives Develop the Workplace Vision Develop workstreams (projects) Know facts and figures Reveal interdependencies Know benchmarks Implement Develop strategic focus areas... and adjust along the way 18
Role/focus of corporate real estate has changed... Focus areas Proactive (not reactive) procurement CRE is part of the core business strategy planning process CRE is seen as a change management tool CRE is seen as a communicator CRE is seen in the business context Real estate is seen together with FM (TCO) The portfolio is getting smaller but increasingly important and fun to work with 19
RE cost per head - Example 120 100 80 60 40 20 50 000 DKK/head/year saving 1 000 heads 50 M/year bottom line saving 0 2004 2005 2006 2007 2008 2009 2010 Total run rate KSEK/y/Hhead -20-
RE cost savings - Example Annual savings compared to relocate based on achieved results of negotiation % Current Future Saving Effects of rent reduction initial p.a. DKK 11.273.025 DKK 9.141.700 DKK 2.131.325 18,91% Calculated on the basis of the same area Effects of area reduction DKK 9.141.700 DKK 8.440.000 DKK 701.700 7,68% Calculated on the basis of future rent Effects of potential area reduction DKK 8.440.000 DKK 6.967.000 DKK 1.473.000 17,45% Calculated on the basis of future rent Total annual savings DKK 11.273.025 DKK 6.967.000 DKK 4.306.025 38,20% Compared to cost per May 1, 2011 - current situation Other results Non-termination 10 year lease Break Option to break the whole lease per July 1, 2016 with 12 months notice with no penalty Notice Canteen 12 months - currently 9 months Canteen to be shared, Effective date July 1, 2011 Hand back of excess space, est. 427 sqm Break option Penalty January 1, 2012 Option to break for half of 4th floor and 5th floor per July 1, 2013 - no notice 12 months rent upon break -21-
Questions 22