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Press Release: Nokia to sell and lease back head office building

| December 4, 2012 | 100 Replies

This was reported back in early October but now it’s official. Here’s the press release.

http://mynokiablog.com/2012/10/03/nokia-staying-in-espoo-hq-but-considers-selling-and-renting-to-cut-maintenance-and-repair-costs/

It’s worth reading the link above as I feel the discussion may recycle itself.

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Espoo, Finland – Nokia has agreed to sell and lease back its head office building in Espoo, Finland on a long-term lease to Finland-based Exilion. We expect to complete the sale by the end of 2012. The selling price is EUR 170 million.

“We had a comprehensive sales process with both Finnish and foreign investors and we are very pleased with this outcome. As we have said before, owning real estate is not part of Nokia’s core business and when good opportunities arise we are willing to exit these types of non-core assets. We are naturally continuing to operate in our head office building on a long-term basis,” said Timo Ihamuotila, CFO, Nokia.

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Category: Nokia

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  • Muerte

    Nice to see that Nokia is finally stepping into modern age in it’s real estate strategy :)

    For all of you who think that this is a negative thing; you can leave the Enter unpressed. This is not a negative thing in any way.

    • stylinred

      oh of course it isnt except its a sign that nokia is still in need of cash

      • KeiZka

        Just like Kone then, hmm?

      • Muerte

        I knew it. You simply can’t expect people not to comment their opinions instead of facts. Read this, for example:

        https://www.cassknowledge.com/sites/default/files/article-attachments/202~~202_mezianelasfer_why_do_companies_lease_their_real_estate_assets.pdf

        Are you saying that most of the biggest western companies are in a need of cash, because they do not own their real estates?

        • nn

          Maybe it would help if you read the paper yourself first, because it says what is obvious: it’s not free money, it has big costs and you are just trading one thing for another.

          What big western companies are you talking about? Apple? MS? Google? Airbus? Boeing? …?

          • Muerte

            Microsoft doesn’t own their HQ in Finland, for example. But that was not the main point, the main point is, that in Scandinavia (you do consider Northern Europe as western countries, don’t you? Not only U.S.?) it has been a trend for a long time, that corporates don’t want to own all of their real estate. Of course there are differences if you compare different locations world wide, but in Finland, this should not worry you at all. It is completely normal.

            There are positive things in owning the buildings, and there are negatives as well. Every company considers the best suitable method for them, it does not mean that they are in a need of cash if they sell something. Or do you think so?

            But then again, this similar discussion was going on back in October when these news were first announced… I don’t think it will end up in a situation, where everybody agrees.

            • stylinred

              just completely ignore the facts and say “well its normal here!”

              sorry the facts speak for themselves really, nothing more needs to be said

              • stylinred

                perhaps i do need to say something more

                Nokia is basically taking out a loan here because their debt rating is in the dumps they cant borrow money at a better rate than it is to sell their HQ and rent it

              • Mark

                “sorry the facts speak for themselves really, nothing more needs to be said”

                They do to anyone with a rudimentary knowledge of corporate financing.

                I’m not sure that applies to most people here though.

                • tom

                  In another time, like 2006 I would have believed it’s a good thing. Now, with Nokia neck deep in water, the facts do speak for themselves.

                • Average Joe

                  So explain to us ignorant how the buyer of Nokia’s HQ is going to make money out of the deal if, in the long run, this move is only meant to make Nokia save money.

                  Leasing headquarters that you already own will make you save money immediately, of course, but it will become a cost in the long term.

                  In practice companies that resort to this option either need money, are shrinking, or are moving. None of these occurrences is good news for Nokia supporters.

              • Harangue

                Is a sale and lease back construction there to raise quick capital? Yes, it most definitely is.

                *Enter Billy Mays: ‘But wait, there is more!!’

                As you all know, buildings age. Certain requirements that seemed logical at the time of construction can now be horribly outdated. Think of small and personal office spaces vs. large open spaces and flexible space that allow for different setups as teams in your company are formed or dispersed.

                In case of Nokia I’m inclined to believe that they aren’t using all the space they have in Nokia House. Therefor selling all the space and leasing what they need in return is quite a good option. They might even include a favourable clause in the lease contract for any shrinkage or growth.

                However, in Nokia’s case this will be a 2 reason move. They do need the money yet they are also downsizing as well so they need less space than they needed years ago.

                Most likely this comment will draw out Nokia, nn and a couple more who will say that this move is burning cash because the new owner doesn’t want to lose money yadayada. But I can assure you, eventhough this move will be pratially due to raising cash, it is also very (and yes I mean very very) normal for companies to do. Especiallu for companies who are transitioning or, and maybe I shouldn’t say this, are looking to relocate in the future.

                Regarding Google/Apple/MS having their own buildings. Does purpose built mean anything to you?

                • Harangue

                  BTW, to add to this. Companies that seemingly own their own building often have some kind of investment or real estate branch that is the actual owner of that building. The ones using the building actually lease them from that company eventhough they are both owned by the very same parent company.

            • jiipee

              The news themselves are not a big deal. The signalling effect clearly is that they have still have assets that they can turn into cash.

              What could make this newsworthy is the actual figures. I doubt that the Finnish funds have exploited fully the condition Nokia is in, when negotiating the price. On good times you get better price, on bad times not. They should have sold it already before Feb ’11, if they had been smart and made correct assumptions.

              • Zipa

                Nokia got around 50-70 MEUR more than the estimates for the worth of the building.

            • nn

              So, “western” means Scandinavia and “big company” is actually local office in country of 5M people? And the paper you linked suddenly doesn’t apply because it’s about UK while Finland is entirely different?

              I’m not worried about this sale per se, it’s just consequence of the decimation of Nokia. For company that is fast becoming average size at best, is scrapping for cash and has close to junk bond rating, it’s one of the few sensible things.

              But then you have those people who will outright deny that reality and are ignoring even what the top managers are saying. They will tell you in their lala land Nokia doesn’t need any money, is doing only what everyone else does and is still the big boss on par with MS, Google or Apple.

              • tom

                Hey, they are Elop fans. What do you expect from them.

              • dss

                Ya.. they need to downsize further if they want to survive.

        • Mahesh

          very well said

        • tom

          In another recent news AMD sold their Austin campus, I am sure you got the point.

    • GordonH

      It’s not weird for a big company to rent office space. Good for companies that have not yet bought their own office.
      Things gets weird when a big company sells it’s office and then rents it back. Not good for companies that have already bought their own office.

      • Harangue

        Current corporate real estate management isn’t really into owning your building anymore. Only for companies that need purpose built complexes are exempt from that vision. You need to think about how a property can contribute to your corporate vision.

        Think shops, they need good locations and good looking buildings if that is what their brand requires and what makes them sell goods. Does Nokia benefit from having its own HQ? Does owning a HQ actually contribute to their core strategy? Does it help drive sales for Nokia? Does it convey a message that strengthens its brand? Those are the questions one needs to ask with owning real estate as part of your corporate strategy. I’m not trying to pull rank here or anything, but it appears there are a lot of commenters here who know jack **** about real estate apart from owning their own home.

        • GordonH

          And your long comments makes you know Jack **** about real estate?

          • http://www.twitter.com/harangueMNB Harangue

            That is not what I’m saying nor implying. Make of it what you will, a negative spin on eveything is what I’m used to here anyway.

        • swain

          what’s wrong with owning your building ???

          Does Nokia benefit from having its own HQ?

          Ans: Yes. It saves a lot of money that usually companies spent as rent who don’t have their own offices.

          People may disagree but the truth is the company is still bleeding and WP strategy is not working as they expected. Hence they need money to continue normal operations until WP pick up in market(or they shut down completely).

          A great Q4(10+ million Lumia sales): Nokia is up and running.
          A dark Q4(3-4 mill sales): There was a giant manufacturer of mobile devices.

          Though I am expecting the first case but second can’t be ignored.

          • Zipa

            Wrong. It definitely does not save *lots* of money, but it does tie up lots and lots of capital.

            The building is getting old. That means that it is mostly written off, so no tax benefits from owning it, and there would be renovations needed in the coming years, again tieing up more capital.

            Not only is the building getting old, it is also getting emptier, so Nokia could probably get by e.g. by only leasing back two of the three towers.

            Finally, leasing expenses are completely deductable.

            • Noki

              And Nokia could just do that by creating a real-estate company. That would hown the buildings and keep the profits of the renting for rufleee….. Nokia tadaaaaa…

              Nokia sold it for a lower price than what the market is paying per m², the only reason for that is that nokia really needs the money.

          • outdated os

            swain, they need money because Windows is burning

            http://techrights.org/2012/12/05/fourfold-lockin/

  • D Harries

    Yes, but then you are subject to the whims of the rental market. Not good. Companies come unstuck when they can’t pay their rent

    • Harangue

      Lease agreements are set for 5 to 10 years generally (not sure about Finnish rent law though) and are only subject to a maximum percentage of change per year controlled by law. Unless improvements to the building are made that justify a larger annual increase.

  • MeeDroid

    Stupid Elop!

  • MeeDroid

    Not a sign of a good company thanks to Elop!

  • muerte

    Provide some facts to support your weird comments, otherwise you will just look like an ignorant fool.

    • http://mynokiablog.com Jay Montano

      @muerte,

      This guy and his various usernames has comments that are either

      1) Elop sucks, something something elop
      2) Windows Phone sucks, something something

      Never really anything contributing to the conversation.

      • viktor von d.

        for the love of god post a article with the multiple usernames of these trolls.i would love to see who uses multiple usernames and bash nokia all the time.

        of course, we don’t need to know the email adress or other info, just:
        -user1 – uses following nicknames, most of the comments are…..

        maybe they will stop spamming, or at least stop many of us from reading what they say when we see a troll name, or responding to a post of theirs

      • http://thegadgetfreak.net Ajit

        Because selling a Finland head office, factories…etc sucks and a true Nokia fan cant really stand it. Most of the money thats obtained from this will be paid to Microsoft or its associated ppl for Royalties/Salaries…etc.. Royalties for an OS that was already dead, now this OS has an artificial life temporarily given by Nokia… Nokia is killing itself for Microsoft… what kind of Sacrifice is this?

        If a Nokia made OS based phone sold so well as the Lumia 920, Nokia would have already got enough profits… Even when the 920 is selling Nokia is not benefiting anything, its Microsoft whose benefiting!

        • Harangue

          Objection, witness is assuming and basing opinions on hearsay :P

          • http://thegadgetfreak.net Ajit

            ys ys, the Lumia 920 selling well is hearsay…

        • Zipa

          Nokia does not pay for WP licenses at the moment (up until Q3/12 at least), they get paid for using it.

    • kan

      What is the argument for Nokia doing this?

      Trading $220m today for a stream of payments going on for how long?

      Nokia has enough cash in its bank so unless something drastic has happened and they need every peeny I am at lost to see the benefits of this.

      The only possible explanation is that they want to rapidly downsize this office.

  • Grendell

    This in itself isnt bad news at all. It’s simply more efficient. But the implications of renting their main address isnt the best news from a publicity perspective at this point in time. There are certain bragging rights that come with your own HQ.

    • viktor von d.

      yup true. i wish they kept they hq. it’s bad pr and you get a nasty feeling when nokia does this. i wponder how many of its headquarters does nokia own and are they gonna do this for all of them?

  • twig

    Renting is favorable if you have already used ownership deductions. Not sure of all of Finland’s tax laws.

    • Harangue

      Excactly, this. As I’m not sure how tax laws work in Finland I am pretty sure that you can write off a building in the books over a period of several years. When you can no longer write anything off there is no benefit in owning a building.

      So, then you lease. Those lease costs can then be deducted again and so your place of residence will then fullfill its roll on the balance sheet again.

      • Zipa

        Exactly. I can’t be bothered to look it up, but the “beneficial” write-off period is around ten years.

  • Ujwal Soni

    I hope you know what you’re doing meester elop

  • http://thegadgetfreak.net Ajit

    Nokia is not getting enough profits from selling phones(including Lumias) to pay Elop, so he’s selling Head office, Finland Factory and firing people…

    Lets see whats next….

    • Bassman

      Are you 5 years old?

      • http://thegadgetfreak.net Ajit

        ya, 5 years older than you.. Any problem little boy?

        • Bassman

          That is probably the worst comeback in the history of pretty terrible comebacks….

          Please try harder.

          • http://thegadgetfreak.net Ajit

            I dont go hard on kids… Sorry!

            • Bassman

              Keep going champ, you’re almost there…

              • http://thegadgetfreak.net Ajit

                Grow up kid, stop making noise….

                • Bassman

                  Keep trying…

  • yoyo

    It is not uncommon to do this when business/cash is going down so you are in need of or when you need flexibility. In my opinion Nokia doesn’t need an flexible HQ they need an stable one. Companies who use this method and have an strong cash-flow do this for there regional offices and not for there prime-HQ. It also gives you much more status of stability and continuity.

    @Muerte; Calling others ignorant is just another way of showing your own ingorance.
    Like NN asked. Name 1 “more than 1 billion dollar revenue” company which has positive cash-flow and leases its own PRIME-HQ. Just 1 not 10. Name just 1.

    • yoyo

      *in need of cash
      *stability and continuity when you own your own HQ.

    • Dave

      The 1 billion nn pulled out of his ass is just a way to bias the results. He doesn’t need you to be his internet white knight.

      • yoyo

        I was going to write you an serious reply but then I realized that reading is not one of the thing you do.

    • Muerte

      KONE

    • Muerte

      There are several examples. You probably assume, that for example Goldman Sachs didn’t manage to find out any other way to get cash, when they sold / leased their HQ in Europe?

      http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9476311/Goldman-Sachs-HQ-sold-for-264m.html

      Yes, I assume that those guys know nothing about money…

      • yoyo

        Prime is the word, PRIME. And if you have missed the news, aka lived under a rock; All banks are consolidating there European assets even European banks.

      • rustyknight17

        If I RECALL correctly , didn`t Goldman-sachs have to be bailed out by the US government ? Just saying ..

  • shashi@n9

    hahahahaha, now the building. when want to sell and lease the patent. MS waiting for that. American wont let other country product to be king. now see what they did. first realease apple, then google now microsoft. they will control all. our information will be stollen without our knowledge.good job american. bad job euro.

  • GordonH

    Location, Location, Location.

    No matter what you hear, we are still Here.

    Jokes aside. It’s bad timing and bad PR for Nokia at this stage.

    • Viipottaja

      Actually, it may be viewed as a positive step by investors.

      for the general public (well, the likely tiny part of it outside if Finland that will notice this) it is bad news.

      • GordonH

        Nope … you are so wrong. Google it up to see hear the press. Oh I forgot you can “Bing” it too.

        • Viipottaja

          I did both Google and Bing on my 920 ;) and at least immediately did not see comments from _investors_ about this being negative. I am sure there some, of course, with that view as well.

          • GordonH

            Ahh hha … i knew it you use “Bing”;-)

            • Viipottaja

              Lol… well, on WP it is kinda hard not to, even though you can of course set Google as the default search engine within the browser/IE.

              Besides that, Bing looks gorgeous, I like the “tabs” in the WP8 version of it, and even the search results are not bad at all at least here in the US.

              On desktop I tend to default to Google more though, but have e.g. for shopping started using Bing a bit more.

              • GordonH

                LOL!!!
                I commented and joked with you on the bing search twice. I knew you were too much of an MS fan boy in all your comments.
                And here you are now seriously… ahhh ahha LOL.

      • tom

        Short term traders and hedge funds, yes. I doubt it will be viewed positive by long term investors or mutual funds.

        • Viipottaja

          Well, unless they view it as a step to focus the company and manage cash as a part of that. Short term measures may (and should) contribute to long term objectives. :)

          • Tom

            Now if you have to pay more in long term to be there, you are doing something wrong. What Nokia should be focusing on is making smart phone profitable. Selling HQ is none of that, it is not focus. It does not contribute to long term profitability.

            In my view, WP strategy is slowly bankrupting Nokia, to the point that they have to mortgage their HQ. The faster they get out, the better. Remember Lumia is losong money with every unit they sell. Elop has managed to transition Nokia from a highly profitable company to highly unprofitable one.

            • Viipottaja

              Selling the HQ or rather the cash from it is a time bound means to an end.

              As for whether they will end up paying more in the long term, I would not know – depends on how long a horizon are you talking about and other assumptions you would use (e.g. discount rate).

              “Remember Lumia is losong money with every unit they sell.”

              Really?

  • http://thegadgetfreak.net Ajit

    I want to ask Elop… LOL Burning Platform!

    • twig

      So you are saying companies that keep a huge amount of profits offshore must be be bad financial share? They must be if they avoid taxes….I see, I see.

      • http://thegadgetfreak.net Ajit

        Dont confuse “companies that keep a huge amount of profits offshore” with “companies that sell their head office and factories”….

        They’re different…

        When a company keeps a huge amount of profit in a different location thats fine, but when a company sells its assets, especially important historical assets like Head office, Factories and important patents to improve their cash reserves.. sounds like somethings Burning!

      • http://thegadgetfreak.net Ajit

        And by the way did Nokia announce that its moving its Head office or central location? No right? They will be in the same location…

        That proves your argument useless that Nokia is not moving its profits anywhere….. Nokia is trying to increase its cash reserves… hence this cost cutting strategy…

        • Noki

          hence this “cost cutting” strategy… I admire any one that can see this as “cost cutting” :)

          Lease = more costs…. this is more like a loan were the collateral as been executed but you get to still use it, provided you keep paying the loan for ever…

          • http://thegadgetfreak.net Ajit

            Cost cutting strategy according to Nokia…

            Its a short sighted move, on a long term basis its a loss, but on a long term Elops Plan is to handover Nokia to Microsoft…

  • kan

    Why Now?

    Are Nokia short of cash they needed to free up what seems a small amount?

    Sell and leasing back is a one time benefit to companies. Long term Nokia will not be participating in any rises in land prices – it will be paying for them.

    • capedonut

      but if they instead invest their money in the core business, they might benefit from it even more

  • twig

    So you are saying companies that kept large amounts of profits offshore do so because they are hurting and can’t pay taxes on it? Like Apple and Google?

    • kan

      Whats your point? MNC will take advantage of low tax thresholds through transfer payments.

      Low Tax Thresholds exist because the major western governments let them exist.

  • Jizz

    And they pay all these money back in a few years…

    • Noki

      Exactly, far from all the imaginative explanations, you have to think of the second factor, the investor putting up the 220M, they need to be sure they will be able to pay it back, that means Nokia lease needs to pay for it and the risk premium, Or some one here believes the investor is stupid and just wanted to give 220M to Nokia without a profit???
      As some noted if it was for writoff accounting that’s easy create a new company and make that yourself.
      No this is just Nokia balancing another Quarter.

  • Francis

    IMO, this step is necessity for Nokia to reduce the risk being acquired by others, since Nokia is a public listed company.

    As Nokia Share price is being under price and category as junk grade, many company may be interested to buy it if their property and patent value (fixed asset) is more than their stock price. Simple business, i pay low from acquisition but i sell their fixed asset to make profit. Cash and knowledge(i.e. staff) is very difficult to acquire, and may be missing at the time from start to complete the acquisition process !

    If Nokia can navigate and get through this very difficult time, she can anytime buy back, or simply just build a new HQ at later stage !

    Of cause there are some side effects (potential lost of Nokia’s spirit) after sold HQ, but if the management can handle it carefully and with some luck, it shouldn’t be any issue for it for such big corporate company.

    • Noki

      Also a good hypothesis. maybe not the only factor but probably another factor.

    • jonnyjl

      Ding ding ding!

      Nokia is reducing their debt, increasing their cash, to make the company look desirable for a buyout.

      This doesn’t necessarily mean Nokia will be sold (who wants to take on the behemoth, wait for BK and pick at their patent portfolio), but it increases the likelihood.

      Now, Lumias could also take off… but yeah… I don’t think that’s going to happen soon enough.

  • dsmobile

    It’s just more easy to move out your HQ from Finland to other country after everything is sold.

  • http://europe.nokia.com/pureview steelicon

    The home that I bought and paid for all these years, I’m going to sell it.

    I’m going to sell it and the buyer will be my landlord under a long term lease contract.

    Instead of owning my own home, I am now under the mercy of the long term lease contract and the landlord.

    Should I now falter in my moneymaking causing me to fail to make payment, I will be evicted from the home I used to own.

    Should the long term lease contract expire, I will be at the mercy of my landlord.

    Sounds like a plan. Go get them, Mr. Elop!

    • yasu

      It’s almost the winter. Time to pee in one’s pants.

      • http://thegadgetfreak.net Ajit

        Ha ha, Vanjoki is no longer here…

        But I’d like to add…

        If moving to Android was peeing in Pants, WP8 is taking Nokia to deep $hit.

        • http://thegadgetfreak.net Ajit

          *No longer here @ Nokia, thats what I meant :) sorry!

        • GordonH

          +1
          I think the term “Using WP only is like shitting in your pants”, does summarize the Nokia situation in a true but cruel way.

    • Zipa

      “The home that I bought and paid for all these years, I’m going to sell it.

      I’m going to sell it and the buyer will be my landlord under a long term lease contract.”

      Actually, this is becoming quite common for private persons as well. You sell your house to the bank and take out a lifetime lease. Frees up your capital and lets you enjoy your pension or whatever it is you wish to do.

  • rustyknight17

    stylinred,tom,mahesh , with youse !
    Given Nokia`s current situation , I`d have to say either Nokia`s` trying to keep itself afloat or they r preparing for buyout . Either way , not good .
    It`s a tad early to say what effect WP8 will have on Nokia`s future , but I suspect Nokia will have to get used to being midsized if it continues the WP only strategy

  • Sam

    No problemo, it’s just a building, Nokia itself is already on lease for Msft.

    • http://thegadgetfreak.net Ajit

      +1, but its sad to see this…

  • GordonH

    There is more to this, a series of more sell-off to come. Nokia is not in a good shape.
    Elop fans will be spinning business logic and comments for many more bad months.

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