For some time now you may have heard CRE consultants and service/technology providers refer to corporate real estate as the “2nd or 3rd largest asset on a company’s balance sheet” to justify the need for value-add advisory services, energy efficiency initiatives or investment in technology.
But, until now, have you ever really looked at the details? The facts will alarm you and quite likely challenge you to take a closer look at your own assets to see how they might be managed more effectively.
Below is a chart highlighting the real estate value of 11 companies in the “Fortune 500” (#1 – #10 and #500 as a comparison) listing them based on the percentage of net assets (less depreciation and operating expense) of their ‘Property Plant and Equipment’ (PP&E) on total assets. The source information was gathered through an informal review of the balance sheets of these company’s 10-K SEC filings for 2009.
|FORTUNE 500 – Ranking Based on Percentage of Net Property Plant and Equipment Assets|
|Fortune 500 Ranking* All Figures Stated in Millions+|
|Rank*||Company||Property, Plant and Equipment (PP&E)|
|Revenue+||Profit+||TL Assets+||% of Total||Net PP&E+||MSF|
|5||Bank of America||$150,450||$6,276||$2,223,299||0.70%||$15,500||125.60|
|9||J.P. Morgan Chase||$115,632||$11,728||$2,031,989||0.55%||$11,118||80.60|
While real estate does not formally appear in the financial statements as its own line item, it is included in the PP&E section which refers to fixed assets, also known as non-current assets (financial institutions refer to PP&E as Premises). These are items of value which the organization has bought and will use for an extended period of time. PP&E fixed assets normally include: land and buildings; motor vehicles; furniture; office equipment; computers; fixtures/fittings; and plant machinery and often receive favorable tax treatment (depreciation allowance) over short-term assets.
Our hypothesis is that a company can create a significant impact to its financial performance and enhance total assets when they:
- Reduce operating expenses through lower occupancy cost initiatives;
- Decrease the size of the CRE portfolio through collocation, space efficiency, use of alternative workplace strategies and dispose of non-core assets; and,
- Gain greater energy efficiency of facilities through effective sustainability initiatives.