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What is Corporate Real Estate (CRE)/ Corporate Property

Corporate real estate is a term used to describe the real property held or used by a business enterprise or organization for its own operational purposes. A corporate real estate portfolio typically includes a Overseas headquarters and a number of branch offices, and perhaps also various official guest house. Or as a Chairman ’s/ MD’s Suit.

Type of Corporate Property as per Malaysian Law

Changes in the competitive, economic, financial and regulatory conditions call for changes in the corporate organization to meet the new business environment. Very often such changes require revamping the organizational structure of a firm by going through corporate reorganization and restructuring. Managers make changes to asset holdings, financial structures, corporate governance and ownership to enhance the competitive positions of the firms.

One of the key assets in a firm that can be restructured is corporate real estate (CRE). Corporate firms own a significant amount of real estate for operation, occupation, investment and development. CRE has to be managed as an integral part of business resource management in the face of intense competition and technological advances. Among the techniques to reorganize corporate real estate are through property acquisitions, disposals, joint venture and sale and leaseback.

Reorganizations and restructuring of CRE is found to increase shareholder’s wealth as empirical research shows that changes in absolute real estate holdings through acquisitions, disposals, spin-offs or joint ventures can have the effect of reducing systematic risk and increasing corporate value.

Corporate restructuring in Malaysia

The Asian financial crisis in 1997-1998 has brought about considerable financial and economic stresses on corporate firms in Malaysia.

The aftermath of the crisis is that weak corporate companies have to undergo considerable reorganization and restructuring. The crisis has exposed the usage of sub-optimal financing techniques by corporate firms.

Many such companies have to undergo financial restructuring to restore its balance sheets. Several financial restructuring techniques are commonly used. These include debt-equity conversion, debt rescheduling and foreclosure.

Other companies may need to undertake operational restructuring to ensure corporate survival and sustainable growth. Among the activities commonly undertaken are change in management, refocusing core business, productivity improvement programmed and the consolidation and rationalization of assets and business.

A refocusing of core business activity may lead to disposing non-core assets. Plants that are in excess capacity are to be closed down. Surplus corporate real estate in production, marketing and management will be reorganized and disposed under rationalization and consolidation activities.

Three cases of corporate real estate reorganization and restructuring that involve spin-off, disposal and sale and leaseback are used to illustrate the change in the thinking of management towards corporate real estate in Malaysia.