Celebration Sell Off

[Sarangel]

From the Orlando Sentinel:Walt Disney Co. has sold the three signature office buildings at the entrance to its Celebration community in Osceola County.

The buyer, Inland Real Estate Acquisitions, is part of The Inland Real Estate Group of ***. based in Oak Brook, Ill. The sales price was not disclosed, but sources pegged it at more than $70 million.

The three buildings total 440,000 square feet and are occupied by such Disney units as Walt Disney Imagineering and Disney Cruise Lines.

The buildings, designed by noted Italian architect Aldo Rossi, were built as part of Celebration Place Office Park between 1995 and 1998. The park is planned for 1 million square feet of office space.

Rick Fox of Inland Communications said that, even though the Central Florida office market is very soft right now, Inland considers the buildings a good investment because they are Class A quality and leased long term to Disney.

Matthew Kelly, vice president of real estate development for The Celebration Co., a Disney subsidiary, said the buildings at 200 Celebration Place, 210 Celebration Place, and 220 Celebration Place were sold because they "were well valued."

Joe Cosenza, chairman of Inland Real Estate Acquisitions, said the Celebration Place Office Park "is well positioned as a strong player in Central Florida's next emerging commercial corridor."

The Celebration deal is Inland's first office-building investment in the Orlando area, but an affiliate, Inland Retail Real Estate Trust, owns about a dozen shopping centers in the region, Fox said.
What I want to know is if these buildings are such a good deal, why did Disney sell them? I thought it was always preferable to keep real estate vs. leasing it...

Sarangel

[Walt's Frozen Head]

I thought it was always preferable to keep real estate vs. leasing it... That's true from a long-term perspective.

If your goal is more immediate than that, then the influx of cash from the sale versus the lease cost will make your short term bottom line and cash flow look better.

-WFH

[Sarangel]

Silly me...

I thought Disney was in it for the long term. Maybe this is a result of the pressure the board is putting on the big ME to turn things around. If so, I think they should apply the pressure in a different direction.

Sarangel

[mikek]

exactly Walt (hows ted doing?)

McDonalds plays that trick all the time- Most stores are franchise owned but they keep a stash for themselves for various reasons. Partly they use them to meet their projections. Each region is treated seperately- If that area makes way more than projections they keep a little extra profit to show HQ but than use the extra cash to buy more stores back from the franchises. In down years- they just sell off a store or 2 and have the cash to hand HQ that they were supposed to make the old fashioned way.

[Another Voice]

This falls under Eisner’s promise from the annual report to “start reaping results from all the investments in the parks”. Before this there was the sale of the Crossroads shopping center across the highway from the hotel plaza. It’s been less well reported that Disney has been selling off plots land in Orlando as well. A short-term way to make cash by selling off the long-term interests of the company.

And of course there are rumors of significantly larger sell-off, lease back arrangements as well…

[raidermatt]

And of course there are rumors of significantly larger sell-off, lease back arrangements as well…

Sounds ominous... Care to elaborate?

[YoHo]

It's all about the P&E.

I can't say anything about the Disney Company, but sometimes its better long term to get rid of the property too.

In terms of the office complex. Disney is probably saving money and if they are the only tenants then they clearly weren't doing well with it either. better to give somebody else the headache.

Not to mention the fact that they probably have other office space in orlando that they aren't selling. The only thing is the long term lease.

The rather Large company I currently work for is currently shutting down a wholly owned manufacturing plant and moving the office jobs to leased property.

[Bstanley]

As a note - The Real Estate Sale-Leaseback business is way up compared to previous years. All kinds of companies are trying to raise capital in ways other than the equity markets, which are down, or by pure borrowings. These Sale-Leaseback deals can make sense as a way to raise capital - but they can also be a sign of a company in real need of operating funds (cash).

If Disney decided to do a Sale-Leaseback on Downtown Disney, or a WDW Resort for example I would definitely suspect the latter, and would really be worried about the finances of a company that did such a thing - but if they stick to doing it with 'non-critical' facilities I would suspect the former.

[manning]

This is more common than you think. The idea is to not wrap money up into real estate. A lot of companies will build a building to their specs and then sell it, leasing it back with a long term lease.

[Another Voice]

“The idea is to not wrap money up into real estate”

Hmmmm…… You mean like 43 square miles of swamp in central Florida?

Well, there have been a lot of public statements about how The Company will start to see large returns from its investments in the parks, there’s been a total reluctance for new capital investment, there’s been heaps and heaps of praise for the wonderful profits from the deal with Tokyo Disneyland, and comments about how the Hong Kong Disneyland deal is “the model for the future”.

Anyone want to do the math?

Remember that rumors, plans, schemes and contingencies are just that. But they do give an interesting look into how someone thinks…

[raidermatt]

Wow.

Disclaimer noted, but, wow.

That would seem to be an incredibly short-sighted move. (to this layman anyway...)

What about certain parcels in a certain Los Angeles suburb that starts with an A and ends in naheim?

I'm not an expert on the deal Disney has with the state of Florida, but my understanding is that it essentially gives Disney free reign, except for building height limits, area reserved for wildlife, etc.

Would that sort of thing be transferable in a sale-leaseback scenario? (Maybe that was written into the deal?)

Hopefully this is just one of those ideas that just goes away...

[Planogirl]

:eek:

Am I understanding what is being said here? What other property could Disney sell that would make sense? :confused:

[DisneyKidds]

OK, I'll be lazy here and instead of researching it own my own I'll ask you guys. What was the deal in Tokyo and what was the model for Hong Kong?

[doubletrouble_vb]

Disney has a lot of property. If they can eventually move out of these building selling makes a lot of sense. It isn't like they are selling theme park property. Of course this isn't so good for the residents of Celebration but it makes zero difference to D-World itself. About the only place where I can see them purchasing land in Orlando might be in the vicinity of Universal to keep them from spreading out too much.

[DisneyKidds]

Yes, but decifering AV's cryptic clues is the key to understanding if there might be intent to move outside Celebration when dumping property that might make a difference to D-World.

[EUROPA]

Originally posted by doubletrouble_vb
I can see them purchasing land in Orlando might be in the vicinity of Universal to keep them from spreading out too much.

Universal has all the land it wants right now. They bought a huge piece of land from Boeing. The last I heard they have room for 2 more theme parks several hotels, among other things.

[Bstanley]

Kidds,

Disney Corp put up virtually no money toward the construction of Tokyo Disneyland (and none at all for TDS), it was a joint venture (Oriental Land Company - OLC) of a couple of land development companies and a Rail Company. Disney Corp gets a 7%(?) royalty of the gate.

Disney Corp put up only $300M (or so) of the expected $3B (including infrastructure) cost of Hong Kong Disneyland for their 43% piece.

[mikek]

Originally posted by raidermatt
Wow.

I'm not an expert on the deal Disney has with the state of Florida, but my understanding is that it essentially gives Disney free reign, except for building height limits, area reserved for wildlife, etc.


I think the 'deal' your referring too is the reedy creek improvment district. SOmeone from around there is probably better able to explain but my understanding from a little reading is this....


Basically Florida let disney become their own municipality so they are free to tax themselves and regulate themselves as they see fit. Mostly i think it was done for the tax benifits. Instead of them needing to pay for roadways signs, bridges, the flood control projects and other ifrastructure type things on their property with regular dollars, they can 'tax' themselves and use that money for that stuff. Giving themselves a big write off on anything that the 'improvement district' provides. (I'm doubting they

I'm not sure if celebration is within the district. If it were there would be problems in that the homeowners would be able to vote. Maybe the folks living there only lease themselves?

I read once that there were are all of like 16 full time residents of the district iiving in a trialer park disney built for workers. I forget how they controlled their votes. It might have been that the housing is free for disney employees- so say you voted 'wrong' they would fire you and you would no longer be a resident- problem solved.

[YoHo]

You have it essentially correct. Celebration was removed from Reedy Creek to protect against voting rights.

As I understand it Ready Creek has more power over itself then any other munincipality in the country. WDW's Power and Sewage systems are quite impressive and it's the only way Epcot would have been able to be built the way it was.

As I understand it Eisner's Disney doesn't quite know what to do with the power Walt got, because they have no vision for the area.

[manning]

Celebration is in another county. Can't remember its name, but a number of years ago that county tried to make a move on Disney regarding taxes. Again can't remember what it was esxactly. Disney makes a point to not put revenue generating projects in that county (theme parks, hotels etc.) if they can help it. I don't think there are any. That's why Celebration was built were it is. The theme parks/resorts are in Orange county, therefore doesn't have to pay taxes other than state and federal.

The Disney Vacation company's offices are at Celebration and I believe reservations is also. It may be, or will be, where all the administrative functions are/will be located. If this is the case, it makes sense to build offices to their needs/specifications and then sell them with a long term lease back arrangement. It frees up cash and maintainence responsibilities. This is not anything new. It's done all the time in business.

[manning]

P.S. most if not all of that other county is south of I-4

[JimB.]

+It's Osceola County

Also, If I remember a bit about taxes, lease payments are an operating expense that is deductible in whole every year.

Payments for capital improvements are deductible only to the amount of interest paid, and not the principal. Depreciation gets tossed in there also, but i'd be willing to bet that it is a tax & cash flow manuever.

Another point to toss in........ the land usage laws in Florida have changed by light-years since ole' Walt came down here and gobbled up 43,000 acres. IF Disney is selling off plots (which I find somewhat questionable, but hey, it might be true......), it may be land that they can no longer effectively develop in a manner which would be profitable to them.

[YoHo]

Osceola County is what I was talking about Disney not understanding what to do with the power they have.

As I understand it, Legally, Read Creek is more powerful then a FLorida County. Osceola shouldn't be able to do anything to them.

[manning]

Not really. Osceola county has permanent residents, thus voters. Disney makes a point not to have permanent residents living in Orange county, except maybe some company people.

[Bob O]

They had another interesting article in the July 15th Orlando Sentinel talking to more residents of celebration detailing how they believe disney lied to them and is trying to change the community from how it was sold to them.

[manning]

Just looked at the Orlando Sentinel web site and didn't see the article. However real estate transactions come under the statute of fraud. This means anything that has been agreed to, has to be in writing. If they are thinking of suing, it may be hard to prove.

Like any big corporation, I wouldn't be surprised at their change of direction.

[seashoreCM]

Did Disney sell the land, or did they just sell the buildings and lease the land under them?

Heaven forbid, if Disney were to sell off WDW piecemeal in the name of oursourcing, and that magnificent tract of land twice the size of Manhattan would be full of holes!

Disney hints:
http://members.aol.com/ajaynejr/disney.htm

[Bob O]

The article was on the july 12th and not the date i posted and it is by some columnists, i will try to find it and post some more info later.