BlackBerry weighs real-estate sale

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BlackBerry Ltd. is looking at options to quickly unlock value from its substantial real estate portfolio in its hometown of Waterloo, Ont., as the company works to finalize a $4.7-billion (U.S.) takeover plan.

The smartphone maker owns more than 20 buildings in the Waterloo area, a collection built up during its rapid expansion over the past 10 years. With its business now in retreat, BlackBerry has begun to examine possible moves to its real estate portfolio.

It embarked last week on a confidential process with real estate firms, asking them to outline ideas to generate the largest possible return in as little time as possible, according to sources. BlackBerry is willing to entertain a variety of options, including selling the portfolio and leasing back space, although it wants to retain a handful of key buildings, these sources said.

Late last month, BlackBerry announced it will be cutting 4,500 jobs, more than 40 per cent of its work force, to slash costs as sales crumble amid intense industry competition. The cuts will leave it with more office space than it needs.

The move also comes as BlackBerry is in the midst of a process to sell the entire firm outright and has received a preliminary offer from Fairfax Financial Holdings Ltd. for $9 (U.S.) per share.

In an e-mailed statement, BlackBerry said that, like any major company, it evaluates its real estate on an ongoing basis. "As we work to our target of reducing expenditures by approximately 50 per cent over the next three quarters, that includes optimizing our space," it said. "Should space become unnecessary for BlackBerry's continued use, we will work with key partners in the community who may need some of our surplus space."

The process is expected to determine how BlackBerry could leverage its real estate holdings to come up with more cash. That could make it more appealing to firms that are considering a takeover of the company. It is not clear from the company's moves, however, whether it is merely trying to obtain third-party opinions on the value of its real estate to provide to potential buyers, including Fairfax.

Fairfax is in the midst of conducting due diligence on BlackBerry, and intends to produce a final offer to take over the company by Nov. 4. Fairfax has a number of potential backers for its consortium, each of which are weighing whether to join the deal and to what degree they want to participate. Meanwhile, BlackBerry's bankers are conducting a process to determine if there are other bidders for the firm.

BlackBerry is a major real estate owner in the Waterloo region, dubbed Canada's "Technology Triangle."

"Since its inception in 1984, the Waterloo-based firm has become the largest occupier of office space in the Waterloo Region," real estate firm Colliers stated in an item on its website that was posted after BlackBerry announced that it had signed the letter of intent to be sold to the Fairfax-led consortium. "Currently holding a regional inventory of 1.6 million square feet of office space, BlackBerry comprises nearly 15 per cent of the total office market."

The struggling technology company has sold some buildings in recent years to buyers such as Manulife Financial.

BlackBerry notes in its annual report that its operations in Waterloo are housed primarily in two campus-style developments, which include 27 buildings, six of which it leases. The central Waterloo campus has engineering, manufacturing, and research and development operations. The northern campus, which has four newly constructed buildings, has corporate, administrative and finance operations. BlackBerry owns two buildings in nearby Cambridge, which house global logistics and repair services groups.

According to the company's disclosure, the value of its land, based on cost, was $119-million as of June 1 and its related buildings, leasehold improvements and other real estate assets had a value of $1.28-billion, at cost (prior to any amortization). That includes real estate that it owns outside the Waterloo region.

Neeraj Monga, an analyst with Veritas Investment Research, said it is "very difficult" to estimate the value of BlackBerry's real estate holdings in the area.

"They are the largest users of that real estate in and around Waterloo," he said. "Somebody has to be able to fill all these buildings with new tenants." BlackBerry's dwindling employee base will change the dynamics of both the employment market and the real estate market in the region, he said.