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BlackBerry (NASDAQ:BBRY) announced yesterday that it would sell a significant portion of its Canadian real estate, with the option to lease back properties that it needs. This article will attempt to value BlackBerry's real estate offering and quantify the potential impact on liquidity. All numbers have been converted into USD at $1.10 CAD/USD.

Based on our calculations outlined below, BlackBerry's portfolio of real estate available for sale is worth approximately $362 million.

BlackBerry's Real Estate Offering

The Financial Post includes a link to a flyer with BlackBerry's property sale portfolio. The portfolio consists of 1.386 million square feet of office space in Waterloo, 0.334 million square feet of office space in Mississauga and 0.327 million square feet of office space in Ottawa (actually Kanata). As well, there is 0.250 million square feet of office/warehouse space in Waterloo and 0.750 million square feet of office/warehouse space in Cambridge.

Comparable Values

The most comparable transaction is when BlackBerry sold five office buildings (300,000 square feet) and associated land for $37 million. This translates into approximately $125 per square foot. The other buildings in BlackBerry's University campus in Waterloo would likely command similar rates.

The Northfield campus buildings in Waterloo are newer than the University buildings, but are also in a less central location at the north edge of the city. We are going to give the Northfield buildings -20% to value (compared to the University buildings) for location and then +10% for the buildings being newer.

Mississauga tends to have office rental rates that are 10% higher per square foot than Waterloo, and the Mississauga buildings are on the newer side as well. Mississauga is also better prepared to absorb additional office space inventory. A price of $165 per square foot may be appropriate here.

BlackBerry's Ottawa buildings are located in the suburb of Kanata, which has office rental rate that are slightly lower per square foot than Waterloo. We will use $135 per square foot for the Ottawa offices.

As well, there are several office/warehouse buildings that we have attempted to value based on the warehouse portion being worth approximately 40% of that of office space per square foot.

Location

Million Sq. Feet

Price / Sq. Foot

$ Million

Waterloo University - Office

0.709

$125

$88.63

Waterloo University - Office / Warehouse

0.250

$90

$22.50

Waterloo Northfield - Office

0.677

$110

$74.47

Cambridge - Office/Warehouse

0.750

$70

$52.50

Mississauga - Office

0.334

$165

$55.11

Ottawa - Office

0.327

$135

$44.15

Total

3.047

$337.36

BlackBerry is also selling 85 acres of vacant land, mainly in Waterloo. The price of land is said to be approximately $270,000 per acre in Waterloo, while Kanata and Mississauga are generally higher. We are estimating the total land value at $25 million.

Therefore, the combined value of the office buildings and land is approximately $362 million. A negative factor weighing against this valuation is that BlackBerry accounts for about 15% of total office space in the Waterloo region. Vacating some of the properties will result in a major influx of available office space and may make potential purchasers offer less than the property portfolio is worth based on comparables.

Conclusion

BlackBerry's real estate sale portfolio is worth approximately $362 million, although there are potential deal hindrances. Any purchaser would need to assess the viability of relying on BlackBerry as a long-term tenant, and any properties that BlackBerry vacates in Waterloo would add substantial amounts of inventory to a city that currently has an 8% vacancy rate on 6 million square feet of office space.

BlackBerry's net lease rates are likely going to be around $9 per square foot, so BlackBerry's expenses will increase by $9 million per year if it leases 1 million square feet of office space. It makes sense for BlackBerry to monetize its real estate to improve liquidity as it attempts a turnaround.

Source: Determining The Value Of BlackBerry's Real Estate For Sale