Sony Corp. is selling its New York headquarters for $1.1-billion (U.S.) in the largest disposal of the Japanese electronics group’s program of asset sales.
The sale of the building at 550 Madison Avenue, designed by renowned architect Philip Johnson, will result in an operating income gain of approximately ¥685-million ($7.6-million), Sony said.
The electronics group is seeking to regain profitability after four straight years of losses and is targeting net profits of ¥20-billion in the year to March. It said it was re-evaluating its forecast for its consolidated results to take into account income from the sale.
Sony will remain in the building for up to three years under a leaseback arrangement with the Chetrit Group consortium, a U.S. commercial real estate investor.
The sale of its Manhattan headquarters comes as Sony is offloading non-core assets to strengthen its finances and investing in businesses to improve competitiveness and generate future growth.
Once a pioneer in consumer electronics, Sony is struggling to generate profits in the face of a sharp decline in TV sales, fierce competition from South Korea’s Samsung and a strong yen, which makes its products less cost competitive in overseas markets.
The group’s string of losses in recent years culminated in a record ¥457-billion loss last year. Sony is cutting 10,000 jobs.
In the past two years, Sony has sold its stake in an LCD manufacturing joint venture with Samsung back to the Korean company for ¥72-billion and its chemical business for ¥52.8-billion, among others.
It has meanwhile bought Ericsson out of their mobile phone joint venture for ¥71.8-billion and concluded a business and capital alliance with Olympus at a cost of ¥50-billion. It has also bought EMI Music Publishing for ¥25.7-billion and made other investments.
“Sony has already spent about ¥250-billion to ¥300-billion on M&A so it is possible that they are selling the NY headquarters to regain their cash position,” said Kota Ezawa, analyst at Citi in Tokyo.
Sony is under pressure to achieve three objectives it set for itself in the year to March – to make an operating profit in electronics; to make a net profit at the group level and to have positive free cash flow at the group level, Mr Ezawa said.
He added that, since “the first objective is probably impossible” – due to the recent strength of the yen and poor sales of its PCs, TVs, games and cameras – it is likely that Sony sold the NY headquarters in order to achieve the latter two objectives. It would not be able to do this through its business operations alone, Mr Ezawa said.
Last November, Fitch lowered Sony’s credit rating, along with that of Panasonic, and said both companies needed “a radical change to the structure of their businesses”, in order to regain an investment-grade rating.
News of the property sale sent Sony’s shares up 12 per cent to close at ¥1,149 in Tokyo trading.