More U.S. companies are focusing on Sale Leasebacks to monetize real estate assets. We look forward to answering your questions and discussing a potential Sale Leaseback for your company or client.
Stan Johnson Company Craig Tomlinson, Senior Director John Zimmerman, Associate Director Team Tomlinson | 918.494.2690 [email protected][email protected]1 WHAT IS A SALE LEASEBACK? A Sale Leaseback occurs when an owner/user of real estate sells the property to a buyer and simultaneously leases the property back under a long-term lease. The building(s) could be in various states of completion at the time of the sale, from pre-construction to fully completed and occupied. WHAT PROPERTY TYPES QUALIFY? All owned commercial properties qualify, but buyers favor free-standing (single tenant) commercial real estate that is critical to the corporate user. That can include industrial light manufacturing and warehouses, all office buildings, all medical uses, and most retail units. Sale Leaseback 101 More U.S. companies are focusing on Sale Leasebacks to monetize real estate assets, redeploy idle capital to their core business, reduce occupancy costs, or create an exit strategy for specific locations. Stan Johnson Company helps businesses achieve their strategic aims for occupied real estate by applying their 30 years of transaction experience in the net lease industry, their deep buyer relationships, and real-time market knowledge.
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Stan Johnson Company Craig Tomlinson, Senior Director John Zimmerman, Associate DirectorTeam Tomlinson | 918.494.2690 [email protected][email protected] 1
WHAT IS A SALE LEASEBACK?A Sale Leaseback occurs when an owner/user of real estate sells the property to a buyer and simultaneously leases the property back under a long-term lease. The building(s) could be in various states of completion at the time of the sale, from pre-construction to fully completed and occupied.
WHAT PROPERTY TYPES QUALIFY?All owned commercial properties qualify, but buyers favor free-standing (single tenant) commercial real estate that is critical to the corporate user. That can include industrial light manufacturing and warehouses, all office buildings, all medical uses, and most retail units.
Sale Leaseback 101
More U.S. companies are focusing on Sale Leasebacks to monetize real estate
assets, redeploy idle capital to their core business, reduce occupancy costs,
or create an exit strategy for specific locations. Stan Johnson Company helps
businesses achieve their strategic aims for occupied real estate by applying their
30 years of transaction experience in the net lease industry, their deep buyer
Stan Johnson Company Craig Tomlinson, Senior Director John Zimmerman, Associate DirectorTeam Tomlinson | 918.494.2690 [email protected][email protected] 2
Sale Leaseback 101
income as opposed to only the interest portion of a mortgage payment. Several key financial ratios are thus improved. (Consult your CPA)
Premium PricingA company that commits to stay in a property under a long-term lease creates value in the asset simply by their lease commitment. Investor appetite for single tenant investment properties is at an all-time high. Scarcity of available properties and dissatisfaction with alternative investments has driven cap rates down, and caused investors to consider non-rated companies and their real estate located in secondary markets. (See “The Sale Leaseback Market”)
Sale Leaseback executed today offers long-term financing in a historically low cost market with minimal impact on bank, bond, or other equity lines.
Transfer of RiskA company’s facilities needs will not remain static forever. With a Sale Leaseback, the Company can secure maximum occupancy and control rights through a long-term lease, shifting the long-term ownership risk to a third party owner.
Improved Financial ReportingCurrently, a Sale Leaseback can be structured under IRS rules so that it is not carried on a balance sheet as a long-term liability. By converting property to cash through a sale, the gain can be amortized on the income statement. Rental payments are also 100% deductible against taxable
WHY DO A SALE LEASEBACK?Capital ReallocationCompanies almost always achieve higher returns in their core business than they do on owned real estate. For most companies, real estate is a cost center. A Sale Leaseback allows you to extract 100% of the current market value from owned property. Traditional mortgage financing is usually limited to 60-70% of value as determined by a lender. With a Sale Leaseback, more cash can be immediately redirected to the profit centers of the business.
Financing ToolFor companies with higher costs or constrained borrowing, a Sale Leaseback can provide much needed capital to refinance existing debt, deleverage the balance sheet, take advantage of a growth opportunity, or consolidate company ownership. A
Stan Johnson Company Craig Tomlinson, Senior Director John Zimmerman, Associate DirectorTeam Tomlinson | 918.494.2690 [email protected][email protected] 3
Source: RCA dataTransactions valued over $2.5M
Sale Leaseback Volume GrowsWith the lackluster yields and volatility in alternative investments, the past four years has seen strong and steady growth in net lease real estate investment as a comparable safe haven of predictable returns. Over the period 2010-2013, the volume of Sale Leaseback transactions has tripled, growing by nearly $1.5 Billion a year. In the past 24 months, institutional and private equity investment vehicles have raised over $12 Billion in ‘dry powder’ for net lease acquisitions. They all enter 2015 with large acquisition pipelines to fill. The unprecedented seller’s market for apartments has created a distinct class of individual investors seeking to acquire net lease property to accomplish tax-deferred exchanges. This ongoing institutional and private investor demand will sustain a highly competitive, “bid-favorable” environment for most of 2015.
8.20%
7.72%
7.41% 7.38% 7.08%
6.5%
7.0%
7.5%
8.0%
8.5%
2010 2011 2012 2013 2014Q1-Q3
Average Sale Leaseback Cap RatesAs Cap Rates Decline...Cap rates continue their downward trend that began in the spring of 2010. Since then, unlevered yields for Sale Leaseback properties have compressed more than 110 basis points for quality product (characterized by solid credit, well located real estate and favorable lease economics), surpassing the historic lows of 2007. Continued excess demand for net lease property and the availability of low interest rate leverage has fueled cap rate compression and the overall increase in single tenant property values. From a market perspective, this is the opportune time for a company to consider the Sale Leaseback of its owned real estate.
Stan Johnson Company Craig Tomlinson, Senior Director John Zimmerman, Associate DirectorTeam Tomlinson | 918.494.2690 [email protected][email protected] 4
The Net Lease Authority®
For more than 30 years, Stan Johnson Company has focused exclusively on the sale of single tenant, net lease properties nationwide including Sale Leasebacks. Our collective Expertise, Teamwork, Track Record and net lease Specialization has earned our company the reputation of the Net Lease Authority®, enabling us to consistently and efficiently maximize outcomes for our clients.
Market AccessUnparalleled access to the entire spectrum of Sale Leaseback buyers; we make the market for your property. As of 2015, SJC has completed over $19.2 Billion in single tenant net lease transactions nationwide.
Transaction ExpertiseSale Leasebacks can be complicated; no two deals are alike. We know what to look for, what’s coming, and how to resolve the issues inherent in most transactions. Our hands-on approach includes: confidential underwriting of the company’s (Lessee’s) financials; developing ‘The Story’ on the company and the assets to be offered; advising the company on the lease structure and provisions that best meet its objectives; and running a competitive sale process that matches the company with the best investor partner at the best possible economics.
We look forward to answering your questions and discussing a potential Sale Leaseback for your company or client. Please call or email.
Why Stan Johnson Company?
Academy Sports & OutdoorsCookeville, TN | $89.8MDistribution Center
BUYSEASONS, Inc.New Berlin, WI | $30.0MDistribution Center
The Hillman GroupForest Park, OH | $16.5MDistribution Center
Computer Technology Solutions, Inc.Birmingham, AL | $3.8MOffice
Notable Sale Leaseback Transactions
American Forest Products PortfolioVarious Locations | $13.8MManufacturing
