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Real Estate Acquisitions
Sale Leasebacks

More and more companies, both public and private, are realizing the importance of using their capital in support of their core business in order to obtain the highest returns for their shareholders. For virtually all companies, real estate is considered supportive, but ancillary to the core business. Thus, so long as the appropriate level of control is maintained (via a lease), most companies should lease rather than own the land and buildings used in their business.

For companies which currently own or have an option to acquire real property, a sale leaseback transaction is an often used strategy to raise capital, increase shareholder value and remove real estate assets from their books. Today, given the low cost of long term financing relative to short term financing, these transaction are even more advantageous.

General advantages of sale leaseback transactions include:

1. Increase Core Returns - Core returns, as measured by a company’s weighted average cost of capital, often exceed 15% v. lease cost of 7 – 10%
2. Increase Overall Earnings/Related Measures – Not owning property eliminates depreciation, and any gain from sale is recognized. These factors and the return arbitrage generally exceed the additional rent expense thus increasing earnings/shareholder value. From a cash perspective, rent expense is often lower than the cost of amortizing mortgage debt and lease payments can be structured to achieve cash management goals.
3. Control Over the Property - The form of net lease used insures that the company’s control, security and flexibility concerns are satisfied. The property owner can only take action when the company has defaulted in its obligations. The leases also includes a sufficient initial term as well as renewal options to insure the property will continue to be available for a company’s use.

Because of the breadth of investments we seek, NRFC is uniquely well suited to execute portfolio transactions with differing property attributes such as lease length, thus giving a selling company maximum flexibility and the need to deal with only one buyer.

If you have a sale leaseback transaction you’d like to discuss or would like additional information about our acquisitions program, please contact Dan Raffe at: raffe@nrfc.com - HOT or by telephone at (212) 547-2670.