Our SLB Capital Advisors Market Update comprises brief but informative detail and commentary regarding sale leaseback transaction volume, cap rate trends and acquisition activity, which we hope may be useful and pertinent to your business. To access this report, please click here.
Just over 12 months from the start of the pandemic, the sale leaseback market is quite strong, with significant pent up demand from buyers and an active M&A market to help drive volume. While 2020 was a down year in terms of sale leaseback volume, we expect 2021 to be a very active period.
After reaching close to a multi-year trough in Q2’20 and Q3’20, sale leaseback activity rebounded to 137 transactions in Q4’20. For the full year, a pandemic-induced M&A slowdown contributed to lower sale leaseback activity in 2020 relative to prior years, with 501 transactions compared to 814 transactions in 2019 and 579 transactions in 2018.
Multiple large transactions in 2019 drove much of the year-over-year delta; by deal count, 2020 was down 38% from 2019 (still meaningful, but less dramatic than the 59% drop that the dollar volume differential would imply).
Source: The proprietary market analysis of SLB Capital Advisors analyzes data sourced from CoStar, public filings and public disclosures. The research, professional judgment, views and conclusions are exclusive to SLB Capital Advisors.
(1) For sale leasebacks with undisclosed sale prices, a median trading value has been ascribed to better estimate deal flow for the period
The pandemic has accelerated demand for industrial opportunities and seen a major drop in retail which was down 55% versus 2019 by deal count.
Based on various industry sector valuations, there continues to be an attractive value arbitrage driven by the delta between business and real estate multiples. The multiple implied by average sale leaseback cap rates (i.e. 6.5% to 8.5%) implies a range of almost 12x to over 15x.
This compares favorably to general middle market transactions (7.2x for Q4’20 per GF Data) and some large transaction multiples as well. Attractive arbitrage opportunities are generally prevalent across many middle-market sub-sectors.
To access the full report, please click here.