SLB Capital Advisors Sale Leaseback Market Update – March 2022

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.

SLB Market Update - March 2022 cover

The sale leaseback market continues to make progress towards a record year both in deal count and While inflation and interest rate hikes are top of mind for many, not to mention the war in Ukraine, the sale leaseback market recently completed a banner year and has shown few signs of slowing down. Even if companies’ cost of capital starts to widen, sale leasebacks will remain a highly attractive alternative given effective multiples in the mid-teens.

In tandem with the record-setting year for M&A (18,539 deals closed in North America for a combined $2.8 trillion), 2021 was a banner year for sale leasebacks. After reaching a multi-year trough in 2020, sale leaseback activity rebounded in 2021 to post some of the highest levels recorded in terms of both deal count and transaction volume. For the full year, 790 sale leasebacks generated a total of $24.3bn, compared to $12.7bn in 2020 and $27.5bn in 2019.

The industrial segment continued its heightened activity. In 2018 and 2019, industrial contributed 41-42% of overall sale leaseback activity. Over the last 2 years, given headwinds in office and retail, we’ve seen the industrial segment tick up to comprise 54% and 48%, respectively. In Q4’21, industrial comprised 49% of all sale leaseback transctions, followed by Retail (21%), Specialty / Other (13%), Office (9%), and Healthcare (8%).

Based on various industry sector valuations, there continues to be an attractive value arbitrage driven by the Notable deals in Q4’21 include Gaming & Leisure Properties’ acquisition of the Cordish Companies’ Live! Maryland property for $1.1bn and Medical Propety Trust’s acquisition of 18 behavioral health care locations from Springstone for $760mm.

Sale Leaseback Market Activity

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
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The window to initiate a sale leaseback transaction and close by year-end shut in November and buyers are nBased 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., 5.5% to 7.5%) implies a range of over 13x to over 18x. This compares favorably to general middle market transactions (7.5x for Q4’21 per GF Data) and some large transaction multiples as well. Attractive arbitrage opportunities are generally prevalent across many middle-market sub-sectors.

2022 started off quite busy for our firm. We are pleased to currently have in market or pending launch many sale leasebacks across various industries, size tranches, geographies and ownership profiles. We anticipate this heightened activity to continue over the next couple of quarters.

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