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.
Through the first half of 2021, the convergence of exceptional market fundamentals has established a uniquely attractive period to execute sale leasebacks. Low interest rates, combined with outperformance in the equity markets has enabled a lower cost of capital for many buyers. Additionally, pent up post-COVID buyer demand, an over-active M&A market (partially spurred by potential capital gains changes on the political agenda), as well as an influx of new sale leaseback buyers into the market, have been key factors in the compression of cap rates in many sectors.
From a deal volume standpoint, sale leaseback activity reached 155 transactions, relatively in line with Q4’20. We estimate Q1’21 to have totaled $2.6bn in deal value for the period, a decline vs. Q1’20, however largely in line with a normalized, COVID-free Q1’19 ($2.5bn).
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
Q1’21 exhibited a return to optimism in the retail segment, which represented 23% of overall transactions, and was directionally in line with 2019 contribution (27%).
The Industrial segment continues to be strong – despite a decline in contribution from 2020, volume in Q1’21 (69 transactions) was largely in line with Q1-Q3’20 (60-70 transaction range per quarter). Industrial sale leasebacks continue to demand attractive pricing, leading all sectors in contribution at 32% of total Q1’21 transactions.
Given that more companies are anticipated to flood the M&A market (for color, our partners tell us that one of the hurdles in an M&A process is finding a QoE provider with capacity right now), we expect sale leaseback activity to be exceptionally strong through the balance of 2021.
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. 6.0% to 8.0%) implies a range of over 12x to almost 17x. This compares favorably to general middle market transactions (7.2x for Q1’21 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.