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.
In short, continuing strong fundamentals in the sale leaseback market (e.g., low interest rates, net lease REIT equity market outperformance, an over-active M&A market, etc.) make for an exceptional time to execute on sale leaseback transactions. The Wall Street Journal quoted us earlier this month saying, “This is actually the singular best moment to execute a sale leaseback that we’ve experienced in our careers.” We expect that statement to hold true through the end of 2021 and into early 2022.
Of note, from a timing standpoint, there are many groups already working on or at least considering a sale leaseback before the end of this calendar year. There is still a viable window open to complete a transaction in 2021.
From a transaction standpoint, sale leaseback activity increased 17% to 185 transactions in Q2’21 vs. the previous quarter, reaching $3.6bn, the second largest transaction count and dollar volume since Q4’19.
While we witnessed a return to optimism in the retail segment in Q1’21, Q2’21 exhibited continued strength in industrial, representing 53% of all transactions in the period. These industrial sale leasebacks continue to command attractive pricing, even in non-core markets.
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.
Notable deals for the quarter include Benderson Development’s acquisition of the Kroger Co.’s retail properties for $487mm and Gaming & Leisure Properties’ acquisition of two entertainment locations from Bally’s Corporation for $484mm.
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., 5.5% to 7.5%) implies a range of over 13x to over 18x. This compares favorably to general middle market transactions (7.2x for Q2’21 per GF Data) and some large transaction multiples as well. Attractive arbitrage opportunities are generally prevalent across many middle-market sub-sectors.
With more companies seeking to close transactions by year-end in anticipation of capital gains increases (though the proposal has now been revised down to 25.0% from 39.6%), we expect the remainder of 2021 to exhibit continued strength in the sale leaseback market.
To access the full report, please click here.