What is the strategic and operational importance of the real estate?
While ownership conveys to the buyer, the company (tenant) retains possession with continued use and control of the property over a long-term lease with multiple renewal options
Risk of Obsolescence
What is the value and importance of the building at the end of the projected lease term?
Company receives today’s attractive real estate dollars, and residual valuation risk is transferred to the buyer
How will a sale leaseback impact financials, key credit metrics, debt covenants, and credit ratings?
Sale leasebacks are often accretive to earnings and cash flow, provide flexible terms with no financial covenants, and no balloon payments or call provisions
Is there a divergence between the business multiple and the cap rate (real estate multiple)?
Real estate valuations continue to be highly attractive, and a value arbitrage often exists between the real estate valuation and a company’s underlying EBITDA multiple
Cost of Capital
What is the cost of capital impact and how do the alternatives compare from a cost of capital standpoint?
Cap rates on sale leasebacks are typically favorable compared to a company’s WACC, and often represent a very attractive financing source to the business
Use of Proceeds
How will proceeds be used?
Sale leaseback proceeds can be used for a multitude of reasons including paying down debt, funding acquisitions, supporting growth and expansions, and stock buyback amongst others