5 Steps to Navigating a Sale-Leaseback Transaction

Navigating a Sale-Leaseback Transaction

A Step-by-Step Guide

As a CFO, you may consider a sale leaseback to manage your company’s real estate and support its growth goals. While the process of a sale leaseback can be complex, with the right advisors and a detailed planning process, it can provide many benefits to your company. 

You’re not alone if you’ve only heard of sale leasebacks in passing. It’s common for executives to be unfamiliar with all options available to them during periods of high growth or transition. With the right preparation and guidance, a sale leaseback can provide several benefits, such as allowing a company to access the equity in its real estate assets and providing a source of capital for growth or expansion. It can also provide flexibility in managing real estate assets, allowing a company to sell a property and then lease it back on terms that suit its needs. If you have questions about a sale-leaseback transaction, contact us to connect with an experienced broker. 

Here are key steps to ensuring that a sale leaseback will provide the most benefit to your business while limiting the chaos.

Choose appropriate advisors and consultants

One of the most important decisions in a sale leaseback is choosing the right broker. It’s natural to want to choose a local broker who is familiar with your property and the local market. However, a broker focusing on local transactions may not always have an extensive buyer network or in-depth experience. Look for a broker who has specialized expertise in national sale leasebacks and a wide network of buyers and sellers. In addition, work with reputable consultants, such as attorneys and financial advisors, to ensure a smooth process.

Determine the value of the real estate

To attract the best buyers, you will need to create a convincing pitch that shows the earning power of your company. Determine your company’s EBITDAR (Earnings Before Interest, taxes, depreciation, amortization, and restructuring or Rent Costs) to reflect your company’s financial performance and ongoing operations outside of real estate costs. To determine the value of your real estate, think about factors like market rent, market lease rates per square foot, and your desired asking price.

The credit of the selling company is a key factor in the valuation of real estate in a sale leaseback. Low risk credit can translate into a higher priced sale with lower rent. Consider how much rent your company can afford and how much capital it needs to get through a sale leaseback.

Develop a compelling pitch that tells a story

Typical real estate packages focus only on the physical property, while successful sale leaseback packages also include a business overview that centers on introducing the executives, reporting on that industry sector, and telling the company story and trajectory. Successful advisors will ensure the final package is presented confidentially to the sale leaseback market and create a highly competitive bidding process. Each potential buyer will carefully review the company and its business before making a final decision, so it’s important to be transparent and show the company in the best light.

Negotiate the terms of the lease and consider the tax implications

Review and finalize any lease instruments so they meet the needs of your company. This may include negotiating the length of the lease, renewal options, and any restrictions or exclusions.
A sale leaseback can provide a quick infusion of capital, but it’s important to weigh the long-term effects on your company. Make sure the rent payments are affordable in the long term, and the terms of the lease allow your company to make changes to the property or expand in the future. In addition, there are other considerations, such as:

• Length of lease
• Annual rent escalations
• Role of the consumer price index, if any
• Lease options to renew
• Insurance provisions
• Maintenance controls
• Dispute provisions

Read the full article on CFO.com.