In a sale-leaseback transaction, the property is encumbered by a triple net lease.

Under this triple net lease, the tenant maintains and manages the property on-site. The tenant also insures the real estate, pays all of the property expenses and pays the property taxes directly to the taxing authority. The tenant is also responsible for the roof and structure.  In some instances, the tenant is held responsible in the event of a disastrous event (bond lease).

Sale-Leaseback, Leaseback, Sale and Leaseback

Cap rates are inversely related to credit and hence price. Thus a lower cap rate often equates to a higher price.

Currently, cap rates for a sale-leaseback financing vary from 6% to 11% (plus or minus) of the properties purchase price, depending on the financial strength of the tenant, rent increase and tenants responsibilities. For example, a new franchisee with no prior experience would be considered very high risk. A multibillion dollar profitable corporation with good management, that has always fulfilled its lease obligations, with an investment grade rating (Moody’s, Standard & Poor or NAIC) would be the lowest risk and earn the lowest rate.

We are seeing a drop in cap rates for sale-leaseback and triple net lease deals every month!

Sale-leaseback financing is where a private or public company sells their owner-occupied real estate to an investor for fair market value. The investor provides the seller with a triple-net operating lease for a negotiated period of 10 to 25 years. Initially, the seller/tenant usually pays the investor an annual rent equal to 8% to 15% of the contracted sale price. The rate is usually credit-driven. If agreed to there may be scheduled rent increases during the term of the lease.

TYPES OF PROPERTIES

Sale-leaseback financing is available for all types of existing or build-to-suit real estate, including:

· Service Centers;

· Office Buildings;

· Fast Food Establishments;

· Distribution Warehouses;

· Health Care Facilities;

· Industrial Facilities;

· Retail Stores, and

· Educational Buildings;

EXPERIENCE

Since 1992, Jonathan S. Horn (“Horn”), President and founder of Horn Capital Realty, Inc., has recognized the potential for substantial owner and investor benefits from sale-leaseback transactions, and he has focused his efforts specifically on those types of commercial real estate investments. Horn is one of the most experienced, efficient and cost effective sale-leaseback facilitators in the United States. He has successfully closed more than three quarters of a billion in sale-leaseback financing transactions, net-leased sales and debt and equity placements with large national tenants such as:

· Blockbuster Entertainment

· NorAm Energy

· Dairy Mart

· NYNEX

· Eckerd Drug

· Payless Shoe Source

· Haverty Furniture

· Taco Bell

· Home Depot

· United Auto Group

· KFC

· Wal-Mart

· Kmart

· Walgreen Drug Stores

· Monro Muffler

· Whole Foods

HCR SALE-LEASEBACK BENEFITS*

HCR, is one of the industry’s most efficient and cost effective facilitators of strategic sale-leaseback transactions. He has the resources to offer corporate owners of real estate the opportunity to convert property to cash faster, with better terms and at a lower cost, than other diversified investment bankers, commercial banks or institutional advisors. The HCR sale-leaseback can provide your company with the following business advantages:

· 100% financing based on the appraisedd value of the property;

· Operating leases that do not appear on your balance sheet as debt or as a long-term lease obligation;

· Full control of your real estate under lease provisions;

· Tax deductible lease payments, and

· Cash realized from your sale-leaseback transactions can be used to reduce debt, expand operations, acquire other businesses, and enhance liquidity.

* Discuss these benefits with competent tax and legal experts prior to finalizing a sale-leaseback transaction

Companies that should consider sale leaseback financing are:

(1.) Companies that own and occupy properties with considerable equity, based on current market value- sale leaseback financing would benefit them;

(2.) Companies that want more flexibility in retaining, moving or disposing of their business locations- sale leaseback financing would benefit them;

(3.) Companies that do not want to own illiquid real estate assets-sale leaseback financing would benefit them; and

(4.) Companies that want less debt on their balance sheet and more tax deductions on their annual tax returns-sale leaseback financing would benefit them (stay tuned more FASB rulings in 2011 which could change this).

Sale-leaseback financing can be utilized for both existing and build-to-suit real estate. Regardless of the type of property you own, i.e. retail, office, industrial, educational buildings, health care, industrial facilities, service centers, distribution warehouses or fast-food establishments, you can fully benefit from clear advantages of sale-leaseback financing. Numerous privately and publicly held companies have employed sale leaseback financing successfully everyday.

Some recent sale leaseback financing examples completed in the market are BJ’s, University of Phoenix and
Coastal Sunbelt.

The types of properties suitable for utilizing sale-leaseback financing, but not limited to are, Service Centers, Office Buildings, Fast Food Establishments, Restaurants, Distribution Warehouses, Industrial Facilities, Retail Stores, Educational Buildings and Health Care Facilities, etc. Any multi-tenant type property (shopping center, office building) which the seller/tenant would be willing to master lease in its entirety, could be suitable for sale-leaseback financing.

Sale leaseback financing is also utilized with aircraft, trains and vessels to name a few.

Sale-leaseback, leaseback, sale and leaseback, sale leaseback

The strategic conversion of corporately owned real estate into working capital has proven extremely beneficial to corporations, particularly as their executives are scrambling to find funds to help grow their companies. The benefits of sale-leaseback financing has become all the more obvious with the economic slowdown and the tightening of the credit markets. Companies have found that access to their traditional capital resources has become more restricted, which in turn, has impacted their ability to access competitively priced debt. Under these circumstances, the advantages of sale-leaseback financing has emerged as a unique opportunity to raise capital without clouding one’s balance sheet with long-term debt.

Sale-leaseback financing can be defined as a corporate entity selling their owner occupied asset to an investor, usually at a fair market value- Price is usually based on an appraised value. The financing can be utilized for one asset or an entire portfolio. The investor provides the seller with a triple-net operating lease for a period of 10 to 25 years plus options so that the seller can continue to occupy the property. Initially, the seller/tenant usually pays the investor a negotiated annual rent equal to 6.5% to 12% of the contracted sale price. Investment grade corporations command a lower rate, while non-investment grade tenant command a higher rate. Because the rate is credit-driven, the real estate is considered to be additional collateral.

Small and large businesses alike can benefit from sale-leaseback financing; however, in the beginning, it was mostly chain businesses and national franchises that took advantage of the benefits of this financing vehicle. Many corporations across the country have employed sale-leaseback financing as a viable source to help finance mergers and acquisitions or leveraged buyouts. Many companies often use sale-leaseback financing as a way to eliminate long term debt obligations from their balance sheets and enhance liquidity. This effective financing vehicle also allows companies to fuel their growth while focusing on their core business operations.

The duration of the lease is negotiable, for a period of typically ten to twenty-five years.

A triple net lease is typically used. This form of lease allows the tenant to remain in complete control of the property under the lease provisions, while being responsible for property taxes, insurance and maintenance and expenses derived from occupying the property.

Sale-leaseback financing can be used for both existing and build-to-suit real estate. Regardless of the type of property you own, i.e. retail, office, industrial, educational buildings, health care, industrial facilities, service centers, distribution warehouses or fast-food establishments, you can fully benefit from clear advantages of sale-leaseback financing. Numerous privately and publicly held companies have employ this financing method successfully everyday.

Sale-leaseback financing is an important capital resource which is often overlooked. The attributes that this financing system provides, is all the more welcomed as spreads on traditional mortgage debt are widening. Given the instability of the securitized debt market, this financing vehicle makes a perfect alternative to traditional and non-traditional mortgages.

sale-leaseback, leaseback, sale and leaseback

Sale-leaseback financing can be used for both existing and build-to-suit real estate. Regardless of the type of property you own, i.e. retail, office, industrial, educational buildings, health care, industrial facilities, service centers, distribution warehouses or fast-food establishments, you can fully benefit from clear advantages of sale-leaseback financing. Numerous privately and publicly held companies have employed this financing method successfully everyday.

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STORE Capital Completes $105 Million Sale/Leaseback with O’Charley’s Inc.

SCOTTSDALE, Ariz., Oct 17, 2011 (BUSINESS WIRE) — STORE Capital, a new-generation REIT formed to invest in single-tenant real estate, such as chain restaurants, supermarkets, health clubs, education and other retail, service and distribution facilities, announced today that it completed a $105 million sale/leaseback transaction with O’Charley’s Inc. CHUX +12.63% , a multi-concept restaurant company that operates or franchises a total of 342 restaurants under three brands: O’Charley’s, Ninety Nine Restaurant, and Stoney River Legendary Steaks.

As part of the agreement, STORE Capital purchased 50 O’Charley’s restaurant properties and leased the assets back to O’Charley’s under long-term, triple-net leases. O’Charley’s announced that it will use the net proceeds from the transaction along with available cash to redeem $115.2 million of its senior notes.

Christopher H. Volk, chief executive officer of STORE Capital commented, “O’Charley’s Inc. has a proven track record of operating a number of highly successful restaurant brands. We are proud of our ability to add value to O’Charley’s through our tailored and efficient sale/leaseback transaction and we look forward to the mutual benefits of a long-term relationship.”

David W. Head, president and chief executive officer of O’Charley’s Inc. commented, “We are pleased to commence a long-term real estate financing relationship with STORE Capital. This strategic transaction strengthens our financial position by virtually eliminating the debt on our balance sheet. STORE Capital provided flexible and tailored terms and was a pleasure to work with throughout the process.”

Mr. Volk and several of his longstanding colleagues, including Morton H. Fleischer, formed STORE Capital in May of 2011 to help owners of single-tenant, operationally essential real estate optimize their capital efficiency. Messrs. Volk and Fleischer along with the rest of STORE Capital’s management team have successfully invested nearly $10 billion in single-tenant operational real estate assets since 1981, and guided the formation and ultimate sale of two successful publicly listed REITs resulting in significant returns for their shareholders.

About STORE Capital

STORE Capital is a new-generation real estate investment trust principally backed by funds managed by Oaktree Capital Management, L.P. STORE’s mission is to address the long-term capital needs of real estate intensive operating businesses throughout the United States. Through tailored real estate lease and mortgage financing solutions, STORE’s aim is to create wealth for its customers by improving the capital efficiency of their businesses. For more information, visit www.storecapital.com .”

In sale leaseback financing, a triple net leasehold obligation that qualifies as an operating lease under the criteria set by the Financial Accounting Standards Board (FASB) will not appear on the tenant’s balance sheet as either debt or a long-term obligation. Therefore, in a sale leaseback arrangement- a tenant after paying off a mortgage obligations and receiving unlocked cash from the sale of the seller/tenant’s depreciated real estate, the seller/tenant will not add a new leasehold debt to their balance sheet. The improved debt-to-equity ratio from sale leaseback financing can make a seller/tenant much more attractive to banks and other traditional lenders.