Merbain

Structuring

Property Valuation

• Sale leaseback real estate is typically valued at 100% market value as determined by an independent appraiser.

 

Lease Structure

• Most investors will require a lease term of at least 10 years.

• Leases are structured as absolute bondable triple-net leases, which mean that the tenant retains complete operational control of the property and is responsible for all building repairs and maintenance, insurance, real estate taxes, etc. The only contact with the sale-leaseback investor is for payment of the rent.

 

Lease Pricing

• Investment grade credits can typically get initial cap rates (the ratio of the lease payments over the transaction value) of 14%-16% range.

• In addition to the company’s credit, the location, quality and age of the real estate, as well as the term of the lease, will also affect the pricing.

• There will usually be increases in the lease payments over time. These bumps could be a fixed amount (typically 1-3% per year) or tied to inflation, and could be annual or once every 5-10 years.

• A security deposit is usually required for poorer credits.

 

Repurchase Option

• Some buyers have the ability to offer a repurchase option at the end of the lease term or in occasions, at specified times during the lease.

• The repurchase option could be based on future fair market value or at a specified price. Note that a fixed-price repurchase option would create capital lease (on balance sheet) accounting treatment.

 

Timing

• Our clients can typically close a transaction within two months of agreement on the letter of intent. Closing can often be accelerated to meet your requirements.