Property Insights - further your understanding of real estate and finance

The same building can be worth two different amounts depending on who owns it. Sitting inside a portfolio company, it is included at the buyout multiple applied to the EBITDA it supports. Sold to a real estate investor and leased back, it is priced on a yield (the inverse of a multiple) reflecting the income profile. The sale and leaseback multiple is often materially higher than the multiple applied to the operating business. This gap is where sponsors can create value and e

Sale and leasebacks are a mechanism which can be deployed for different purposes at varying points in a sponsor’s hold period. They are a value creation tool but the proceeds also provide liquidity which can be deployed by Sponsors for a variety of uses. The question to be addressed is where in the hold period would a sale and leaseback process create the most value? Fund the acquisition The earliest and most direct use of a sale and leaseback is to provide funding for the ac

Most sponsors adopt value creation routes such as operational improvements, financial engineering and strategic expansion. These methods are hands-on and time intensive. Whilst undertaking these methods, many are overlooking value which already exists on the balance sheet, tied up in a company’s owned real estate. How can real estate be used to create value? Real estate is held on balance sheet at book value or fair value, both of which are typically less than sale and leaseb

The decision to release capital via a sale and leaseback should not risk the future exit from a portfolio company. To mitigate this risk, it is important to ensure the rent is sustainable and the lease terms are market-standard but three lease provisions should be a top priority for Sponsors as they pose the largest potential risk for an exit: lease length, change of control and assignment/subletting. Lease length and break options: pricing today vs flexibility tomorrow Inves