Using Credit Tenant Lease Financing to Monetize Owned Assets

What is a sale-leaseback?

A sale-leaseback is when the owner/occupant of a property sells an asset to a third-party and leases it back, becoming the tenant. This structure allows the owner/occupant to extract value from its real estate holdings while retaining operational control. The transaction described below allowed the company to retain ownership of the asset through an internally controlled sale-leaseback.

Below we outline an example of how Credit Tenant Lease Financing (“CTL”) can support an internally controlled sale-leaseback.

Transaction Overview

A US-based distributor of industrial and utility materials (the “Company”) desired to monetize an owned facility and use the proceeds to pay down its revolving credit facility to provide greater capacity for acquisitions. Prudential Private Capital ("Prudential") engaged directly with Company’s management team to evaluate a CTL solution, including financing up to 100% LTV and lowering occupancy cost. The Company concluded that a captive-owned CTL execution would be more accretive than traditional sale-leaseback models.

Outcome and Benefits

Through Prudential’s custom structure the Company achieved each of its transaction goals, including:

• Sale-leaseback proceeds allowed the Company to reduce outstanding debt by ~14%.

• The Company retained ownership and control of its headquarters building.

• Occupancy cost was lower as compared to a traditional sale-leaseback structure.

• Certainty of execution and no origination fees through direct dialogue and structuring with Prudential’s CTL team.

Transaction Structure

After review of various owned assets, the Company decided to sell and leaseback its headquarters building located in a tertiary Midwest market. To create the most accretive transaction we provided several solutions which allowed the company to: retain ownership of the property through reversionary interest; used a balloon payment structure which reduced annual occupancy cost by approximately 12% vs. a fully amortizing structure; and, funded the transaction at 95.2% LTV based on an in-use valuation.

Learn more about credit tenant lease financing here.

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Publish Date: July 20, 2023

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