What is a sale-leaseback?
A sale-leaseback is when the owner/occupant of a property sells the 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.
Below we outline an example of how Credit Tenant Lease Financing (“CTL”) can support a sale-leaseback.
Transaction Overview
A large US-based Healthcare System (the “Company”) occupied multiple medical office buildings and sought to lower its occupancy cost through a programmatic sale-leaseback. To effectuate the transactions, the Company exercised purchase options under its existing leases and entered into new leases with rent payments based on its cost of capital.
Outcome and Benefits
Over the course of three years, we executed on the sale and leaseback of multiple properties.
• Through our programmatic transaction structure and direct dialogue, the Company benefitted from certainty of execution, reduced transaction costs, and minimal out-of-pocket expense as the CTL proceeds exceeded the price of the purchase options.
• The transactions created no additional risk to the Company’s current occupancy, as it never held title or used equity to purchase the assets.
• The Company lowered its occupancy cost across the portfolio by approximately 30% vs. its prior lease rates.
• The Company maintained its property tax-exempt benefits.
Transaction Structure
The portfolio of properties had staggered purchase options over three years, which meant each funding would occur in conjunction with the exercised purchase option. Given the time gaps between each transaction, PGIM Private Capital ("PGIM") worked closely with the Company’s executive management team and its advisors to provide certainty of execution such that closing of each financing tranche would occur simultaneously with the exercise of each option.
The diagram below outlines the transaction structure of our sale-leaseback transactions.
Learn more about credit tenant lease financing here.
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Publish Date: July 20, 2023
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