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https://www.prudentialprivatecapital.com/perspectives/ using-credit-tenant-lease-financing-to-monetize-owned-assets
https://www.pricoaprivatecapital.com/perspectives/ using-credit-tenant-lease-financing-to-monetize-owned-assets

Using Credit Tenant Lease Financing to Monetize Owned Assets

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Learn about how we structured an internally controlled sale-leaseback for a US-based distributor of industrial and utility materials.

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. Pricoa Private Capital ("Pricoa") 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 Pricoa'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 26, 2023
This article represents the views, opinions and recommendations of the author(s) regarding the economic conditions, asset classes, securities, issuers or financial instruments referenced herein. Distribution of this information to any person other than the person to whom it was originally delivered is unauthorised, and any reproduction of these materials, in whole or in part, or the divulgence of any of the contents hereof, without prior consent of Pricoa Private Capital is prohibited. Certain information contained herein has been obtained from sources that Pricoa Private Capital believes to be reliable as of the date presented; however, Pricoa Private Capital cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. Pricoa Private Capital has no obligation to update any or all of such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy or accept responsibility for errors. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services and should not be used as the basis for any investment decision. Past performance is no guarantee or reliable indicator of future results. No liability whatsoever is accepted for any loss (whether direct, indirect, or consequential) that may arise from any use of the information contained in or derived from this report. Pricoa Private Capital and its affiliates may make investment decisions that are inconsistent with the recommendations or views expressed herein, including for proprietary accounts of Pricoa Private Capital or its affiliates.
The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients or prospects. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects. For any securities or financial instruments mentioned herein, the recipient(s) of this report must make its own independent decisions.
Pricoa Private Capital (‘PPC’) is a trading name of PGIM, Inc. (‘PGIM’), PGIM Private Capital Limited and PGIM Private Capital (Ireland) Limited. In the United Kingdom, information is issued by PGIM Private Capital Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Private Capital Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). In the European Economic Area (“EEA”), information is issued by PGIM Private Capital (Ireland) Limited with registered office: Pramerica Drive, Letterkenny Business and Technology Park, Letterkenny, Co Donegal, F92 W8CY, Ireland. PGIM Private Capital (Ireland) Limited is authorised and regulated by the Central Bank of Ireland and operating on the basis of a European passport.
©2022 Prudential Financial, Inc. and its related entities. PPC, Pricoa, PGIM, the PGIM logo and the rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide. PFI of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom.
July 26, 2023

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