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.
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.
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, Pricoa Private Capital ("Pricoa") 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.
Publish Date: July 26, 2023
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Pricoa Private Capital (‘PPC’) is a trading name of PGIM, Inc. (‘PGIM’), the principal asset management business of Prudential Financial, Inc. ('PFI'), and it is also a trading name of 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”) of the United Kingdom (Firm Reference Number 172071) and registered in England No. 1331817. In the European Economic Area (“EEA”), information is issued by PGIM Private Capital (Ireland) Limited with registered office: IDA Business Park, Letterkenny, Co Donegal, Ireland F92 FP83, Ireland. PGIM Private Capital (Ireland) Limited is authorised and regulated by the Central Bank of Ireland and registered in Ireland under company number 635793 operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Private Capital Limited in reliance of provisions, exemptions or licenses available to PGIM Private Capital Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. These materials are issued by PGIM Private Capital Limited and/or PGIM Private Capital (Ireland) Limited to persons who are professional clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II).