Why do a sale leaseback with manufacturing facilities?

  DECREASE CORPORATE DEBT  The overwhelming reason to move these heavy industrial parcels into a sale leaseback is to decrease corporate debt, which can impact credit rating and increase conventional borrowing capacity.  All of our triple net bond leases are operating leases, which are fully tax deductible and not listed on the balance sheet as debt.  However, unlike appreciating property which can always be sold to recover much of it's asset value, these properties need to be sold while they are forecasted to be used for 15 years or more.  Once they are scheduled to be vacated and sold, the equity is gone forever.

  INCREASE ROI, PROFITS, AND ROA  Converting illiquid assets to cash, while increasing return on investment and shareholder value.  Corporate sale/leasebacks frequently occur when a company has depreciated real property with a market value higher than it's book value  consequently, the company's profits are increased.  Higher profits are reflected in higher stock prices, yielding additional cash for company growth.  In addition, some corporations wish to show increased productivity, calculating their productivity by reporting a return on assets.  A sale leaseback transaction may allow the corporation to reduce the assets shown on it's balance sheet, thereby reducing the denominator (the assets) when calculating it's productivity (earnings divided by assets).

  EASY AND COST EFFECTIVE WAY TO EXIT A PROPERTY  Relieving the need to dispose of real estate assets when closing time comes, and avoiding having the real estate on the books for a long time.  With an active merger and acquisition market, companies have experienced the problem of corporate real estate glut.  The goal of a merger is efficiency, and being more efficient often requires eliminated redundant facilities or even divisions.  In addition, the sale of these properties when empty return a very small percentage of their initial value, and the costs of holding the property while waiting the years it might take in disposing of it can turn the transaction into a net looser.  It should be noted that all transactions are held under secrecy agreement reflecting the sensitive nature of disposing of production facilities to the surrounding community and labor force. 

 

A few hidden advantages seldom considered:

  ENHANCE BUYOUT VALUE / SHAREHOLDER VALUE  Enhancing merger and acquisition offers.  Before it's $10.9 billion acquisition by Manualife Financial Corp., in 2004, John Hancock sold it's landmark Boston headquarters building for $910 million.  At the time, Hancock's management had been talking with possible buyers, and realized it could get more money by selling in a transaction separate from the takeover.  The sale had the added benefit of strengthening Hancock's pre-acquisition balance sheet; the company booked a $500 million gain.

  POISON PILL FOR LOWBALL TAKEOVERS  Defending against low priced merger and acquisition attempts.  A prime motivator in certain takeovers is the unrealized value of a corporation's real estate holdings.  Most corporations do not have a very firm idea about the true value of their real estate assets, while studies have shown that between 25 and 30 percent of the net worth of U.S. corporations is typically tied up in real estate. Heavy manufacturing however could not participate in this valuation study, because their real estate has not been considered by investors suitable for sale leaseback, or of any value when sold empty.  While this historically has been true for heavy manufacturing companies in the past, in light of our new program, real estate not previously considered feasible for traditional sale leaseback are our prime targets.  While earnings may jump up temporarily as a result of a sale leaseback transaction, a corporation's overall takeover appeal may be diminished as a result of such a transaction.   

  SELL YOUR BUSINESS TWICE  Taking advantage of the techniques of commercial property appraisal to effectively sell your business twice.  It is accepted practice that in appraising commercial real estate, three standard techniques are used.  Replacement value, similar properties currently sold in the same geographic area, and the value of income the real estate produces for the current owner.  Because large heavy industrial facilities seldom have functionally similar facilities within a close proximity, this evaluation tool is often of little use, leaving only the other two means which are heavily relied on.  

Replacement value of facilities, even older facilities when depreciated for wear, will have a very high value because of the huge escalation in the cost of construction and land over the last few years to produce a similar infrastructure.  That value typically can approach and sometimes surpass the original cash layout of the building when new.  

Finally, the appraisal value based on income generation of the facility, which is currently being used at it's best and highest potential, because it's the one which it was originally built and designed for.  Either way, these last two evaluation methods will always return a vastly higher appraisal value, than an appraisal made on the same property when empty.

In a sense, these methods of appraising a working industrial sight, are actually evaluating the ongoing business being conducted.  This can be clearly seen when comparing the same facility when appraised empty, dropping value by 80-95%.  Taking advantage of this high valuation, executing a sale leaseback on these properties with our program means you can yield the majority of the value of the business during the sale, even though it is a real estate transaction only.  Then later if the business climate changes, sell the ongoing business and leased property based on the business valuation only, a price which will be only marginally reduced by the lease obligation.  That business valuation will be very near the same valuation when the property was appraised and sold originally, in effect getting double valuation for the ongoing business.