Executing A Sale-Leaseback

Strategy To Unlock Your Capital Why Choose Avison Young’s Net Capital Markets Group?

The Avison Young Capital Markets Net Lease Group is a nationally based real estate banking firm that specializes in arranging structured and CTL financing for credit rated tenants, construction and permanent , mezzanine and joint venture equity for the single tenant net lease (STNL) market. Our Capital Markets Group is recognized for its expertise in providing and equity to institutional and private clients. In addition, we work with small to middle market companies, executing long term financing through execution of a sale leaseback of their real estate .

• Experienced sale-leaseback team has closed over $1.2 Billion of both single as well as portfolio transactions and Avison Young Net Lease Group’s experts have sold $12 Billion in transactions

• Jointly establish a strategic plan with management to maximize the value of the real estate consistent with corporate objectives, addressing critical provisions to be included in the lease

• Extensive contact list of principals and advisors used to create a wide distribution of the offering to targeted qualified

• Strategically located offices with expert in-house teams provide strong local real estate market knowledge

• Effectively manage the process, communicating when necessary with the client, but minimizing direct client involvement

• Strong track record in closing transactions for both investment and non-investment grade sellers which meet or exceed corporate objectives

• Our Avison Young Capital Markets Net Lease Group has the technical knowledge and experience to structure a complex transaction and follow it through to a successful closing. We are consistently able to obtain numerous offers from qualified investors resulting in successful executions on behalf of our clients.

2 Avison Young Net Lease | Executing a Sale-Leaseback What is a What are the Sale-Leaseback? Benefits of a Sale-Leaseback? A sale leaseback occurs when a company sells the land and building used in its current business operations. Simultaneously, the company it back under a long term lease with the buyer. Our target clients are small to middle market companies with revenue between $5 Million and $250 Million. Generate Cash Quickly liquidate your real estate and get 100% of Why do a market value compared to Sale-Leaseback? 70% from a LTV .

Companies do sale-leasebacks for a variety of reasons, but generally do so to use net proceeds of the transaction in order Reduce Taxes to reinvest in a corporate purpose that produces higher yields. Corporate occupied real estate typically commands a return Deduct 100% of your of 6% to 10%. A company can receive a higher return from rent versus only allocating its capital to other uses: the interest portion of • Corporate mergers and acquisitions your debt. • Expanding company operations

• Reducing debt • Stock repurchases Redeploy Capital

A sale-leaseback is an excellent mechanism to: Use the net proceeds

• Replenish working capital or buy out a partner from this transaction

• Provide capital allowing a senior stakeholder to to reinvest in your retire and structure an orderly transition to the next business. generation

• Upgrade company infrastructures

3 Avison Young Net Lease | Executing a Sale-Leaseback Case Study I

Raising Capital Utilizing a Sale-Leaseback

The owner can utilize a sale-leaseback transaction to monetize their real estate assets. As illustrated below, a sale-leaseback occurs when the real estate owner sells the property to a buyer and simultaneously leases the property back under a long-term lease. Assumptions • Company desires Sells Property proceeds of $10M Seller Buyer • 7.00% cap rate

WAREHOUSE • 5.50% interest rate

Becomes Becomes • 20-year amortization period

Tenant Leases Property

Scenario 1 Scenario 2 Company sells real estate in a sale-leaseback Company obtains traditional financing Real Estate Proceeds $10,000,000 Loan Proceeds $10,000,000 Loan Constant Rent Factor 7.00% 8.25% (Principal & Interest) Annual Rent Expense $700,000 Annual Debt Service $825,500 Note: Excludes Selling and Financing Costs Case Study 2

Sale of a Company

Many businesses utilize real estate as part of their operations and may include movie theaters, quick-service restaurants, corporate headquarters, manufacturing facilities, retail and parking operations, call centers, data centers, and distribution and fulfillment centers. As illustrated below, a sale-leaseback of the real estate assets separate from the sale of the operating company could provide substantially more proceeds to the selling shareholders. Assumptions • Seller owns all real estate, Corporate Parent Entity i.e., corporate headquarters (Business Enterprise + Real Estate) building

• Real estate portfolio is fee simple with a value of $10M

• 7.00% cap rate Business Real Estate Enterprise • 6.0x multiplier for valuation of operating company

Sold at Transaction Markets Multiple Proceeds and of EBITDA Are Sells the Maximized Property

Scenario 1 Scenario 2 Sell 100% of the operating Sell operating company and sell company and real estate in a real estate in two transactions single transaction ENTERPRISE VALUATION REAL ESTATE VALUATION PRO FORMA EBITDA CALCULATION

EBITDA $2,000,000 Real Estate Value $10,000,000 Real Estate Value $10,000,000 Multiple 6.0x Real Estate Proceeds $10,000,000 Rent Factor/7% Cap 7.0x Enterprise Value $12,000,000 ENTERPRISE VALUATION Rent Expense -$700,000 Pro Forma EBITDA (See Calculation) $1,300,000 EBITDA $2,000,000 Multiple 6.0x Rent Expense $700,000 Enterprise Value $7,800,000 Pro Forma EBITDA $1,300,000

Proceeds to Seller Proceeds to Seller Increased Proceeds $12,000,000 $17,800,000 $5,800,000 | 48.3%

Note: Excludes Selling Featured Sale-Leaseback Deals

PSC Portfolio JEFFCO Trucking Dunkin’ Donuts GA, IL, KY, MI, NC, OH, PA, TX St. Louis, MO Chiefland, FL 13 Properties | 277,860 SF 85,200 SF 4,168 SF

Performance Food Group Co. Applebee’s Portfolio PDQ Rock Island, IL FL Locations FL & TN Locations 268,000 SF 9 Stores | 50,561 SF 2 Stores | 10,658 SF

Shell Gas Station Affordable Care Car Pool Car Wash & Detailing Tampa, FL MD, VA, TX, LA, MS, OH & NC Richmond, VA 2 Locations | 8,200 SF 12 Properties 6,432 SF

Rite Aid Corporation Jo-Ann Stores, Inc. Wendy’s 18 Corp SLB Portfolio Transactions WC Distribution Facility | Visalia, CA Kingsport, TN 180 Stores 631,000 SF 2,910 SF

6 Avison Young Net Lease | Executing a Sale-Leaseback avisonyoungnetlease.com

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E. & O.E.: The information contained herein was obtained from sources that we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.