A range of investment services designed to accelerate the development of proximity retail networks, as well as services to drive real estate performance and asset value.
acceleration for the
A sale & lease back arrangement is an alternative to bank, mezzanine, and mortgage financing that effectively separates the “asset value” from the “asset’s utility value” in a company’s real estate investment. As a result, a sale & lease back arrangement can help to:
- Unlock a company’s real estate value
- Enable a company to reduce its investment in non-core business assets, such as buildings and land
- Liberate cash in exchange for executing a long-term lease
financial leverage to
invest in core assets,
instruments with real
Sale & lease back transactions can be a smart move by operating businesses that own their real estate. Since real estate values tend to rise and rents tend to drop when interest rates are low, business owners have an opportunity to sell their real estate high when rental returns are low, and keep occupancy costs at a predictable cash outflow by locking in long-term rental rates. In certain cases, companies have taken advantage of the opportunity to sell and lease back properties when real estate values were high, and later repurchased the same buildings when rates reverted to more typical, lower valuations
Benefits for Business Owners
- Set Your Own Lease Terms – Because the seller is also the lessee, the seller has significant bargaining power in structuring the property lease according to tenant needs.
- Retain Operational Control of Real Estate – Most sale-leaseback agreements are structured as triple-net leases, so the tenant will be responsible for the taxes, insurance, and common area maintenance.
- Long-term, non-bank financing – Long term debt financing is not currently available in bank debt markets; long term leases take away refinancing risk; matches a long term asset (property) with a long term liability (lease); no amortization or principal repayment
- Greater Value to the Real Estate – Unlike a mortgage, a sale-leaseback agreement can often be structured to finance up to 100% of the appraised value of the company’s land and building. A sale-leaseback provides cash proceeds for up to 100% of the appraised value of the property versus the 65% to 75% of appraised value under a typical mortgage.
- Limited Financial Covenants – Because rules governing REITs prevent the active management of real estate assets, a sale-leaseback agreement generally contains few covenants.
- Flexibility in use pf proceeds – Sale-leaseback proceeds can be used for corporate growth (M&A, acquisition or construction of new facilities, expansion in new territories, capex / reinvestment, R&D funding) or balance sheet management (debt reduction, corporate restructuring, LBO)
- Improved financial ratios – Monetization pf illiquid non-operating cash flow producing assets allows for a quick improvement in critical financial ratios such as ROA and ROCE
When Should Business Owners
Consider a Sale-Leaseback
- When an Alternative to Senior or Mezzanine Debt Is Advantageous
- When Capital Is Needed for Growth
- When Undergoing a Corporate Restructuring or Seeking Exit Financing
- When Preparing a Business for Sale
Developing real estate investment vehicles to bridge liquidity and large investment real estate opportunities
The possibility of creating real estate investment trusts (REITs) in Portugal in the years to come will provide developers with liquidity for their investments while giving the general public an opportunity to invest alongside them as a shareholder. Our objective is guide investors to convert a portfolio of assets into shares of a REIT.
Through our alliances of real estate, tax and corporate lawyers, we can guide clients in the process of creation of a REIT. If required, Magnify can also assume the representation and management of the REIT.
Overview of the Portuguese REIT framework
Under the applicable legal regime, Portuguese REITs should take the legal form of full-fledged corporate entities named Sociedades de Investimento e Gestão Imobiliária (SIGIs). These entities are similar to English REITs and Spanish SOCIMIs, being a subtype of real estate investment companies.
SIGIs are designed as listed companies whose purpose consists of attracting savings to be used in long-term investments in real estate properties available for leasing (renting) or other types of economic investment purposes. Listing should occur within one year from incorporation and at least 20% of the capital should be held by investors with less than a 2% stake.
In addition, and from a financial point of view, these companies must hold a minimum share capital of €5 million and maintain a maximum debt-to-total asset value ratio of 60%. The portfolio of assets held by SIGIs should be subject to further limitations whereas the entities themselves shall be subject to further regulatory requirements and procedures, depending on the specifics of their incorporation. For example, real estate assets and shareholdings should represent at least 80% of the SIGIs total assets, and the value of real estate assets should represent at least 75% of the SIGIs total assets, which should be maintained for a minimum period of three years.
Specifically, their activity is limited to:
Acquiring property or equivalent real estate rights, with the objective of lease or other types of economic investment (which comprises the development of construction and rehabilitation projects, the use of stores or spaces in commercial malls or the use of office spaces).
Acquisition of shareholdings of other SIGIs or companies with residence in another European Union (EU) Member State or country of the European Economic Area (EEA) subject to the exchange of information equivalent to the one established for EU, with and equivalent activity and complying with the requirements concerning the nature of the assets and respective thresholds as well as the distribution of profits.
Acquiring shareholdings and participation units in undertaking for collective investments (UCI), adopting a profit distribution policy similar to the one foreseen for SIGIs.