Sales Leaseback Transactions Have Rebounded to Pre-Pandemic Levels

After a “trough” in 2020, the sale leaseback market has rebounded to pre-pandemic levels and in 2021 approached the “massive activity” of 2019, according to SLB Capital Advisors.

“For the full year, sale leasebacks generated a total of $24.3 billion compared to $12.7 billion in 2020 and 27.5 billion in 2019,” the report stated. The amount of activity nearly doubled between 2020 and 2021. Most deals last year were in the $5 million to $25 million range. However, 16 deals had valuations of more than $100 million. Some of the larger deals in the fourth quarter were “Gaming & Leisure Properties’ acquisition of the Cordish Companies’ Live! Property for $1.1 bn and Medical Property Trust’s acquisition of 18 health care locations from Springstone for $795mm.”

The number of deals in 2019 and 2021 were almost identical: 795 and 790, respectively. The most activity was in the west and northeast

The deal field was strong, with a “pristine cap rate environment” and rate hikes have not yet had an impact on prices. Cap rates ran from 7% to about 8%. “Even for assets in non-core markets, particularly in the industrial sector, strong credits and robust business models are driving  attractive pricing from investors,” said the report.

According to SLB, there are strong arbitrage opportunities in sale leaseback deals in the difference between business valuation and real estate multiples. “The multiple implied by average sale leaseback cap rates (i.e. 5.5% to 7.5%) implies a multiple of over 13x to over 18x,” said the report. “This compares favorably to general middle market transactions (7.5x for Q4’21 per GF Data based on 151 transactions ranging $10 – $250mm) and some large transaction multiples as well.” GF Data is a firm that monitors private mergers and acquisitions in the $10 million to $250 million value range.

Net lease REIT activity took a big tumble in the first quarter of 2020, as might be expected, but by the end of 2021, they had returned almost to where they had left off the year before. In 2021, firms had reported more than $17 billion in acquisitions. That total is higher than any other annual period in the last four years. “While many NL REIT stock prices are down along with the broader market in 2022, a number of names in the group issued forward equity near their all-time highs and have significant dry powder,” added the report.