LeadCrest Capital Partners is a dedicated European sale-leaseback and build-to-suit investment specialist. The company provides their investors with stable, predictable, and inflation-protected returns, that are built on an investment strategy with a focus on long-term income.
Founded in 2019, LeadCrest is an investment management firm with offices in Luxembourg and Paris. LeadCrest is a natural extension of the management team’s prior experience at leading global asset managers, with an extensive track record in Europe and globally. A key component of LeadCrest’s investment philosophy is to establish partnerships with carefully selected companies in sectors with long-term growth prospects and alignment in ESG values. These partnerships go beyond a single sale-leaseback transaction as the firm aims to become the premier real estate financing partner of these companies.
with an attractive, alternative source of financing that is achieved through the monetisation of corporate-owned real estate.
A sale-leaseback transaction is the simultaneous occurrence of two transactions: (1) the sale of a real estate asset, and (2) the lease of such asset back to the seller which then becomes the tenant or lessee, concurrently.
Typically, all operational and financial responsibility of the property remains with the seller. This is classified as a “triple net lease” and the tenant is responsible for maintenance costs (both operational and capital expenditures), real estate taxes, and property related insurance costs.
Pays 100% Market
Value for Asset
Leases Back
Property
Net lease is the broader name given to the sector which typically includes the following three types of transactions:
In a primary transaction, the seller enters into a lease agreement where all operational and financial responsibility of the property remains with the seller. The most common lease terminology to qualify such type of lease is “triple net lease”. Under a triple net lease, the tenant is responsible for:
For an investor, a sale-leaseback is equivalent to a long-term non-terminable bond with real estate as a collateral. The sale-leaseback investor benefits from non-cancellable long term cash flows in the form of rent payments that are based on the tenure of the lease. A 10-year loan without any prepayment offers the same duration as a 10-year lease with no early break option.
Assuming the lease is structured as a triple net lease, the sale-leaseback investor will have minimal cash flow leakage as the tenant is typically responsible for all capital and operational expenditures. This is like a bond investor, where interest income equals investment income.
Beyond just being comparable to a bond, a sale-leaseback transaction presents several features which positively compare against simple bond returns. For instance, over the term of the lease, rent rises (e.g., via CPI indexation) increasing the yield and thus acting as an inflation-hedged strategy. Bond coupons are typically flat during the duration of the bond.
A sale-leaseback transaction also compares favourably relative to a bond when it comes to residual value. At maturity, the borrower pays back the principal whereas in a sale-leaseback transaction, the investor has potential upside by selling the property at a higher value than the initial purchase price.
Lastly, a sale-leaseback investment features the ownership of an asset and as such provides strong downside protection similar to senior secured bond investors. as is. If assumed, the sale-leaseback investment’s cash flow stream is often unaffected, and its value may actually increase as the company exiting bankruptcy posts a stronger balance sheet and therefore a better credit. If the lease is rejected, the investor may sue to recover damages alongside other creditors while retaining title to the property. The property may be either held, re-leased or sold. The ownership of strategic or mission critical operating facilities offers a high recovery rate in bankruptcy processes.
The table below summarizes certain aspects of a sale-leaseback transaction relevant to a traditional bond or loan.
A sale-leaseback transaction is an appealing source of alternative capital for corporate users (tenants). It enables a company to monetize 100% of its real estate value (increased liquidity) and maintain operational control of the assets. Rather than holding a non-revenue producing asset on the balance sheet, a sale-leaseback allows a company to unlock and redeploy that capital. The result is an asset light company with increased liquidity. In the scenario where the tenant is a publicly listed company, this signals to the market that they are deploying capital to core businesses.
The table below summarizes aspects of a sale-leaseback transaction that will assist the tenant in maximizing shareholder value, improving cash flow, and reducing risk.
