Originally published by GlobeSt In addition to climbing rents, industrial tenants are faced with higher annual lease escalations, operating expenses and utilities as competition for space remains elevated, according to a new report from Newmark.  The total cost to occupy warehouse space has increased 42.2% since 2019. Rent has been the biggest driver, but rent and non-rent expenses alike contributed significantly to the growth.  Acute supply/demand imbalance and increasing construction costs caused rent growth to soar during the past few years, and yet, “for a sector in which tenants are predominantly on triple-net leases, rent growth is only part of the story: nearly all occupancy costs are increasing, not just at lease signature, but over the lifetime of the lease,” Newmark reported.  The current inflationary environment has exacerbated rents and lease escalations, as well as non-rent occupancy costs – operating expenses and utilities.  Annual Escalation Skewing Close to 4%  Pedro Nino, Clarion Partners’ VP of Research & Strategy, tells GlobeSt.com that the spread between high-quality industrial market rent growth and lease escalations has significantly widened across essentially every market that he studied over the past two and a half years.  “The average annual escalation is now skewing closer to 4% in many markets, including non-primary/non-coastal, where 2% to 3% has long been the standard,” Nino said.  “We are also aware of several recent leases achieving annual escalations as high as 6% in markets where recent robust demand has depleted existing occupiable space to essentially zero.  “When considering that Class A industrial rents have expanded by as much as 10% to 25% on average per year after 2019, it makes business sense for tenants to accept higher escalations to secure space and shield from the quickly moving market, and for property owners to seek higher escalations to avoid the potential drag of carrying leases drastically below market.”  Pushing Back Means ‘Deal Doesn’t Get Done’  Robert Poirier, Stan Johnson Company Associate Director, tells GlobeSt.com that competition for industrial space is at an all-time high, but economic conditions are the primary drivers behind increases in lease escalations and operating expenses.  “In just the past five or six months, we’ve gone from drafting leases with 1.5% escalations to now between 2.5% and 3%,” Poirier said.  “Sellers of sale leasebacks would obviously prefer to keep their escalation costs as low as possible, but they’re finding that pushing back results in a deal not getting done.  “We’re seeing these occupiers come to terms with where the market is, and they’re understanding that due to rampant inflation, investors need to be writing increased escalations into the leases, especially for smaller credit tenants. Investor appetite for higher credit ratings or publicly traded companies may provide more flexibility, but escalations are up across the board.”  Landlords Must Get ‘Creative’ to Reduce Costs  Rene Velasquez, Managing Director of Asset & Property Management, BKM Capital Partners, tells GlobeSt.com that security costs, in addition to inflation, are some of the main drivers for operating expense increases.  “Still, the market fundamentals for the multi-tenant industrial space continues to be strong,” Velasquez said. “To look after their tenants’ financial wellbeing, landlords must get creative in reducing operating costs, and the more proactive ones are managing controllable passthrough expenses to limit the impact to their tenants’ bottom lines.  “Lease escalations will continue to climb due to e-commerce as pent-up demand for small industrial space continues to outpace supply, which should help maintain rental rates and keep vacancies low. Furthermore, construction costs, as a result of supply chain disruptions, will make new construction projects difficult to get under way and keep inventory limited.”  © 2022 ALM Global Properties, LLC. All rights reserved. 

Originally published by GlobeSt In a move that woke up the often “staid” net lease real estate sector, REIT STORE Capital Corp. is being acquired by a partnership between global institutional investor GIC and Oak Street, a division of net lease investor Blue Owl, in an all-cash deal worth $14 billion, GlobeSt.com reported Thursday.  Industry followers said that this represents a “monster” transaction in the net lease sector that provides substantial additional scale to one of the largest existing players in Oak Street and a relatively new net lease investor in GIC.  Jeff Cox, Stan Johnson Company managing partner, tells GlobeSt.com that given the challenges of rising capital costs and potential economic headwinds, “it makes sense that parties involved would pursue this relationship. It also suggests that net lease product remains in high demand and continues to grow as a favored asset class among investors.”  Would Make It Third-Largest REIT  Scott Merkle, managing partner for SLB Capital Advisors, a real estate advisory specializing in sale leasebacks, tells GlobeSt.com that “in the normally staid net lease real estate world, this is a monster transaction” that, if consummated, will result in the take-private of the third largest publicly traded net lease REIT.  “GIC and Oak Street are acquiring one of the most prolific sale-leaseback investors that regularly deploys well north of $1 billion a year.”  As one of the largest sovereign wealth funds in the world, Singaporean-based GIC has been particularly active in U.S. real estate.  The STORE transaction represents GIC’s second investment in the U.S. net lease sector following the formation in 2021 of a new net lease retail real estate platform with RPT Realty.  Oak Street, which had $16.6 billion in AUM as of June 30, 2022, has continued its rapid growth in the sale-leaseback arena, which has been bolstered by its acquisition by Blue Owl in 2021  This year’s Q2 registered the strongest Q2 period sale-leaseback performance in both deal count (236 discrete transactions) and deal volume ($10.2bn) since SLB Capital Advisors began tracking the market.  “While sale-leasebacks are not immune to broader market choppiness, it continues to be an outstanding time for corporate owners of real estate to consider monetizing owned facilities,” Merkle said.  Deal a Bit ‘Unexpected’  David Auerbach, managing director at Armada ETF Advisors, says that the transaction highlights the demand for net lease properties as investors seek yield in the REIT space.  “With so many net lease players, I would not have expected STORE to be the first one acquired, but the move is significant since STORE is an S&P MidCap 400 constituent and follows on the heels of the O/VER merger back in November of last year.  “The transaction is significant as two of the largest players in private equity/sovereign wealth funds are partnering on the transaction and diversifying both parties’ portfolios into desirable net lease assets.”  Colleague Al Otero, portfolio manager at Armada ETF Advisors, notes that “It’s good to see a large real estate transaction come back into the marketplace as activity has slowed precipitously since the Federal Reserve started raising interest rates earlier in the year.  “The willingness of sophisticated investors to step back into the market at this time is a testament to the operating platform, underwriting prowess and asset quality that has been established at Store Capital since its inception.”  © 2022 ALM Global Properties, LLC. All rights reserved. 

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale leaseback of a five-location portfolio occupied by Little Caesars. The single-tenant retail properties are located across Nebraska and North Carolina. Matt Lipson and Chris Lomuto of Stan Johnson Company represented the seller, a California-based franchisee. The assets traded for approximately $5.7 million to a REIT based in Florida.  “This transaction was a perfect example of how a franchisee can leverage real estate to complete an acquisition. The incoming franchisee was acquiring these fee properties, along with a portfolio of leased properties from an existing Little Caesars franchisee,” said Lipson, Associate Director in Stan Johnson Company’s Portland, Oregon office. “We were able to structure a sale leaseback on the five fee properties at attractive terms to both real estate buyer and franchisee, that closed concurrently with their business acquisition. Post-transaction, the franchisee now has a sizable entity, with attractive leases throughout, and no pesky loan contingencies.”  Little Caesars is the third largest pizza chain in the world with more than 4,000 locations in the United States. The combined properties total more than 15,000 square feet and are located in smaller, tertiary markets.  “This is an exciting time at Little Caesars. Unit count is growing, the network is growing, strategic advantages are being realized, and it seems like this is really just the beginning for them,” said Lomuto, Associate Director in Stan Johnson Company’s Walnut Creek, California office. “We’re excited to be part of that effort and couldn’t be happier to help our franchisee client continue to grow their business with the acquisition of these locations.”   

Originally published by Wealth Management The corporate sale-leaseback market is coming off a record-high first quarter for deal-making. Despite repricing occurring in the wake of rising debt costs, industry insiders remain optimistic of continued strong momentum ahead in the remainder of the year.  The $8.4 billion in sales logged in first quarter is on par with fourth quarter 2021 activity and nearly triple the $2.9 billion in transactions recorded in the first quarter of 2021, according to a market analysis by SLB Capital Advisors. “That is the biggest first quarter that we’ve seen. The dollar volume was driven largely by two casino deals, but the 186 is the highest count that we’ve seen over the last few years by a good 20 to 30,” says Scott Merkle, managing director of SLB Capital Advisors.  The casino transactions included VICI’s acquisition of the Venetian Resort, Expo and Convention Center for $4 billion and GLPI’s acquisition of two Cordish Companies’ Live! properties for $674 million. Merkle also attributes activity to the huge volume of M&A activity that occurred in 2021.  Traditionally, companies use sale-leasebacks as a financing tool to monetize or “unlock” 100 percent of the equity tied up in real estate. That capital is often used to reinvest back into the business, improve balance sheets or finance expansion. Another catalyst for sale-leasebacks is M&A activity, with the acquiring entity using a sale-leaseback on the real estate of the business they are buying to help finance the acquisition. According to BMO Capital Markets, the U.S. saw 478 M&A transactions last year that were valued at nearly $1.9 trillion.  “A lot of times what we see on the M&A side is groups that will utilize that sale-leaseback as part of the capital stack, and there was an incredible amount of M&A activity last year,” says Jeff Tracy, a director at the Stan Johnson Co. in Tulsa, Okla. A sale-leaseback of the real estate can bring in 20 to 30 percent of the overall capital stack needed, which helps to reduce the amount of equity and/or debt a buyer needs to bring to the table, he adds.  Some industry experts estimate that industrial assets represent nearly half of all corporate sale-leaseback transactions, and expansion of the industrial sector over the past few years has provided fresh inventory for eager buyers. “Our business has never been more brisk. We are seeing a lot of activity as corporate users continue to look to monetize their industrial real estate and corporate-owned facilities, because they realize it’s a better use of funds to be able to put that capital to work within their business,” says Erik Foster, a principal and head of industrial capital markets, Capital Markets at Avison Young in Chicago.  Market adjusts to higher rates  The broader market is adjusting to higher costs of debt financing for real estate, which has climbed 150 to 250+ basis points since January 1. Although sources agree that rising interest rates haven’t changed the volume of sale-leaseback deals that are getting done, it is resulting in price adjustments and fewer bidders. “As debt has gotten more expensive, buildings can’t sell as aggressively as they did a couple of months ago,” notes Foster.  On average, cap rates have increased between 25 and 75 basis points, depending on the building, location, tenant and term. “The better locations and better credits are going to be less impacted, because there is a significant amount of capital still out there that is chasing deals,” says Tracy. The smaller or more challenging credits and tertiary locations are seeing bigger moves in cap rates, he adds.  Although there is still significant capital targeting sale-leasebacks, the bidder pool has thinned with some investors that have pushed pause amid the repricing that is occurring. Instead of getting 10 offers, a sale-leaseback listing might get six or seven now, because buyers are being more cautious, notes Merkle. SLB Capital Advisors is currently working on a sale-leaseback of an industrial portfolio valued between $75 million and $100 million. First round offers came in during the first week of April with nine groups that advanced. Typically, buyers increase their offers when moving to the second round. However, due to the rise in interest rates, many moved in the opposite direction, lowering their price. The deal is under LOI and moving forward, but the pullback on bidding speaks to how buyers are moving more cautiously, notes Merkle.  Stan Johnson Co. is working on the sale-leaseback of a portfolio of properties for a recreational vehicle business. One of the bids received was structured with a floating cap rate. The bidder included a cap rate range that allowed the seller to choose the rent level they wanted to set, as well as a fixed basis point spread over treasury to account for rate fluctuations.  So, depending on how rates moved prior to the deal closing, the cap rate also could move. “That is something I haven’t seen before, and I think it points to the fact that groups still have a desire to get deals done and they need to deploy capital. But they’re trying to be creative as possible in not only making sure they are competitive, but also protecting themselves from a downside scenario of a big interest rate move,” says Tracy.   Avid buyer interest  Rising interest rates could cool what has been a white-hot seller’s market for sale-leasebacks over the past year. However, industry participants are still optimistic about the near-term outlook. “While cap rates have risen, real estate is still at incredibly attractive levels for owner-operators to monetize their real estate in a sale-leaseback,” says Merkle. When one looks at sale-leaseback from a multiple perspective, multiples on real estate that might have been 15x are now 14x. Those numbers are really compelling for a business to execute a sale-leaseback when their business is worth multiples of say 8-10x, he adds.  SLB Capital Advisors has seen an uptick in pitch activity, inquiries from companies considering a sale-leaseback on assets, in recent weeks. “So, in spite of the pricing environment shifting rapidly over the past 45 days, we’re still in an environment where there is a ton of activity, and I expect to see a lot of continued sale-leaseback activity through the balance of the year,” says Merkle.  Another reason for that optimism is that there is still a significant amount of investor capital aimed at sale-leasebacks. “The buyer pools are more diverse and deeper than I have ever seen in my career, and that continues to put pressure on pricing and provides owners with great liquidity options,” notes Foster.  W.P. Carey Inc. alone recently announced that it had entered into $400 million in new investment agreements since the end of first quarter. The net lease REIT specializes in corporate sale-leasebacks, build-to-suits and the acquisition of single-tenant net lease properties.  In addition, more investors have entered the sale-leaseback market looking to acquire assets. “There has been a huge wall of capital looking to be deployed into sale-leasebacks. We’ve seen even more buyers step up to the plate over the last 12 months or so,” says Merkle. Some buyers are moving more cautiously, but there is still a lot of capital available for sale-leasebacks, he adds.   

Sale leaseback transactions have gained popularity in recent years as owner occupants look to extract the value of their real estate in order to free up capital. But beyond the motivations that drive traditional sale leasebacks, many business owners have found success leveraging this transaction type to fund M&A activity. Franchisees are the primary actors exploring these creative avenues, and while a sale leaseback could be used to fund M&A needs across nearly all asset classes, the most frequent property types involved are quick service restaurants, convenience stores and car washes. These property types are often owned and operated by franchisees with growing portfolios of multiple assets, and M&A activity is commonplace. One Seller, Two Buyers and a Broker So, how does this actually work? In an M&A sale leaseback, you typically have four players: the franchisee seller of the business and assets, the franchisee buyer of the business and future tenant of all properties involved in the sale leaseback, a real estate investor who buys the real estate assets, and a broker that facilitates the transaction.  "Sale leaseback transactions are a common vehicle for owner occupants to extract value from their real estate, but this creative solution is gaining popularity with franchisees as they expand through mergers and acquisitions." To start the process, the franchisee seller and franchisee buyer identify each other and enter into an agreement for the operations and real estate. A broker enters the conversation early on as well. They need to evaluate the sale leaseback of the real estate component and this analysis often influences the terms of the agreement between franchisees. Additionally, the broker helps to identify a real estate investor. At the close of the transaction, two events occur: one franchisee purchases the business assets and assumes the franchise agreements and third-party leases, and at the same time, concurrent with closing, the franchisee buyer executes a long-term triple net lease with the real estate investor.  In this type of transaction, proceeds from the sale of the real estate are transferred from the investor to the franchisee seller, while proceeds from the sale of the business come from the franchisee buyer. The new investor now has guaranteed income coming from their tenant in the form of a long-term lease. That lease typically features attractive terms including a triple net lease structure – making the tenant responsible for all taxes, insurance and maintenance costs – along with regular rent increases and lease extension options.    A Creative Solution to Fund Growth This creative funding solution may appeal to many candidates, including those interested in limiting their exposure to real estate and minimizing or helping to bridge the typical 25 to 30 percent cash equity need required to complete a transaction. A company may view the cash flow of their business as more valuable than the static return of owning the real estate. They may be in a rapid expansion mode and unable to tie themselves to multiple loans or the contingencies that come with them. This solution also works well for emerging franchisees that aren’t sitting on a surplus of cash or those that don’t have an established lending relationship necessary to complete larger transactions. For this type of candidate, there are real estate investors that have extensive experience helping smaller franchisees grow into larger companies. They will not only buy the first round of real estate but will subsequently help fund new acquisitions, work with the franchisee on upcoming capital expenditures and open up more opportunities for acquisitions than the franchisee would have if they were simply relying on their franchisor and brokers.  Low Inventory, High Demand Creates Ideal Environment As we approach mid-year 2022, market conditions are ideal for these transactions, and franchisees considering this strategy are encouraged to act. Inventory is low and demand for sale leasebacks continues to be incredibly high, but today’s market uncertainties could shift the environment quickly. Inflation, rising interest rates, continued cap rate compression especially in the net lease retail sector, supply chain issues, labor shortages – these factors all have the ability to influence market dynamics, and franchisees considering this creative funding vehicle are urged to watch the market.     To download a copy of this report, please provide the following information: hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "f465878d-b7b5-4a74-ace8-549108cb50cf" });

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale leaseback of a two-location portfolio occupied by Oryx Oilfield Services. The facilities are located at 900 East Highway 11 in Kermit, Texas and 922 Farm to Market 81 in Goliad, Texas. Together, the transaction included 13 buildings totaling more than 118,000 square feet. Stan Johnson Company’s John Rotunno represented the tenant, who executed a long-term lease at the time of sale. The portfolio was acquired for an undisclosed price by Real Capital Solutions, a private equity group based in Colorado. “The impact of COVID-19 on sectors outside of non-essential retail was substantial in some cases, and Oryx’s oil field service business faced challenges including a decline in revenue,” said Rotunno, Associate Director in Stan Johnson Company’s New York office. “By executing a sale leaseback of their real estate, Oryx can now consolidate debt and focus company resources on the business’s future growth, providing critical working capital.” With roots in the oil and gas industry, Oryx has a solid history of service to key customers, providing facility maintenance and construction, pipeline construction and fabrication facilities for facility components. The portfolio properties serve as mission critical locations for Oryx’s service operations, and the properties feature office and warehouse space, manufacturing and fabrication facilities, as well as an abundance of fenced acreage totaling approximately 95 acres.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a 170,000-square-foot, two-building industrial facility located at 5501 Fulton Industrial Boulevard in Atlanta, Georgia. Stan Johnson Company’s Robert Poirier represented the seller and tenant, Diaz Wholesale & Manufacturing, which executed a long-term triple net lease at the time of sale. The buyer, a New York-based institutional investor, acquired the asset for $16.0 million.  “The tenant was extremely interested in taking advantage of current market conditions,” said Poirier, Associate Director in Stan Johnson Company’s Atlanta, Georgia office. “Because of timing constraints, we conducted an off-market campaign, created a very competitive environment, and received offers from 8 of the 10 potential investors. The entire process took less than 60 days, and we were able to set a new record for price per square foot in Atlanta’s Fulton Industrial submarket on comparable buildings.” Founded in Atlanta in 1980, Diaz Foods is a leading distributor of specialty foods across 28 states, and this property serves as a mission-critical distribution facility. The two-building property is situated on 12.4 rail-served acres in one of the main industrial corridors of metro Atlanta with close proximity to Interstates 20, 75, 85 and 285. The cold storage and distribution site features freezer-cooler, refrigerated and dry storage, along with office space and a dedicated truck maintenance building. The facility was originally built in 1980 and was renovated in 2004.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale leaseback of a Pilot Travel Center located at 901 Bankhead Highway West in Birmingham, Alabama. The 9,790-square-foot convenience store sold for approximately $9.4 million reflecting a 7.0 percent cap rate. Matt Lipson and Mike Philbin of Stan Johnson Company represented the buyer, Brodersen Management Corporation based in Milwaukee, Wisconsin. The seller was Acworth, Georgia-based Mountain Express Oil Company. “This was a great deal for the buyer and tenant,” said Lipson, Associate Director in Stan Johnson Company’s Portland, Oregon office. “The tenant was purchasing a location from Pilot and rather than use traditional business financing, they found a real estate buyer to help fund the acquisition. Since you have to merge an asset purchase agreement with the purchase and sale agreement to ensure a simultaneous close, structuring a sale leaseback to fund an M&A is slightly more challenging than a typical net lease transaction. However, both parties maintained healthy communication and were experienced enough to get this across the finish line.” The property was originally built in 1995 and includes a Wendy’s quick service restaurant on-site. The 7.4-acre parcel is strategically located just north of Interstate 20 at a signalized intersection. “I like these types of transactions because the buyer is able to purchase an attractive net lease asset at a higher yield than a traditional deal, and the tenant is able to get into the property free of loan contingencies and with limited acquisition costs,” Lipson added. “Our client is also thrilled that their new tenant will have plenty of working capital that would normally be reserved for the cost of an acquisition.”  

Excerpt of article originally published by GlobeSt Sale leaseback deal volume increased in Q2 this year by 93% versus the same period one year ago. On a sequential basis, deal volume was up 17%, according to an analysis by SLB Capital Advisors. According to its managing partner, Scott Merkle, declining cap rates, anticipated tax changes and heightened M&A activity, drove the higher deal volume. Merkle added, “We anticipate the momentum seen in the first half will continue during the second half of 2021.” Investors Open to 5- to 7-Year Terms Robert Poirier, Associate Director, Stan Johnson Company, agrees. He said investor demand for sale leasebacks has improved significantly over 2020 and should continue to do so throughout 2021 as well as into Q1 2022. “Values have surpassed pre-pandemic levels, and in some cases, we’re seeing cap rates more than 100 basis points lower than just 12 months ago,” Poirier tells GlobeSt. “We are also seeing investors become more open to shorter term leaseback periods.” Poirier said that a year to 18 months ago, the average lease term for an industrial sale leaseback, for example, was 12 years. “Today, we’re seeing more investors open to 5- and 7-year terms,” he said. “I’m working on an assignment now that we took to market last year at a 7.20% cap rate. We ended up pulling it off the market temporarily and just brought it back out. We’re receiving offers with cap rates of around 5.75, which is almost a 150-basis point improvement. This example is true testament to current market conditions that, again, I expect will last into early next year.” Industrial Segment Represents 53% of Overall Transactions From a transaction standpoint, SLB Capital Advisors reported that sale leaseback activity increased 17% to 185 transactions in Q2 2021 vs. the previous quarter, reaching $3.6 billion, the second largest transaction count and dollar volume since Q4 2019. “While we witnessed a return to optimism in the retail segment, Q1 and Q2 this year exhibited continued strength in the industrial segment, representing 53% of overall transactions – industrial sale leasebacks continue to demand attractive pricing even in non-core markets,” according to the report. Larger notable deals in Q2 include Benderson Development’s acquisition of the Kroger Co.’s retail properties for $487mm and Gaming & Leisure Properties acquisition of two entertainment locations from Bally’s Corporation for $484mm. Given heightened M&A activity leading into the second half of 2021, SLB Capital Advisors expects sale leaseback activity to follow suit. Reprinted and excerpted with permission © 2022 ALM Global Properties, LLC. All rights reserved.

Originally published by GlobeSt Blue Owl Capital has entered into a definitive merger agreement to acquire Oak Street Real Estate Capital and its investment advisory business for $950 million. The transaction is expected to close in the fourth quarter of 2021 and is subject to customary closing conditions. Oak Street is a Chicago-based firm, founded in 2009 with over 35 employees and with $10.8 billion of assets under management as of June 30, 2021. The firm focuses on two primary strategies: structuring sale-leasebacks, which includes triple net leases, as well as providing seed and strategic capital. Market Ripe for Sale Leaseback Transactions “Right now, the market is ripe for sale leaseback transactions, and there are a couple factors pushing the popularity of this category,” Katie Elliott, Stan Johnson Company Associate Director, tells GlobeSt. “What we saw during the pandemic was a flight to safety, with investors seeking security with long-term leases and credit-worthy tenants occupying essential, mission critical assets. Many sale leasebacks fit this category, in particular industrial assets because you can’t manufacture from home, therefore increasing the ‘stickiness’ of a tenant to a location. Elliott said another trend she is seeing in the sale leaseback market is private equity sponsors utilizing real estate as a differentiator in their bids to acquire companies. In 2021, U.S. private equity dealmaking exceeded previous annual records and with the competitive environment, many sponsors are thinking outside the box. “With today’s low cap rates, there is an underlying value arbitrage between the business EBITDA multiple and effective real estate multiple, potentially resulting in millions of dollars of value creation,” Elliott said. “We are still in a low interest-rate environment, and though we are seeing the 10-year treasury begin to creep up, we still expect cap rates will remain stable throughout 2022 due to the dislocation of supply and demand and money pouring into the net lease category.” Oak Street Leadership Team Will Remain in Place Oak Street’s active net lease funds primarily focus on single tenant properties, net leased to investment grade and creditworthy tenants, under long duration leases. The Seeding and Strategic Capital business focuses on investing in early-stage real estate managers across various industry sectors. The platform provides strategic institutional capital to managers typically enhanced by attractive general partnership economics and an active governance role. The platform seeks to work with strongly aligned management teams with leading investment capabilities, oftentimes led and controlled by women and minorities. Upon closing of the transaction, key members of the Oak Street leadership team will remain in place, and Oak Street’s Chicago office will become an additional office for Blue Owl. In addition, Marc Zahr will join Blue Owl’s Board of Directors and Executive Committee. © 2022 ALM Global Properties, LLC. All rights reserved.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has announced the sale of the former Mount Vernon Mills manufacturing and distribution facility located at 2850 Gainesville Highway in Alto, Georgia. Two buildings totaling approximately 641,000 square feet, along with 106 acres, were included in the sale. Stan Johnson Company’s Robert Poirier represented Mount Vernon Mills in the short-term sale leaseback. The property was acquired for $7.5 million by Phoenix Investors LLC, a developer based in Milwaukee, Wisconsin. “This was an excellent opportunity for Mount Vernon Mills to divest of a facility that was no longer needed for their current operations,” said Poirier, Associate Director in Stan Johnson Company’s Atlanta, Georgia office. “The sale leaseback was structured to give Mount Vernon Mills enough time to disassemble and remove the equipment and machinery located across the two buildings, while providing the new owner the ability to make necessary improvements as they look to lease the buildings.” The well-maintained property includes security fencing around the perimeter with gated access and is located 70 miles northeast of downtown Atlanta, featuring convenient access to Interstates 85 and 985. “We received numerous offers and continued to have interest in the buildings up until the closing date,” added Poirier.

Originally published by Dealreporter   Department store operator Kohl’s [NYSE:KSS] is a logical take private candidate as the US economy reopens and value-conscious consumers return to physical retail stores, several industry sources said. While shoppers flocked to one-stop shop retailers like Target [NYSE:TGT] during the pandemic, there will likely be rebalancing as the vaccine rollout continues in the US, some of the industry sources said. Both retailers carry a variety of apparel and home products, but Target also sells food and beverages, which saw substantial growth during the pandemic. COVID-19 conditions highlighted the continuing challenge of e-commerce competition, but Kohl’s still serves a loyal and value-conscious customer base, a sector investor added. Kohl’s shares have been down since a high of close to USD 82 in 2018, dropping to as low as USD 11.51 in early April 2020 at the onset of the pandemic. Over the past five years, Kohl’s stock has underperformed discount retailer peers like Ross Stores [NASDAQ:ROST] and TJX Companies [NYSE:TJX]. Last October, the Wisconsin-based retailer had announced a long-term strategic plan to drive topline growth and focus on capital management centered around active and casual wear as well as beauty. Shares moved up on the news, and continued climbing in November amid a broader rally for the retail sector on vaccination rollout progress, up over 210% to date. Shares ended the day at USD 60.25. Yet, the company was caught in the crosshairs of an activist group. Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital, collectively hold a 9.3% stake in Kohl’s including options. On 22 February, the activist group issued an open letter criticizing the company's existing strategy, noting eroding margins and stagnant sales. Following engagement, the retailer settled with the activists in April, adding three board members and expanding its share buyback program. Kohl’s shares have been up about 14% since the campaign became public in February. As part of its pitch to unlock value, the activists pushed Kohl’s to implement a suite of operational changes and explore a sale leaseback transaction, estimating that non-core assets could be worth as much as USD 8bn. Potential suitors of the over USD 14bn enterprise value company could look to finance a buyout using the retailer’s real estate assets, some sources said. Kohl’s operates over 1,000 stores and owns over 400 of them. Financial sponsors embracing retail There have been signs of buyer interest in retail with loosening of social distancing policies in sight in the US. This month, Hellman & Friedman announced it was proposing to acquire home goods retailer At Home Group [NYSE:HOME] for USD 2.8bn enterprise value deal, valuing the company at around 8x adjusted EBITDA multiple. In March, Apollo Global Management announced plans to acquire The Michaels Companies, a specialty provider of arts, crafts and seasonal merchandise, in USD 5bn enterprise value deal that valued the company at about 6x adjusted EBITDA. Both retailers reported growth during the pandemic period. Meanwhile, L Brands [NYSE:LB] in April announced that it would spin off its Victoria’s Secret business after reportedly re-engaging with suitors earlier this year, angling for a much higher valuation than an agreement struck last year to sell a majority stake to Sycamore for USD 525m. The Sycamore deal was later terminated. Victoria's Secret saw sales decline close to 28% during the pandemic, bringing in USD 5.4bn last year. Sales for 1Q21 came in at around USD 1.6bn, up over 70% from the same period in 2020, but still 7% below 2019 first quarter sales figures. Net sales for Kohl’s declined 20% in 2020 to around USD 15bn. However, sales are expected to rebound as the economy strengthens and stores like Kohl’s see an increase in consumer foot traffic, one of the sector advisors said. Financial sponsor Sycamore Partners could be among logical suitors of Kohl’s given its experience in the retail sector. The sponsor could see substantial synergies in combining Kohl’s operations with other retail assets in its portfolio like Belk, which it acquired for USD 3bn in 2015, some of the sources said. The North Carolina-based retailer emerged from chapter 11 bankruptcy earlier this year. Two sector advisors said a combination of Belk and Kohl’s could help in extracting sourcing synergies as well as cost synergies through closing of geographically overlapping stores. They said monetization of the real estate assets could help potential suitors cough up the hefty equity check for Kohl’s, which is likely to be at least north of USD 5-6bn. They noted a take-private of a retailer like Kohl’s could support 4-4.5x EBITDA leverage at best. The company trades at 8x estimated forward EBITDA. One of the advisors said Kohl’s generates a meaningful amount of cash and by monetizing its stores, a strong case can be made for a leveraged buyout as financial sponsors look to put more capital to work. He and another advisor, however, cautioned that a lot will depend on how levered Kohl’s balance sheet would be as it transitions to leasing fully its stores. Kohl’s has a BBB- rating with a stable outlook based on better than expected operating results, according S&P Global Ratings, which expects Kohl’s to achieve leverage in the low 2x area this year. As of 4Q20, the company has USD 6.7bn in total debt with a 7.59x adjusted debt to adjusted EBIDTAR ratio, according to company filings. While some retailers like Target own many of its stores, discount competitors such as TJX have focused more on a leasing-heavy strategy, the sector investor noted. In addition to supporting a sale, sale leasebacks can also help retailers fund future expansion projects, said Stan Johnson Company associate director Jeff Tracy. Kohl’s has suggested that a sale leaseback proposed by activists could hurt its investment-grade credit rating. The impact on the company’s credit rating would depend on how it chooses to allocate proceeds from any deal, said S&P analyst Helena Song. Last year, the retailer sold two warehouse facilities for USD 195m. As the future of offices and physical storefronts remain in flux, investors have “flocked” to more stable industrial real estate assets that could bene t from e-commerce tailwinds, Tracy said. Still, one former Kohl’s investor noted that the activist investor group’s sale leaseback and buyback push is unlikely to excite public market investors over the long-term. Investors are looking for the company to demonstrate substantial growth potential, the former investor said. Kohl’s financial performance has been relatively flat over the years, generating USD 18.9bn in net sales in 2019 compared to USD 18.6bn in 2016. Meanwhile, adjusted operating margins declined from 7% in 2016 to 6.1% in 2019. Still, Morningstar analyst David Swartz and the former Kohl’s investor agreed that it’s questionable whether the activists have a better plan than incumbent management to bolster results. CEO Michelle Gass has worked to bring more customers in stores with initiatives like its partnership with makeup retailer Sephora and its Amazon returns program, but it remains unclear how many of those customers will ultimately make purchases at Kohl’s going forward, the former investor said. The company reports earnings tomorrow. Kohl's did not respond to requests for comment.