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Sale and Leaseback Case Study

18th April 2019

Sale and Leaseback Case Study: Rory Mack Associates were recently approached by the owners of a long established children’s day nursery business in Stoke on Trent who were starting to think about their retirement plans and how best to deal with the sale of their main assets, being their commercial building and existing business. After meeting the owners we quickly established that they didn’t want to retire straight away, but did want to release the equity in their premises so that they could pursue other interests, whilst at the same time continuing to operate the business. The obvious solution was to look at a ‘sale and leaseback’ opportunity, which would enable the owners to release equity in the building and continue to operate the business until it suited them to retire and sell this as a going concern.

With this in mind, we firstly needed to provide advice on the open market rental value of the premises whilst ensuring that this figure was attainable from a business perspective. After considering all of the variables we concluded that a rent of £36,000 pax was in line with market evidence. Then we needed to decide on what type of lease the business should take and for how many years. After due consideration we concluded that in order to obtain the best possible result from an investment sale perspective, the new lease should be composed on a Full Repairing and Insuring basis and for a term of 15 years, which crucially gave enough longevity to ensure that when the time came to sell the business there will still be a meaningful unexpired term remaining on the lease.  

Once the above strategy had been agreed, we then needed to determine the freehold value of the asset with the above lease in place and upon reviewing the market for similar investments transaction we concluded that the investment property should achieve a yield of approx. 9%, which roughly equates to multiplying the annual rent by 11. In the end we agreed to offer the property to the market at an asking price of £395,000 and the attached sales details were then composed in readiness to approach the market.

Marketing an opportunity like this requires more thought and sensitivity than with most marketing campaigns as we needed to protect the business and didn’t want customers and staff to know what was happening until the whole matter had been concluded. As such we could not put a ‘For Sale’ board on the property, advertise in the local press and we even decided not to promote the property on the usual web sites that we subscribe to and use. This being the case we were restricted to our mailing list which given previous investment sales is both extensive and updated regularly and includes a wide range of property investor individuals, companies and institutions. After distributing the sales details to those parties on the mailing list we were able to negotiate a sale to a company based in London and agreed the asking price of £395,000. Within six weeks of agreeing the deal contracts exchanged and completed and all parties were extremely happy with the overall outcome.

The owners of the business now have a life changing sum of money to invest in other interests whilst retaining their business, which they will sell at a later date and the investor has a solid investment property returning a 9% ROI which will doubtless remain occupied for many years to come.

If you are considering selling an investment property or are looking at how to release equity in your property whilst continuing to trade please get in contact with our Agency Dept on 01782 715725 who will be happy to provide further advice and assistance.