Sale &

Leaseback and

Build-to-Suit

Sale & Leaseback and Build-to-Suit Overview

1

Two types of financing structures are available to release cash locked in real estate assets

Sale and Leaseback Build-to-Suit

• For built real estate assets that are being occupied by the business

• Seller agrees to a long term lease for the asset

• Enables monetization of real estate assets on the balance sheet while maintaining full operational control of assets

• Lease terms dictated by seller/occupier

• Development of a new real estate asset for occupier

• Development cost is fully funded by third party real estate investor

• Asset developed as per occupier’s requirements

• Pre-agreed lease terms dictated by occupier

• Dividend payout

• Reinvestment in core business (expanding production lines, marketing campaigns, new outlets)

• Debt repayment

• Business Growth (M&A and organic growth)

Release cash for

Sale & Leaseback Overview

2

How it works

Corporate (Occupier) Real Estate Investor

Occupier receives 100% of sale

proceeds2

3Investor leases the property back to

the occupier under a long-term lease

Occupier sells property to investor at fair

market value1

Occupier pays rent during the lease term4

Typical Sale and Leaseback Structure

Asset Sale

• Transfer ownership to real estate investor

• Seller / occupier receives sale proceeds

Asset Leaseback

• Enter into a long term lease with the real estate investor

• Flexible lease terms based on occupier’s requirements

Build-to-Suit Overview

3

How it works

Typical Build-to-Suit Structure

Corporate (Occupier) Real Estate Investor

Investor develops the property as per

the occupier’s specifications2

3Occupier enters into a long term lease

on the property

Occupier prepares the specifications for

the required development1

Investor receives rental payments from the

occupier4

Asset Design & Development

• Corporate occupier prepares design documents

• The occupier prepares development specification

• Investor builds the property and ensures that the development is in line with the occupier’s required specifications

Lease Agreement

• Occupier enters into a long term lease with the real estate investor for the property

• Occupier pays rent to the investor as specified in the lease agreement

Sale & Leaseback and Build-to-Suit OverviewOwning vs. leasing corporate real estate

Occupiers (corporates) can choose to either own or lease their real estate space. The following are the pros and cons of each:

Own Lease

Vs.

Pros

Ownership

No recurring payment liability

Cons

Costly – initial outlay required

High opportunity cost – reinvesting in your core business

Not accounted for in the company’s DCF valuation

Pros

Cheap

No initial outlay required

Tax deductible

Full operational control

Potential accounting ratio improvements

Cons

Fixed liability

No ownership

4

Summary

• Operational Efficiency: owning real estate assets for occupation purposes may not be financially efficient

• High Opportunity Cost: owning occupied real estate has a high opportunity cost, the cost of using the locked capital to invest in the core

business and generate higher returns

• Increase Shareholder Value: unlocking the value in occupied real estate may result in improving shareholder value

Sale & Leaseback and Build-to-Suit Overview

5

Alternative Financing

Corporates regularly require capital in order to fund their ongoing expansion and/or payout dividends/debt. Accordingly, corporates can seek capital

from the following sources:

Cheaper than equity financing

Higher loan to value compared to debt

financing

Flexible terms up to 25 years

Terms dictated by the occupier

No dilution of ownership

Rent expense is tax deductible

Fixed liability

Short tenor (5-8 years)

Limited to 50-60% of the property value

Additional security may be required

Expensive

Dilutes ownership

Less voting power

Debt

Sale & Leaseback and Build-to-Suit

Equity

Typical Lease Structure

6

Flexibility to match lease terms to business requirements

PurposeLiquidate long-term assets, thus improving the balance sheet

while retaining control over the property

Tenant

Usually strong middle-market to investment-grade corporate

ownership or corporate holding companies. Triple-net leases

(lessee pays all costs associated with the operation of the

property)

Rental Rates

Calculated as a percentage of the purchase price or gross

development value, usually with embedded escalations

throughout the lease term

Term

Sale and Leaseback: 10 years and above

Build-to-Suit: 15 to 25 year lease terms

Options to include renewal periods

Advance 100% of fair market value

Property Freehold ownership. Ground leases are exceptions.

Preferred

PropertiesResidential, office, industrial, retail, medical and education.

• Tenants have the flexibility to negotiate lease terms matching their

business requirements:

- Lease term

- Rental rates and escalation pattern (ie. fixed or inflation indexed)

- Payment frequency

- Ability to sub-lease

- Renewal options

- Future improvements and/or property expansion

- Buy-back options

• Lease terms can also be adjusted to meet specific accounting

considerations

- Classification of capital or operating lease depending on local accounting

regulations

Maintaining Control

7

Flexible buy-back options can be pre-agreed

Sellers can maintain control over the asset by way of a variety of structures:

• Long Term Leases: Leases typically run from 10 to 25 years with renewal options

• Right of First Refusal: Lessee retains pre-emption right in the event the lessor wishes to sell the property during the lease term.

• Sale Restrictions: In the case of strategic assets, restriction on sale of the property to direct competitors.

• Buy-Back Options: The lessee retains an option to buy back the property during or at the end of the lease term.

• Reversion at Lease Maturity: Ownership of the property reverts to the lessee at the end of the lease term

• Land Lease Structure: Only the building is sold and the lessee retains ownership of the land which is in turn leased under a long termlease to the new building owner.

Selected Sale and Leaseback Transactions

8

Local and international companies increasingly relying on SLB transactions

Seller Industry Assets Location Value Date

Large Corporate Industrial 2 residential compounds Saudi Arabia $ 700m 2014

Time Warner Media Time Warner Center USA $1.3 bn 2014

GEMS Education GEMS World Academy UAE ca. $75-80m 2013

MMG Construction Headquarters Saudi Arabia $10 m 2013

Azizia Panda Retailer 5 supermarkets Saudi Arabia No Disclosed 2012

Nokia Electronics Headquarters Finland € 170 m 2012

Caixabank Financial Services 439 properties Spain € 428 m 2012

Medica Healthcare 15 healthcare centres France € 132 m 2012

Agrokor Food 8 stores Croatia € 35 m 2012

Peugeot Citroen Automotive 9 retail properties UK £ 30m 2012

Tesco Retailer 4 stores South Korea £ 300m 2012

Safi Danone Food HQ and distribution centre Saudi Arabia Not Disclosed 2012

Jarir Bookstores Consumer Goods 2 retail centres Saudi Arabia Not Disclosed 2011

Carrefour Retailer 97 supermarkets France € 365 m 2011

Metro AG Retailer 20 wholesale markets Italy € 400 m 2011

Azizia Panda Retailer National Distribution Centre Saudi Arabia $ 80 m 2010

Tesco Retailer 41 supermarkets UK £ 950 m 2010

NY Times Publishing Headquarters USA $ 225 m 2009

Laureate Education Education School campus USA $ 29 m 2008

JLL Can Help

How JLL Can Help

10

End-to-end service offering

Existing RE Portfolio Review

Transaction Structuring

Asset Valuation Advisory

Sourcing Equity and Debt Sources

Identifying Developer (for

BTS)

Lease Structuring & Negotiation

Transaction Closing

JLL can advise on and manage the entire process on your behalf

• As one of the world’s leading real estate investment advisory firms, JLL can help you structure and negotiate the most

effective build-to-suit (BTS) or sale-and-leaseback (SLB) transaction to meet your financial and operational

requirements:

- Review your real estate portfolio and expansion plans and determine where the use of alternative financing structures make sense

- Leverage JLL’s local, regional, and international investor network to source the most cost efficient financing sources

- Structure a transaction that meets your needs and run a competitive process to achieve the greatest cost savings

- Help structure and negotiate long-term occupational lease

- Manage the entire process and liaise with other third party advisors until transaction closing

Why appoint JLL

• Protects investor’s interests by ensuring full transparency, avoiding conflicts of interest, and ensures that transactions are conducted on an arms-length basis

• Ensures full market coverage by leveraging JLL’s extensive relationships across investor groups and geographies

• Your investment teams save time and continue to focus on your core business while JLL manages the process, answers questions, and acts as a single point of contact for all prospective investors

• Creates competitive tension between investors

Maximises sale proceeds

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