Bondable Operating Lease

Overview

This off balance sheet financing is applicable for the user whose emphasis is on the lowest lease rental without having any contingency risk and where continued control of the property is of secondary importance to the real estate risk. MFC offers a structure that is more passive than is traditionally available while providing certain controls to the user that REIT's and other traditional real estate investors will not allow. This product offers the user a competitively priced operating lease with renewal rights but no ongoing obligation at the conclusion of the lease term.

MFC can lock in today's interest rates by funding a date certain lease prior to construction commencement, eliminating the need for a construction loan with its origination fees and construction escrow restrictions.

MFC will fund bondable operating leases through a $1 billion line of credit provided from our pool of life insurance companies with lease terms from 12 to 20 years. The bondable operating lease will minimize lease payments because MFC combine traditional real estate debt with an underwriting utilizing the user's credit strength, to receive the lowest available debt rate and longest amortization. Lease rentals are typically more competitive than traditional real estate leases and are determined by the user's long term corporate bond rates and residual value of the property.

The bondable operating lease offers the following off balance sheet benefits:

• Operating lease treatment for GAAP purposes resulting in lowered real estate related expenses, higher Earning per Share, Higher Return on Equity, higher Return on Assets and lower leverage ratios.
• Lease treatment for tax purposes resulting in deductibility of lease rentals.

Structure

• The user leases the property from a special purpose entity (SPE) created specifically for the transaction which is, in turn, owned by a developer or real estate investor who assumes a residual risk position in the property.
• The base lease term may be from 12 to 30 years, with renewal options which further extend the user's control of the property.
• At the conclusion of the lease term, the user may either (a) purchase the property at fair market value, (b) renew the lease under mutually agreed terms, which may be predetermined, or (c) abandon the property.
• The user maintains control of the property through a bondable lease which requires the user to retain all responsibility for the ownership of the property.
• The user will receive a deduction for its lease rental payment.

Other Benefits

• MFC offers diversification of funding sources and does not rely upon the user's bank lines to fund the transaction.
• MFC's long terms effectively match long term strategic assets with long term liabilities.
• MFC will capitalize all costs associated with the project over the lease term to eliminate all user out of pocket expenditures.
• MFC will additionally fund equipment or other FF&E used in the facility to eliminate all project out of pocket costs.