Sale Leaseback

Overview

This off balance sheet financing enables the user to divest non core real estate assets - improving financial statement presentation by converting non earning assets into cash and equity - while retaining effective operational control of the asset. This product also enables the user to effectively recognize unrealized equity in assets which have appreciated since their purchase by the user.

MFC will structure a sale leaseback designed specifically for the user's needs, including:

• Maximizing sales proceeds or optimizing lease rentals or other financial goals
• Maximizing operational flexibility under the lease
• Maintaining property management control
• Optimizing accounting and tax impact

The sale leaseback also offers the following off balance sheet benefits:

• Operating lease treatment for GAAP purposes can result in lowered real estate related expenses, higher Earning per Share, Higher Return on Equity, higher Return on Assets and lower leverage ratios.
• Assets and liabilities are removed from the balance sheet.
• This provides an inexpensive source of balance sheet equity which may be used to expand the company's core business or to purchase other businesses.
• 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 lease term may be from 12 to 30 years.
• At the conclusion of the lease term, the user may either:
   
  1. Renew the lease for up to an additional thirty years at predetermined lease rentals provided that the renewal rentals are not regarded as bargain rentals by the user's auditors, or
      
  2. Abandon the property with no further obligation. (GAAP pronouncements prohibit a purchase option, however, the user may have a right of first refusal to match a bona fide third party offer).

• The user maintains operational control of the property through a bondable lease which requires the user to retain all responsibility for the ownership of the property.
• In larger diversified portfolios, properties may be substituted throughout the lease term, provided that the real estate investor is not negatively impacted.

Other Benefits

• The market value of the asset is realized immediately, eliminating future real estate market risk.
• Diversification of funding sources.
• Matching of long term strategic assets with long term liabilities.
• The capitalization of all costs associated with the transaction over the term of the lease.