News

Lease-back sales have been gaining traction in the South African marketplace for much of 2016, and are now a preferred option for many industrial and commercial property owners. It has risen to become an increasingly popular component of company financial management, according to commercial property consultancy Knight Frank.

Retaining control of production operations while at the same time freeing up capital has become necessary for many companies. Lease-back deals provide just that opportunity. This trend is also expected to continue well into 2017. The typical sale-leaseback transaction follows a standard pattern of the property owner selling its owner-occupied building to an investor, in exchange for a typically long-term lease commitment by the owner.

This transaction provides the owner company with access to otherwise illiquid capital, which is tied up in its real estate, making it possible to deploy the capital in order to achieve higher returns, usually into its core business. Buyer demand is strong, with many South African investors in search of long term, stable and predictable bond-style returns through corporate leased estate assets.

Lease Back Property Transactions Becoming the Norm

In one of the largest commercial deals for 2016 so far, Knight Frank recently closed a sale and lease-back deal whereby a portfolio of 16 properties in Nampak’s property portfolio was sold to Collins Property Group, for a total of over R1.7 billion. One of the properties in the deal was an outright sale. Nampak is set to lease the properties back for 15 years, with an option to renew the leases for a further 10 years.

The deal formed part of Nampak’s strategy to deleverage its balance sheet, while strengthening its debt covenant positions to create the capacity for future growth. It is just one of the many examples of lease-back transactions sweeping through South Africa, and the trend is only set to continue.