Why Food Retailers Should Consider Sale-leasebacks to Support Growth Strategies
As many retailers nationwide are forced to close down and reduce property footprints due to the ongoing coronavirus pandemic, one particular sector is looking to grow – food retail
By: Gino Sabatini | Head of Investments
Original article posted in Today's Grocer on September 3, 2020
As many retailers nationwide are forced to close down and reduce property footprints due to the ongoing coronavirus pandemic, one particular sector is looking to grow – food retail.
Driven by changing consumer habits such as eating more at home and the desire to “stock up” on groceries, food retail has seen growing demand in recent months. In fact, a recent survey showed that consumers are spending 37 percent more per grocery trip than they did before the pandemic. In addition, while in-store shopping trips have declined, digital sales continue to boom – with US online grocery sales hitting a record $7.2 billion in June, up 9 percent from May’s $6.6 billion.
Despite many food retailers being spared from the financial repercussions of the pandemic, the swift shift towards online shopping has driven savvy retailers to bolster their omnichannel shopping strategies and capitalize on the newfound demand for online delivery. To implement these changes and adapt to growing demand, food retailers will need growth capital for critical projects like investing in their online-ordering capabilities and/or expanding their distribution centers to keep up with online orders. One of the simplest and most effective ways retailers can secure this capital is by leveraging their existing real estate assets and pursuing a sale-leaseback transaction.
In a sale-leaseback – or “sale and leaseback” – a company sells its real estate to an investor for cash and simultaneously enters into a long-term lease. In doing so, the company extracts 100 percent of the property’s value and converts otherwise illiquid assets into working capital to grow its business, while also maintaining full operational control of its facilities. One major benefit of a sale-leaseback is that it is generally a long-term commitment, meaning companies can realize high prices for their assets in the current low-yield environment and also lock in low rent for years to come. In addition, companies can gain a long-term capital partner that can fund future expansions and development of new facilities. Because of these benefits, it’s not surprising that several savvy food retailers have already pursued sale-leasebacks as part of their growth strategies on a stand-alone basis or in conjunction with private equity firms and other investors.
W. P. Carey is one of the largest diversified net lease real estate investors, with a portfolio comprising over 1,200 properties across both the US and Europe. W. P. Carey has nearly 50 years of experience partnering with creditworthy companies on sale-leasebacks ranging from $5 million - $500 million to help unlock otherwise unused capital tied up in their critical real estate.
As consumer habits continue to change due to the pandemic – likely for the long haul – there’s never been a better time for food retailers to undertake a sale-leaseback. Those that do will be able to secure the growth capital they need to expand and meet growing consumer demand and expectations – putting them ahead of the curve and onto the path of long-term success.