SLB Fund

Sale & Leaseback - New Opportunities for Retail Property Owners

New opportunities for investment structure have emerged in Ukraine. Sale-leaseback (SLB) is a type of investment transaction in which the property remains with the seller in a long-term lease after the sale. In the EU, well-known supermarket operators are effectively using such deals to obtain the necessary funds for development.


Ukraine has seen and, continues to witness a healthy and sustained growth in the expansion of food retail supermarkets in Kyiv and throughout the regions. Driven by both foreign food supermarket operators as well as a number of leading local chains competitors continue to seek market advantage through not only securing geographic coverage but, also through introducing fresh new concepts so as to win market share.

This has meant that in recent years the quality of supermarket properties in Ukraine has improved materially and, now can be considered as good as or, indeed in many cases better than equivalent market product in a number of more mature European economies.

Despite the effects of Covid-19, which have impacted most commercial real estate sectors, neighbourhood supermarkets and, particularly those that are free standing supermarkets and not part of larger malls have outperformed the market and, this trend is expected to continue.

Due however to the effective absence of long term affordable development finance in Ukraine many supermarket chains have been unable to finance their expansion plans as desired because of the capital required for such development.

Cushman & Wakefield Ukraine in cooperation with a group of asset management experts, are now working in support of plans to establish a dedicated investment fund targeted on acquiring existing modern supermarkets from existing owner operators by way of ‘Sale and Leaseback’ purchase structures.

Whilst there is a surplus of low cost long term debt finance in more mature economies, the Sale and Leaseback structure has been very effectively and widely used throughout Europe and North America in recent years as a means by which supermarkets can sell their real estate interests whilst retaining long term full operational control of the property by way of a lease back from the new owner. This enables the supermarket chains to release 100% of market value of their real estate assets that can then be better re-invested into their core retailing operations or, to finance further expansion of the chain whilst avoiding increased exposure to debt.

The Sale and Leaseback fund will be targeting to acquire selected high quality freestanding supermarkets of leading chains so as to ensure that the portfolio will have both geographic diversification as well as being prime grade product.

The supermarkets will be leased back to the supermarket operator on Market Rent terms for periods of typically between 10-15 years on full repairing and insuring leases. This will enable the fund to ensure healthy income and capital growth so making it attractive to investors.

The supermarket chains selling their supermarkets into the fund will in return ensure:

  • Entering into a relationship with a reliable institutional landlord guaranteeing professionally managed Landlord-Tenant relations and, preserved rights of first refusal on any onward sale of the property.
  • A long-term lease of the entire property will be granted to the supermarket chain, including the service line areas meaning that the supermarket will retain full operational control over the entire property ensuring control over service line tenants, parking, branding, and day to day management control and supervision.
  • 100% of market value of the property is immediately received to the account of the supermarket chain on the sale enabling them to reinvest these proceeds into their core retailing operations.
  • Future development of new properties by the supermarket operators can be sold to the fund hence enabling the supermarket chain to accelerate their expansion plans and reduce the need for medium term development finance.

 

Sale and Leaseback structures have seen increasing attention in Europe with supermarket operators such as Carrefour and, Casino in France and, Sainsbury in the UK all having recently entered into such transactions despite recent global challenges due to Covid-19.

The case for Sale and Leaseback transactions in Ukraine is actually made all the more compelling due to the shortcomings of the local debt market which hampers development and, the structurally under supplied nature of the supermarket sector where operators see huge expansion potential.

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