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The Real Estate Sale-Leaseback

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The Sale-Leaseback (SLB) Advantage: This document provides an overview on the advantages of a real estate Sale-Leaseback Transaction. Information could be of interest to middle-market companies, private equity firms with portfolio companies and/or owner-users of real estate.

The Real Estate Sale-Leaseback

  1. 1. An Alternate Form of Financing THE SALE-LEASEBACK ADVANTAGE
  2. 2. Sell Property Lease Property Back Use Capital Raised for Desired Purpose SALE-LEASEBACK (SLB) PROCESS Ploutus Advisors, LLC 1
  3. 3. POTENTIAL USES OF CAPITAL Ploutus Advisors, LLC 2 Invest in and expand core operations Finance acquisitions or growth strategy Restructure business Pay down debt Uses
  4. 4. Jointly Structure Terms Retain Use and Control of Asset Enjoy Significant Tax Advantages Extract Greater Value verses Mortgage Middle-Ground Financing Alternative BENEFITS OF SALE-LEASEBACK Ploutus Advisors, LLC 3 Benefits
  5. 5. SIDE-BY-SIDE Ploutus Advisors, LLC 4 Senior Debt / Mortgage Asset Value $10,000,000 Loan-To-Value 70.00% Capital Raised $7,000,000 Interest 6.00% Amortization in Years 20 Loan Constant 8.60% Annual Debt Service $601,802 Total Payments $12,036,042 Option 1 Mezzanine Financing Asset Value $10,000,000 Loan-To-Value 90.00% Capital Raised $9,000,000 Interest 12.00% Amortization in Years 20 Loan Constant 13.21% Annual Debt Service $1,189,173 Total Payments $23,783,460 Option 3 Sale-Leaseback (SLB) ✔ Asset Value $10,000,000 Loan-To-Value 100.00% Capital Raised $10,000,000 Cap Rate or Cost of Capital 7.00% Lease Term in Years 20 Loan Constant 7.00% Annual Rent Expense $700,000 Total Payments $14,000,000 Option 2 VS VS VS
  6. 6. COST COMPARISON Ploutus Advisors, LLC 5 Parameter Mortgage SLB Mezzanine Result (1) Loan Constant 8.60% 7.00% 13.21% vs SLB 1.60% Higher ✔ 6.21% Higher SLB Best (2) SLB ECOC 3.57% vs SLB ECOC 5.03% Higher ✔ 9.65% Higher SLB Best (3) SLB ECOCR 7.99% vs SLB ECOCR 0.61% Higher ✔ 5.22% Higher SLB Best ECOC or Effective Cost of Capital: Interest rate required to fully amortize proceeds assuming a loan constant equal to the cost of capital or capitalization rate ECOCR or ECOC Adjusted for Residual Value: Rate that equates SLB capital proceeds of $10MM with future value of asset forgone due to loss of ownership assuming annual appreciation of 2.0% over 20 years
  7. 7. TAX DEDUCTIBLE COMPONENT Ploutus Advisors, LLC 6 Parameter Mortgage SLB Mezzanine Tax Shield Interest Only Lease Payments Interest Only
  8. 8. IMPACT OF REINVESTMENT RATE Ploutus Advisors, LLC 7 Parameter Mortgage SLB Mezzanine Result Reinvestment Rate 12.00% 12.00% 12.00% Capital Raised $7.0MM $10.0MM $9.0MM Term 20 Years 20 Years 20 Years FV of Capital Raised $67.52MM $96.46MM $86.82MM Less: FV of Debt Service $43.36MM $50.44MM $85.68MM FV of Net Proceeds $24.16MM $46.03MM $1.13MM vs SLB $21.86MM Less ✔ $44.89MM Less SLB Best FV: Future Value MM: Million SLB Gets More Attractive As Reinvestment Rate Increases
  9. 9. IMPACT ON M&A / COMPANY SALE Ploutus Advisors, LLC 8 No Sale-Leaseback (No SLB) Sale-Leaseback (SLB) ✔ Real Estate Value $10,000,000 Cap Rate or Cost of Capital 7.00% Rent Multiple 14.29x Annual Rent Expense $700,000 EBITDA $3,000,000 EBITDA $3,000,000 Less: Annual Rent $0 Less: Annual Rent $700,000 EBITDA (Net of Rent) $3,000,000 EBITDA (Net of Rent) $2,300,000 Enterprise Value Enterprise Value EBITDA $3,000,000 EBITDA (Net of Rent) $2,300,000 Multiple 6.50x Multiple 6.50x Enterprise Value $19,500,000 Enterprise Value $14,950,000 Real Estate Value Real Estate Value Real Estate Proceeds Included Above Real Estate Proceeds $10,000,000 Capital Raised $19,500,000 Capital Raised $24,950,000 Excess Capital Raised = $5.45MM Percent Increase = 27.95% EBITDA: Earnings Before Interest Taxes Depreciation and Amortization VS
  10. 10. KEY FEATURES Ploutus Advisors, LLC 9 Senior Debt •  Fully Secured by Asset •  Lower Interest Rates •  Conservative Underwriting •  Increases Indebtedness Sale-Leaseback •  Reduces Investment in Non-Core Assets •  Favorable Middle- Ground Alternative •  Asset Control Via Long- Term Lease •  Tax Savings - Expense Entire Lease Payment •  No Major Financial Covenants •  No Equity Dilution •  Greater Control Over Core Business •  Off-Balance Sheet - If Operating Lease •  100% Financing •  Maximizes Value of Real Estate Mezzanine Financing •  Unsecured •  Higher Interest Rates •  Expensive - Usually Includes PIK Interest •  May Include Warrants •  May Lead to Ownership Dilution •  Increases Indebtedness ✔
  11. 11. CONTACT Ploutus Advisors, LLC 10 Disclaimer: The information contained herein may be subject to errors, omissions, changes in assumptions and, other factors. We do not provide any guarantees, express or implied, and/or make any representations as to the accuracy of the information contained herein. All information should be independently verified by the user. The analysis represents our interpretation and is NOT intended to replace information received from tax and/or accounting professionals. The user is advised to conduct its own due diligence and consult with its advisors prior to making any decision. To monetize a real estate asset, please contact: Mr. Adnan Tapia Email: atapia@ploutusadvisors.com Tel: +1.424.274.3561 Ploutus Advisors, LLC 1875 Century Park East Suite 700 Century City CA 90067

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