Challenge
Quality Synthetic Rubber (QSR), a portfolio company of Blue Point Capital, was evaluating the financial merits of a sale-leaseback of its 100,000 square foot manufacturing facility in Twinsburg, OH. An investor based in Texas made an offer on the property that included a 20-year leaseback of the facility on a NNN basis. Blue Point Capital engaged Allegro to provide a financial analysis and transaction advice to support the proposed purchase.
Solution
Allegro analyzed transfer data for similar properties and average market rents in the surrounding area as well as created a discounted cash-flow model for the proposed 20-year NNN lease. It was clear that while the average NNN rent paid over the term of the lease was not unreasonable, the investor yield was on the high side for the length of the term and the credit-worthiness of the tenant. Allegro conducted a sensitivity analysis to better understand the effects that various lease terms would have on the sale price of the property and made a variety of recommendations regarding QSR’s response to the proposal.
Based on Allegro’s recommendations, QSR was able to negotiate a deal that reduced the investor’s annual return by 139 basis points and the total aggregate rent paid over the term by $2.4 million. Further, QSR was able to shave three years off of the lease, reducing future liability and making the company easier to sell.
In addition, Allegro suggested reducing the security deposit and negotiating the lease in tandem with the purchase agreement in order to limit unnecessary exposure.
