This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

A REIT Opportunity in the Sale/Leaseback Space

Stocks in this article: O WPC NNN

NEW YORK ( TheStreet) -- One way that the free-standing landlords (and triple-net REITs) unlock value in real estate is to invest in companies that own properties leased to corporate occupiers. Today we are seeing more and more corporations pursue the sale/leaseback model as a mechanism to earn a higher return on their core business as compared to investing their capital in owned real estate.

In a sale/leaseback transaction, the owner-occupant of a commercial property sells the asset it owns and occupies by executing a long-term lease with a real estate investor. This structured financing alternative has evolved into an attractive strategy for many corporations to unlock the value of their real estate assets.

Over the past several decades, corporations have been increasingly executing sale/leaseback transactions -- usually to better allocate capital, but also in many cases to manage residual real estate risk. This off-balance sheet alternative provides the occupier 100% of the value of the property compared to traditional mortgage financing, which is usually around 65% loan-to-value.

One of the early pioneers of the sale/leaseback structure was New York-based W.P. Carey (WPC). The $8.83 billion triple-net REIT recently announced the $110 million acquisition of a 448,898 square-foot facility, now leased to State Farm, in Austin, Texas.

State Farm has been increasingly utilizing the sale/leaseback strategy as a way to decrease its inventory of owned assets and monetizing its balance sheet to take advantage of the low-cost REIT debt and equity. According to SNL Financial, State Farm "owns more than 100 buildings" and State Farm says that "the company may sell and lease back additional locations, as thousands of State Farm employees work in leased locations today."

As I reported last week in my REITs on the Street column, triple-net REITs (like W.P. Carey) "represent a stable alternative to the fluctuating stock and bond markets" as most REITs invest in "premier net lease properties with favorable lease terms, strong tenant credit and prime location."

Although the stable REIT sector appears "bond like," Mr. Market has confused the free-standing "brick and mortar" class with bonds,which is precisely why we have seen a large selloff in the sector. Many REITs like Realty Income (O), National Realty Properties (NNN) and American Realty Capital Properties (ARCP), have seen returns drop by as much as 25% over the last 90 days.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,583.95 +227.08 1.31%
S&P 500 2,043.34 +30.45 1.51%
NASDAQ 4,717.4370 +73.1250 1.57%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs