While pricing has widened, early indications in 2023 point to a growing return to confidence for the sale leaseback market, according to a market update report from SLB Capital Advisors.
The report cites “strong credits and robust business models achieving successful processes with large interest from investors”, even in non-core markets, particularly industrial.
Due to the current interest rate environment and companies’ overall cost of capital, the SLB cap rates offer a more attractive cost-of-capital solution than ever, according to the report.
“SLB rates remain well inside of many companies’ WACCs and today, in more cases than not inside companies’ current cost of debt financing, making the sale leaseback an incredibly attractive financing alternative,” it stated.
There continues to be an attractive value arbitrage across various industry sectors driven by the delta between business and real estate multiples. The multiple implied by average SLB cap rates (i.e., 6.25% to 8.25%) implies a multiple of over 12x to 16x.
This compares favorably to general middle market transactions which averaged 6.9x LTM EBITDA for 2022. Attractive arbitrage opportunities are generally prevalent across many middle-market sub-sectors, the report said.