Scotia structures $3.3b financing through property sale and leaseback
PHOTO: Scotiabank
CAPTION: Scotia’s investment arm has recently structured $3.3 billion in real estate sale-and-leaseback arrangments.
Scotia capital investment recently structured real estate sale-and-leaseback valued at $3.3 billion, which it claims is the largest volume of sale and leaseback transactions to be executed in the local market.
The “synthetic” real estate investment trust (SREIT), as it is called, involves the sale of a portfolio of property by the owner to a group of investors who simultaneously lease back the properties to the original owner under a long term lease-typically 10, 15 or 20 years.
It also serves to assist companies monetise their entities by leveraging the equity of their commercial real estate holdings, according to Scotia Investment’s Beresford Grey.
“We identified a need for long dated Jamaica dollar denominated financing in the local market,” the senior vice president of origination and capital markets said, in explaining the aim of the technique. “Given the lowering of interest rates in the market, and investors desire for yield and diversification, we expect to see more corporates raising financing by issuing medium and long term bonds in the local capital markets.”
The SREIT also ensures some amount of liquidity for investors.
“Since the SREIT is structured so that holdings in the portfolio of properties are transferable and saleable, investors do not hold a chunky illiquid investment,” Grey explained noting the importance of a clear exist strategy in the structure of the trust. “The liquidity possibilities within the transaction and the added benefit of portfolio diversification were very attractive to investors”.
The financing option also provides a fixed yield with the possibilities of further upside should the value of the real estate portfolio increase.
“The structure has a compelling value proposition for both the initial owner of the real estate and the investors,” Grey reasoned, adding that the pooled purchase of the portfolios makes it more affordable to investors who, on their own, would not have been able to afford the venture.
