One of the more compelling competitive advantages is our investment process from sourcing through structuring to closing and disposition.
We have implemented criteria-based screening in searching for potential target companies for SLB transactions. Our criteria focuses on the company’s financial situation, access to decision-makers and the underlying real estate.
Senior Vice President, Mike Corry has a background in the management of industrial companies with a thorough understanding of their financial and operating requirements. Coupled with the real estate experience of Capbridge Investors, this provides us with a unique insight and access to target companies.
Given the significant tax consequences, particularly for companies operating under IFRS standards, we have developed an Excel financial model that provides a quick review of the effects of the proposed SLB transaction on the balance sheet and income statements. This has been prepared in conjunction with EY and they are actively supporting SAS with introductions and tax advice.
While we are conscious of the seller’s financial and tax situation, our underwriting focuses on the underlying value of the real estate and potential lease structures that will work for both buyer and seller.
Given most of our deals are off-market and we are working directly with a CFO or other non-real estate person, the initial information tends to be limited. Once we obtain basic details of the building, particularly land area, GFA and uses of the space, we conduct a preliminary analysis applying market rents and a cap rate based upon the location, age, etc. This provides us with a baseline valuation for further discussions with the seller in an open and transparent environment.
Once we have received detailed information, we conduct a discounted cash analysis evaluating different lease structures that would be applicable to a particular seller’s requirements. We also make assumptions on the residual value of the asset at the end of the lease term and alternative uses should the tenant vacate.
Due Diligence & Closing
Due diligence will focus on the deal and lease structure, tenant’s creditworthiness and multiple discounted cash flow models with various residual value scenarios to confirm the underlying value of the real estate. This will be particularly important given that the building will likely be functionally obsolete at the end of the lease term.
An experienced asset management team will proactively address lease expirations, changing tenant credit profiles and asset repositioning or dispositions. The asset management team will focus on generating value creation opportunities
The opportunity exists to aggregate a substantial portfolio of credit, long-term lease assets in Japan (circa JPY 200-300 billion) in the next 24-36 months. The nature of these assets with stable cashflow is well suited for a J-REIT listing particularly in the current low interest environment.