HREC/CRIC Hotel-Resort Sale Leaseback Program

Transcription

1 HREC/CRIC Hotel-Resort Sale Leaseback Program CRIC Capital, LLC Exclusively Offered By: For Additional Information, Please Contact: Jeffrey Preston Vice President Chicago HREC Hospitality Real Estate Counselors (312) DENVER 6400 S. Fiddler s Green Circle, Suite 1730 Greenwood Village, CO Mike Cahill (303) CHICAGO 445 North Wells Street Suite 402 Chicago, IL Rick George (312) TAMPA 410 South Ware Blvd., Suite 700 Tampa, FL Scott Stephens (813) NEW YORK 230 Park Avenue, 10 th Floor New York, NY Geoff Davis (212)

2 HREC/CRIC Hotel-Resort Sale Leaseback Program HREC Investment Advisors and CRIC Capital, LLC are proud to present the HREC Investment Advisors/CRIC Hotel-Resort Sale Leaseback Program, an innovative alternative to refinancing or selling your hotel property(ies) to realize value in today s market. A Sale Leaseback allows hotel owners and/or operators to retain control of property operations while redeploying capital to fund future growth strategies, reduce debt, acquire additional properties, or pursue personal interests. The Sale Leaseback program offered by CRIC Capital, LLC is structured in such a way that long term operational control of a hotel property is left with the owner/operator through a multi-year lease with renewal options. In addition to maintaining control of the Property and continuing to earn Management Fees, a Sale/Leaseback allows the Operator to retain 100% of the cash flows above lease payments and FF&E Reserve. This means that the hotel owner or operator realizes the intangible value of the underlying real estate without giving away the value of the hotel operations, unlike in a traditional sale of the property. Most hotel companies operate in the marketplace with large investments in the land and facilities necessary for the successful operation of the business. Companies that tie up valuable capital and credit in real estate are leaving untapped key assets on the table. Here is how CRIC Capital, LLC can help you to free up those assets. CRIC Capital purchases your property and leases it back to you for as long as you need it, whether that be 10, 15, 20 years or longer; CRIC Capital creates a bond or bondable net lease and customizes it to fit your needs. Rents can be fixed, stepped up, or periodically adjusted to best meet your financial or tax goals and to take advantage of new financial conditions and contingencies; Your company frees up valuable capital and retains full operational control of the property with an off-balance sheet transaction that serves to enhance your company s financial statements; CRIC Capital can also provide a forward commitment to fund the construction and acquisition of new properties with strong corporate credit. Sale leaseback proceeds exceed those raised by traditional sources of mortgage financing CRIC Capital will consider investment-grade properties (or the equivalent) and select below investment-grade properties, as well as established branded and non-branded 2

3 resorts. Any prospective seller should ideally provide a minimum of three years of financial statements for the subject asset if available, in order for CRIC Capital to determine the creditworthiness of the entity behind the property. CRIC Capital will invest in franchised full-service and selectservice hotel properties. Preferred franchises/brands include, but are not limited to, Hilton Hotels Group, InterContinental Hotels Group, Starwood Hotels, Choice Hotels, Wyndham Hotels and brands within the Marriott Hotels family. Eligible properties include existing and to-be-built full service and select service properties. There are no preset limits to the amount of capital CRIC Capital can invest in a property or portfolio. CRIC Capital will invest in smaller properties, particularly if these properties can be pooled into a single transaction. CRIC Capital s only requirement is that the minimum amount of a single transaction is at least $5,000,000. Following are three scenarios that illustrate the Sale/Leaseback transaction process: Situation A The Net Lease Scenario Company A identifies a hotel that it wants to acquire and operate. It does not want to allocate the funds necessary to purchase the property as it has more productive uses for its capital and has no interest in being in the real estate business. The Company wishes to enter into a Net Lease transaction. The property is a 150-room mid-scale, full service, nationally recognized franchise property with a potential market value of $12,300,000 to $13,300,000 and an NOI of $1,200,000. Traditional mortgage financing for this property would provide approximately $9,700,000 of capital to buy the property. A sale lease back with CRIC Capital provides approximately $11,150,000 in proceeds to purchase the property. Company A would net lease the property for a basic term of 20 years, plus one 10-year and four 5-year optional renewal periods. The Company has the use of the property for up to 50 years. The Company has complete control over the use and operation of the property and is responsible for all operating costs, including real estate taxes, utilities, maintenance, and repairs. The lease can be fixed, stepped up or periodically reset in a number of ways over the life of the lease. 3

4 In this scenario [detailed in the appendix] the Company substantially enhances its financial position and realizes the following benefits: With no additional debt on its balance sheet, the book value of the company s assets is effectively understated, enhancing the Company s returns. And, the lease payments are fully deductible over the term of the lease, making the Company s eventual after-tax cost less than the cost of alternative forms of asset based financing. Situation B The Sale/Leaseback Scenario Company B owns and operates an existing hotel property and wants to reduce the debt or net assets on its balance sheet and use the proceeds to invest in its core business, operating hotels. The Company wishes to enter into a sale/leaseback transaction. This property is an upper mid-scale select service 150-room hotel with a nationally recognized brand affiliation. Constructed in 1993, the property has a potential market value of $14,000,000 to $15,000,000 and an NOI of $1,200,000. CRIC Capital purchases the property for approximately $12,540,000 even though the book value is less. The Company s net pre-tax gain of $2,000,000 can be amortized on the Company s financial statements over the basic lease term. Furthermore, a sale leaseback provides more proceeds than refinancing which would provide approximately $10,900,000 in proceeds. CRIC Capital leases the property back to the operating company for a basic term of 15 to 25 years, plus one 10-year and four 5-year optional renewal periods. The Company has the right to use the property for up to 45 years. The Company has complete control of the operation of the property and is responsible for all operating costs, including real estate taxes, utilities, maintenance, and repairs. Again, the rents can be fixed, stepped up or periodically reset in a number of mutually agreed upon ways. In this scenario [detailed in the appendix], the benefits to the Company include an enhancement of its financial position going forward and enables the Company to convert into cash valuable capital and credit tied up in real estate. The Sale Leaseback allows the Company to retain complete operational control of the property for as long as it is required in its business. Further, the lease payments are fully deductible over the life 4

5 of the lease, making the after-tax cost to the company less than the cost of traditional forms of asset based financing. In addition, the sale/leaseback allows the Company to sell its leasehold interest in the property at some future date. Situation C The To-be-Built Scenario Company C is a large private or public company looking to grow its brand through development and is looking for a programmatic way to finance their growth without taking on long-term debt or raising substantial equity. The Company is constructing a select service or full service hotel with a nationally recognized brand affiliation. Construction is underway with a scheduled completion date in 6 to 18 months. The company owns the development during the construction period and CRIC Capital purchases the property at C.O. based on the projected second operating year NOI. CRIC Capital will lease the property back to the operating company for a basic term of 15 to 25 years, plus one 10-year and four 5- year optional renewal periods. The Company has the right to use the property for up to 45 years. The Company has complete control of the operation of the property and is responsible for all operating costs, including real estate taxes, utilities, maintenance, and repairs. Again, the rents can be fixed, stepped up or periodically reset in a number of mutually agreed upon ways. In this scenario, the benefits to the Company include realizing new hotel properties and hence management fees without tying up its financials with real estate. The To-be-Built Sale Leaseback allows the Company to build new product and enter new markets while eliminating the need for long-term debt financing or raising substantial equity. Further, the lease payments are fully deductible over the life of the lease, making the after-tax cost to the company less than the cost of traditional forms of asset based financing. In addition, the sale/leaseback allows the Company to sell its leasehold interest in the property at some future date. The preceding scenarios show the flexibility of the Sale Leaseback program for hotel owners and operators. As developed by CRIC Capital, the Sale Leaseback plan is an innovative means to tap into your hotel s inherent real estate value without giving up operational control of the property, allowing you to harvest the future financial benefits of the business. The following Appendices illustrate in more detail the mechanics of how the Sale Leaseback program applies to different classes of theoretical hotel assets as an alternative to refinancing or a traditional sale. 5