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THE NET LEASE AUTHORITY Sale LeasebackAn Alternative Means For Raising CapitalSale Leaseback HistoryOver the past two decades, sale leasebacks havebecome more common in the market place, giventhey can provide numerous benefits to companies andinvestors alike. There are no shortages of companieslooking to raise capital or improve their financialposition; likewise, there are no shortages of investorslooking for stable, long term investment options. Asale leaseback achieves both of these objectives. Bydefinition, a sale leaseback (SLB) is when a companysells the real estate it owns and occupies to a buyerwhile it simultaneously signs a long term lease tocontinue to occupy and use the property.SALE LEASEBACKOriginally, the “leaseback” (minus any sale) was createdas a political tool to transfer ownership between twocountries over a given lease term. One of the veryfirst “leasebacks” in history took place between GreatBritain and China from 1898 to 1997, which gave theBritish the right to occupy Hong Kong over a 99 yearlease term.1AtlantaA shift occurred in the 1950’s after World War II, whenthe Insurance Companies Act was amended to allowinsurance companies the ability to invest up to 3% oftheir total assets in income-earning real estate. Thisprovided a substantial amount of new capital to bedeployed in commercial real estate. The emergenceof a new institutional buyer was said to have spurredthe sale leaseback movement, as many companiessought highly qualified buyers to execute on their saleleaseback transactions.Over the following decades, the sale leaseback marketcontinued to grow in both market and deal size. Thisgrowth was evidenced in 1990 when CMS EnergyCorp. successfully completed what is believed to bethe largest sale leaseback transaction in U.S. historywhen they sold their Midland Cogeneration VenturePower Plant in Lansing, Michigan for 2.3 billion undera 25 year lease agreement.1990200720092015CMS Energy 2.3 BillionCitigroup 1.58 BillionHSBC HQ 1.2 BillionVerizon HQ 650 Million1898200420082014Great Britain Hong Kong99 Year “Leaseback”CVS/pharmacyPortfolio 519 MillionSunTrust BankPortfolio 735 MillionRed Lobster Portfolio 1.5 BillionChicagoHoustonLos AngelesNew YorkPhoenixSan FranciscoTulsa

THE NET LEASE AUTHORITY Market OverviewSale leasebacks have occurred in nearly every commercial real estate sector: retail, office, industrial,manufacturing, medical and hospitality. It’s also commonplace to see sale leasebacks with products other thanreal estate, such as commercial aircraft, cargo barges, solar plants as well as large scale machines and equipmentDeal sizes vary as well, from 10,000s for smaller equipment to multi-billion dollar portfolios, headquarterfacilities and power plants. The variance further illustrates the breadth of application for sale leasebacks acrossdiverse industries. One misnomer is that most sale leaseback candidates are smaller mid-market companieswith poor access to capital and/or in need of additional liquidity. While this is certainly a sub-segment of themarketplace, there is an abundance of sale leaseback candidates with strong financial positions – such as a strongfranchisee acquiring a smaller franchisee or even investment grade rated retailers. This illustrates there are manymotivations as to why companies utilize the sale leaseback financing tool.Today’s market conditions are ripe for SLB’sTotal Sale Leaseback Activity (Billions)Projected 2015 12 10 8SALE LEASEBACK 62 The economy has significantly improvedsince the recession. GDP, job growthand M&A activity are all on the rise andcompanies need capital to continue togrow. Strong abundance of buyers looking toacquire attractive real estate investments(both domestic & foreign) 4 Imbalance between quality net leasesupply vs. demand for the product 2 The lack of new product supply,traditionally from corporate expansion viabuild-to-suits, makes sale leasebacks withlong term leases attractive to the buyer 0pool2001 2003 2005 2007 2009 2011 2013 2015 Interest rates at historic lows* Data source RCA and SJC research groupAtlantaSince the low point of the recession in 2009,sale leaseback volume has increased over 12xto nearly 12 billion in transaction volume in2013. Many of the underlying factors whichhave led to the increase include:ChicagoHoustonLos AngelesNew YorkPhoenixSan FranciscoTulsa

THE NET LEASE AUTHORITY Key Advantages of a Sale Leaseback TransactionFor many companies, whether private or public, real estate is not considered part of their core business, yetit remains one of their largest expenses. Motivation factors for sale leasebacks might differ from company tocompany, but unlocking the value in real estate can offer significant benefits when handled properly. Reasonsmay include:Raising capital to expand or reinvest back into core business Traditional real estate financing typically provides lower loan to value, which will limit the amount ofcapital raised and in many cases require strict debt covenants. As an alternative, a SLB offers 100% of thevalue of the real estate with no restrictive debt covenants. A SLB provides capital for a company to expand their real estate footprint, invest in new equipment oracquire a competitor. A SLB also enables a company to reinvest into new technology, equipment or its workforce.Improving financial health A SLB can improve a company’s liquidity position by converting a fix asset (real estate) into a current asset(cash). Operating leases allow for off balance sheet treatment, which results in an improvement in many ofthe company’s financial ratios, such as the current ratio & debt-to-equity ratio. This often improves acompany’s ability to borrow funds in the future. A SLB provides the company a tax benefit, as the rent is 100% fully deductible against taxableincome. In an ownership capacity, only depreciation and interest expense (if financed) is deductible.Preparing for a sale or restructureSALE LEASEBACK In preparation of a company sale, selling the real estate via a SLB separate from a business sale enables acompany to maximize its return and net proceeds.3 On the flip side, if you’re acquiring a company, selling the real estate subsequent or simultaneous witha business acquisition via a SLB can significantly reduce your investment basis in the acquired business. A SLB can increase a company’s liquidity in order to buyout a partner(s) or restructure existing ownership.Reducing property ownership risk while continuing to occupy the property Transferring ownership limits the risk associated with real estate including the risk of property casualty,functional obsolescence and unknown residual value. A short term or partial SLB can provide much needed flexibility, particularly if the business unit hasvolatility in staffing or production. Because of the passive nature of a SLB transaction, companies are able to continue to operate “businessas usual” with little or no business interruption by the new landlord.AtlantaChicagoHoustonLos AngelesNew YorkPhoenixSan FranciscoTulsa

THE NET LEASE AUTHORITY Key Factors To Consider Before Executing a Sale LeasebackAlthough the sale leaseback market conditions are strong and the benefits are numerous, there are many factorsto consider before going through with a sale. Such factors may include:Operational Flexibility vs Financial Returns from sale Is your main objective to maximize your cash proceeds to reinvest back into the business or do yourequire more flexibility in your lease terms? There is a trade off that needs to be discussed prior to a sale as maximizing one aspect will more thanlikely necessitate a trade off that affects the other.Lease structure and accounting implications How will future changes in lease accounting affect the treatment of a proposed SLB? Whether a lease is treated as a capital lease or an operating lease has different impacts on a company’sfinancial statements as well as its debt covenants.Tax implications Are there any tax benefits or liabilities that arise as a result of a SLB? Various tax issues may arise through a SLB which may require further consultation. These may include: Treatment of the gain on sale of the asset(s) Full rent deduction vs only interest and depreciation deduction Tax treatment based on corporate structure: LLC, Inc. , S and C CorpSALE LEASEBACKExecution Strategy Do I sell as individual transactions or as a portfolio? What’s the marketing strategy based on my saleobjectives? There’s no cookie cutter approach - developing a proper marketing strategy to execute on a SLB is criticaland should be custom tailored depending on your ultimate objectives from the sale.4AtlantaChicagoHoustonLos AngelesNew YorkPhoenixSan FranciscoTulsa

THE NET LEASE AUTHORITY In SummarySale Leaseback transactions can often be an effective tool for companies looking to raise capital. The SLB marketis ripe and plentiful of buyers, providing companies an opportune time to take advantage of a “seller’s market,”which enables companies to negotiate advantageous lease terms while maximizing capital raised.The right strategic partner is invaluable when navigating the questions that arise within a sale leasebacktransaction. First and foremost, the partner must have both the technical expertise and proven track recordwithin the SLB arena so that they can provide you with sound guidance. A good strategic partner also brings ahighly capable and qualified network of industry contacts that can further assist in the sale leaseback process.CONTACTSALE LEASEBACKAbout Stan Johnson Company5AtlantaStan Johnson Company (www.stanjohnsonco.com)is one of the nation’s leading commercial real estatebrokerage and advisory firms. Our net lease group isthe largest team of professionals focused exclusivelyon the acquisition, disposition, and financing ofnet leased real estate. Building on our 30 yearfoundation in the single tenant net lease industry,completing more than 20 billion in transactionsnationwide, Stan Johnson Company is aligned forcontinued growth. A dynamic team approach,refined marketing processes and a foundationbuilt on integrity, professionalism and relationshipscreate a winning combination enabling the firmto consistently deliver quality service and superiorresults to each unique client.Daniel HerroldSenior Directordherrold@stanjohnsonco.comJason WiltshireAssociatejwiltshire@stanjohnsonco.comKyle DavisAnalystkdavis@stanjohnsonco.comDavid AnnettAnalystdannett@stanjohnsonco.comStan Johnson Company6120 South Yale, Suite 810Tulsa, Oklahoma 74136918-494-2690 2015 Stan Johnson Company. All rights reserved. No part of thispublication may be reproduced by any means without prior writtenpermission of Stan Johnson Company. The information containedin this publication has been compiled from sources believed to bereliable. Stan Johnson Company accepts no liability or responsibilityfor the accuracy or completeness of the information contained hereinand no reliance should be placed on the information contained in thispublication.ChicagoHoustonLos AngelesNew Yorkwww.stanjohnsonco.comPhoenixSan FranciscoTulsa

SALE LEASEBACK 1 THE ET LEASE ATHORIT . a 25 year lease agreement. 1990 CMS Energy 2.3 Billion 2004 CVS/pharmacy . such as commercial aircraft, cargo barges, solar plants as well as large .