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Date: Summer 2000
From: Real Estate Issues(Vol. 25, Issue 2)
Publisher: The Counselors of Real Estate
Document Type: Article
Length: 3,576 words

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Uneasy stock market also propels investors toward sale-leaseback investments with triple-net (NNN) leases.

For nearly four decades, "Turn concrete into cash," has been the heraldic cry of America's leading lessors of net-leased corporate property. Now, more than ever, the declaration seems en vogue across the land.

Of course, few observers would argue with the authoritative statement by the National Real Estate Investor: "The sale-leaseback industry has restructured the ownership of trillions of dollars worth of the nation's corporate real estate assets." Even fewer critics would dispute The CPA Journal comment that, the "National franchise and chain businesses have led the way in using sale-leaseback to benefit business owners, but the system can work for any business -- small or large."

Fact is, funds from sale-leaseback transactions have fueled leveraged buy-outs, mergers and acquisitions; underwritten the cost of maintenance and technology to remain competitive; and erased obligations from countless corporate balance sheets nationwide.

Recent developments in the corridors of capital, up and down Wall Street and inside the Internet scene, however, seem to have conspired to further restrict access to traditional cash resources by mainstream companies. Subsequently, firms finding it increasingly difficult to attract cash for bricks-and-mortar growth, geographical expansion or competitive marketing campaigns appear to be seriously revisiting the concept of sale-leaseback transactions and the benefits they afford.

An interesting recent example is Carmike Cinemas, Inc., (NYSE-CKE) of Columbus, GA. As of December 31, 1999, this 18-year-old firm, had 458 theaters (2,848 screens) in 36 states. In mid-April 2000, Carmike completed the sale and leaseback of $23.5 million in three properties -- 41 screens in three states -- to an undisclosed investor. The Carmike complexes included a 10-screen operation in Missoula, MT; a 15-screen facility in Raleigh, NC; and a 16-screen unit in Johnston, IA.

Carmike Cinemas dedicated to maintaining its position as one of the strongest theatre circuits in the industry, had to change its growth strategy in recent years. It moved from the selective acquisition of theatres and circuits located in small to mid-sized communities to constructing new theatres and expanding its existing complexes. That includes retrofitting some of its older properties with stadium seating and digital stereo surround-sound.

Obviously, cash is the key to completing the competitive retrofits and to opening five additional theatres (88 screens) in Alabama, Florida, Minnesota, North Carolina, and Tennessee by mid-2000. A comment by Martin A. Durant, SVP and Chief Financial Officer of Carmike Cinemas, to the Dow Jones Newswire, reflects the importance of sale-leaseback as a capital resource:

"The ability to turn high-performing assets into cash when so much investment capital is flowing into other industries offers us fresh resources to maintain our steady pattern of growth and to improve existing properties."

There is no question that the theater industry, with its specialized, single-tenant facilities is ideal for triple-net (NNN) deals. It is also one of the last frontiers to be discovered by investors seeking conservative types of passive investments. But Durant's point is applicable to many industries and numerous corporations...

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Gale Document Number: GALE|A66933052