A sale-leaseback glossary for operators

Definitions

Twenty terms operators actually use

Sale-leaseback

A two-step commercial transaction: you sell the fee interest in an operating property and simultaneously lease the same property back, usually on a long-term net lease. You keep occupying and operating. The buyer owns the real estate and collects contractual rent. This is not a homeowner sale-leaseback.

Cap rate

Annual net operating income divided by price. On a sale-leaseback, NOI is essentially the rent you author. A sector band is a sample of comparable sales, not the price of your store. Cells with fewer than five sales are withheld.

Rent coverage

Unit-level earnings against occupancy cost — usually the proposed rent on the net lease. The honest test of whether the store can carry the rent a buyer is being asked to capitalize. Not a universal ratio published on this site.

Occupancy cost

What it costs to occupy the box after the sale. On a sale-leaseback that is rent you authored, plus the net-lease expenses you already pay as owner-operator and will keep paying as tenant. Compare it with today’s debt service; do not assume it is cheaper.

Triple net lease

A lease in which the tenant pays the three major operating expenses — taxes, insurance, and maintenance — in addition to base rent. Some triple-net forms still carve out roof and structure for the landlord. Read the document; the label is not the lease.

Absolute net

A net lease where the tenant assumes every obligation, including roof, structure, and often rebuilding after casualty. The landlord’s role is reduced to collecting rent. Convenience and fuel deals often keep environmental responsibility where it already sits.

Master lease

One lease covering several properties, usually one credit and one document. It can simplify a portfolio sale. The trade-off is flexibility if you later sell or close a single unit.

Individual leases

A separate lease on each property. Harder to paper as a portfolio; easier to drop, sell, or hold one roof without rewriting the rest. Side-by-side rows live on the master-versus-individual comparison.

Escalation

A scheduled rent increase — annual or periodic. Escalations grow the landlord’s income and raise your future occupancy cost. Model them against a normal sales dip, not last year’s peak week.

Primary term

The initial non-cancelable term of the lease. Longer primary terms generally support tighter cap rates and higher proceeds; they also lock occupancy cost for longer. There is no universal right term.

Renewal option

A tenant right to extend after the primary term, usually in five-year slices. Renewal options protect the operator more than they price for the buyer. They are not a substitute for a primary term the store can actually carry.

Guarantee

The obligor behind the rent. Buyers underwrite the entity that signed the lease, not the fascia on the building. Operator and corporate guarantees are stored as separate books for that reason.

Operator guarantee

A franchisee or independent operator stands behind the rent. The investor is underwriting that operator’s ability to pay, not the parent brand. Operator books often ask a wider cap than corporate books in the same sector.

Corporate guarantee

The parent company stands behind the rent. That is a different credit than a multi-unit franchisee running the same concept. Do not paste a corporate print onto an operator lease.

NOI

Net operating income. On a net-leased sale-leaseback this tracks contract rent, because the tenant carries operating expenses. Price equals NOI divided by cap rate when both sides of that identity are real.

Basis

Your tax basis in the real estate you are selling. It is one reason a sale-leaseback is a disposition, not just a financing. How basis, depreciation, and gain interact is a CPA question — see tax considerations.

Proceeds

The check at close after existing debt is paid off. Proceeds follow rent capitalized at a cap the lease can support. They are not an appraisal of dirt you have not modeled, and they ignore taxes until your CPA says otherwise.

Residual value

What the real estate is worth after the lease — to you if you still own it, to the buyer if you sold it. A sale-leaseback trades residual ownership of the dirt for a larger check and a long occupancy obligation.

Portfolio Capital Analysis

American Net Lease’s confidential first deliverable: a read on locations, implied equity, occupancy-cost delta, and the lease you would actually sign. Offered within 48 hours of a complete submission. It is not a listing and it is not a tax opinion.

Lease engineering

Writing term, rent, coverage, escalations, assignment, and master-versus-individual structure before the property is marketed. The lease is the product. Getting it wrong in public is expensive to unwind.