Most of the time, making a deal comes with tradeoffs.

But sometimes, it’s just a win-win all around…

Here at the Intelligent Income Daily, my team of analysts and I draw on decades of learning and real-world experience to help you understand how businesses work, so you can make informed investing decisions.

Yesterday, I told you about a $50 million sale-leaseback deal I made with Alltel.

I also explained why sale-leasebacks are such a powerful tool for companies that own valuable real estate: It lets them sell a property and continue to use it as if nothing had happened.

That was certainly the case in the deal I made. Alltel kept running its stores and got a huge chunk of cash to keep expanding its network.

And the investors in my partnership were more than happy to collect rent checks from a stable telecommunications company.

At the time I made the deal, it was common for buildings to rent for 9% of their value every year. So we were enjoying a nice high yield on our investment.

It was a win-win for both sides.

Today, we’re continuing the discussion on sale-leasebacks. I’ll show you why this is the perfect time for these innovative deals… and share the kinds of companies that stand to benefit.

Why This Is the Perfect Time for Sale-Leasebacks

If you’ve been following along, you may remember some of the drawbacks to traditional sources of financing for companies looking to raise money quickly.

• Selling shares of stock is one option. But if a company tries to do it when its share price is low, it can end up heavily diluting existing shareholders. That can lead to angry calls for a change in leadership… With stocks in a bear market, now is not a good time to try raising money by issuing new shares.

• A second source of traditional financing is taking out a loan. But with high interest rates, this is also not an attractive option. Plus, banks are often cautious about collateral and unwilling to lend as much money.

Sale-leasebacks solve these problems by getting companies the full market value of their real estate up front. Meanwhile, the companies only modestly increase their operating expense due to rent.

When traditional sources of money become too expensive, alternative deals such as sale-leasebacks become increasingly attractive.

This is exactly the economic environment we’re in right now.

If you turned on the news this morning, you probably noted that Mr. Market is not happy. At market open, high trading volume triggered trading halts for several stocks.

Some were supposedly technical glitches… But those glitches were big enough to spook investors. After the best rally we’ve seen since November, stocks are now falling.

Right now, a lot of things are uncertain. So for businesses, having an investment strategy that will guarantee the capital they need when they need it is invaluable.

The Players Who Stand to Benefit

The best thing about sale-leasebacks is that both buyers and sellers get something out of the deal.

And there’s one type of company that’s perfectly fashioned to benefit…

The natural buyers for sale-leaseback transactions are real estate investment trusts (REITs). They’re always looking for valuable real estate to own for the long term. And they have access to large amounts of cheap money for financing.

Sale-leasebacks are a great way for REITs to acquire properties that would otherwise not be for sale – while at the same time, locking in high-quality tenants for the long term.

And one easy way to invest in REITs is through the Vanguard Real Estate ETF (VNQ). This ETF invests in REITs across all real estate sectors.

So you’ll benefit from a considerable amount of sale-leaseback deals with this one pick.

And on the selling side, companies with a lot of real estate can monetize their assets through sale-leasebacks. They can use the money to improve their business, pay down debt, or create value by buying back shares at low prices.

It’s not as easy to figure out which companies own the most valuable real estate, though… That takes a lot of sleuthing and a deep knowledge of local markets to know what properties are worth.

For example, Macy’s (M) is a longstanding company with a lot of real estate.

It has more than $10 billion in land and buildings – and that’s just the book value. It might be worth more at market prices. Compared to its market capitalization of $6.3 billion, Macy’s real estate value could be worth 50% more than what shares are trading for.

That’s a lot of value to unlock…

I can’t recommend the department store today, though, because it’s well-known that Macy’s is struggling. Without another company willing to absorb the risk to buy its properties on a massive scale, there’s no guarantee it’ll unlock the value of its real estate to benefit shareholders.

But one of the holdings in our Core Portfolio at the Intelligent Income Investor is a prime candidate for this strategy…

It’s a high-quality company with more than $40 billion in real estate it could potentially monetize through sale-leasebacks. And unlike Macy’s, which suspended its dividend during the pandemic, this Dividend Aristocrat has been growing its dividend for more than half a century.

Paid-up readers can access our research on this pick right here. And if you’re not yet a member and would like to find out more about why we like this company, check out our premium service by clicking here.

Happy SWAN (sleep well at night) investing,

Brad Thomas
Editor, Intelligent Income Daily