DALLAS—Spirit Realty Capital said Wednesday afternoon it had closed on the sale of 108 properties to a subsidiary of 84 Lumber Co., its second largest tenant. The net lease REIT's $205.7-million sale effectively reverses a sale-leaseback deal dating back nine years, when what was then known as Spirit Finance Corp. purchased 53 wholesale/retail lumber sales and supply centers and one truss manufacturing plant from 84 Lumber affiliates for $200 million.

Jackson Hsieh, the Spirit president and COO who recently came aboard from Morgan Stanley, says Eighty Four, PA-based 84 Lumber is “a legacy tenant that had a very economically favorable asset purchase option that was granted when the original transaction closed in 2007. By proactively restructuring this agreement to allow for an early option exercise, Spirit earned a $5-million amendment fee, eliminated the ongoing uncertainty as to the timing of an increasing in the money option and has de-risked its portfolio by reducing exposure to one of the most cyclical industries in the company's portfolio.” The original first purchase option date was April 30, 2017.

That industry is the building materials industry, which has seen its recession-driven ups and downs since the '07 SLB was finalized. 84 Lumber is a 60-year-old, privately held supplier of building materials and manufactured components for single-family and multifamily residences and commercial buildings, operating across 30 states.

“We will now utilize this incremental capital to reinvest in high quality assets more consistent with our current investment philosophy,” Hsieh says. The company expects that implementing that philosophy “will outweigh the short-term dilutive impact from this sale.”

As of this past June 30, 84 Lumber was Spirit's second largest tenant after Shopko and represented 2.8% of the net lease REIT's normalized rental revenue. The total consideration received by Spirit in the transaction—the $200.7-million purchase price and the $5-million amendment fee—represents an approximate 8.7% cap rate on 84 Lumber's trailing 12-month rent obligation at June 30.

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Instant Insights /

Spirit Realty Sells Back Properties from '07 SLB

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