Sale-Leaseback Investment Due Diligence in Alberta

1. Verify the parties and simultaneous structure

Identify the registered owner, seller, proposed tenant, operating entity, parent, guarantor and every related party. Confirm which agreements must close together and what happens if the sale or lease does not complete.

Do not treat a logo, corporate group or historical occupancy as lease security. Verify the exact legal obligor, signing authority and executed support.

• Seller
• Tenant
• Guarantor
• Lease term
• Rent basis
• Property utility
• Residual value

2. Rebuild tenant covenant from source evidence

Review legal status, business model, operating history, financial statements, debt, material contracts, concentration, insurance and management information appropriate to the transaction. Reconcile the proposed rent with business capacity and occupancy economics.

A sale closing can change cash, debt and operating structure. Underwrite the tenant expected to exist after closing, not only the historical property-owning entity.

3. Normalize rent and sale price

Compare contractual rent with market evidence using the same area, premises, term, escalation, expense allocation, condition and inducement assumptions. Examine whether price or rent has been shifted away from market to produce a preferred headline result.

Above-market rent can support near-term income while increasing rollover and credit exposure. Below-market rent can reduce current yield while affecting tenant retention and future mark-to-market potential.

4. Abstract the complete leaseback

Review rent, additional rent, escalation, term, options, use, assignment, subletting, security, reporting, insurance, maintenance, capital, casualty, condemnation, default, remedies, purchase rights and surrender. Cite every material underwriting field to the executed document.

A long lease is not automatically a bond. Payment capacity, enforceability, asset condition and reletting economics remain separate risks.

5. Underwrite the real estate without the tenant

Test title, zoning, permitted use, access, parking, loading, utilities, environmental history, building condition, replacement cost, marketability and alternative-user demand. Record specialized improvements that may have limited residual value.

Model downtime, tenant improvements, commissions, subdivision or demising, restoration and capital if the seller-tenant vacates or fails. The building should not disappear behind the covenant analysis.

6. Reconcile capital and compliance obligations

Map roof, structure, systems, code, environmental, accessibility, utilities and site obligations to the lease and technical reports. Identify landlord-retained items, caps, exclusions and obligations that survive a tenant default.

Do not capitalize net operating income until recoveries and retained ownership costs are reconstructed from the actual allocation.

7. Coordinate lender, tax and accounting review

Provide the lender and advisors with the same property, tenant, lease, appraisal, environmental and financial evidence. Resolve reliance, estoppels, insurance, subordination and non-disturbance requirements before closing.

CRA and IFRS materials address different tax and accounting questions. Neither determines investment value. Use qualified professionals for the actual entities, reporting framework and transaction.

8. Publish downside cases and closing controls

Show base, downside and severe cases for tenant failure, rent reset, capital, interest rate, exit yield, downtime and selling costs. State the effective date and source of every assumption.

This guide is educational and is not legal, tax, accounting, appraisal, financing, credit-rating or investment advice. A sale-leaseback label does not establish quality or suitability.