The Bon-Ton Stores Inc. has entered into a $84 million sale-leaseback agreement with real estate investment trust CPA: 17 – Global for six retail properties.
The leaseback follows efforts by the regional department store to reposition itself in the market amid weak earnings. Funds from the transaction will be used in combination with money from the company’s revolving credit facility to pay one of two of Bon-Ton’s mortgage loan facilities maturing in April. Each of the mortgage facilities has principal outstanding of about $105 million and consists of 12 properties.
Bon-Ton will lease the six properties for an initial term of 20 years with an option to extend the term for three successive 10-year periods. First-year annual rent is expected to be about $6.9 million, with the impact expected to be mitigated through reduced interest expense as a result of the termination of the mortgage.
Bon-Ton will pay $4.7 million to satisfy the make-whole provision attached to the mortgage facility.
Kathryn Bufano, president and chief executive officer of Bon-Ton, said the company looked forward “to a continued successful partnership” with CPA 17, one of W.P. Carey Inc.’s non-traded REITs.
“The sale-leaseback of these six properties allows us to address the maturity of one of our mortgage facilities and further enhances our financial flexibility through the value of remaining properties no longer encumbered by the mortgage facility.”
She added that the company was “actively pursuing refinancing options” for the second mortgage facility as well. A spokeswoman for Bon-Ton said the company, based in York, Pa., had engaged in “a minimal number” of sale-leaseback arrangements for individual stores, but that the arrangement with CPA 17 was the first involving multiple properties.
Citi analyst Jenna Giannelli commented, “We have noted in the past that a potential transaction such as this would be a positive analysis for the bonds as it lowers consolidated leverage of the company and satisfies a near-term debt maturity that has been a negative overhand on the bonds.”
Assuming $20 million would be drawn from Bon-Ton’s revolver to complete the payment on the mortgage, she expects leverage to decline to a ratio of 5.7 from 6.7. “We also view this transaction positively as we believe it makes refinancing the second mortgage loan facility earlier given the now six incremental unencumbered properties,” she concluded.
Bon-Ton operates 270 stores in the Northeast, Midwest and upper Great Plains under names including Bon-Ton, Elder-Beerman, Younkers and Bergner’s.