Cole Real Estate Investments has acquired the corporate headquarters of University of Phoenix from Apollo Group Inc (NASDQ: APOL) in a $170mm sale lease back transaction.
Apollo Group is the parent company of University of Phoenix and had built the HQ complex in 2004 on 32 acres at the Riverpoint Development in Phoenix (near Interstate 10 & 32nd St).
Apollo will pay Cole $12mm a year to lease the facility back. The initial term of the lease is 20 years and Apollo will have renewal options every 5 years thereafter.
Glenn Fydenkevez, President of MasterPlan Capital LLC, a commercial real estate investment banking firm that finances credit tenant lease real estate, noted:
“Often these types of deals are done by companies that need to shore-up their balance sheets by bolstering their cash positions. Credit is tighter than it used to be and sale-lease-back is one way to monetize equity without borrowing”
That does not seem to be the rationale behind the University of Phoenix deal however. Fydenkevez continued:
“I’m not an expert on Apollo but my understanding is that they are not strapped for cash and their debt level is not particularly burdensome. My guess is that they had $25mm-$50mm equity sitting there and they simply decided to find a better use for it”.
Cole, like University of Phoenix is based in Arizona. They speculate that this transaction is the largest of its kind ever done in that state.
“To convince a REIT like Cole to exchange $170mm today for $12mm a year for the next 20 years, Apollo must be, fiscally speaking, a very well run company” Fydenkevez said. “For these deals to work the tenant, in-this-case University of Phoenix, must have a stellar credit rating. Otherwise, the risk would be too great”.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Disclosure: Neither Glenn Fydenkevez nor any Officers or Directors of MasterPlan Capital have any position in or affiliation with Apollo Group Inc. In the course of their normal business in commercial real estate finance, they originate credit tenant lease finance transactions.