Prairie farm machinery dealer chain Cervus Equipment Corp. plans to sell about 10 properties where it now operates dealerships and become their long-term tenant.
The publicly-traded Calgary company, which operates 72 farm and industrial equipment dealerships in Canada, Australia and New Zealand, said Tuesday it plans to seek out a sale-and-leaseback deal for about 10 dealership sites.
The Cervus chain in Canada today includes 20 John Deere ag equipment dealerships in Alberta, Saskatchewan and British Columbia, plus a minority stake in Maple Farm Equipment, which has seven Deere dealerships in Saskatchewan and Manitoba.
For companies such as Cervus that own multiple properties but aren’t mainly in the real estate business, sale-and-leaseback deals can allow them to cut debt and free up equity, often providing more cash than the seller could get from mortgaging those same properties.
In Cervus’ case, the company said it plans to use the proceeds from such a deal to reduce debt, at least in the short term. Such a deal, it said, would involve about $50 million to $60 million worth of properties it now owns.
“While the majority of our dealerships are already located in leased premises, there is an opportunity to work with a long-term landlord specializing in commercial real estate to capitalize on the value of our dynamic real estate portfolio,” Cervus chief financial officer Randy Muth said in a release.
Cervus didn’t name any potential buyers or the locations of the properties it plans to sell. It said it envisions a deal for the land and buildings of about 10 dealerships, and would want to lease back the sites for initial terms of 15 to 20 years on average.
The company said it expects net free cash flow of about $25 million to $30 million after it retires its mortgages on the properties in question.
Cervus emphasized a sale-and-leaseback deal still depends on finding a buyer, reaching acceptable terms, completing due diligence and getting approvals from its board and current lenders. — AGCanada.com Network