Leasing with an option to buy turned out to be a winning strategy for SAVVIS Communications, which on June 29 was able to purchase its Dallas data center for $13.8 million - an attractive price for property, which includes two 100,000 square foot buildings, one finished and one raw space. The next day SAVVIS sold the site at 14901 FAA Blvd. in Fort Worth for $50.6 million, clearing $36.8 million in one day owning the property. SAVVIS immediately leased the site back from the buyer, with the 15-year lease valued at $50.6 million.
Since SAVVIS will be able to pay the lease over time, on July 3 it was able to use $32 million to pay down its revolving credit facility. The buyer wasn't identified, but SAVVIS is a major tenant for two of the largest technology landlords, Digital Realty Trust and DuPont Fabros Development. The site, originally built by Exodus, doesn't appear on the current holdings of either DLR or DuPont Fabros.
A sale-leaseback option typically involves a property owner selling their building to a second party, while agreeing to continue to lease space in the building. The transaction generates cash for the former owner (now the tenant), and provides the new owner steady rent from the lease and a tenant with a strong credit rating.
Equinix executed a similar short-term sale-leaseback for its El Segundo (Los Angeles) data center, which it purchased for $34.7 million last Sept. 12 and then sold for $38.7 million on Oct. 24, leasing the site from the new owner.