Realty Income Enters Wine Country with $269M Napa Sale-Leaseback

A $269 million sale-leaseback deal is about to give Realty Income Corp. a taste of the winemaking business--at least from the real estate investment perspective.

Courtesy Flickr Creative Commons user jimg944

By: Barbra Murray, Contributing Editor

Wineries and vineyards are about to become a big part of Realty Income Corp.’s portfolio now that the Escondido, Calif.-based real estate company has entered into a definitive purchase agreement with Diageo Chateau & Estate Wines. Realty Income will plunk down $269 million for two vineyard properties in Napa, Calif., and will lease them back to DC&E under guarantee by the wine company’s London-based parent company, Diageo Plc. Realty Income’s sale-leaseback transaction with DC&E is on track to close no later than June 30.

The transaction involves DC&E’s Sterling Vineyards winery (pictured) and Beaulieu Vineyards winery, which feature an aggregate 2,000 acres of vineyards, as well as buildings encompassing the wineries, production space, visitor centers and retail space for a total of approximately 400,000 square feet. Under the 20-year, triple-net lease agreement–which offers extension options for up to 60 additional years–the wine company will continue to manage and operate the properties. Realty Income is not going into the wine business; DC&E will still own and market its wine brands and products.

Companies owning self-occupied real estate continue to turn to sale-leaseback transactions in order to pocket cash in a hurry while staying put in their own digs. Such deals, however, are not as popular as they were a few years ago when investors could obtain credit for such acquisitions more easily. According to Real Capital Analytics Inc., sale-leaseback transactions for office, retail and industrial properties reached a six-year peak of $15 billion in 2007 and dropped to a six-year low of approximately $3.7 billion in 2009.

But the deals appear to be on the rise again. “U.S. sale-leaseback transaction activity in 2010 should easily top the amount recorded last year, but will still be well off from the totals seen in the middle of the last decade,” Dan Fasulo, managing director with Real Capital Analytics, told CPE. “Yet in the current risk-averse climate, many investors are attracted to the sale-leaseback format due to the perceived low risks involved when there is an established tenant.” Halfway through the year, office, retail and industrial property sale-leaseback transactions have already surpassed $2 billion.