1208001 Informal Interpretation

Janice Johnson

  – Exempt
transaction.  K Walsh and K Berg concur.


From: (Redacted)
Sent: Friday, August 03, 2012 1:08 PM
To: Janice Johnson
Cc: (Redacted)
Subject: HSR Inquiry Re Proposed Sale-Leaseback Transaction


Thankyou for speaking with us by telephone a few moments ago. As promised, thisemail summarizes proposed transaction our clients are contemplating. We askwhether you concur with our assessment that the transaction as described is notreportable because it falls within the exemption set forth in 16 CFR 802.53(a).Of course, we recognize that your comments are based only on the information inthis summary.

Theacquired party, A, is a non-refiner distributor of motor fuel that also owns anumber of real estate parcels improved with convenience stores and retailgasoline facilities. A supplies gasoline to these facilities, which areoperated by independent dealers under lease and franchise agreements with A. Ais controlled by a holding company, A1, and A1 in turn is owned and controlledby A2, a private equity firm.

Theacquiring party, B, is a real estate investment firm that is owned andcontrolled by B1, a privately-held investment bank and capital management firm.B specializes in sale-leaseback transactions, and has entered into suchtransactions in a variety of different sectors. At least one other Bsale-leaseback transaction involved multiple real estate parcels improved with conveniencestores and retail gasoline facilities, and several others involved real estateparcels improved with grocery stores. These and other transactions by B have involvedso-called "triple-net" leases in which the seller/lessee retainsvirtually all expenses, risks, and operational responsibilities with respect tothe leased properties. Under the terms of the leases, B receives lease paymentsand is entitled to receive lessee financial information, but B does not play,and does not have the right, contractual or otherwise, to play an active rolein the governance or management of the lessee or the businesses operated at theleased properties.

Basedon our analysis, the parties meet applicable size-of-party tests and thetransaction meets the size-of transaction test.

Underthe proposed transaction, A would sell to one or more special-purpose entitiescreated by and controlled by B a total of 112 real estate parcels improved withconvenience store/retail gasoline facilities for the sum of $300 million. Bwould then lease the properties back to A pursuant to one or more"triple-net" master leases in which A would retain responsibility forall costs related to taxes, insurance, maintenance, repairs and replacements,and all environmental matters. A, as lessee, would have substantialautonomy to alter and improve the properties. As with its other transactions, Bwould be entitled to receive financial information but would have no right ofcontrol or active participation in the business of A or in the convenience store/retailgasoline businesses located at the subject properties. The initial term of themaster lease(s) would be 20 years, and A would have the right to renew thelease(s) for up to five (5) subsequent five (5) year terms. Al wouldunconditionally guarantee A's obligations under the leases. The variousfranchise agreements in place between A and its independent dealers wouldremain in place and would not be affected by the transaction. Thus, A would beable to maintain the dealer leases in place and supply the facilities for up to45 years.

Ourreading of the HSR statute, regulations and informal opinions leads us toconclude that the intended transaction falls within the exemption toreportability set forth in 802.63(a). We read that exemption as applying ingeneral to bona fide sale-leaseback transactions not involving a change inbeneficial ownership. Our understanding is that the FTC treats sale-leasebacktransactions as exempt where an acquiring person takes title to property andthen leases the property back to the seller in a bona fide transaction, engagesin such sale-leaseback transactions in the ordinary course of its business, anddoes not compete with the person to whom the property is leased. In thisinstance, B would take title to the properties and lease them back to A in abona fide transaction, and it would do so as part of the ordinary course of itssale-leaseback business. Neither B nor B1 compete in A's line of business oroperate businesses that compete in A's line of business, and neither will haveany ownership or control of A's business or the businesses conducted at theleased properties. Furthermore, based on the indicia to which the FTC and HSRinquirors have looked in the past, A would remain the beneficial owner of theproperties. Specifically: A would retain control of the properties and thebusinesses thereon; A would continue to bear the risk, expenses andresponsibilities associated with the properties; and the term of the masterlease(s) would extend for 20 to 45 years, with Al guaranteeing A's leaseobligations. With no transfer of beneficial ownership from A to B in thetransaction, there should be no need for HSR filings.

Pleaselet us know if we can provide other information that may help you decidewhether you concur with our assessment that the proposed transaction is notreportable under the exemption set forth in 16 CFR 802.63(a). If you havedoubts or disagree with our conclusion, of course please let us know why sothat we may respond appropriately. Thank you again for your time and review ofthis inquiry. Feel free to contact us by reply email or by calling at my numbershown below. Thank you in advance for your time and review of this inquiry.

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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