Dive Brief:

• AT&T completed a structured sale-leaseback of underused central offices with private real estate company Reign Capital in a deal that generated $850 million in upfront cash, the Dallas-based telecommunications company said in a press release.  
• “The uniquely structured deal unlocks value in otherwise stranded commercial real estate space,” Michael Ford, head of AT&T’s global real estate, said in a statement included in the release regarding the deal, which was finalized earlier this month. “It’s a creative solution providing both upfront and long-term value through a revenue-sharing model that fits with our broader company and transformation initiatives.”
• The transaction is the largest U.S. deal of its kind since Realty Income’s $1.5 billion sale-leaseback of 415 convenience store properties from EG Group in 2023, according to Scott Merkle, managing partner for the New York-based real estate advisory firm SLB Capital Advisors. Such transactions rarely surpass $1 billion in value, he said.

Dive Insight:

By selling properties and leasing them back, companies like AT&T can raise capital while still occupying their real estate. AT&T’s transaction was particularly beneficial for the company because it included a chance for the telecom to participate if Reign Capital opted to reposition the properties, Merkle said. 

“AT&T’s $850 [million] deal demonstrates how the sale-leaseback enabled a large, storied company to maintain control of certain critical central office operations while unlocking value that was heretofore trapped on the balance sheet,” Merkle said in a statement shared with CFO Dive. “AT&T utilized a particularly creative structure where they will provide an income stream to the acquirer, while at the same time participating in future redevelopment revenues from the properties.”

The deal comes as the volume of U.S. sale-leasebacks slumped in the first three quarters of 2024 to $7.5 billion from $13.1 billion from 1Q23 to 3Q23, according to the latest available data from SLB shared with CFO Dive. Since very few sale-leasebacks typically involve office properties, it’s not clear whether the return-to-office trend will benefit the sector, though it will generally benefit the broader office market, Merkle said.

The offices that were involved in the AT&T deal are older properties that were built to house equipment for outdated copper networks, according to the release. “As customers move from copper to fiber and wireless, a smaller, more efficient equipment footprint” is used to manage the network, the company said in the release. AT&T says it will only lease back the space it needs as it is “streamlining its real estate footprint.”

The telecom giant declined to disclose the location of the properties or leasing terms that are part of the 2025 deal, but a spokesperson confirmed the holdings are located across 23 states.  No employees, jobs, or services will be affected by the deal, the spokesperson said.