Basically, the company had to pay for its own buyout when private equity firms KKL, Vornado, and Bain bought the company for $6.6 billion, mostly with loans.

Because the company then had to pay off those extreme loans, they were forced to sell off their assets and property, which they leased back from the very private equity firms that now owned them.

The same thing happened more recently with Red Lobster and JoAnn Fabrics.

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[–] 77 points 1 year ago (8 children)

Selling property to rent it back should also be super illegal. Is there ever a time this makes sense. If you want to sell land to profit, close the fucking place, there’s no way it’ll suddenly be more profitable while renting.

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  • [–] 14 points 1 year ago (5 children)

    Not defending PE, but there are situations where this type of thing would make sense. If the rates were low enough a company could cash out it's property value using something like this and use the cash for an expansion, to make a moonshot investment, or maybe as a last ditch to survive in a downturn.

    That's not what's happening here, but turning real assets to cash through debt to then invest in the business is a decent tactic.

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  • [–] 9 points 1 year ago (3 children)

    I see your point, though I don’t know of an example (they’re doing it with Hospitals now too).

    Still if you have so many locations that you have enough capital in their land, it seems like closing the locations that you’d sell would make a moonshot more likely to succeed.

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  • [–] 5 points 1 year ago (1 child)

    Yeah, since I wrote that I've been trying to think of a real world example and haven't come up with one. Perhaps my ramblings are purely hypothetical or maybe pulled directly from my ass.

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  • [–] 5 points 1 year ago

    Wouldn't using those assets as collateral for a loan achieve the exact same thing though? Conceptually it's the same principle except you retain your ownership if you don't default.

    I guess selling the asset would bring in slightly more immediate revenue than loaning (at the expense of extreme volatility in long term costs). But I don't think this justification really makes sense for a company not trying to cook the books. If this kind of move ever becomes a true necessity, entering a bankruptcy procedure is probably a better option for everyone involved lol

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  • [–] 2 points 1 year ago (1 child)

    If you’re a business owning a building, maintenance is another thing you have to take care of as well as the business. If you’re not equipped to maintain the building or pay people to do it, then it might be better to rent and have the landlord take care of that stuff.

    My union is selling our building because it wasn’t really anybody’s job to keep up on maintenance for the last 30 years. Now people that care are in there and they got estimates and whatnot, and it came to like a $600,000 bill to get it all caught up.

    So we’re partnering with a local non-profit and moving our office in to their space with meeting rooms and whatnot that we can share. We have one meeting a month and training sessions already happen elsewhere. All of work is done away from the building aside from 3 people in the office full time, so it makes sense in our situation.

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