Educational Development Corporation Announces Sale and Leaseback Agreement of Headquarters and Warehouse Facility

Rhea-AI Summary

Educational Development (NASDAQ: EDUC) has announced a sale and leaseback agreement for its headquarters and warehouse facility in Tulsa, Oklahoma. The company has executed a Commercial Real Estate Contract with Partner Holdings to sell the Hilti Complex for $38,250,000, less fees and costs. The proceeds will be used to pay off outstanding loans. EDC will lease back its occupied space and assign the existing Hilti tenant lease to the buyer.

The sale excludes an adjacent 17-acre undeveloped land parcel. EDC will enter a 15-year triple-net lease for 218,200 square feet at $8.52 per square foot with 2.5% annual escalations. The company expects this move to improve its financial performance by reducing borrowings and generating positive cash flow. The deal includes a 75-day due diligence period and is set to close 30 days after.

Positive

• Sale of Hilti Complex for $38,250,000 to reduce outstanding loans
• Expected improvement in financial performance due to reduced borrowings
• Positive cash flow impact from interest savings exceeding rental payments
• Retention of 17-acre undeveloped land parcel for potential future value
• Existing 15-year lease with Hilti for 183,800 square feet to be assigned to buyer
• New 5-year sublease agreement for 110,000 square feet with Crusoe Energy System

Negative

• Increased operational costs due to new lease payments and triple-net terms
• Loss of ownership of a significant real estate asset
• Potential future limitations due to long-term lease commitment

Insights

Financial Analyst

This sale-leaseback agreement is a significant financial move for Educational Development The $38,250,000 sale price will substantially reduce the company's debt, eliminating Term Loans and Revolving Loan outstanding. This debt reduction will lead to immediate improvement in financial performance through reduced interest expenses.

The new lease terms seem favorable, with the initial rate of $8.52 per square foot and 2.5% annual escalations. The triple-net structure transfers most operational costs to EDC, but this is offset by the interest savings. The retention of subleasing rights and the existing Crusoe Energy System sublease provide flexibility and additional income streams.

The retention of the 17-acre undeveloped land parcel is a strategic asset for future development or sale. Overall, this transaction should significantly improve EDC's balance sheet and cash flow position, potentially leading to enhanced shareholder value in the long term.

Real Estate Expert

This sale-leaseback transaction is a strategic real estate move for EDC. The Hilti Complex, at 402,000 square feet on 34 acres, is a substantial asset. The $38,250,000 sale price appears fair, considering the long-term lease commitments from both Hilti and EDC.

The 15-year lease term for EDC's space provides long-term operational stability. The 2.5% annual rent escalation is in line with market standards, protecting the buyer against inflation while remaining manageable for EDC. The triple-net lease structure is typical for such arrangements, transferring operational costs to the tenant.

Retaining the 17-acre undeveloped parcel is shrewd, allowing EDC to benefit from potential future appreciation or development opportunities. The right of first refusal granted to the buyer on this parcel could facilitate a smoother future transaction if EDC decides to sell.

This deal optimizes EDC's real estate footprint while unlocking capital tied up in property ownership, a prudent strategy for companies seeking to focus on their core business operations.

Tulsa, Oklahoma--(Newsfile Corp. - September 23, 2024) - Educational Development Corporation (NASDAQ: EDUC) ("EDC", the "Company" or "Seller") (http://www.edcpub.com) today announced that on September 19, 2024, it executed a Commercial Real Estate Contract ("Contract") with Partner Holdings or ("Buyer") for the sale of the Company's headquarters and distribution warehouse located at 5400-5402 South 122^nd East Avenue, Tulsa, Oklahoma 74146 (the "Hilti Complex").

The agreed upon sale price of the Hilti Complex per the executed Contract totaled $38,250,000 less fees, commissions and closing costs. The proceeds from the sale will be utilized to pay off the Term Loans and Revolving Loan outstanding in the Credit Agreement with the Company's Bank. At closing, EDC will assign the existing Hilti tenant lease to the Buyer and will execute a separate Triple-Net Lease (the "Lease") for its occupied space in the Hilti Complex. The sale agreement does not include the excess land parcel adjacent to the Hilti Complex which will remain under the ownership of EDC.

"As previously mentioned, selling the Hilti Complex and reducing our borrowings is in the best interest of our shareholders, and we expect to have limited working capital borrowings going forward. The interest saved on the reduced borrowings will exceed our monthly rental payments and we will no longer have monthly mortgage payments, providing an immediate improvement to our financial performance. This cash flow improvement, along with our recently announced lease agreement for approximately half of our space, will have a positive benefit on our monthly cashflows. We also expect our cashflow from operations to be very strong in the upcoming years as we convert our excess inventory into cash."

The Complex consists of multiple buildings totaling 402,000 square feet of rentable office and warehouse space on 34-acres. Approximately 183,800 square feet of the Hilti Complex is occupied by Hilti under a 15-year lease which will be assigned to the Buyer at the Contract close. The Company will execute a new lease for the remaining 218,200 square feet and will retain the recent lease/sub-lease for approximately 110,000 square feet under a 5-year term to tenant Crusoe Energy System. In addition, the sale Contract does not include the excess land parcel, consisting of approximately 17 acres of undeveloped land adjacent to the Hilti Complex, which will remain under the Company's ownership. EDC, as a part of the purchase agreement, the Company will grant Partner Holdings a right of first refusal on any future sale of the excess land.

Per the terms of the Contract, Buyer will have 75 days to complete due diligence, commencing September 19th, including necessary investigations, inspections, and reviews. The closing of the Contract is to be completed 30 days after the due diligence period.

The terms of the Company's lease will be 15 years, and the initial lease rate will be $8.52 per square foot, with 2.5% annual escalations beginning in year two of the lease. The Lease will also include triple-net terms, where the Seller will be responsible for utilities, insurance, property taxes, and regular maintenance, excluding roof and structural maintenance, which will be the Buyer's responsibility. Additionally, the Company retains the rights to sublease any available unused space, subject to buyer approval, in the building during the lease term. The Lease will also encompass other standard terms that are customary in the local market.

About Educational Development Corporation (EDC)

EDC began as a publishing company specializing in books for children. EDC is the owner and exclusive publisher of Kane Miller Books ("Kane Miller"); Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. EDC is also the exclusive United States MLM distributor of Usborne Publishing Limited ("Usborne") children's books. EDC-owned products are sold via 4,000 retail outlets and EDC and Usborne products are offered by independent brand partners who hold book showings through social media, book fairs with schools and public libraries, in individual homes, as well as other in-person events and internet sales.

Contact:

Educational Development Corporation
Craig White, (918) 622-4522

Investor Relations:
Three Part Advisors, LLC
Steven Hooser (214) 872-2710

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/224286

FAQ

What is the sale price of Educational Development 's Hilti Complex?

Educational Development (EDUC) has agreed to sell its Hilti Complex for $38,250,000, less fees, commissions, and closing costs.

How will EDUC use the proceeds from the sale of its headquarters?

EDUC will use the proceeds from the sale to pay off the Term Loans and Revolving Loan outstanding in the Credit Agreement with the Company's Bank.

What are the terms of EDUC's new lease agreement for its occupied space?

EDUC will enter a 15-year triple-net lease for 218,200 square feet at an initial rate of $8.52 per square foot, with 2.5% annual escalations beginning in year two.

How does EDUC expect this sale-leaseback agreement to impact its financial performance?

EDUC expects an immediate improvement in financial performance due to interest savings on reduced borrowings exceeding monthly rental payments, and stronger cash flow from operations in upcoming years.

What is the duration of the due diligence period for the Hilti Complex sale?

The buyer, Partner Holdings, will have a 75-day due diligence period commencing September 19th to complete necessary investigations, inspections, and reviews.