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

Rhea-AI Summary

Educational Development Corporation (EDUC) has entered into a Purchase Agreement with Blue Ledge Group for the sale of its headquarters and distribution warehouse in Tulsa, Oklahoma, for $37.75 million. The proceeds will be used to pay off debts, leading to improved financial performance and strong cash flows. The agreement includes a 30-day due diligence period and a 10-year lease with triple-net terms.

Insights

Financial Analyst

The divestiture of the Hilti Complex by Educational Development Corporation for $37,750,000 is a strategic financial maneuver that appears to prioritize debt reduction and operational efficiency. By offloading this asset and transitioning to a triple-net lease, EDC is shifting from a capital-intensive model to one that could potentially offer more liquidity and flexibility. The immediate use of proceeds to pay off term and revolving loans is a clear indication of the company's focus on improving its balance sheet and reducing interest expenses.

It is noteworthy that the leaseback arrangement allows EDC to maintain its operational presence in the complex while freeing up capital. The initial lease rate of $8.72 per square foot, with a 2% annual increase starting in the sixth year, suggests a calculated approach to managing long-term occupancy costs. This move is likely to be received positively by investors as it suggests a proactive approach to capital management and could result in an improved debt-to-equity ratio.

Real Estate Market Analyst

The sale of the Hilti Complex represents a significant transaction within the commercial real estate market of Tulsa, Oklahoma. The property, encompassing 402,000 square feet of rentable space, is a considerable asset in the region. The decision to retain the adjacent undeveloped land parcel indicates that EDC sees potential value in holding real estate assets that may be developed or sold at a later date, depending on market conditions and company needs.

Triple-net leases are common in commercial real estate as they transfer most property expenses to the tenant, which in this case will be EDC post-sale. This arrangement typically appeals to investors looking for stable, long-term income with minimal management responsibilities. The lease terms, including the right to sublease, provide EDC with some operational flexibility, which could be advantageous if their space requirements change or if they seek to generate additional income.

Corporate Strategy Expert

EDC's strategic decision to sell its headquarters and distribution warehouse while signing a long-term lease signals a shift in its corporate strategy towards asset-light operations. This could indicate a broader trend within the company to optimize asset utilization and focus on core competencies rather than property management. The retention of subleasing rights offers strategic leverage to EDC, enabling the company to potentially benefit from any future real estate market appreciation or to accommodate business expansion without significant capital investments.

The statement by CEO Craig White underscores the intent to strengthen the company's financial standing and reduce reliance on working capital borrowings. This suggests a forward-looking strategy aimed at bolstering cash flows and improving operational efficiency. Such strategic realignments can have a positive impact on investor confidence, as they often lead to more streamlined operations and better financial health over the long term.

Tulsa, Oklahoma--(Newsfile Corp. - March 12, 2024) - Educational Development Corporation (NASDAQ: EDUC) ("EDC", the "Company" or "Seller") (http://www.edcpub.com) today announced that on March 6, 2024, it executed a Letter of Intent ("LOI") with Blue Ledge Group ("Blue Ledge Group" or "Buyer") to enter into a Purchase and Sale Agreement ("the Purchase Agreement") for 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 LOI totaled $37,750,000. 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 third-party tenant lease to the Buyer and will execute a separate Triple-Net Lease (the "Lease") for its occupied space in the Hilti Complex. The LOI does not include the excess land parcel adjacent to the Hilti Complex which will remain under the ownership of EDC.

"Capitalizing on the appreciated value of the Hilti Complex is in the best interest of our shareholders. The proceeds from the sale will be used to pay off our debts with our bank and we expect to have limited working capital borrowings going forward," said Craig White, President, and Chief Executive Officer of Educational Development Corporation. "The interest saved on the reduced borrowings will exceed our monthly rental payments and we will no longer have monthly mortgage payments, having an immediate improvement to our financial performance. We also expect our cashflows 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 a third-party tenant under a 15-year lease, with the Company occupying the remaining 218,200 square feet. The LOI does not include the excess land parcel, consisting of approximately 16.75 acres of undeveloped land adjacent to the Hilti Complex, which will remain under the Company's ownership.

Per the terms of the LOI, the Buyer will have 30 days to complete its due diligence, commencing March 6th, including necessary investigations, inspections, and reviews. The closing of the Purchase Agreement is to be completed 45 days after the due diligence period with an option to extend for an additional 15 days for the purpose of securing financing.

The terms of the lease will be 10 years and the initial lease rate will be $8.72 per square foot, with 2% annual escalations beginning in year six 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 Seller will retain the rights to sublease any available unused space 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/201424

FAQ

What agreement did Educational Development Corporation (EDUC) enter into?

EDUC entered into a Purchase Agreement with Blue Ledge Group for the sale of its headquarters and distribution warehouse.

What is the sale price of the Hilti Complex?

The sale price of the Hilti Complex is $37.75 million.

How will the proceeds from the sale be utilized?

The proceeds from the sale will be used to pay off debts with the bank.

What is the expected impact on Educational Development Corporation's (EDUC) financial performance?

The reduced borrowings will lead to interest savings exceeding monthly rental payments, resulting in an immediate improvement in financial performance.

What is the duration of the lease in the Purchase Agreement?

The lease in the Purchase Agreement will be for 10 years.