Star Equity Holdings Announces Closing of Two Sale-Leaseback Transactions
Star Equity Holdings (Nasdaq: STRR) has closed two sale-leaseback transactions for its facilities in South Paris, Maine and Big Lake, Minnesota, generating $8.3 million in net proceeds. The South Paris facility, operated by KBS Builders, was sold for $5.6 million with a 20-year lease agreement. The Big Lake facility, operated by Glenbrook Building Supply, was sold for $2.7 million with a 15-year lease agreement.
These transactions align with Star's strategy of strategic capital allocation and focus on EBITDA-generating assets. The proceeds will be used to pursue the company's long-term growth strategy, including potential acquisitions within existing divisions or new business segments. Star's recent acquisition of Timber Technologies in May 2024 exemplifies this strategy, increasing cash flow and diversifying revenue.
- Generated $8.3 million in net proceeds from sale-leaseback transactions
- Maintained operational control of facilities through long-term lease agreements
- Aligned with strategic capital allocation and focus on EBITDA-generating assets
- Positioned for potential accretive acquisitions and business expansion
- Potential capital gains taxes on sale proceeds
- Long-term lease commitments may limit future flexibility
- Reduced real estate asset ownership
Insights
Star Equity Holdings' decision to engage in sale-leaseback transactions presents an interesting strategy for capital allocation. By selling the South Paris, ME and Big Lake, MN facilities for a total of
One key advantage here is the lease agreements that allow Star Equity to continue operating these facilities without disruption. The 20-year and 15-year lease terms, with options to extend, ensure long-term operational stability for KBS and Glenbrook. However, sale-leaseback deals often come with the drawback of long-term lease obligations, which can impact future cash flows and profitability.
Investors should also note that the sale-leaseback strategy is part of a broader capital allocation plan that includes accretive acquisitions, as demonstrated by the recent acquisition of Timber Technologies. This focus on EBITDA-generating assets could enhance Star Equity's financial performance over time, though the effectiveness of this strategy will depend on the quality of future acquisitions and the management's ability to integrate and optimize new assets.
From a market perspective, Star Equity Holdings' sale-leaseback transactions are a shrewd move. By monetizing real estate assets, the company is able to reinvest the proceeds into high-growth areas, which is a strategic shift that could positively influence its market positioning.
Modular construction and building supplies distribution are sectors with significant growth potential, driven by trends in sustainability and the increasing need for efficient building solutions. The redeployment of capital into these areas could yield substantial returns, especially if the company continues to make strategic acquisitions like Timber Technologies.
However, investors should remain cautious about the potential risks associated with this strategy. Long-term leases can lock the company into fixed costs, limiting flexibility in adjusting operational expenses. Additionally, the success of the strategy will heavily depend on external market conditions and the company's ability to execute its growth plans effectively.
The sale-leaseback transactions executed by Star Equity Holdings are a telling sign of strategic financial planning. In the real estate sector, such transactions can provide immediate liquidity without disrupting business operations. The $8.3 million generated from these deals can be considered a robust capital inflow, especially given the favorable long-term lease terms secured.
These deals also highlight the company's commitment to maintaining operational continuity while maximizing capital efficiency. The leaseback terms of 20 years for the South Paris facility and 15 years for the Big Lake facility, with extension options, indicate a strong confidence in the longevity and stability of their operations in these locations.
However, one must consider the potential downside of sale-leasebacks: relinquishing property ownership can lead to future cost escalations due to rent increases. Additionally, being tied to long-term leases can reduce strategic flexibility. Despite these concerns, this move positions Star Equity to capitalize on new growth opportunities, making it a compelling case of balancing liquidity with operational stability.
Monetizes Two Real Estate Assets for
Proceeds to be Deployed into Accretive Acquisitions
OLD GREENWICH, Conn., July 19, 2024 (GLOBE NEWSWIRE) -- Star Equity Holdings, Inc. (Nasdaq: STRR; STRRP) (“Star” or the “Company”), a diversified holding company, announced today that Star Real Estate Holdings USA, Inc. (“SRE”), the real estate arm of the Company’s Investments division, has closed two sale-leaseback transactions for its South Paris, Maine and Big Lake, Minnesota facilities, totaling approximately
Under the terms of the transactions, SRE sold its:
- South Paris, ME manufacturing facility operated by KBS Builders, Inc. (“KBS”), Star’s modular manufacturing business, for approximately
$5.6 million in net proceeds, and - Big Lake, MN supply center and lumber yard facility operated by Glenbrook Building Supply, Inc. (“Glenbrook”), Star’s building supplies distribution business, for approximately
$2.7 million in net proceeds. This operating facility was acquired by Star in October 2023 with the Company’s acquisition of Big Lake Lumber Inc.
Simultaneously, the Company, through its wholly owned subsidiaries, entered into lease agreements as follows:
- KBS entered into a 20-year lease agreement for the South Paris facility, with the right to extend for up to an additional 20 years, and
- Glenbrook, along with EdgeBuilder, Inc., entered into a 15-year lease agreement for the Big Lake facility, with the right to extend for an additional 10 years.
KBS and Glenbrook will continue to operate the facilities pursuant to the respective leases, and the transactions will have no impact on the businesses’ operations. Following the closing of these two leaseback-transactions, Star owns two additional facilities: a 60,000 sq. ft. glulam manufacturing facility in Colfax, Wisconsin (acquired in June 2024, following the closing of the acquisition of Timber Technologies in May 2024), and a 90,000 sq. ft manufacturing facility (currently idle) in Oxford, Maine.
“We are excited to announce the closing of these transactions, which align with Star’s commitment to strategic capital allocation and the prioritization of EBITDA-generating assets,” commented David Noble, CFO of Star. “The proceeds generated from these transactions position us well to pursue our long-term growth strategy, which includes acquisitions within our existing divisions or the addition of new business segments. The recent acquisition of Timber Technologies exemplifies execution on this strategy, significantly increasing Star’s cash flow and diversifying revenue. With the closing of these sale-leasebacks, we look forward to pursuing similarly accretive transactions in the future.”
About Star Equity Holdings, Inc.
Star Equity Holdings, Inc. is a diversified holding company currently composed of two divisions: Building Solutions and Investments.
Building Solutions
Our Building Solutions division operates in three businesses: (i) modular building manufacturing; (ii) structural wall panel and wood foundation manufacturing, including building supply distribution operations; and (iii) glue-laminated timber (glulam) column, beam, and truss manufacturing.
Investments
Our Investments division manages and finances the Company’s real estate assets as well as its investment positions in private and public companies.
Forward-Looking Statements
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this release that are not statements of historical fact are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking Statements include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to acquisitions and related integration, development of commercially viable products, novel technologies, and modern applicable services, (ii) projections of income (including income/loss), EBITDA, earnings (including earnings/loss) per share, free cash flow (FCF), capital expenditures, cost reductions, capital structure or other financial items, (iii) the future financial performance of the Company or acquisition targets and (iv) the assumptions underlying or relating to any statement described above. Moreover, forward-looking statements necessarily involve assumptions on the Company’s part. These forward-looking statements generally are identified by the words “believe”, “expect”, “anticipate”, “estimate”, “project”, “intend”, “plan”, “should”, “may”, “will”, “would”, “will be”, “will continue” or similar expressions. Such forward-looking statements are not meant to predict or guarantee actual results, performance, events, or circumstances and may not be realized because they are based upon the Company's current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which the Company has no control over. Actual results and the timing of certain events and circumstances may differ materially from those described above as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation, the substantial amount of debt of the Company and the Company’s ability to repay or refinance it or incur additional debt in the future; the Company’s need for a significant amount of cash to service and repay the debt and to pay dividends on the Company’s preferred stock; the restrictions contained in the debt agreements that limit the discretion of management in operating the business; legal, regulatory, political and economic risks in markets and public health crises that reduce economic activity and cause restrictions on operations (including the recent coronavirus COVID-19 outbreak); the length of time associated with servicing customers; losses of significant contracts or failure to get potential contracts being discussed; disruptions in the relationship with third party vendors; accounts receivable turnover; insufficient cash flows and resulting lack of liquidity; the Company's inability to expand the Company's business; unfavorable changes in the extensive governmental legislation and regulations governing healthcare providers and the provision of healthcare services and the competitive impact of such changes (including unfavorable changes to reimbursement policies); high costs of regulatory compliance; the liability and compliance costs regarding environmental regulations; the underlying condition of the technology support industry; the lack of product diversification; development and introduction of new technologies and intense competition in the healthcare industry; existing or increased competition; risks to the price and volatility of the Company’s common stock and preferred stock; stock volatility and in liquidity; risks to preferred stockholders of not receiving dividends and risks to the Company’s ability to pursue growth opportunities if the Company continues to pay dividends according to the terms of the Company’s preferred stock; the Company’s ability to execute on its business strategy (including any cost reduction plans); the Company’s failure to realize expected benefits of restructuring and cost-cutting actions; the Company’s ability to preserve and monetize its net operating losses; risks associated with the Company’s possible pursuit of acquisitions; the Company’s ability to consummate successful acquisitions and execute related integration, as well as factors related to the Company’s business including economic and financial market conditions generally and economic conditions in the Company’s markets; failure to keep pace with evolving technologies and difficulties integrating technologies; system failures; losses of key management personnel and the inability to attract and retain highly qualified management and personnel in the future; and the continued demand for and market acceptance of the Company’s services. For a detailed discussion of cautionary statements and risks that may affect the Company’s future results of operations and financial results, please refer to the Company’s filings with the Securities and Exchange Commission, including, but not limited to, the risk factors in the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. This release reflects management’s views as of the date presented.
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
| For more information contact: | |
| Star Equity Holdings, Inc. | The Equity Group |
| David Noble | Lena Cati |
| CFO | 212-836-9611 / lcati@equityny.com |
| 203-489-9502 | Katie Murphy |
| admin@starequity.com | 212-836-9612 / kmurphy@equityny.com |
FAQ
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