Mt. Royal Vacations on the Cutting Edge of Short-Term Housing Investing

SAVANNAH, GA (NOVEMBER 8, 2019) — Short-term rental company, Mt. Royal Vacations, backed by funding from Atlanta-based private equity, announced that it has launched an inventive program that successfully monetizes short-term residential real estate and turns it into a triple-net leased, hands-off, investments for the Company’s new and returning investors. The Georgia-based start-up launched its new investment product, a play off the sale-leaseback concept marketed to traditional commercial property investors, earlier this year. The Company has become a market leader in triple-net leasing corporate housing, finding a niche for itself on the cutting edge of residential real estate.

A sale-leaseback is a relatively new concept in residential real estate investing. Most investors have likely never heard of it for that reason, but Mt. Royal Vacations believes the idea has a big future. It gives the Company an explosive growth strategy and delivers long-term (10-year) lease payments to the investor, delivering a cap rate in the 8.5 to 10.0 percent range. Once the properties are leased back by Mt. Royal Vacations, they are outfitted and rented on an on-going basis to the Company’s corporate housing clients, which drives a significant ROI. During the course of the lease, the new owner has no management or maintenance responsibilities, and the tenant pays for insurance and property taxes — resulting in a true, triple-net leased, hands-off investment for the new owner.

Mt. Royal Vacations didn’t intend to be an innovator, but the Company saw an opportunity in an underutilized asset class. The biggest complaint from residential investors was their distaste of the upkeep and maintenance of their residential investments. By deploying its resources to sale-leaseback, the Company’s pick of the top one percent of residential assets in their favored market provided a very aggressive growth strategy.

However, Mt. Royal Vacations isn’t alone in its sale-leaseback of real estate assets. In recent years, many companies have been reconsidering their real estate strategies. In many cases, monetizing real estate assets is either part of an effort to unlock shareholder value in existing assets or to provide growth capital. Increasingly, activist investors are driving these pressures. Whatever the method, in a healthy real estate market, these types of transactions can broaden investment opportunities for those investors (particularly activist investors) seeking yields that are backed by hard assets.

The sale-leaseback activity isn’t restricted to “traditional” real estate, such as office buildings, apartments, retail assets, malls, and hotels. While many monetization transactions still involve these types of real estate, more recent transactions have been created in such non-traditional industries such as timber, cell towers, billboards, utility infrastructure, and telecom infrastructure — in short, virtually any vertical where significant real estate is owned. In the future, the United States market will see similar spin-offs in railroads, docks and marinas, toll roads, bridges, and even landfills. There have always been cycles that favored owning real estate, but today we’re seeing an aggressive shedding of these assets. Why? Perhaps the existing corporate real estate function was originally designed to support out-of-date operations, or the real estate structure originally was motivated by financing, accounting, or tax considerations that no longer apply.

Whatever the motivation, the result is the same: those elements of real estate-intensive companies that enjoy predictable rental income are often being separated from their more cyclically-oriented parents. Those parents, in turn, are now freed from the capital intensity of real estate and can offer higher equity returns by investing in higher ROI-yielding activities. The same is true for Mt. Royal Vacations — by conducting sale-leasebacks on residential assets, the sales cash is fueling the Company’s growth and allowing it to be free from the cost of having to own its own real estate. The strategy also provides the Company with a distinct tax advantage, as each dollar spent on lease payments is completely tax deductible by the Company, as opposed to only being able to deduct the interest payments as if the case with traditional mortgage financing.

The days when the “American Dream” simply meant owning your own home are long past. These days, the American middle class is spending billions of dollars on renting, not buying, each year. Mt. Royal Vacations has a strong understanding of the true income potential of residential rental properties. When combining residential real estate with the Company’s mix of corporate and conventioneer clients, the Company stands to gain exponentially better returns than traditional residential operations. In 2016, the Corporate Housing Providers Association (CHPA) reported revenues of $3.2 billion in the United States alone. That is $3.2 billion in rental revenue that corporations are spending to lease furnished, residential properties on a month to month basis. This is an enormous and largely untapped potential rental income stream, and Mt. Royal Vacations’ unique strategy is placing it in a space where it is distinctly primed to compete.

Today, corporate housing is a full-fledged, lodging solution for everyday individuals who need short-term housing that has the space and convenience of a home on the road.

Some examples tenants include:

• Executives

• Consultants

• Visiting professors

• Legislators and lobbyists

• Displaced families dealing with insurance issues like floods, fires, mold, and natural disasters

• Traveling medical professionals

• Patients seeking medical treatment

• Families involved in corporate relocation

• Professional athletes and entertainers

As Mt. Royal Vacations shows the corporate world its particular brand of Southern hospitality, investors’ should greatly benefit from the steady returns without the hassle routinely involved in the ownership of these types of assets.

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