Financing obligation (Failed sale-leaseback)

9 Months Ended

Sep. 30, 2016

Operating Leased Assets [Line Items]

Financing obligation (Failed sale-leaseback)

On April 5, 2016, the Company sold properties in 47 sites throughout the U.S. and Canada to Pipe Portfolio Owner (Multi) LP (the "U.S. Buyer") and FORT-BEN Holdings (ONQC) Ltd. (the “Canadian Buyer”) for an aggregate purchase price of approximately $204.3 million. On April 14, 2016, the Company sold additional properties in two sites located in the U.S. to the U.S. Buyer for an aggregate purchase price of approximately $11.9 million. In connection with these transactions, the Company and U.S. Buyer and an affiliate of the Canadian Buyer entered into master land and building lease agreements under which the Company agreed to lease back each of the properties for an initial term of twenty years, followed by one optional renewal terms of 9 years, 11 months. Leaseback rental will escalate annually by 2% during the initial term and based on changes in the Consumer Price Index capped at 4% during the optional renewal period. The proceeds received from the sale-leaseback transactions net of transaction costs of $6.5 million amounted to $209.7 million.

The sale-leaseback transactions were considered to have one form of prohibited “continuing involvement” at the inception of the lease which preclude sale-leaseback accounting for transactions involving real estate in the combined financial statements of the Company because a guarantee by LSF9 provided the buyer-lessor or the lessor, as applicable, with additional collateral that reduced the buyer-lessor’s or the lessor's, as applicable, risk of loss. As a result, the assets subject to the sale-leaseback remain on the balance sheet of the Company and are being depreciated. For the three and nine months ended September 30, 2016, the Company recognized $1.3 million and $2.6 million, respectively, of depreciation expense on assets sold under the financing obligation recorded on the Company's combined balance sheet. The aggregate proceeds have been recorded as a financing obligation in the combined balance sheet.

The Company has recorded a financing obligation of $210.4 million, net of $6.6 million of deferred transaction costs, in the combined balance sheet at September 30, 2016. During the three and nine months ended September 30, 2016 the Company recognized $4.3 million and $8.3 million, respectively, of interest expense related to payments made under the financing obligation.

The table below shows the minimum lease payments under the failed sale-leasebacks for the years ended:



	Total
2016	$	4,237
2017	17,229
2018	17,574
2019	17,925
2020	18,284
Thereafter:	599,856
	$	675,105

Change in Guarantor

The Company entered into agreements to replace the current guarantor, LSF9, with Forterra, Inc. as the new guarantor, effective immediately following completion of the Reorganization. Due to the change in guarantor, the Sale Leaseback will qualify for sales recognition and be classified as an operating lease beginning in the fourth quarter of 2016.