WHY CONSIDER A SALE LEASEBACK?
In a sale-leaseback transaction, an owner/user elects to monetize its corporate real estate facility and structure a new, long-term lease on the property to an outside investor. In exchange, the company, through the sale of the facility, receives capital to grow and revitalize its business. The transaction has many benefits to the company, now tenant, as detailed below.
BENEFITS
100% Financing
Sale-leaseback proceeds are equal to 100% of property value, in context to a loan, which only funds 65% to 75% of value.
Improved Balance Sheet
By selling the real estate, the company is converting a long-term non-liquid asset into working capital. In addition, a mortgage appears on the balance sheet as a liability, while an operating lease does not.
Off-Balance Sheet Transaction
No obligations are shown on the balance sheet, as sale-leaseback transactions receive operating lease treatment.
Improved Income Statement
The real estate sale can reduce the negative impact of depreciation and interest on income statements.
Access to Capital
The sale-leaseback capital received from the transaction can be deployed in core operations that yield higher returns than appreciation of real estate.
Debt Reduction
The proceeds also can be used to pay down existing debt and eliminate future refinancing risk.
Better Access to Long-Term Capital Markets
With an improved balance sheet and income statement, a company can improve its credit status and have better access to a variety of capital resources.
Tax Benefits
By leasing its facility, a company can write off its entire rent payment, rather than only the interest portion of the mortgage payment.
Maintain Control
The lease agreement is structured so that the tenant maintains full operating control over the space it occupies because it is designed to mirror ownership.