A sale/leaseback is a transaction structure that involves a business selling a realty asset to an investor with the intent to "rent back" the facility for a duration of time. This presents an engaging opportunity for corporations to gain access to capital through the money making of property properties, which is proving important in the wake of the coronavirus pandemic, as lots of companies browse for alternative sources of liquidity.

Why do corporations participate in sale/leasebacks?

The book worths stated on a business's balance sheet are frequently well listed below market price due to depreciation throughout ownership. Sale/leasebacks create the ability to extract that capital at market price without sacrificing the operational advantages of occupying the facility. This cash can then be redeployed to efficient uses, such as company acquisitions and brand-new equipment. Further, assuming the corporation has a strong credit rating and wants to devote to a long term (typically longer than 12 or 15 years), triple net lease, this bondable credit lease structure can be utilized to leverage the capital markets much like a bond instrument. This permits a corporation to optimize its debt-to-equity ratio while making the most of present advantages. It also enables them to take benefit of tax reductions for the newly established lease payments, providing short-term P&L advantages.

Beyond these basic monetary advantages, sale/leasebacks can also assist companies attain running efficiencies. By moving from an ownership to a leasehold interest, the business perhaps increases flexibility in its tenancy choices, especially if the sale/leaseback consists of a portfolio of assets where residential or commercial property swapping rights might be arranged.

Although compromising the bondable nature of a credit lease, a business can also develop an exit method by devoting: 1) to a lease