In a sale-leaseback (or sale and leaseback), a company sells its industrial realty to an investor for cash and at the same time gets in into a long-term lease with the new residential or commercial property owner. In doing so, the business extracts 100% of the residential or commercial property's value and transforms an otherwise illiquid possession into working capital, while preserving full functional control of the facility. This is a fantastic capital tool for companies not in business of owning genuine estate, as their property assets represent a considerable money worth that could be redeployed into higher-earning sectors of their company to support development.
What Are the Benefits?
Sale-leasebacks are an attractive capital raising tool for numerous companies and use an alternative to traditional bank financing. Whether a business is looking to buy R&D, broaden into a new market, fund an M&A transaction, or merely de-lever, sale-leasebacks work as a strategic capital allowance tool to fund both internal and external development in all market conditions.
Key Benefits Include:
- Immediate access to capital to reinvest in core service operations and development initiatives with higher equity returns.
- 100% market worth realization of otherwise illiquid assets compared to debt alternatives.
- Alternative capital source when conventional funding is not available or limited.
- Ability to maintain operational control of genuine estate with no disruption to daily operations.
- Potential to gain a long-term partner with the capital to money future expansions, developing restorations, energy retrofits and more.
Who Gets approved for a Sale-Leaseback?
There are a number of aspects that identify whether a sale-leaseback is the ideal fit for a company. To be eligible, companies need to meet the following requirements:
Own Their Real Estate
The very first and most obvious requirement for certification is that the business owns its realty or have an option to buy any existing rented area. Manufacturing centers, corporate head offices, retail locations, and other forms of realty can be possible candidates for a sale-leaseback. Unlocking the worth of these areas and redeploying that capital into greater yielding parts of business is a key chauffeur for companies pursuing sale-leasebacks.
Want to Commit to Operating in the Space
While the regard to the lease in a sale-leaseback can vary, a lot of financiers will want a dedication from a future occupant to inhabit the area for a 10+ year term. Assets crucial to a company's operations are often great prospects for a sale-leaseback since a business wants to sign a long-term lease for those places. This makes it a more appealing investment for sale-leaseback financiers as they have more security that the occupant will remain in the center for the long term.
Have a Strong Credit Profile
Companies do not need to be investment-grade quality to pursue a sale-leaseback. However, some credit report is typically needed so the sale-leaseback investor understands that the business can make rental payments over the course of the lease. Sub-investment-grade organizations are still eligible as long as they have a strong track record of earnings and cashflow from which to evaluate their credit reliability