Sale-Leasebacks
Saturday, November 4th, 2006The sale leaseback is a method being employed by more and more companies as an effective means of freeing capital tied up in corporate non-core assets such as real estate. Often capital allocated to non-core competency line items is in ineffective use of vital capital and hinders the ability to invest in those competencies that are core to the business and its survival/prosperity.
Sale leasebacks are an opportunity to address these concerns and enhance the balance sheet by raising cash without the costly time-consuming process of a new debt issue, and without restrictive covenants or other major managerial encumbrances.
Primary capital reasons to consider a sale leaseback include:
1. 100% fair market value versus 60%-80% with conventional debt sources
2. Improve earnings - recognizing the appreciated value of your real estate
3. Expand locations - increasing market share without depleting corporate capital
4. Special investment opportunities - provide funds for other business initiatives, mergers, acquisitions, etc
5. Off-balance sheet - favourable accounting treatment
6. Operational flexibility - maintaining flexibility for future real estate requirements