A sale-leaseback can be used to free up cash to grow a business through acquisition or acquire additional facilities, technology, and equipment. Sale-leasebacks can be used as an off balance sheet financing structure that gives the seller the opportunity to turn a non-earning asset into growth capital. The company can then save the available bank financing for acquisitions and growth opportunities in the future.
The sale-leaseback proceeds could also be used for other corporate purchases like the buyout of a shareholder
Proceeds can be used to make a special cash distribution to all the shareholders.
Often a savvy business owner who is contemplating selling his company can benefit by taking the real estate out of the company sales transaction and, by doing so, maximize the value of the real estate and increase the overall gross sale proceeds.
Because the seller is also the lessee, the seller has significant bargaining power in structuring the property lease.
A new location becomes available that is better than the one that you are currently operating in.
Businesses that are looking for liquidity to pay creditors often look to a sale-leaseback for capital. Depending on the value of the company’s real estate, a sale-leaseback can supply a considerable amount of liquidity and be a quick initial step to begin a reorganization process.
Generally, lessees that are engaged in a lease are able to write off their total lease payment as an expense for tax purposes. As property owners, the interest expense and depreciation were the only tax deductions available. As a result, a sale-leaseback may have a greater tax advantage.
A long-term, ‘hands-off’ lease from the investor provides the tenant similar control over the property as was the case when the tenant owned the property. The tenant can work with the special purpose investor and include options that will provide for future expansion and sublease of the property.
Unlike a mortgage, a sale-leaseback can often be structured to finance up to 100% of the appraised value of the company’s land and building. As a result, a sale-leaseback more efficiently uses the company’s investment in the real estate asset as a financing tool.
Fewer or no covenants provide a company with greater control over its own business and operations.
A sale-leaseback has an implicit financing rate, (“cap rate”) imbedded in the future rent payments. Although the sale-leaseback cap rates are frequently slightly more than similar mortgage rates, a sale-leaseback provides cash proceeds for up to 100% of the appraised value of the property versus the 70% to 80% of appraised value under a typical mortgage.