sale leaseback

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Sale-Leaseback

The sale of a property in which the seller immediately begins to rent the property from the buyer. That is, the seller no longer has ownership of the property, but maintains residence and/or use for the duration of the rental agreement. A sale-leaseback gives the seller profit from the sale while the buyer is guaranteed income from the rental agreement in the medium or long-term. Sometimes, a sale-leaseback occurs in order to grant the seller access to capital to make improvement on the property; for example, the seller may use the proceeds from the sale to build a factory. A form of sale-leaseback, known as sukuk al-ijara, is a common structure for sukuk, or the equivalent of a bond, in Islamic finance. Sale-leaseback is also called simply leaseback.

sale leaseback

The simultaneous purchase of a piece of property and the lease of the same property back to the former owner.This practice is common with professional associations, such as doctors and lawyers,who wish for a core group of senior partners to own the real estate despite the entrance and exit of other partners in the business. Other times, banks or other owners with long-term plans will sell their property to investor groups and sign long-term leases.

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Set up a sale leaseback pre-negotiated for the buyer of the business.

When looking at outright sale or sale leaseback, investors want credit, lease term (at least 10 years, but prefer 15), market rents with escalations.

Larger companies that execute sale leasebacks might do so to avoid the cost and expense of having internal facilities management staffs.

Making the most of sales and leasebacks: a sale leaseback transaction allows a franchisee to convert his own real estate property into the capital he might need for growth

"Every year we've done more and more sale leasebacks."

Net leasing becoming more popular

Controller level inquiring to the potential of effectuating sale leaseback transactions on corporately owned property.

The sale leaseback is one vehicle that can enable credit-worthy companies to effectuate these changes.

Structured properly and in accordance with FASB guidelines, the sale leaseback is a means of off-balance sheet financing, which can allow the corporation to improve its return on assets, obtain long term low cost financing, enhance the balance sheet, avoid hostile takeovers, create profit, and raise cash.

The key elements involved in working with FASB guidelines for off balance sheet treatment are to make sure that the sale conforms to the test of being a normal sale leaseback which is defined as active use of the property in the trade or business of the seller lessee.

Sale leaseback buyers are extremely credit oriented and they seek investment grade credit or as close to investment grade as possible when effectuating sale leaseback transactions.

Sale leasebacks: strategy for the 90's

As a large component of this growth, the report cited the re-emergence of sale leasebacks as a major trend within the global real estate sector along with easing credit conditions, the related boost to investor activity, rising capital values in major markets and the REIT sector revival.

Sale-leasebacks: what a difference a year makes

Ader, who has been responsible for the acquisition and management of over $10 billion of net leased real estate and is a leading authority on the subject of corporate sale leasebacks. Corporations for which he has successfully closed transactions include Sears, Xerox Corp., Mellon Bank and United Technologies, Inc.