synthetic lease

(redirected from Synthetic leases)

Synthetic Lease

When a company creates a special-purpose entity to arrange for a loan to purchase property, and then leases the property from the entity.The synthetic lease therefore keeps the loan off the company's balance sheet, while the company provides enough income to the special-purpose entity to cover the interest rate on the loan.

Synthetic Lease

The creation by a parent company of a special purpose entity to which is given a certain property and which leases the same property back to the parent company. A synthetic lease allows the parent company to use the property for any purpose it wants while not recording it as an asset on its balance sheet. Instead, it is recorded as an expense. This way, rather than paying taxes on the property, it may write off the rent from its taxable income.

synthetic lease

A financing method that confers certain aspects of ownership to the lessee, who, for accounting purposes, treats the arrangement as an operating lease. Neither the asset nor the lease is included on the lessee's balance sheet. A synthetic lease is a type of off-balance-sheet financing that results in a company understating its financial obligations.

synthetic lease

A transaction that appears as a long-term lease from an accounting standpoint but as a loan from a tax standpoint.In the past,such transactions were booked as leases in order to remove loan liabilities from the balance sheets of companies.The company did not have to disclose the duration of the long-term leases, simply the amount of annual lease expenses. Now, the Sarbanes-Oxley Act requires publicly traded companies to disclose the true nature of such off-balance sheet transactions.Unfortunately,many such synthetic leases included both real and personal property.Today,perhaps 10 years after they were originated,the transaction must be reported as a loan liability;the real property posted as an asset at its current value;and the personal property,now practically worthless,posted at its value.The result has been huge losses posted to corporate balance sheets because of the accounting corrections.

References in periodicals archive ?
CRESA Partners Capital Markets services include the evaluation and implementation of a wide array of financial alternatives for corporate real estate holdings, including sale leasebacks, synthetic leases, structured financings, traditional mortgages, asset monetizations, as well as other creative financial structurings.
Synthetic leases are already wide spread, and many companies are studying corporate-sponsored REITs.
In addition, Upton said the fallout from recent accounting scandals has also had an impact on real estate decision-making, especially with regard to such vehicles as synthetic leases. (A synthetic lease is a form of off balance sheet financing relying on the company's corporate credit to guarantee financing of the transaction.)
A report from the Wall Street Journal quoted an AOL Time Warner spokesman saying that "our synthetic leases are disclosed in our financial statements, and we believe they are I the best interest of our shareholders."
Financial engineering methodologies like sale-leasebacks and synthetic leases should be examined.
He was responsible for devising and executing complex real estate transactions, including asset sales and spin-offs, build-to-suit projects, and synthetic leases. While at JP Morgan Chase, Quinn raised more than $6 billion for companies such as e-Bay, Saks Fifth Avenue, and Dream Works.
We've added a segment on synthetic leases, and a special presentation on the total rewrite of the UCC that's underway right now, and how it will affect mortgage lenders."
There are two primary types of off-balance sheet lease structures that exist that provide a good fit for these firms Credit Tenant and Synthetic Leases.
Sheridan's vast experience in all aspects of real estate acquisitions and dispositions afford her a unique insight into complex situations, including environmentally sensitive site sales and solutions; sale/leaseback transactions and the creation of sophisticated financial tools such as synthetic leases; capital market finance issues; and diversified institutional investment strategies.
Tenants today want less restrictive leases and offices designed to accommodate constantly changing company size and structure, according to speakers at the NACORE International New York City chapter luncheon, where topics included: lease clauses and terms, synthetic leases, lease audits and design strategies.
Section 3 details the different types of transactions that are labeled "structured leases." We draw particular attention to the activities and cash flows involved in leveraged and synthetic leases. In sections 4 and 5 we survey the theoretical and empirical research on structured leasing, based on the central economic motivations, as well as on the major drawbacks related to the use of these financing instruments.
He serves as special counsel to banks, insurance companies, finance companies and leasing companies in their various transactional roles, including as lender, agent bank, lessor, owner participant and credit enhancer, in a variety of transactions, such as: domestic and cross-border leveraged, single investor and synthetic leases involving aircraft, rolling stock, health care facilities, manufacturing and cogeneration equipment and real estate; syndicated bank credit facilities, including construction and bridge financings; project and facility financings; secured and unsecured bank lending and private placements; residual value support transactions; and workouts and restructurings.
Full browser ?