sale leaseback

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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.

References in periodicals archive ?
Wolfe added that he "Thinks more and more franchisees will continue executing sale leasebacks," but, he noted, "it's important for buyers to think about their exit strategy on the front end and to structure the lease(s) with this in mind.
Another advantage to a sale or sale leaseback is for the retailer looking for an existing strategy in selling the business.
Complete a sale leaseback to an investor with the existing operation with assignment to a new buyer.
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.
They also pointed out that these assets were appreciating, therefore, the sale leaseback transaction gave them short-term benefits with a long term downside (giving up the residual).
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.
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.
As a result, companies end corporate property owners with significant real estate assets will continue to source capital via sale leasebacks and investors looking to invest in real estate without taking a huge capital risk will be the likely buyers.