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.
On a pro forma basis these earnings will be adjusted for the sale leaseback
transaction, DenAmerica administrative expenses and other adjustments due to purchase accounting.
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.