What Is A Sale Leaseback?
Sale leasebacks allow businesses to unlock cash assets tied up in their building portfoliio while retaining control of the asset as tenant.
NNN Lease Investors and its partners and affiliates acquire your improved real estate and lease it back to you to use for a long time, typically 20 years or more.
Uses of the Cash
Cash recovered from free and clear real estate can be used in the following ways:
• Invest back into existing operations
• Finance new operation and/or diversification plans
• Acquire new property for business expansion
• Reduce or retire debt
• Implement new investment diversification strategies
• Reallocate capital into other more productive uses.
In addition to freeing up capital for other projects while retaining long term use of facilities, sale leasebacks have these additional benefits;
A properly structured sale leaseback will qualify as an operating lease. Unlike a loan, which is an obligation that appears as a Liability on the Balance Sheet, an operating lease only appears as a footnote to the financial statement.
Treatment as an operating lease has less impact on important financial ratios used by credit rating agencies. Therefore, the operating lease can have less negative effect the organization’s credit rating.
Until the transaction is locked in, rents are dependent upon changes in interest rates and other financial market considerations as well as being closely tied to the tenant’s credit rating.
Disadvantages Of A Sale Leaseback
Tenants still have the obligation to pay for all the costs of operating, maintaining, and repairing the building even though they do not own it.
The effective cost of funds for a sale leaseback transactions are typically a little higher than the cost of borrowing for an entity with an investment grade credit rating.
If the entity expects to repurchase the property at the end of the long term lease, it has in effect “bought” the property twice – when it originally built or bought it and at the time of the repurchase. This can be a critical disadvantage that is not present in the build-to-suit or acquisition scenarios.
While a NNN sale leaseback isn’t right for every organization, NNN Lease Investors’ advanced financial structuring minimizes these disadvantages, and the off-balance sheet accounting for operating leases can be a critical factor in the decision making process.