Sales and LeaseBack

Sales and Leaseback(often written sale and lease back). Here’s a clear breakdown:

#SalesandLeaseback

A sale and leaseback is a financial transaction where a company (or individual) sells an asset — often real estate, but also equipment, vehicles, or infrastructure — and then leases it back from the buyer.

The seller gets cash upfront from the sale.

The buyer becomes the new owner but earns steady rental income from leasing it back to the seller.

The seller continues using the asset for operations, often with a long-term lease agreement.

Why Companies Use It

1. Unlock Capital: Converts illiquid fixed assets into cash while keeping operational use.

2. Balance Sheet Flexibility: Frees funds for working capital, debt reduction, or new investments.

3. Tax Benefits: Lease payments may be deductible as business expenses (depends on jurisdiction).

4. Focus on Core Business: Outsources property ownership/maintenance to investors.

Common Sectors

Airlines: Sell planes to lessors, then lease them back (common for liquidity).

Retail & Logistics: Sell warehouses or stores, then lease them for continued use.

Manufacturing: Sell factory equipment, then lease to maintain production.

Healthcare: Hospitals and clinics sometimes use sale-leasebacks for real estate.

Example

A retail chain owns its flagship store worth $100M.

It sells the property to a real estate investor, receives $100M cash.

Immediately signs a 20-year lease to keep operating in the same building.

• Result:

Retailer gets liquidity for expansion.

Investor earns rental income and holds a valuable asset.

Risks & Considerations

Long-Term Cost: Lease obligations may exceed the cost of owning over time.

Loss of Ownership: Seller loses future appreciation of the asset.

Credit Risk: If seller (tenant) defaults, the investor faces vacancy risk.

Market Conditions: Attractive mainly when real estate values are high and interest rates favorable.

Quick Pros & Cons

Pros (Seller) Cons (Seller)

Immediate cash inflow Long-term rent expense

Off-balance-sheet financing Loss of ownership/control

Tax-deductible lease rents Potential higher costs

Pros (Buyer/Lessor) Cons (Buyer/Lessor)

Stable rental income Credit risk of tenant

Owns valuable asset Asset illiquidity

In short:

Sale and leaseback = a way to free up capital while keeping asset use. Very popular in real estate, aviation, retail, and manufacturing.

#SaleandLeaseback