Sale/Leaseback

[Daniel Yoo]

BP Nation, I heard about some lenders doing a sale/leaseback on commercial property. I heard that some people do this to tap into the equity in the property, others mentioned that it's mainly a tax liability decision, but I'm still a bit unclear about why someone would sell their property and then immediately lease it back.

Anybody have an idea of a scenario that this would fit under?

[Dario D.]

For some companies owning legal title to their occupied real estate may not be essential. It may make more sense to occupy those core assets under long-term leases and use the cash proceeds for other purposes while leaving the risk of owning the real estate to their lenders.

For some companies that own and occupy real estate, their financial success depends upon meeting the following objectives:

•to make the most efficient use of assets
•to obtain the lowest cost of capital
•to focus on its core business operations

A sale/leaseback (a long-term net lease transaction) may help to meet these objectives by:

•realizing 100% of the current real estate value

•monetizing assets at a low cost of capital
•removing assets from the balance sheet
•providing unrestricted use of proceeds for expansion, stock buy-back programs, debt restructuring, acquisitions and other core business opportunities shifting real estate risk
•assuring long-term control over core assets