Lyons Industrial Properties can arrange for the purchase of your facility, the leasing of it back to your company long term, and ultimately position your company to reap the many financial benefits of leasing over owning that asset. See the benefits outlined below…
A Sale-Leaseback is an arrangement where the seller of an asset leases back the same asset from the purchaser. In a leaseback arrangement, the specifics of the arrangement are made immediately after the sale of the asset, with the amount of the payments and the time period specified. Essentially, the seller of the asset becomes the lessee and the purchaser becomes the lessor in this arrangement.
Raising Funds through a sale-leaseback transaction offers property owners a number of important business advantages:
- Converts Equity Into Cash – With a sale-leaseback, the seller regains use of the capital that otherwise would be tied up in property ownership, while at the same time, the seller retains possession and continued use of the property from the lease term. This raises capital to invest in the seller’s core business which is usually a much better return on investment than the returns the seller would be getting on the real estate asset.
- Alternative to Conventional Financing – The seller usually can structure the initial lease term for a period that meets its needs without the burden of balloon payments, call provisions, refinancing, or the other issues of conventional financing.
- Improves Balance Sheet and Credit Standing – In a sale-leaseback transaction, the seller replaces a fixed asset (the real estate) with a current asset (the cash proceeds from the sale). If the lease is classified as an operating lease, the seller’s rent obligation usually is disclosed in a footnote to the balance sheet rather than as a liability. This results in an increase in the seller’s current ratio, or the ratio of current assets to current liabilities — which often serves as an indicator of a borrower’s ability to service its short-term debt obligations. Thus, an increased current ratio improves the seller’s position for borrowing future additional funds.
- Avoid Debt Restrictions – Businesses restricted from incurring additional debt by prior loan or bond agreements may be able to circumvent these limits by using a sale-leaseback. Rent payments under a sale-leaseback usually are not considered indebtedness for such purposes, thus a business can meet its cash needs through the sale-leaseback without violating any previous agreements.
- Deterrent to Corporate Takeovers – Undervalued real estate on a company’s books often serves as a target for corporate raiders. A timely liquidation through a sale-leaseback transaction may serve as a deterrent, providing management with funding to resist the takeover. In addition, a long-term lease is not as inviting to raiders as undervalued real estate.
Call our office to learn more about this beneficial transaction that can position your company for future success and a stronger balance sheet. We look forward to your call!
-Bobby Lyons, CCIM, President
Lyons Industrial Properties