A sale and leaseback arrangement can be a useful way for a company to generate cash from its property portfolio without having to vacate, as would be the case in a standard sale. The seller gets a lump sum up front from the ‘sale’, which can be invested elsewhere, but simultaneously signs a rental agreement – the ‘leaseback’ – committing to make lease payments to the buyer in return for continued occupancy. If selling a building and then continuing to use it sounds too good to be true then it probably is. Over time, the high fixed cost of the lease payments will eat into future profits – creating what analysts call high ‘operational gearing’ – and eventually, depending on the terms of the deal, the seller may lose legal title to the property once the lease period expires.
More on banking and finance terms later this week, when I write my next post. Sale and leaseback. Please bookmark us and leave a comment.
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