What Is a Leaseback?

A leaseback is an arrangement in which the company that sells an asset can lease back that same asset from the purchaser. With a leaseback—also called a sale-leaseback—the details of the arrangement, such as the lease payments and lease duration, are made immediately after the 澳洲幸运5开奖号码历史查询:sale of the asset. 𒅌In a s༺ale-leaseback transaction, the seller of the asset becomes the lessee and the purchaser becomes the lessor.

Understanding Leasebacks

In sale-leaseback agreements, an assཧet that is previously owned by the seller is sold to someone else and then leased back to the first owner for a long duration. In this way, a business owner can continue to use a vital asset but ceases to own it.

Another way of thinking of a leaseback is like a corporate version of a pawnshop transaction. A company goes to the pawnshop with a valuable asset and exchanges it for a fresh infusion of cash. The difference would be that there is no expectatioജn that the company would buy back the asset.

Who Uses Leasebacks and Why?

The most common users of sale-leasebacks are builders or companies with high-cost 澳洲幸运5开奖号码历史查询:fixed assets—like property, land, or large expensive equipment. As such, leasebacks are common in the building and transportation 澳洲幸运5开奖号码历史查询:industries, and the real estate and aerospace sectors.

Companies use leasebacks when they need to utilize the cash they invested in an asset for other purposes but they still need the asset itself to operate their business. Sale-leasebacks can be attractive as alternative methods of raising capital. When a company needs to raise cash, it typically takes out a loan (incurring debt) or effects an 澳洲幸运5开奖号码历史查询:equity financing (issuing stock).

A loan must be repaid and shows up on the company's 澳洲幸运5开奖号码历史查询:balance sheet as a debt. A leaseback transaction can actually help improve a company's balance sheet health: The liability on the balance sheet will go down (by avoiding more debt), and current assets will show an increase (in the form of cash and the lease agreement). Although equity does not need to be paid back, 澳洲幸运5开奖号码历史查询:shareholders have a claim on a company's earnings based on their portion of it♏s stock.

Example of a Leaseback

There are numerous examples of sale-leasebacks in corporate finance. However, a classic easy-to-understand example lies in the safe deposit vaults that 澳洲幸运5开奖号码历史查询:commercial banks give us to store our valuables. At the outset, a bank owns all of the physical vaults in its basements. The bank sells the vaults to a leasing company at market price, which is sub🍸stantially 🥀higher than the book value. Subsequently, the leasing company will offer back these vaults to the same banks to rent on a long-term basis. 🍷The banks, in turn, sub-le♓ase these vaults to us, its customers.

More Benefits of Leasebacks

Sale-leaseback transactions may be structured in various ways that can benefit both the seller/lessee and the buyer/lessor. However, all parties must consider the business and tax implications, as well as the risks involved in this type of arrangement.

Potential Benefits to Seller/Lessee...

• Can provide additional 澳洲幸运5开奖号码历史查询:tax deductions
• Enables a company to expand its business
• Can help to improve the balance sheet
• Limits 澳洲幸运5开奖号码历史查询:volatility risks of owning the asset

Potential Benefits to Buyer/Lessor...

• Guaranteed lease
• A fair 澳洲幸运5开奖号码历史查询:return on investment (ROI)
• Stable income stream for a specified time