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What is a Sale and Lease Back agreement for logistic real estate?

written by Norbert Padt
Published on:
Sustainable growthFuture logistics
Sale & lease backLogistics & Supply ChainReal Estate

Applying for bank financing is the traditional way to raise capital for your business. However, bank financing is difficult to provide in uncertain or unstable times. In addition, the application requires an enormous amount of time and effort and you have no garanty that your request will be approved. An alternative way of raising capital is the Sale and Lease Back agreement. In this blog, we would like to explain you what this financing technique entails and why it has gained popularity in recent years.

Significance of Sale and Lease Back

A Sale & Lease Back agreement is one of the oldest forms of leasing where a company sells its property to a regulated real estate company or RREC. The latter will in turn immediately lease the property back to the seller, with or without a purchase option at the end of the agreement. Traditionally, a Sale and Lease Back operation is concluded for a long period of time, whereby the duration is agreed in mutual consultation. The Sale and Lease Back agreement often includes the option of extension.

Sale and Lease Back gives you as a seller the opportunity to continue to use the property during the lease. At the same time, the sale provides you with additional capital that you can use for different investments.

In addition to Sale and Lease Back, you will also encounter the term Sale and Rent Back. In theory, we see a distinction between the two based on the purchase option at the end of the agreement. In practice, however, these terms are used interchangeably and the international real estate sector prefers the term Sale and Lease Back.

Important factors in a Sale and Lease Back agreement

For a correct valuation of the property, which is essential for a Sale & Lease Back agreement, an independent valuer is usually used. In the agreement the following matters are taken into account:

  • Location of the property
    A crucial factor is the location of the property. A more favorable location will make the property more attractive to investors.
  • State of the property
    The current condition of the property will play an important role in the Sale and Lease Back agreement. We mainly look at age, the need for major repairs, future costs, …
  • Rental amount
    The annual rent will be in proportion to the selling price of the property. If the seller-tenant proposes a higher rent, the investor will be inclined to offer a higher purchase price.
  • Duration of the agreement
    The longer the term of the lease, the more stable the cashflow for the investor is over a longer period. This often results in a higher valuation of the property.
  • Capacity of the seller
    The better the creditworthiness and financial rating of the seller, and therefore also the future tenant, the stronger the income guarantee for the investor. This will make the Sale and Lease Back transaction more attractive to the investment company.

For whom is Sale and Lease Back interesting?

The Sale and Lease Back principle is ideal for companies that already have a stable performance, have a good customer base and see growth potential. Additional capital can generate growth and make them evolve, which can mean more production and profit over time. For many companies in the retail, logistics or industrial business it is therefore the appropriate solution to obtain credit. The released capital can then be used to implement strategic expansions or investments.

Strong popularity of Sale and Lease Back

Sale and Lease Back financing is attractive to a company for various reasons. For example, it gives you the opportunity to diversify the form of financing, thus freeing up the credit lines of your bank. In addition, it ensures that you can again focus on your core business and gives you the financial scope to invest in the operational tasks of your company. 

As you can see, a Sale and Lease Back agreement has various advantages, ranging from financial and tax benefits to an improved balance sheet structure. In addition, it’s a relatively simple and fast process that guarantees discretion.

Would you like more information about a Sale and Lease Back agreement or would you like to explore the possibilities for your company?

Contact us today to discuss your specific situation.

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