Put Your Money Where Your Return Is
Benefits of Sale-Leaseback Financing
Sale-leasebacks are a cost-efficient, effective way to unlock equity and raise cash for your business. By monetizing the value of your liquid real estate assets with a sale-leaseback, you can reinvest this unleashed capital into the core functions of your business that provide a higher rate of return. For you, this may include acquisitions, growth, equipment, technology, shareholder distributions, stock buy backs, or other facility upgrades.
Sale-leasebacks provide favorably priced, long-term capital, and a tool to hedge against shorter-term market uncertainties such as rising interest rates and market volatility. As a form of alternative financing, the strategy gives you, the seller, 100% of the real estate value versus a bank’s lower loan-to-value ratio. The transaction will also improve your company’s balance sheet to the extent that the value of the property exceeds its book basis.
Tax Benefits of a Sale-Leaseback
Owning real estate comes with its own tax advantages, but a sale-leaseback provides additional tax deductions by reducing the seller’s business income tax liability caused by the appreciation in value of its real estate asset. With the 2017 tax reform, you’ll be able to deduct 100% of all rent payments vs. only the interest portion of your debt.
If your business and real estate is located within an Opportunity Zone, as the business owner, you may also qualify for the additional tax benefit of redeploying the gain into the business as a tax deferred and the future growth of that investment may be able to be treated as tax free.
Balance Sheet Benefits of a Sale-Leaseback
One of the single biggest reasons why a company undertakes a sale-leaseback is to gain off-balance-sheet financing. If there’s a loan on your property, its full amount is clearly on the balance sheet as a liability. For most operating leases, or sale-leasebacks, the only thing seen on the balance sheet is that year’s obligation or lease payments. That, along with the additional benefits bulleted below, are how a sale-lease back can cast a more favorable look on the balance sheet for your company.
• Helps reduce debt-to-equity ratio
• Reduces long-term debt
• Increases available cash
• Increases shareholder equity
• Eliminates depreciating asset
• Improves other debt ratios (debt to equity, net worth, profitability)
• May eliminate capital reserves for real estate holdings that regulators require
• Improves performance metrics (ROA, ROI, current ratio)
• The sale-leaseback converts illiquid non-core asset to cash
Property Benefits of a Sale-Leaseback
Through a sale-leaseback and entering into a triple-net (NNN) lease, you still have full control of your property through leasehold rights. You can continue to operate and grow your business as you did in the past, but now have unleashed additional capital to grow your business vs having it within an illiquid asset. As the seller and occupier of that real estate, we can also work with you to provide various options such as future expansion, sublease should there be any need to downsize in the future, extension options.
In addition, since leaseback traditionally does not impose any operating covenants, as does traditional financing, companies can gain more operating flexibility. Corporations are often saddled with onerous and restrictive debt covenants; they have to operate in a certain way or may be declared in default of the covenants. Leaseback financing eliminates these operating covenants and provides more flexibility to the lessee.
Contact us to get started.
If you achieve a higher return from your business operations than in the real estate, it’s time to tap into that capital and grow your business with Wangard. We will work with you on a custom sale-leaseback program that fits the needs of you and your business. Give us a call at 414-745-9051 to discuss how we can unlock capital in your real estate while allowing you to hit your business goals and strategy going forward.
Wangard Partners, Inc.
1200 N Mayfair Road, Suite 310
Milwaukee, WI 53226