Sale-leaseback transactions have long been a means for operating businesses to monetize their real estate holdings and reduce leverage. Sale-leaseback transactions may be of particular value to companies that are not in the business of owning real estate per se. The transaction allows the seller to convert equity in real property to cash immediately available for debt reduction or operations, while retaining possession and continued use of the property during the term of the lease.
Over the last several years, sale-leasebacks have been implemented with increasing frequency, perhaps driven in part by a proliferation of real estate investment trusts (REITs) and other institutional buyers seeking the stable returns these transactions provide, and in part by private equity buyers seeking an alternate means to finance the acquisition of the companies that occupy the real estate or, as part of the acquisition, to delever the company. The sale-leaseback market has grown robust, to the point that attractive deals are now available to tenants with weaker credit quality; in addition, tenants are able to command favorable non-economic terms.
