A sale-leaseback is an agreement where the seller of real estate leases back the same property from the buyer the seller sold it to. Once a seller has given title to the buyer, the seller immediately enters into a lease agreement with the new owner, making rent payments to occupy the property. Sale-leaseback provisions are often used in situations where a company needs to access capital tied up in an asset such as real estate, but still needs to use the property in order to operate.
To provide an example, Company A owns 20 medical offices in the greater Denver metro. The company wants to expand its oncology business, but lacks the capital to purchase new equipment due to high prices and the company’s aversion to taking on more debt. Instead, the company decides to enter into a sale-leaseback agreement with a real estate operator, selling 6 of the offices before leasing them back under negotiated terms.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
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