Net leases provide a beneficial means for many corporations to free up capital for their businesses. Frequently, a corporation will sell owned property and lease it back on a long-term basis pursuant to a net lease. This process, known as a “sale-leaseback transaction,” may provide a corporation with the following benefits:
- Converts a non-earning asset to 100% cash, instead of 65-75% that can be achieved as owned real estate
- Accesses capital at a rate below the corporation’s cost of debt and equity
- Preserves debt capacity
- Improves financial ratios by eliminating depreciation and interest expense
- Transfers residual real estate value risk, while maintaining long-term operational control over the property