How Sale and Leaseback Transactions Can Assist Owner Occupiers of Commercial Property Unlock Working Capital

Business owners often?find themselves experiencing?a liquidity event?requiring?them to raise working capital. Working capital can be required to ensure their business performs optimally or to take advantage of opportunities in the marketplace.??Whatever the reason or need, an option is to free up working capital by disposing of non-core assets.?

Our Investment Specialist, Andre Theron, unpacks a Sale and Leaseback transaction and explains how this approach can unlock capital tied up in fixed property.?

A Sale-Leaseback Explained

• Business owners who occupy and operate their?business?from property they own,?choose to sell the property and then lease?that same property?back from the buyer?that has purchased the property.?
• The seller?of the property?will then lease?this?property back from the buyer by signing an agreement called a Leaseback (also known as a Sale-Leaseback), more commonly referred to as a “Sale and Leaseback”.?
• Once this transaction has?taken place, the seller of the property?becomes the lessee, and the buyer becomes the lessor.?
• The seller (the first owner) will lease the property back on a long-term basis. In this way, the business owner can continue to use this vital asset but cease to own it.

When considering this option, it is important to note that the buyer will require line of sight to the financial position of the tenant.?A further requirement will also be, in most cases,?for the tenant to sign a longer lease, with?10?years being the preferred option.?The longer lease tenure reduces the risk for the buyer, which will, in turn, have a positive impact on the agreed price for the seller.?

A Sale and Leaseback enables an entity to sell its non-core assets to raise working capital without disrupting the business?in any way. Whilst the property is vital to the business that operates from the premises, the property itself is not its core business activity. Property ownership is, therefore, not seen as essential to the success of running the business.? Disposing?of?non-core property assets can alleviate debt and unlock equity that can be re-invested into core activities to assist the business with growth and sustainability.

Our database of seasoned property investors?view?property as their core business and the Sale and Leaseback is seen as a win-win transaction. Both parties benefit?in that?property investors are continually seeking property investments with strong underlying tenants, which give them a trouble-free investment return. In return the seller raises working capital without disrupting the business or incurring the costs of?re-locating.??

?Property transactions such as Sales and Leasebacks require high?levels of?specialised knowledge and skill and normally involve a long-term commitment.?We will, however, assist the owner in determining the correct market-related rental to apply to the leaseback, which we will then use to provide an assessment of what a willing investor would be prepared to pay for the property.

Contact our Investment Specialists, Andre Theron, Richard Scott and David Yach, for further assistance.

Andre Theron

Cell: 082 453 5723

Email: [email protected]

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Richard Scott

Cell: 082 448 8793

Email: [email protected]

David Yach

Cell: 079 496 8850

Email: [email protected]

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www.baker-street.co.za