A ‘sale-and-leaseback’ transaction or a ‘leaseback’ transaction is an alternative source of financing which could be explored by companies which own real estate assets and require the continued use of these assets for operating their businesses. It is also attractive on the buyside for long term investors. With the rise of real estate investment trusts (REITs) and other institutional real estate investors in the region, we have seen a growing interest in sale and leaseback transactions by institutional investors seeking yielding assets to add on to their portfolios.
In a leaseback transaction, a company, the Seller, sells their property to a third-party, the Purchaser, and immediately thereafter the Seller leases the property back from the Purchaser. The sale agreement and the lease agreement are usually executed simultaneously. The tenure of the lease and the rental amount payable under the lease is generally determined based on the amount paid by the Purchaser for the property and the Purchaser’s expected return from the transaction.
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