SELLING and leasing back real estate has many benefits for companies – something that multinationals in particular are finding out, says Stanton Hillier Parker associate director Andrew McKerracher in the latest commercial and industrial Outlook newsletter.
“Many companies find real estate does not offer the returns required by their shareholders and sale and lease back is a good way of raising capital for the company to reinvest into core operations or to fund day-to-day cash flow requirements,” Mr McKerracher said.
“The benefits are evident as the formula works on the principle of leasing assets that either depreciate or do not offer appropriate returns and purchasing assets that appreciate and deliver returns required by the company,” he said.
There are also tax benefits.
“As rent is an operating expenditure, it is deductible as a business expense,” Mr McKerracher commented.
Vendors benefit from sale and leaseback by being able to determine the terms and conditions of the lease and they can choose suitable conditions in relation to rental reviews, commencing rent, option periods and the initial terms.
“From an investor’s perspective, the ultimate form of lease back is one with a long term lease, preferably over ten years, or with an international company and improvements from which depreciation benefits can be obtained,” he said.
“Investors in today’s market will pay a premium for properties of this type, especially in a low interest rate environment where, in many cases, the property could be positively geared.”
