A sale and leaseback (aka sale-leaseback)is an agreement where an owner sells the land, then leases the property back for a commercial project for a specified amount of rent and time. The sale of the land gives the tenant capital to finance the project. Or a company may sell its real estate for a leaseback deal to increase its liquidity, to pay down debt, or to profit from inflated real estate prices. For instance, some companies, such as AT&T, sold their real estate at the height of the real estate bubble in 2007 in leaseback deals. However, many companies seek leaseback deals because they are financially distressed. The New York Times, for instance, sought a leaseback deal for its real estate to pay back debt during the financial crisis in late 2008 and early 2009. The companies as tenants in most leasebacks still continue to pay not only rent, but also taxes, and utility and maintenance costs. Sale-leasebacks were also popular during the 1970's and 80's when they had some tax advantages.
According to this New York Times article, Cash-Hungry Companies Turn to Leaseback Deals (1/27/2009), The New York Times Company was negotiating with one leader in the sale-leaseback industry, W. P. Carey & Company of New York, to sell 19 floors of its new headquarters building on Eighth Avenue in Midtown Manhattan for an undisclosed price, although it was reported earlier that it was seeking up to $225 million. Under the terms of the deal, the Times Company, which owns 58 percent of the 52-story building, would continue to occupy and manage its space for the 10-year life of the lease. It also wanted the right to purchase the property back at a predetermined price sometime in the future—hence, it would continue to be listed as a liability on its balance sheet. Often, companies seek leaseback deals to improve their balance sheet, because the leaseback obligations are an off-balance sheet item.
As a buyer of sale-leaseback deals, W. P. Carey & Company stated, in a recent annual report, that it seeks to purchase sale-leaseback deals where the real estate is strategically important to the leaseback tenant, so that even if the company experiences financial difficulty, it will strive to continue making payments on the lease.
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