Sale-Leaseback Transaction
A sale-leaseback transaction is a financial arrangement in which one party sells an asset—typically real estate or equipment—to another party and simultaneously enters into a lease agreement to continue using that asset. This structure allows the original owner, now the seller-tenant, to free up capital that was tied up in the asset while retaining operational control over it.
In a typical sale-leaseback transaction, the seller receives immediate cash flow from the sale, which can be used for various purposes such as business expansion, paying down debt, or investing in new opportunities. The buyer, often an investor or a financial institution, acquires the asset and enjoys a steady income stream from the lease payments made by the seller-tenant.
For example, a manufacturing company might own its facility and decide to sell it to a real estate investment trust (REIT) while entering into a long-term lease to continue operating in the same space. This arrangement allows the manufacturing company to improve its liquidity without disrupting its operations. Meanwhile, the REIT benefits from the predictable rental income and potential appreciation of the property over time.
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