Newsletter Subscribe
Enter your email address below and subscribe to our newsletter
What is a Leaseback?
A Leaseback, also known as a sale‑leaseback, is a financial arrangement in which a company sells an asset—typically property, equipment, or land—and then immediately leases it back from the buyer. This allows the seller to free up capital while retaining full operational use of the asset.
Definition
A Leaseback is a transaction where an asset is sold and then leased by the seller from the buyer, enabling continued use of the asset without ownership.
Key Takeaways
- Frees up cash while preserving operational use of key assets.
- Often used to improve liquidity or strengthen balance sheets.
- Common in real estate, aviation, logistics, and manufacturing.
Understanding Leasebacks
Leasebacks allow organizations to unlock the equity tied up in fixed assets. Instead of holding property or equipment on their balance sheets, businesses convert the asset into cash and enter into a lease agreement to continue using it.
This can improve cash flow, reduce debt, or fund expansion. For buyers, leasebacks provide secure, long‑term rental income from a stable tenant.
However, companies lose ownership and may face higher long‑term occupancy costs depending on lease terms.
Formula (If Applicable)
There is no fixed formula, but key financial considerations include:
- Leaseback Yield: Annual Rent ÷ Purchase Price
- Capital Released: Asset Sale Price – Book Value
- Impact on EBITDA: Lease payments classified as operating expenses
Real-World Example
- Airlines frequently use sale‑leasebacks for aircraft to reduce upfront capital costs.
- Retailers sell store buildings to real estate investors and lease them back to maintain operations.
- Logistics companies use warehouse sale‑leasebacks to free cash for network expansion.
Importance in Business or Economics
Leasebacks are strategic tools that:
- Enhance liquidity without operational disruption.
- Improve financial ratios by reducing owned fixed assets.
- Provide tax advantages depending on lease classification.
- Offer long‑term stability for asset investors.
Types or Variations
- Operating Leaseback: Short‑term, flexible, off‑balance‑sheet treatment under certain rules.
- Finance Leaseback: Long‑term, with risks and rewards transferred to lessee.
- Real Estate Leaseback: Most common; facilities sold to investors.
Related Terms
- Operating Lease
- Capital Lease / Finance Lease
- Asset Monetization
Sources and Further Reading
- Deloitte – Lease Accounting Insights: https://www2.deloitte.com/
- Investopedia – Sale-Leaseback: https://www.investopedia.com/
- PwC – Leaseback Transactions Guidance: https://www.pwc.com/
Quick Reference
- Purpose: Unlock capital while retaining asset use.
- Strength: Improves liquidity and operational continuity.
- Risk: Potential long‑term lease cost increases.
Frequently Asked Questions (FAQs)
Why would a company choose a leaseback?
To access cash without losing the ability to use critical assets.
Are leasebacks good for buyers?
Yes, buyers gain a long‑term tenant and predictable income.
Does a sale‑leaseback improve financial performance?
It can improve liquidity and certain ratios, but increases recurring lease expenses.
