A company sells its real estate and leases it back, releasing capital while retaining occupancy.

Economics. Proceeds are a function of the rent and the buyer’s required return, so a higher rent produces higher proceeds and a higher ongoing obligation. The trade-off should be modelled against the company’s cost of capital and its covenant capacity.

Lease terms. Long term, absolute net, with the seller-tenant responsible for everything including structure and roof. Renewal options, and rent escalations usually fixed or index-linked.

Accounting and tax. Whether the transaction qualifies as a sale for accounting purposes depends on the transfer of control, and failed sale treatment leaves the asset and a financing obligation on the balance sheet. Repurchase options and certain renewal structures can defeat sale treatment. Tax treatment turns on whether the transaction is respected as a sale and lease rather than as a financing.

Credit covenants. Existing lenders frequently restrict asset sales and sale-leasebacks, and the rent becomes a fixed charge affecting coverage ratios.

Diligence. The buyer underwrites the tenant’s credit as much as the real estate, so financial disclosure and often a guaranty from the parent are required.

Environmental and title issues surface, since the property has not been examined since acquisition.